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2023 (12) TMI 959
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....unal, Mumbai Bench-IV in MB-23/MB-IV-2019 approving the Resolution Plan submitted by Successful Resolution Applicant. The Adjudicating Authority in its order dated 17.04.2023 while approving the Resolution Plan has also issued certain directions. The Appellant feeling aggrieved by few directions issued by the Adjudicating Authority in the impugned order has come up in this Appeal. 2. The brief facts of the case giving rise to this Appeal are: (i) On an Application filed by ICICI Bank under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the "Code"), Corporate Insolvency Resolution Process ("CIRP") against the Corporate Debtor Unimark Remedies Ltd. commenced vide order dated 03.04.2018. (ii) The Resolution Plan submitted by consortium of asset Recovery Company (India Ltd., Intas Pharmaceuticals Ltd. and Shamrock Pharmachemi P Ltd. was approved by the Committee of Creditors ("CoC") by 72.25% vote share. On the basis of e-voting held between 24th December, 2018 and 26th December, 2018, Resolution Plan was approved. (iii) The Resolution Professional filed IA. No.23/MB-IV/2019 for approval of the Resolution Plan, which Appl....
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....ng Authority. To be deleted 4. 9 The MA 269/2019 pertaining to adjudication of avoidance transactions u/s 43, 45, 49 & 66 OF THE Code, pending before the Adjudicating Authority, shall be pursued by Committee of Creditors and the proceeds of recovery in pursuance thereto shall be distributed amongst the Financial Creditor. If any balance is left after satisfaction of their admitted claim the same shall be distributed amongst other creditors in accordance with section 53 of the Code. To be deleted. c) That the Hon'ble Appellate Tribunal may, pending consideration and disposal of the present appeal, stay all actions in furtherance of the above clauses in impugned order in respect of Respondent No.1; and d) Pass such other and/ or further order(s) and /or direction(s) as the facts and circumstances of the case may warrant." 4. From the reliefs as claimed in the above paragraphs, the Appellant prays for deletion of paragraph 6.1.3, 6.2 and 6.5 of the impugned order of the Adjudicating Authority, which are as follows: "6.1.3. It was submitted by them on 03.02.2023 that the classification is not discriminatory as most of the ineligible employee....
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....d that CoC under the garb of redetermination of CIRP cost cannot reverse its own decision for its unfair gain. The expenses incurred by the RP for running the business of Corporate Debtor as a going concern being CIRP cost within the meaning of Section 5(13)(c) of the Code has to be paid first before any payment made to any other creditor. The Adjudicating Authority exceeded its authority in modifying the Resolution Plan approved by the CoC insofar as it issued directions for redetermination of the CIRP cost by the CoC. It is submitted that Resolution Plan insofar it discriminate between employees who have dues of more than INR 10 lacs and those who have dues of less than 10 lacs is contrary to Section 30,sub-section (2) (b) of the Code. The direction of the Adjudicating Authority to impose new condition in paragraph 6.5 that the Resolution Professional shall ensure that no claim in relation to avoidance transaction, where any of the promoters/ KMPs falling under employee category, is pending for adjudication before the Adjudicating Authority before releasing the amount payable to such promoters/ KMPs under the Plan. The amounts so detained shall be subject to appropriation towards....
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....ot distributed the unpaid dues towards the CIRP period. It is submitted that Resolution Professional has already filed an Application for avoidance of fraudulent transactions against the Promoters/ Key Managerial Personnel ("KMPs"), which is pending adjudication before Adjudicating Authority. The dues of Promoters/ KMPs are liable to be set-off against the amounts recoverable from them under the avoidance applications. The Resolution Professional has submitted estimates of the CIRP costs before the Adjudicating Authority from time to time. The Resolution Professional to conduct detailed audit of the CIRP cost has appointed N.V. Dand & Associates, who have submitted their Report. The Report of Audit, as submitted by N.V. Dand & Associates has also been approved by the CoC in its meeting dated 16.06.2022 to the extent of Rs.92.41 crores as CIRP cost. 8. The learned Counsel for the CoC and Financial Creditors have also supported the impugned order and submit that order passed by the Adjudicating Authority is neither discriminatory, nor in conflict with provisions of the Code. It is submitted that classification made in the Resolution Plan in paragraph 3.3.2 is reasonable as held by....
