TaxTMI 
TaxTMI 
2024 (2) TMI 91
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....sh Mathkar, Ms. Annie Jain, Mr. Nihaad Dewan, Advocates for R-2/NARCL. And Shri Gopal Jain, Senior Advocate for RBI. JUDGMENT ASHOK BHUSHAN, J. This Appeal has been filed challenging the order dated 11.08.2023 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Court-I, Kolkata in IA No. 413/KB/2023, IA No. 557/KB/2023, IA No.428/KB/2023 and IA No.557/KB/2023 in C.P.(IB) No.294-295/KB/2021. By the impugned order, the Adjudicating Authority has rejected IA No. 413/KB/2023 and IA No.557 /KB/2023 filed by the Appellant raising of objection to Resolution Process of the Corporate Debtors- 'SREI Infrastructure Finance Limited' (SIFL) and 'SREI Equipment Finance Limited' (SEFL). By the impugned order in IA No. 428/KB/2023 and IA No. 434/KB/2023, Adjudicating Authority has approved the Resolution Plan submitted by 'National Asset Reconstruction Company Limited' (NARCL). 2. Brief facts of the case to be noticed for deciding the Appeal are:- 2.1. The Reserve Bank of India (RBI) superseded the board of SIFL and SEFL by order dated 04.10.2021 and appointed Respondent No.1- Mr. Rajneesh Sharma as Administrator to manage its affairs. Adjudicating Authority v....
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....rs). The voting on the plan was concluded on 15.02.2023 and the plan submitted by Respondent No.2 was approved by the CoC by 84.86% votes. The Appellant filed an IA No.413 of 2023 on 17.02.2023 complaining about incorrect scores awarded for the Resolution Plan submitted by Applicant towards the 'equity allotment to financial creditors'. Another IA No.295/KB/2023 was filed by certain debenture holders of Corporate Debtors in which Appellant was also impleaded, the Resolution Plan of the Respondent No.2 was also annexed, the Appellant being made party to the said application, he had also received the copy of the Resolution Plan of the Respondent No.2. After receipt of Resolution Plan of the Respondent No.2, Appellant filed IA No. 577 of 2023 challenging the computation of net present value of the financial proposals submitted by the Respondent No.2. In the application, declaration was also sought that the plan submitted by the Respondent No.2 is non-compliant with Section 30(2) of the IBC. Adjudicating Authority, after hearing the parties by order dated 11.08.2023 rejected IA No. 413/KB/2023 and IA No. 557/KB/2023 filed by the Appellant and approved the Resolution Plan submitted by R....
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....x, 60% discounting rate was applicable on the security receipts whereas the NPV of the Appellant on the security receipts have not been computed with 60% discounting. Security receipts has been discounted under the heading "first pari-passu secured with committed repayment schedule" whereas 'security receipt' which is defined under SARFAESI Act, 2002 covered the security receipt submitted by Respondent No.2 and computation of NPV with regard to security receipts submitted by Respondent No.2 was not as per the evaluation matrix which is binding on all Resolution Applicants. Definition of 'security receipt' under the SARFAESI Act, 2002 defines security receipt in one manner and there can be no difference in definition of security receipt. Security receipts submitted by Respondent No.2 ought to be discounted at 60% and cannot fall under the category of "first pari-passu secured with committed repayment schedule" or "any other instruments with committed repayment schedule". Resolution Plan of NARCL if correctly scored as per the evaluation matrix, the NPV of the NARCL shall fall from Rs.5555 Crores to Rs.3,396 Crores and the Appellant would have the highest NPV and it was the Appellant....
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....ause 3.3 of the Process Document had reserved its right to approve any Resolution Plan as it deemed fit in its commercial wisdom, notwithstanding whether or not the resolution plan has highest NPV. The voting on the Resolution Plans took place between 21.01.2023 and 14.02.2023 during which CoC members carried out their own internal deliberations on the feasibility and viability of each Resolution Plan before casting their votes. SBI Capital Markets were CoC Process Advisors who has correctly evaluated the NPV as per the evaluation matrix and placed the same before the CoC, not only the evaluation of the Resolution Plan but scoring marks by each Resolution Applicant falls within the commercial wisdom of the CoC. Scoring /marks awarded to each plan by the consolidated CoC on the basis of self certification by Resolution Applicants and comments of CoC Process Advisors falls within the commercial wisdom of the CoC. The Appellant in this Appeal as well as in the application filed before the Adjudicating Authority sought to challenge the commercial wisdom of the CoC in approving the Resolution Plan. The instruments which was offered by NARCL have been correctly evaluated and scored as 'c....
