2022 (11) TMI 332 - AT - Insolvency and Bankruptcy

Approval of Resolution Plan - extent and the limitation of the judicial review by the Adjudicating Authority and the Appellate Tribunal in context of a Resolution Plan approved by the CoC with requisite majority - entitlement to workmen and employees to receive the payment of provident fund, gratuity and other retirement benefits in full (not part of liquidation estate - entitlement to workmen and employees to receive minimum liquidation value envisaged under Section 30(2)(b) by referring to waterfall mechanism provided under Section 53(1) of the Code - resolution plan does not provide the minimum amount to the workmen/ employees as contemplated under Section 30(2)(b) - violation of provisions of Section 30(2)(b) of I B Code - resolution plan does not provided for retrenchment compensation to the workmen/employees - violation of Section 30(2)(e) of the Code - demerger of entire workforce except of 50 employees as Asset Protection Team to AGSL - violation of Section 30(2) of the Code - entitlement to workmen/employees to receive CIRP cost subsequent to insolvency commencement date - computation of payment to secured financial creditors under Section 53(1)(b) - allocation of fixed amount to the Operational Creditors (other than workmen/employees) - claim of Regional Provident Fund Commissioner, secured debt or not - charge in favour of the Department on the assets of the Corporate Debtor by virtue of operation of law. What is the extent and the limitation of the judicial review by the Adjudicating Authority and the Appellate Tribunal in context of a Resolution Plan approved by the CoC with requisite majority? - HELD THAT - It is settled that commercial wisdom of CoC in approving the Resolution Plan is not to be interfered in exercise of jurisdiction of judicial review by Adjudicating Authority or by this Appellate Tribunal except in cases where Resolution Plan violates mandatory requirement as provided under Sub-section (2) of Section 30 of the Code. Whether the workmen and employees are entitled to receive the payment of provident fund, gratuity and other retirement benefits in full since they are not part of the liquidation estate under Section 36(4)(b)(iii) of the Code? - Whether the workmen and employees are entitled to receive their dues from the Corporate Debtor as per the provisions of the Code i.e. the minimum liquidation value envisaged under Section 30(2)(b) by referring to waterfall mechanism provided under Section 53(1) of the Code? - HELD THAT - The workmen and employees are entitled to receive the amount of provident fund and gratuity in full since they are not part of the liquidation estate under Section 36(4)(b)(iii) - The workmen are entitled to receive their dues from the Corporate Debtor for period of 24 months as per provision of Section 53(1)(b) at least to minimum liquidation value envisaged under Section 32(2)(b) read with Section 53(1). In admitted claim of workmen provident fund, gratuity and leave encashment was included, and payment proposed in plan partly satisfy above dues also. The workmen are entitled to full payment of provident fund and gratuity, hence, the balance of above dues are to be paid by the Successful Resolution Applicant, to satisfy statutory obligations. Non-payment of full provident fund and gratuity shall lead to violation of Section 30(2)(e), hence, to save the plan the above payments have to be made. Whether the Resolution Plan approved by the Adjudicating Authority violates the provisions of Section 30(2)(b) of the Code since it does not provide the minimum amount to the workmen/ employees as contemplated under Section 30(2)(b)? - HELD THAT - The Resolution Plan clearly contains an undertaking of the Resolution Applicant that liquidation value due to Operational Creditors, i.e., employees and workmen shall be paid. When liquidation value has been estimated by Resolution Professional in Form-H as Rs.113 crores for workmen and employees, we fail to see the reason for allocating only Rs.52 crores towards dues of workmen. Hence, the workmen are entitled to at least Rs.113 crores, which is their minimum liquidation value estimated by Resolution Professional. The above fact clearly mandates direction to be issued to Resolution Applicant to pay at least Rs.113 crores towards workmen dues as per their entitlement under Section 30, sub-section (2) (b) read with Section 53(1) of the Code. There not been an undertaking as contained in paragraph 6.4.2 (c) for payment of liquidation value, allocation of Rs.52 crores only was in clear violation of Section 30, sub-section (2), sub-clause (b), but in view of the undertaking by the Resolution Applicant, we do not find any necessity of interfering with the Resolution Plan except issuing a direction for payment of Rs.113 crores, which is a minimum