2018 (11) TMI 338 - Tri - Insolvency and Bankruptcy

Corporate insolvency proceedings - claim of operational debt - Held that - Section 3(6) (a) would not be applicable since the applicant has not proved that he has a right to payment. We have noted above that the pending material of ₹6,94,22,164/- is stated by the applicant to be withheld and still lying idle at its works. There is no averment that under the terms of the agreement the ownership of the material of ₹6,94,22,164/- passed to the corporate debtor. Section 3(6) (b) would not be applicable since there is no averment that the breach of contract, if any gives rise to a right to a payment. Therefore, the applicant s contention of claim of operational debt of ₹6,94,22,164/- cannot be accepted. The remaining part of the claim relates to material inventory cost (₹21,10,36,800/-); escalation cost (₹6,33,60,000); overstay cost (₹90,00,000); watch and ward (₹14,00,000) totalling to ₹28,47,96,800/-. These amounts appear to be in the nature of damages and would not be covered by the definition of claim. In result thereof, the application is rejected. Approval of resolution plan - whether the resolution plan has provisions for its effective implementation? - Held that - We have examined the compliance of the conditions provided for in Section 31 (1) of the Code above and in view of the discussion made in the preceding paragraphs and the provisions of Sections 31 (1) of the Code, we approve the resolution plan submitted by M/s Dolphin Energy Enterprises subject to discussion as above in the case of the corporate debtor and the same is directed to be binding on the corporate and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.

Summary

Issues Involved:
1. Non-approval of the claim by the Resolution Professional (RP) under Section 60(5) of the Insolvency and Bankruptcy Code, 2016.
2. Approval of the resolution plan under Section 31 of the Insolvency and Bankruptcy Code, 2016.

Issue-Wise Detailed Analysis:

Issue 1: Non-approval of the claim by the Resolution Professional (RP) under Section 60(5) of the Insolvency and Bankruptcy Code, 2016.

Facts and Submissions:
- The applicant filed an application regarding the non-approval by the RP of a claim amounting to ?35,42,18,964/- as of the insolvency commencement date, i.e., 11.07.2017.
- The contract agreement dated 17.02.2014 was entered into between the applicant and the corporate debtor. The applicant began the design and procurement process despite irregular payments from the corporate debtor.
- The applicant claimed that the corporate debtor was supposed to open a letter of credit before manufacturing began, which did not happen. Despite this, the applicant started manufacturing based on assurances of payment.
- The applicant filed proof of claim with the RP, including outstanding amounts, material inventory costs, escalation costs, overstay costs, and watch and ward costs, totaling ?35,42,18,964/-.
- The RP requested additional documents for verification, which the applicant provided. However, the RP maintained that the claim was not substantiated with sufficient evidence.

Tribunal's Analysis:
- The Tribunal noted that the claim was divided into two parts: the outstanding amount of ?6,94,22,164/- for items not supplied and still in the applicant's possession, and other costs totaling ?28,47,96,800/-.
- The Tribunal found that the claim of ?6,94,22,164/- was in the nature of a breach of contract and did not constitute a "claim" under Section 3(6) of the Code, as there was no right to payment established.
- The remaining part of the claim was considered to be in the nature of damages and not covered by the definition of "claim" under the Code.

Conclusion:
- The Tribunal rejected the application, stating that the applicant's contention of the operational debt claim could not be accepted.

Issue 2: Approval of the resolution plan under Section 31 of the Insolvency and Bankruptcy Code, 2016.

Facts and Submissions:
- The petition under Section 7 of the Code was filed for initiating the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor, and the moratorium was declared.
- The RP filed an application for approving the resolution plan of Dolphin Energy Enterprises, which was approved by the Committee of Creditors (COC) with a full majority.
- The RP issued public announcements, invited claims, and constituted the COC. Valuation reports were obtained, and the minimum eligibility criteria for prospective resolution applicants were fixed.
- The resolution plan submitted by Dolphin Energy Enterprises was approved by the COC with 100% voting share.
- The RP filed the compliance certificate in Form H, confirming that the resolution plan met the requirements of the Code and the Regulations.

Tribunal's Analysis:
- The Tribunal examined the compliance of the resolution plan with Section 30(2) of the Code, including the payment of insolvency resolution process costs, management of the corporate debtor's affairs, and implementation and supervision of the resolution plan.
- The Tribunal noted that the liquidation value was not enough to cover the admitted claims of the financial creditors, and the decision of the financial creditors was based on their commercial wisdom.
- The RP certified that the resolution plan complied with all the provisions of the Code and Regulations and did not contravene any law.

Conclusion:
- The Tribunal approved the resolution plan submitted by Dolphin Energy Enterprises, subject to the conditions discussed, and directed that the resolution plan be binding on the corporate debtor and its stakeholders.
- The moratorium order ceased to have effect, and the RP was directed to forward all records relating to the conduct of the CIRP and the resolution plan to the Board.

Final Orders:
- The application CA No.287/2018 was rejected.
- The resolution plan in CA No.100/2018 was approved and binding on all stakeholders. The moratorium ceased, and records were to be forwarded to the Board.