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....dered by the CoC and no marks have been awarded to the Appellant. It is further to notice that even as per the Resolution Plan submitted on 18.01.2023, option was given to the CoC to elect the fresh equity allotment or profit sharing. CoC has never elected to accept equity allotment there is no occasion to allot any marks to the Appellant. Further, the value of the equity offered by the Appellant i.e. Rs. 200 Crores does not meet the minimum Rs.250 Crores threshold as specified in the evaluation matrix for the award of points. 6. Shri Arun Kathpalia, Learned Senior Counsel appearing for Consolidated Committee of Creditors submits that in the Challenge Process Document, the factor to identify NPV was detailed. He has referred to Challenge Process Note dated 27.12.2022. The NARCL in their Resolution Plan submitted by 31.12.2022 has changed their proposal. They submitted security receipt by committed repayment schedule, hence, discounting @ 60% was not applicable. In the earlier Resolution Plan although there were requests for relaxation by the Respondent No.2 which relaxation was never considered and granted by the CoC. The Respondent No.2 by its e-mail dated 03.01.2023 has sent cla....
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....ever granted to Respondent No.2 and the marks have been allocated for calculation of NPV of the Respondent No.2 as per the evaluation matrix. Appendix is always issued after the meeting was over. It is relevant to notice that all the three PRAs issued clarification on 19.01.2023. In a meeting held on 29.01.2023, it was decided an addendum be issued regarding clarification. The Appellant filed addendum after 20.01.2023 on 23.01.2023. NARCL also submitted its addendum on 24.01.2023. Addendum however could not have altered financial proposal submitted by the PRAs in the Resolution Plan submitted by the Appellant. After Challenge Process was over on 05.01.2023 as well as 14.01.2023, there was no proposal for equity allotment and it was surreptitiously added in the plan 18.01.2023 which also cannot be read as any offer of equity since the option was left on the CoC even by the amended clause in the plan dated 18.01.2023. 8. We have considered the submissions of the Counsel for the parties and perused the record. 9. Before we proceed to consider rival submissions, it is relevant to notice certain clauses of Process Document and the evaluation matrix proposed by the CoC. Evaluation matr....
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.... with respect to the highest Resolution Applicant. 11. Evaluation Matrix for 'equity allotment to financial creditors' is to the following effect:- "EVALUATION MATRIX- EQUITY ALLOTMENT TO FINANCIAL CREDITORS S. No. Parameter Scoring 3. Equity allotment to financial creditors Scale Weightage Max Score 0-10 50% 5 From Up to Score 0.00% 4.99% 0 5.00% 9.99% 5 10.00% 14.99% 7 15.00% 19.99% 8 20.00% 25.00% 24.99% & above 10 0 Ø Financial Creditors may hold maximum of 49% stake in Corporate Debtor (subject to the terms of RFRP) and scoring will be basis fully diluted stake in the Corporate Debtors allocated to financial creditors only. Ø The equity stake offered by the Resolution Applicant(s) to the financial creditors over and above (a) and Upfront Cash Recovery considered under parameter and&nbs....
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..../ term loan/ any other instrument) whether secured (first pari passu) or any other instrument having a fixed committed repayment schedule), shall be referred to as "Identified Criteria" for the purpose of this Challenge Process. The Identified Criteria shall be used by the Consolidated CoC and its advisors to determine the net present value ("NPV") of the financial proposals for payment to the creditors of the Corporate Debtors, which shall be the basis for the Challenge Process. The determination of NPV of the financial proposals by the Consolidated CoC and its advisors shall be binding on the Eligible RAs which shall not be challenged/ objected to by the Eligible RAs. It is clarified that the Discount rate set out in the EM shall be used for the purpose of computation of NPV for the purpose of this Challenge Process and the details are set out in the Annexure A. (iii)The Eligible RAs shall provide the calculated NPV for each financial proposal on a self- certification basis. Notwithstanding the aforesaid, the calculation of the NPV by the Consolidated CoC and its advisors will be based solely on the financial proposal(s) submitted by each of the Eligible RAs in the Excel/ PDF f....
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....e Administrator then requested all the eligible PRAs to share the password for Round 5's financial proposal. The CoC members took note of the same The Administrator then on receipt of password protected financial proposals from all the eligible PRAS, shared all the financial proposal with the CoC Advisors and also informed the PRAs to share password for opening of financial proposals submitted by them. On receipt of Password from PRAs, the same was shared with CoC Advisors for further action. CoC Advisors then presented the NPV values calculated by CoC Advisors as well as self-certified NPV value submitted by the PRAs to the CoC: Round 5 S.N. NPV Values Arena-Varde NARCL Authum 1 Upfront Cash Recovery Not qualified to proceed from Round 2 as per the Challenge Process Document 3,180.00 3,240.00 2 Committed Instruments - - a Secured 2,375.58 2,286.00 b Unsecured - - Total NPV computed 5,555.58 5,526.00 Self-certified NPV by RA 5,555.50 5,526.00 On receipt of NPVs value from CoC Advisors, Administrator informed all the three PRAs about the highe....