liquidation value of workmen dues. Whether the Resolution Plan as approved by the Adjudicating Authority violates provisions of Section 30(2)(e) of the Code since it contravenes provisions of Industrial Disputes Act, 1947 it having not provided for retrenchment compensation to the workmen/employees who were so entitled under Section 25-F and 25-FF of the Industrial Disputes Act, 1947 and other legislations? - Whether the demerger of entire workforce except of 50 employees as Asset Protection Team to AGSL is illegal and contrary to the provision of Section 25-FF of Industrial Disputes Act, thus, violates Section 30(2) of the Code? - HELD THAT - The non-compliance of provisions of Employees' Provident Funds Miscellaneous Provisions Act, 1952 and Payment of Gratuity Act, 1972. It is an admitted case that Corporate Debtor was covered by 1952 Act and Employees Provident Fund Scheme and it was statutory obligation of the Corporate Debtor to deposit provident fund contribution to EPFO. Resolution Professional in its affidavit dated 25.07.2022 has stated that no contribution was deposited after February, 2019, thus depositing of the provident fund contribution till 20.06.2019 was statutory obligation of Corporate Debtor and making no provision in plan for unpaid provident fund dues may lead to breach of Section 30(2)(e). Further, the payment of Gratuity Act, 1972 also cast a statutory obligation on Corporate Debtor to make payment of Gratuity for those workmen and employee for which it became due till insolvency commencement date. Whether the workmen/employees are entitled for payment of Rs.750 crores (or more) as CIRP cost subsequent to insolvency commencement date they being on the roll of the Corporate Debtor and principle of no work no pay could not have been applied by the Resolution Professional? - HELD THAT - The employees have not been paid anything in the plan towards provident fund which became due till insolvency commencement date. The employees are entitled to be paid provident fund amount as admitted by Resolution Professional till insolvency commencement date. Similarly, the workmen whose gratuity amount became due before insolvency commencement date are also entitled to receive the same after adjusting the part amount of gratuity paid in the Plan. Employees who became entitled to gratuity before insolvency commencement date are also entitled to receive the same - The above deficiencies in the plan need to be remedied by issuing appropriate direction to the Successful Resolution Applicant to make requisite plan so that plan may become compliant of Section 30(2)(e). Whether for computing the payment to secured financial creditors under Section 53(1)(b) only the value of their security interest has to be taken into consideration or their entire financial debt is to be considered while computing their entitlement? - HELD THAT - The Corporate Debtor had stopped its airline operations since April 2019 and during CIRP period till the approval of Resolution Plan, Corporate Debtor was not a going concern. There is no material on record to indicate that Corporate Debtor was a going concern during CIRP period - there are no error in not including the aforesaid claim of salary and wages of the workmen and employees after insolvency commencement date. Whether the Resolution Plan being contingent and conditional ought not to have been approved in view of the law laid down by the Hon ble Supreme Court in Ebix Singapore Pvt. Ltd. Vs. CoC of Educomp Solutions Ltd. Anr. 2021 (9) TMI 672 - SUPREME COURT ? - HELD THAT - The Report of the Insolvency Law Committee (February 2020) has opined that priority under Section 53(1)(b)(ii) should be only to the extent of the security interest of the Secured Creditor, but in the earlier part of the Report, it was opined that provision does not necessitate any further amendment. When no amendments have been made in the statute, i.e., Section 53(1)(b)(ii), the provisions cannot be interpreted in any manner except the plain and literal reading of the provisions. The Report of Insolvency Committee (February 2020) can at best be reason for making any further amendment in the statute, but till amendment is made, the provision of the statute has to be read as it exists as on the date - there are no substance in the submission of the learned Counsel that payment to the Secured Financial Creditors under Section 53(1)(b) has to be made as per their value of the security interest and the Resolution Plan did not take into consideration their debt, which is the debt of the Financial Creditors while allocating the amount. There are no substance in the submission of the Appellant that the resolution plan ought to have rejected in view of the condition precedent contained in the resolution plan. The Resolution Applicant has also completed all necessary condition precedents