2019 (6) TMI 849 - AT - Insolvency and Bankruptcy

Initiation of Corporate Insolvency Resolution Process - Corporate debtor - transfer of shares of Shareholders / Promoters - HELD THAT - The Operational Creditors who were supplying goods or rendered services including employees are investing money for keeping the company operational. Employees are also working to keep the company operational, therefore, they are class in themselves. On the other hand, the Central Government or State Government, they do not invest any money nor render any services but derive advantage of operation by claiming of the debt on the basis of the existing law (statutory debt). Therefore, classification is made between (i) those Operational Creditors who were employees; (ii) those who were suppliers of goods or rendering services by investing money and (iii) the Central Government or State Government or local authority, who only claim the statutory debt. Resolution plan cannot be arbitrary or discriminatory amongst class of such Operational Creditors . Only the same treatment is to be made. So far as the Shareholders or Promoters are concerned because of their failure the Corporate Insolvency Resolution Process got initiated against the Corporate Debtor and Successful Resolution Applicant pays the dues to all the creditors on behalf of the Corporate Debtor / Promoters / Shareholders . In lieu of such payment, it is always open to the Successful Resolution Applicant to claim transfer of shares of Shareholders / Promoters in its favour. Section 29A is the ineligibility clause which deals with question as to who are ineligible to file resolution plan . As per said provision any persons who act jointly or in concert with such person if fall within any of the clause as mentioned therein (Clause (a) and (j) ) are ineligible to file resolution plan . It is not the case that the Resolution Professional or the Committee of Creditors or that the Adjudicating Authority found the Resolution Applicant to be ineligible under Section 29A. In absence of any such evidence, it was not open to the Adjudicating Authority to observe that the Appellant has a nexus with the Corporate Debtor . We modify the impugned order dated 19th February, 2019 and substitute the manner of distribution as shown in the Resolution Plan with the Revised distribution as noted above. Appeal allowed.

Issues Involved:
1. Approval and modification of the resolution plan.
2. Additional government dues of ?14 Crores.
3. Classification and treatment of operational creditors.
4. Redistribution of amounts to stakeholders.
5. Eligibility of the resolution applicant under Section 29A.

Detailed Analysis:

1. Approval and Modification of the Resolution Plan:
The appeal was filed against the order dated 19th February 2019 by the Adjudicating Authority (NCLT, Mumbai Bench), which approved the resolution plan with modifications. The modifications included restrictions on the waiver of government liabilities to those ascertained and crystalized as of the CIRP commencement date. The Tribunal emphasized that the resolution plan must consider statutory compliances and the nexus between the resolution applicant and the corporate debtor.

2. Additional Government Dues of ?14 Crores:
The appellant contested the inclusion of an additional ?14 Crores in government dues, which was not listed in the 'Resolution Professional’s' information memorandum. The appellant argued that all statutory dues under existing laws were accounted for, and the additional burden was imposed without basis. The Tribunal noted that the resolution applicant could prepare a revised distribution chart to address these concerns.

3. Classification and Treatment of Operational Creditors:
The Tribunal referenced the case "Pr. Director General of Income Tax (Admn. & TPS) Vs. M/s. Synergies Dooray Automotive Ltd. & Ors." to define operational debt, which includes statutory dues payable to the government. The Tribunal held that operational creditors include suppliers of goods/services, employees, and statutory creditors (government dues). The resolution plan should not discriminate among these classes, ensuring equal treatment for similarly situated creditors.

4. Redistribution of Amounts to Stakeholders:
The original distribution chart proposed 100% payment to CIRP costs, workmen dues, employee dues, secured financial creditors, and unsecured financial creditors (promoter group). Operational creditors (trade payables) and other creditors (promoter group) were allocated 70.81% and 70.47%, respectively. Government dues were allocated 36.31%. The Tribunal found this classification rational, as employees and suppliers contribute to keeping the company operational, unlike the government, which claims statutory dues without providing goods or services.

The revised redistribution chart proposed 100% payment to CIRP costs, workmen dues, employee dues, secured financial creditors, and unsecured financial creditors. Operational creditors (trade payables) and other creditors (promoter group) were allocated 70.81% and 70.47%, respectively. Government dues were allocated 36.31%. The Tribunal upheld this revised distribution as fair and equitable.

5. Eligibility of the Resolution Applicant under Section 29A:
Section 29A of the Insolvency Code disqualifies certain persons from submitting a resolution plan. The Tribunal found no evidence that the resolution applicant was ineligible under Section 29A. Therefore, the Adjudicating Authority's observation that the appellant had a nexus with the corporate debtor was unwarranted.

Conclusion:
The Tribunal set aside the Adjudicating Authority's observation regarding the nexus between the appellant and the corporate debtor. The Tribunal modified the impugned order by substituting the revised distribution manner, ensuring all stakeholders are bound by the revised distribution and other terms of the resolution plan. The appeal was allowed with these observations and directions.

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