2022 (3) TMI 700 - AT - Insolvency and Bankruptcy

Validity of Resolution Plan - inadequate allocation for salary, pension and gratuity amounts of workmen/employees in the approved Resolution Plan or not - HELD THAT - The resolution plan envisages that the financial creditors are being paid 21.6 % of the total financial debt whereas the operational creditors are being paid 12.6% of the total verified operational debt. The financial creditor Bank of India has been paid 28% and workmen dues of past 24 months has also been made 28% in view of the calculation in a previous paragraph. Creditors in the same class should be treated equally and hence such apportionment of the amount to be paid to the financial creditors and the operational creditors is the business decision in accordance with the commercial wisdom of the CoC. The Successful Resolution Plan has been considered by the CoC and approved by a majority of 100% of members voting share in the CoC. This approval is according to the provisions of Section 30(4) where the CoC has to approve a Resolution Plan by a vote of not less than 66 % of voting share of the financial creditors after considering its feasibility and viability, the manner of distribution proposed which would take into account order of priority amongst the creditors as laid down in sub-section 1 of Section 53. The constitution of COC has been done by taking the claim of Bank of India (Financial Creditor) as ₹ 41.50 Crores. It is seen that the Competent Authority of Bank of India vide OTS Letter dated July, 29 2017 approved a OTS of the Corporate Debtor at ₹ 19.30 Crores, against which the Corporate Debtor paid an amount of ₹ 9,70,21,000/- to the Bank of India. Despite such a payment having been made, the representative of Bank of India continued to claim that the amount proposed by the Bank of India at ₹ 41.49 Crores be included as due as financial debt due from the Corporate Debtor, there are a series of communication (attached at PP. 126 135 of the Appeal Paperbook) which culminated in this issue being discussed in the first meeting of the CoC held on December, 22 2017 - since the voting share of Bank of India even with the reduced claim shall be around 80% we do not think it would affect the overall voting pattern in the CoC when the resolution plan was approved with a 100% vote share, since any percentage of voting for approval more than 66% would have achieved the same result. In the matter of Venus Recruiters (P) Ltd. v. Union of India 2020 (11) TMI 850 - DELHI HIGH COURT Hon ble Delhi High Court has emphasised on the strict timeline provided under the IBC and relied on Hon ble Supreme Court s judgement in Innoventive Industries case to state that Certainty and timeliness is the hallmark of the Insolvency and Bankruptcy Code, 2016 and therefore, since avoidance proceedings are time barred, they cannot be entertained after the completion of the CIRP. Therefore the pendency of avoidance applications while the resolution plan is approved does not vitiate the approval of the plan. The approved resolution plan complies with the provisions of the IBC with slight modification in the amounts proposed to be paid to the workmen and employees in relation to their dues including provident fund - the workmen should get an additional payment of ₹ 0.1652 crores ₹ 0.09 crores ₹ 0.8834 crores to be distributed among them as per their proportionate shares. With the above-stated modifications in the Resolution Plan, the Resolution Plan is approved by the Adjudicating Authority - appeal disposed off.

Summary

Issues Involved:
1. Workmen dues for the period of 24 months preceding the liquidation commencement date.
2. Inclusion of gratuity in the liquidation estate.
3. Disparity in treatment between operational creditors and financial creditors.
4. Pending application regarding fraudulent transactions.
5. Eligibility of the proposed Resolution Applicant under Section 29A of IBC.
6. Dispute regarding provident fund dues.
7. Non-conduct of forensic audit.
8. Incorrect claim and voting share of Bank of India.

Issue-wise Detailed Analysis:

1. Workmen Dues:
The Appellant contended that workmen dues for the period of 24 months preceding the liquidation commencement date were paid only to the extent of 15%. The Tribunal noted that the verified claims of the workmen/employees amounted to ?8.17 crores, with ?0.59 crores for the 24 months preceding the insolvency initiation date. According to Section 53(1)(b) of IBC, workmen dues and secured creditors' debts should rank equally. Since the Bank of India was offered 28% of its claim, the workmen should also receive 28% of ?0.59 crores, equating to ?0.1652 crores. Therefore, the workmen should get an additional ?0.8834 crores.

2. Gratuity in Liquidation Estate:
The Appellant argued that gratuity payable to employees should not be included in the liquidation estate and should be paid in full. The Tribunal referred to Section 53 of IBC and noted that the wages and unpaid dues of employees for the 12 months preceding the insolvency commencement date should be prioritized. Given the liquidation value of ?6.1 crores, the Tribunal concluded that the amount proposed for payment to employees in the resolution plan, ?0.22 crores, would remain unchanged.

3. Disparity in Treatment:
The Appellant claimed that operational creditors were paid only 10% of their due amount, whereas secured financial creditors were paid 28%. The Tribunal noted that creditors in the same class should be treated equally and that the distribution of amounts to financial and operational creditors is a business decision based on the commercial wisdom of the CoC. The Tribunal upheld the CoC's decision, which was approved by 100% of the members' voting share.

4. Pending Application on Fraudulent Transactions:
The Appellant's application regarding fraudulent transactions was heard but not disposed of before the finalization of the Resolution Plan. The Tribunal cited Section 26 of IBC, which states that the filing of an avoidance application does not affect the CIRP proceedings. The Tribunal also referred to the Delhi High Court's judgment in Venus Recruiters (P) Ltd. v. Union of India, emphasizing the strict timeline of IBC and ruling that avoidance proceedings cannot be entertained after the completion of CIRP.

5. Eligibility under Section 29A:
The Appellant alleged that the proposed Resolution Applicant was ineligible under Section 29A of IBC due to fraudulent transactions. The Tribunal noted that these allegations were part of the pending applications and did not affect the approval of the Resolution Plan.

6. Provident Fund Dues:
The Appellant argued that the provident fund dues were incorrectly shown in the Resolution Plan. The Tribunal referred to the NCLAT judgment in Sikander Singh Jamuwal Vs. Vinay Talwar & Ors., which mandated the release of full provident fund dues. The Tribunal modified the Resolution Plan to ensure full payment of provident fund amounts.

7. Forensic Audit:
The Appellant contended that no forensic audit was conducted despite being opined by the erstwhile IRP. The Tribunal acknowledged the need for a forensic audit but noted that it was not within the purview of the appeal, which primarily assailed the approval of the Resolution Plan.

8. Incorrect Claim and Voting Share of Bank of India:
The Appellant argued that the claim of Bank of India was inflated, affecting the constitution of CoC and allocation of voting shares. The Tribunal noted that even with the reduced claim, the voting share of Bank of India would be around 80%, which would not affect the overall voting pattern in the CoC.

Conclusion:
The Tribunal upheld the approval of the Resolution Plan with modifications to ensure additional payment to workmen and full payment of provident fund amounts. The appeal was disposed of accordingly, with no order as to costs.