to the satisfaction of the Monitoring Committee. Whether the allocation of fixed amount of Rs.15,000/- each to the Operational Creditors (other than workmen/employees) in the resolution plan can be held to be fair and equitable and deserves no interference by this Appellate Tribunal? - HELD THAT - The facts of the present case indicate that the Resolution Plan proposed almost nil amount to the Operational Creditor except the workmen. According to the Resolution Professional, the liquidation value of the employees as well as other Operational Creditors is nil, hence, they are not entitle for any amount under Section 30(2)(b) of the Code. The facts of the present case depicts that amount paid to the Operation Creditor except workmen is almost nil - In the present case, there is material on record to indicate that as explained by the Resolution Professional in Additional Affidavit dated 25.07.2022 that liquidation value for employees and other Operational Creditors except workmen is nil. The employees were also entitled to receive their full amount of provident fund to which they were entitled under 1952 Act and gratuity due till commencement of insolvency under the Payment of Gratuity Act, 1972, which they were entitled as per Section 30(2)(e) of the Code. However, the liquidation value of employees being nil under Section 30(2)(b), they were not entitled to receive any amount. Similarly, other Operational Creditors whose liquidation value was nil were not entitled to receive any amount under Section 30(2)(b). Whether the claim of Regional Provident Fund Commissioner verified to the extent of Rs.24,40,65,594/- arising out of an order dated 17.10.2018 passed under Section 14B of Employees' Provident Funds Miscellaneous Provisions Act 1952 can be treated as secured debt and the Appellant was entitled to receive the amount as secured creditors? - HELD THAT - The priority for payment of debt under Section 11 of the 1952 Act has to be looked into in view of the mechanism which is specifically provided under Section 53(1) of the Code - We, thus, are inclined to issue direction to the Successful Resolution Applicant to make payment of the admitted claim of the Appellant towards provident fund dues to save the plan from invalidity. Whether the claim of Department of State Tax which was submitted within time created a charge in favour of the Department on the assets of the Corporate Debtor by virtue of operation of law and the State Tax Department has the security interest and is a secured creditor? - HELD THAT - The first charge on the property which is envisaged by Section 82 is except as provided under Insolvency and Bankruptcy Code, 2016. Thus, Section 82 of the Maharashtra GST Act, 2017 shall not give any precedence to the charge of claim of the Appellant - The provisions of Section 82 of the Maharashtra GST Act, 2017, clearly contains an exception with regard to I B Code, hence, on the strength of dues under Maharashtra GST Act, 2017, no charge can be claimed on the assets of the Corporate Debtor. The view that Department of State Tax, the Appellant, is an Operational Creditor and its liquidation value being nil, on the ground raised by the Appellant, no interference is called for in approval of the Resolution Plan. The liquidation value of the workmen as has been referred to in Form-H preferred by the Resolution Professional is Rs.113 crores and workmen were entitled to receive at least Rs.113 crores as per Section 30(2)(b) read with Section 53(1)(b) of the Code. Shri Krishnendu Datta, learned Counsel for Successful Resolution Applicant during his submission, submitted that Successful Resolution Applicant shall be paying an amount of Rs.113 crores to the workmen as per the Resolution Plan, since it was contemplated that, if liquidation value is more than Rs.52 crores, the liquidation value shall be payable to the workmen - the workmen and employees are entitled to gratuity payments, due to them before the insolvency commencement date. Any claim towards gratuity payment after insolvency commencement date is not admissible, since the workmen and employees having demerged into AGSL and their services were not deemed to have been terminated. Thus, gratuity payment under the provisions of Payment of Gratuity Act, 1972 is confined only to the date of insolvency commencement date and Successful Resolution Applicant is also liable to make the said payment. Non-payment of full provident fund amount to the workmen and employees and the gratuity payment till the insolvency commencement date amounts to non-compliance of provisions of Section 30(2)(e) of the Code. However, in the facts of the present case, all other parts of the Resolution Plan have not been found to infirm in any manner, there are no case for interfering with the order approving the Resolution Plan. Appeal allowed in part.

