TaxTMI 
TaxTMI 
2024 (2) TMI 91
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....Dhillon, Mr. Dhananjay Kumar, Mr. Anush 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 The Reserve Bank of India (RBI) superseded the board of SIFL and SEFL by order dated 04.10.2021 and appointed Respondent No.1- Mr.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 ....
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....ed from SBI Capital Markets (CoC Process Advisors). 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 ....
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.... the security receipts. As per the evaluation matrix, 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 ....
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.... Appellant's NPV which was Rs.5526. The CoC as per clause 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....
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....e option of equity offered has rightly not been considered 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 Resp....
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....ppendix or recording of appendix. No relaxation has been 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 a....
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....e end of 8^th year 60% The Resolution Applicant offering maximum NPV of cash recovery for creditors will get the maximum score of 55 under this criterion. The other Resolution Applicant(s) will be awarded score, pro-rated 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% &....
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....liance Submission) including the last submitted financial proposal for the non-committed instruments (as received pursuant to the Intimation for Compliance Submission by the due date set out therein) shall constitute the "Plans for Evaluation" submitted by the Eligible RAs. (ii) The serial numbers 1, 2 and 3 of the NPV (as defined hereinbelow) scoring mechanism provided in Annexure A herewith; i.e.; Upfront Cash Recovery and Committed Instruments (any instrument (non convertible debentures / 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 th....
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.... of Challenge Mechanism (Final round): The Administrator informed the CoC that email has been sent to all the eligible PRAs Informing about commencement of Round 5 of Challenge Mechanism and minimum NPV threshold as per Challenge Process Document with the closure time of Round 5 at 11:15 pm. Later the time was extended to 11:59 pm with the consent of CoC members based on the request from PRAs. The Administrator informed the CoC that all the password protected financial proposal from all the three PRAs was received before the closure time of round 5 i.e., 11:59 pm. The 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-cer....
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....rtified by a reputable chartered accountancy firm appointed by Resolution Applicant. ("Profit Sharing Certificate"). Thereafter, the Profit Sharing Amount, if due will be paid within 15 days therefrom, by deposit in the Profit Sharing Escrow Account. Upon deposit into the Profit Sharing Escrow Account, the Escrow Agent shall transfer the Profit Sharing Amount to the respective Assenting Financial Creditors. A copy of the Profit Sharing Certificate (along with supporting documents) will be provided to the Assenting Financial Creditors upon request. A representative illustration of the calculation of the Profit Sharing Amount is provided in Annexure B." 17. Appellant 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....
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....of SIFL to the Assenting Financial Creditors will be communicated by the Resolution Applicant, to the CoC within a period of 3 days from such notification. For abundant caution, it is clarified that in the event the CoC opts for the Equity Election, notwithstanding anything contained in this Resolution Plan, the Assenting Financial Creditors shall not be entitled to the Profit Sharing Amount." 18. The first submission which has been advanced in this Appeal is regarding non-allocation of any marks on equity allotment to the Financial Creditors to the Appellant with regard to which IA No. 413 of 2023 was filed before the Adjudicating Authority. Admittedly, no marks were allocated to 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 ....
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....No.2 was in the last category i.e. 'PTCs/ SRs/ payable when able instruments assumed to be realized at the end of 8th year. We may first now look into the financial proposal submitted by the Respondent No.2. The Resolution Plan submitted by the Respondent No.2 Clause 2 of the financial proposal contains the details. Clause 2.4 deals with 'proposal for outstanding financial debt' which mentions security receipts. It is useful to quote paragraph 2.4.1 of the final Resolution Plan of the Respondent No.2, which is as follows:- "2.4 Proposal for Outstanding Financial Debt 2.4.1 Post the Effective Date, the Resolution Applicant and IDRCL will infuse funds into the Corporate Debtors and other 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....
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....e look into the financial proposal, final plan submitted by the Respondent No.2 security receipts of INR 1800 Crores were backed by committed NCDs redeemable from recoveries of underlying assets of SEFL. When the security receipts were backed by committed NCDs, the submission which has been advanced by the Respondent is that the security receipts submitted by the Appellant with committed repayment schedule will fall in the Item No.1 and 2 in the Evaluation Matrix and security receipts were not to be discounted with 60% discount rate as is contended by the Appellant. The NPV of the Respondent No.2 has been calculated both by the Respondent No.2 as well as the Process Advisors of the CoC treating the security receipts not to be discounted with 60%. We have already noticed the Challenge Process Document dated 27.12.2022 where clause 2 (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 t....