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....llant submitted its final Resolution Plan on 18.01.2023 in which plan Clause 2 dealt with 'Profit Sharing Amount (Equity Participation of FC)' another clause was added which dealt with equity investment to be made by the CoC. Clause 2 of the final plan dated 18.01.2023 of the Appellant is as follows:- "2. Profit Sharing Amount (Equity Participation of FC) Over and above the Financial Creditors' Payment, the Resolution Applicant shall also, either directly or indirectly through the Corporate Debtor, pay to the Assenting Financial Creditors, the Profit Sharing Amount, if any. The obligation for paying the Profit Sharing Amount shall automatically cease to exist upon completion of 7 years from the Implementation Date. The Profit Sharing Amount will be calculated on a yearly basis upon adoption of the audited financial statements of the Corporate Debtor. Within a period of 60 days from the adoption of the audited financial statements of the Corporate Debtor, the calculation of the Profit Sharing Amount shall be certified by a reputable chartered accountancy firm appointed by the Resolution Applicant ("Profit Sharing Certificate"). Thereafter, the Profit Sharing Amount, if due,....
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.... the Appellant on equity allotment. Evaluation matrix, as noted above, indicates that on equity allotment to Financial Creditors maximum score is provided as five. When we look into the Resolution Plan submitted by the Appellant, it is clear that the final Resolution Plan which was submitted by the Appellant initially on 14.01.2023 did not contain any clause of equity allotment and it was only on 18.01.2023 when time was extended for submitting the final Resolution Plan, a clause was added as extracted above providing for election by CoC on the equity allotment. The Resolution Plan submitted by the Appellant on 31.12.2022 did not contain any provision for equity allotment to the Financial Creditors. Challenge Process was conducted on 03.01.2023 on the financial proposal submitted by the Financial Creditors. As per Clause 1.4.6 of the Challenge Process Document, the financial proposal during the Challenge Process shall be unconditional and irrevocable and cannot be modified in any manner whatsoever subsequent to the Challenge Process. The Financial proposal submitted by the Appellant at the time of Challenge Process did not contain any provision for equity allotment, as noted above ....
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....her funds towards Assignment Payments, and provide for Corporate Debtors to undertake repayment obligations in the farmer set out in this Resolution Plan, aggregating to INR 14,867,50,00,000 (Indian Rupees Fourteen Thousand Eight Hundred and Sixty Seven Crores Fifty Lakis Only) (the "Total Revolution Amount), which amount shall be utilized for finding payments proposed to be made to the stakeholders of the Corporate Debtors, subject to the terms of this Resolution Plan. In addition, the CIRP Costs (to the extent unpaid as on Effective Date) and Interim Period Costs will be paid in the manner set out in Section 3.1 (Payment of CIRP Costs and Interim Period Cost) of this Resolution Plan. The components of the Total Resolution Amount are as follows: Sr. No. Particulars Amount (in INR Crore) 1. AFCs Cash Portion (1A+1B) 3180 A Estimated Cash and Cash Equivalents of Corporate Debtor 2580 B Cash Portion of the Assignment Payments 600# 2. Equity stake in SIFL to Financial Creditors (20%)* 3. Deferred Payment 200 A Security receipts of upto INR 1800 Crores (ie, 75% share) from ARC Trust** backed by committed NCDs red....
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.... (ii) Challenge Process provides "The determination of NPV of the financial proposals by the Consolidated CoC and its advisors shall be binding on the eligible RAs which shall not be challenged/ objected to by the eligible RAs. It is clarified that the Discount Rate set out in the EM shall be used for the purpose of computation of NPV for the purpose of this Challenge Process and the details are set out in the Annexure A." 22. The determination of NPV of the Respondent No.2 as per final Resolution Plan as done by the Consolidated CoC and its advisors, thus, has to be treated as final and cannot be allowed to be challenged by any other Resolution Applicants. Present is a case where Appellant is challenging the determination of NPV by CoC and its Process Advisors contrary to the aforesaid Clause 2(ii) which is impermissible. The evaluation matrix and Process Document are documents which have been issued by the CoC and the CoC is the best judge to interpret its document and apply it for evaluation of NPV of the Resolution Applicants. The Hon'ble Supreme Court in "Silppi Constructions vs. Union of India- (2020) 16 SCC 489" held that the author of a document is a best judge as to how t....