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....ores towards salary and other dues, INR 2.28 Crores towards gratuity dues and INR 0.81 Crores towards leave encashment dues. The entire amount of INR 11.05 Crores of employee claim has been admitted by the Answering Respondent. It may also be noted that the liquidation value payable to the employees is 'nil' and no workmen claims have been received by the Answering Respondent. 4.10 Clause 3.3 of the Resolution Plan deals with payment towards workmen and employee dues and provides for payment of INR 5 Crores towards workmen and employee claims in the following manner: a) First, towards full discharge of dues/wages of workmen of the Corporate Debtor for the period of 24 months preceding the insolvency commencement date, if any; b) Second, towards full/ proportionate discharge of the liability of the Corporate Debtor for gratuity and leave encashment accrued till the 'Transfer Date' of the employees which have resigned from/ discontinued with Corporate Debtor; c) Third, towards full/ proportionate discharge of liability of the Corporate Debtor liability for outstanding amounts of wages and salaries of (a) the continuing workmen, if a....
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....d counsel appearing for the related party would submit that even when related party is to be treated as a separate class in terms of the principles laid down by this Court in Phoenix ARC (supra), so as to be excluded from CoC, there is no reason that they be treated as separate class when it comes to payment of dues under the resolution plan. It is submitted that failure to provide for discharge of debt of the related party is in violation of Section 30(2)(b), (e) and (f) of the Code. The submissions made on behalf of the related party and the observations of the Appellate Tribunal are difficult to be accepted. 200. The lengthy discussion of Appellate Tribunal in regard to the related party (the parts whereof have been reproduced in paragraph 19.7 hereinabove) depict rather unsure and irreconcilable observations of the Appellate Tribunal. 201. After taking note of the fact that related party is prohibited to be a part of CoC and is further prohibited to be a resolution applicant or an authorized representative etc., the Appellate Tribunal has rightly observed that involvement of a related party in CIRP in any capacity was seen as giving unfair benefit to the corpo....
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....y 'related party' that has come up in this Appeal and we need to examine their claim of payments only. 14. It has been pleaded that liquidation value for payment to employees being 'NIL', they were not entitled for any more payment as has been proposed under Section 30,sub-section (2) (b) of the Code. The payments to Operational Creditors has to be as per Section 30, sub-section (2), which is as follows: "30(2). The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan - (a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the payment of other debts of the corporate debtor; (b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than- (i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under section 53; or (ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-....
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....he employees, whose liquidation value was 'NIL' falls within the commercial wisdom of the CoC and the said clause of Resolution Plan cannot be impugned on the said ground, nor the said proposal for payment is violative of Section 30, sub-section (2) (b) of the Code. 16. Now coming to Question No.(II), it is relevant to notice that CIRP cost as defined in Section 5, sub-section (13), which is as follows: "5(13) "insolvency resolution process costs" means - (a) the amount of any interim finance and the costs incurred in raising such finance; (b) the fees payable to any person acting as a resolution professional; (c) any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern; (d) any costs incurred at the expense of the Government to facilitate the insolvency resolution process; and (e) any other costs as may be specified by the Board;" 17. As per Section 5, sub-section (13)(c), costs incurred by the Resolution Professional in running the business of the Corporate Debtor as a going concern is part of the CIRP cost. 18. Under Section 28 of the Code, Resolution Profes....
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....xty-six] per cent. of the voting shares. (4) Where any action under sub-section (1) is taken by the resolution professional without seeking the approval of the committee of creditors in the manner as required in this section, such action shall be void. (5) The committee of creditors may report the actions of the resolution professional under sub-section (4) to the Board for taking necessary actions against him under this code." 19. In the present case, it has not been shown that CIRP cost, which has been determined by the Resolution Professional for running the business of the Corporate Debtor was required approval of CoC under Section 28 of the Code. The Adjudicating Authority by the impugned order in paragraph 6.2 has held that CoC shall be competent to determine the quantum of CIRP cost payable under the Plan. When the Plan has been approved by the CoC, which included payment of the CIRP cost and it is not shown that CIRP cost determined by the Resolution Professional required any approval under Section 28, we fail to see any reason for redetermination of the CIRP cost by the CoC. The direction to CoC to redetermine the CIRP cost after approval of the Resolu....
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.... 21. Now coming to Question No.(III), by which Adjudicating Authority directed the Resolution Professional not to release the payment of CIRP cost, till the disposal of the avoidance application, and the amount to be detained shall be subject to appropriation towards any amount found recoverable from such promoter/ KMP. 22. The determination of CIRP cost and payment of CIRP cost to those who found entitled to receive the payments is an independent process from any recovery from Promoters/ KMPs, consequent to avoidance application filed by Resolution Professional under the provisions of the Code, including Section 66 of the Code. The directions, which were issued by the Adjudicating Authority in paragraph 6.5 was to withhold the claim of Promoters/ KMPs, falling for adjudication and before releasing the amount payable to such Promoters/ KMPs amount was directed to be detained and was made subject to appropriation towards amount found recoverable from such Promoters/ KMPs towards CIRP cost. The above direction can be sustained subject to a modification, which according to us shall balance the interest of all. We are of the view that Resolution Professional shall determine the amou....