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....as reflected in the final Resolution Plan as extracted above are security receipt with committed repayment schedule and not applying 60% discount rate is in accordance with the evaluation matrix and Process Document. As noted above, as per the Process Document dated 27.12.2022, eligible RAs were to provide calculation of NPV for each financial proposal or on self-certification basis, the Respondent No.2 on the self-certification basis providing NPV. The said NPV is in accordance with the Process Document and calculation made by the Respondent No.2 on the basis of selfcertification is in accordance with the Process Document. 24. It is further relevant to note that in the Process Document dated 27.12.2022, sub-clause 3.3 of Clause 3 clearly reserves right of CoC to approve any Resolution Plan as it deems fit whether or not the Resolution Plan 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 ....
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.... expressed by them after due deliberations in CoC meetings through voting, as per voting shares, is a collective business decision. The legislature, consciously, has not provided any ground to challenge the "commercial wisdom" of the individual financial creditors or their collective decision before the adjudicating authority. That is made non-justiciable." 27. Next judgment relied by the Respondent is "CoC of Essar Steel India Limited vs. Satish Kumar Gupta & Ors. (2020) 8 SCC 53" wherein the Hon'ble Supreme Court in Paragraphs 64 and 65 of the judgment has held that the decision of the CoC on the feasibility or viability and it is the majority of the CoC who have been left with the decision of feasibility and viability of the plan. Paragraph 64 of the judgment is as follows: "64. Thus, what is left to the majority decision of the Committee of Creditors is 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 certai....
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....y underscored by this Court in the decisions above-referred, where it has been laid down in explicit terms that the powers of the Adjudicating Authority dealing with the resolution plan do not extend to examine the correctness or otherwise of the commercial wisdom exercised by the CoC. The limited judicial review available to Adjudicating Authority lies within the four corners of Section 30(2) of the Code, which would essentially be to examine that the resolution plan does not contravene any of the provisions of law for the time being in force, it conforms to such other requirements as may be specified by the Board, and it provides for: (a) payment of insolvency resolution process costs in priority; (b) payment of debts of operational creditors; (c) payment of debts of dissenting financial creditors; (d) for management of affairs of corporate debtor after approval of the resolution plan; 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 la....
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....he right to the Unsuccessful Resolution Applicant to challenge the score granted as per the Evaluation Matrix prepared by the CoC. In paragraphs 38 and 39, following has been held:- "38. In view of the decisions of the Hon'ble Supreme Court, it is the settled proposition of law that the commercial wisdom of the Committee of Creditors in approving or rejecting a resolution plan is essentially based on a business decision which involves evaluation of resolution plan based on its feasibility besides the Committee of Creditors being fully informed about the viability of the Corporate Debtor. The Committee of Creditors invariably examine the Resolution Plan and an assessment is made through their team of experts in that regard. 39. Further, there is no such mechanism under the Code that gives the right to the Unsuccessful Resolution Applicant to challenge the score granted as per the evaluation matrix prepared 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 ....
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....erms and conditions of the Resolution Plan. Resolution Plan provides clear tenure rights, security interest. Counsel for the Appellant has also raised question on the Appendix issued on 13.02.2023 to the CoC dated 03.01.2023. It is useful to extract the Appendix to 32th CoC meeting as brought on record, which is to the following effect:- "SREI Infrastructure Finance Limited (SIFL) and SREI Equipment Finance Limited (SEFL) Appendix to 32nd CoC (29th Consolidated CoC Meeting) held on 03-01- 2023 02:00 PM onwards through Virtual Platform (Zoom) The following Appendix to the Minutes of the 32nd CoC (29th Consolidated CoC) meeting is issued based on certain comments received from SBI Capital Markets (CoC Process Advisors) on 13 February 2023. Appendix A Comments by Clarification Sought Modification SBI Capital Markets Addition to Section. 2 on Page No. 2 Addition: The Administrator informed the CoC that a clarification has been 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 en....