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.... has the highest NPV and Resolution Plan has scored highest in the Evaluation Matrix. Sub-Clause 3.3 of Clause 3 is as follows:- "3.3 The Consolidated CoC, reserves its right to approve any resolution plan as it deems fit, in its commercial wisdom, whether or not the resolution plan has the highest NPV or the resolution plan has been scored the highest in the EM." 25. Thus, commercial decision of the CoC while approving the plan to take decision whether to approve the plan of Resolution Applicant has highest NPV or not. The above clause of the Process Document also clearly indicate that the commercial wisdom of the CoC has been given paramount importance and whether the Applicant has highest NPV or not is not a deciding factor. 26. Learned Counsel for the Respondent has also submitted that the commercial wisdom of the CoC in approving the Resolution Plan is not to be challenged by a Resolution Applicant nor the Adjudicating Authority or this Appellate Tribunal can interfere with the commercial wisdom of the CoC in exercise of its jurisdiction. Counsel for the Respondent has referred to the judgment of the Hon'ble Supreme Court in "K. Shashidhar vs. Indian Overseas Bank- (2019)....
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....s the "feasibility and viability" of a resolution plan, which obviously takes into account all aspects of the plan, including the manner of distribution of funds among the various classes of creditors. As an example, take the case of a resolution plan which does not provide for payment of electricity dues. It is certainly open to the Committee of Creditors to suggest a modification to the prospective resolution applicant to the effect that such dues ought to be paid in full, so that the carrying on of the business of the corporate debtor does not become impossible for want of a most basic and essential element for the carrying on of such business, namely, electricity. This may, in turn, be accepted by the resolution applicant with a consequent modification as to distribution of funds, payment being provided to a certain type of operational creditor, namely, the electricity distribution company, out of upfront payment offered by the proposed resolution applicant which may also result in a consequent reduction of amounts payable to other financial and operational creditors. What is important is that it is the commercial wisdom of this majority of creditors which is to determine, thro....
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.... and (e) implementation and supervision of the resolution plan. 77.2. The limitations on the scope of judicial review are reinforced by the limited ground provided for an appeal against an order approving a resolution plan, namely, if the plan is in contravention of the provisions of any law for the time being in force; or there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period; or the debts owed to the operational creditors have not been provided for; or the insolvency resolution process costs have not been provided for repayment in priority; or the resolution plan does not comply with any other criteria specified by the Board. 77.3. The material propositions laid down in Essar Steel (supra) on the extent of judicial review are that the Adjudicating Authority would see if CoC has taken into account the fact that the corporate debtor needs to keep going as a going concern during the insolvency resolution process; that it needs to maximise the value of its assets; and that the interests of all stakeholders including operational creditors have been taken care of. And, if the Adjudicating Aut....
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....repared by the CoC and the Resolution Professional as per the provisions of CIRP Regulations. Though, Section 61 of the Code provides Appeals against the orders of the Adjudicating Authority and Sub-section (3) thereof provides an Appeal against an order approving a Resolution Plan under Section 31 which may be filed on the following grounds namely: (i) The approval resolution plan is in contravention of the provisions of any law for the time being enforce. (ii) There has been material irregularity in exercise of the powers by the Resolution Professional during the Corporate Insolvency Resolution Period. (iv)...... It is unequivocal, in preferring the Appeal by the aggrieved person under the above provision more particularly sub-section (3)(i) of Section 31 thereof which specifically provides that the approved Resolution Plan can be questioned/challenged on the ground that the plan is in contravention of the provisions. This Tribunal in clear terms observes and holds that there is no contravention in approving the Resolution Plan either by the CoC or by the Adjudicating Authority. The plan approved is in accordance with law and there is no material irregularity and cann....
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....een received from NARCL before the Challenge Mechanism stating the following 1. Maturity Period for Security Receipts may be read as 60 months months instead of 57 months 2. At the end of the respective tenure of NCDs (ie., SEFL NCD-1 and SEFL NCD-2), the Trust shall transfer the outstanding NCDs to Security Receipt Holders without any further approval. SBICAP, the CoC Advisor highlighted to the lenders that as per the Compliance Submission, there is no change in the Plan structure proposed by NARCL NARCL will continue to offer Security Receipts to the FCs and the redemption of the same (including the upside) will be based on the recovery from the SEFL NCDs which will be issued by SEFL to the ARC Trust. The above clarification was discussed in detail with the CoC members and the CoC Legal Counsel also gave their views on the same. Based on the discussion, considering that the outstanding NCDs are proposed to be transferred to the SR holders at the end of the respective tenure of NCDs, it was decided that the for NARCL, the secured committed NCDs is be considered for the purpose of computation of NPV under the Challenge Mechanism and accordingly, the applicable discoun....