Summary

Issues Involved:
1. Entitlement of workmen and employees to provident fund, gratuity, and other retirement benefits.
2. Compliance of the Resolution Plan with Section 30(2)(b) of the Insolvency and Bankruptcy Code (IBC).
3. Compliance of the Resolution Plan with Section 30(2)(e) of the IBC concerning Industrial Disputes Act provisions.
4. Validity of the demerger of employees to Airjet Ground Services Limited (AGSL).
5. Entitlement of workmen and employees to dues during the Corporate Insolvency Resolution Process (CIRP).
6. Calculation of payment to secured financial creditors under Section 53(1)(b) of the IBC.
7. Contingency and conditionality of the Resolution Plan.
8. Fairness and equity of the allocation to Operational Creditors.
9. Claims of the Regional Provident Fund Commissioner.
10. Claims of the Department of State Tax.

Detailed Analysis:

1. Entitlement of workmen and employees to provident fund, gratuity, and other retirement benefits:
The Tribunal held that workmen and employees are entitled to receive the full amount of provident fund and gratuity up to the date of insolvency commencement. This entitlement is based on Section 36(4)(a)(iii) of the IBC, which excludes such funds from the liquidation estate. The Successful Resolution Applicant must pay the unpaid provident fund and gratuity dues after adjusting the amounts already received under the Resolution Plan.

2. Compliance of the Resolution Plan with Section 30(2)(b) of the IBC:
The Tribunal found that the Resolution Plan initially allocated only Rs. 52 crores to workmen, while the liquidation value estimated by the Resolution Professional was Rs. 113 crores. The Tribunal directed the Successful Resolution Applicant to pay at least Rs. 113 crores to the workmen to comply with Section 30(2)(b) of the IBC.

3. Compliance of the Resolution Plan with Section 30(2)(e) of the IBC concerning Industrial Disputes Act provisions:
The Tribunal held that the demerger of employees to AGSL did not amount to retrenchment under Section 25F and 25FF of the Industrial Disputes Act, 1947. The demerger was a business decision aimed at reviving the Corporate Debtor and did not violate Section 30(2)(e) of the IBC.

4. Validity of the demerger of employees to AGSL:
The Tribunal upheld the demerger, stating that it was a commercial decision approved by the Committee of Creditors (CoC) and was necessary for the revival of the Corporate Debtor. The demerger did not amount to termination of services, and the employees were not entitled to retrenchment compensation.

5. Entitlement of workmen and employees to dues during the CIRP:
The Tribunal held that only those workmen and employees who actually worked during the CIRP period are entitled to be paid as part of CIRP costs. Since the Corporate Debtor was not a going concern during the CIRP, the claim for Rs. 750 crores or more was not accepted.

6. Calculation of payment to secured financial creditors under Section 53(1)(b) of the IBC:
The Tribunal held that the entire debt owed to secured creditors should be considered while computing their entitlement under Section 53(1)(b), not just the value of their security interest.

7. Contingency and conditionality of the Resolution Plan:
The Tribunal found that the conditions precedent in the Resolution Plan were necessary for the revival of the Corporate Debtor's aviation business and did not warrant rejection of the plan. The conditions were business prerequisites and not contingent in a manner that would invalidate the plan.

8. Fairness and equity of the allocation to Operational Creditors:
The Tribunal noted that the liquidation value for employees and other Operational Creditors was nil, and thus, the allocation of Rs. 15,000/- each was in compliance with Section 30(2)(b) of the IBC. The Tribunal suggested that the Government and relevant authorities consider legislative changes to ensure fair and equitable distribution to Operational Creditors.

9. Claims of the Regional Provident Fund Commissioner:
The Tribunal directed the Successful Resolution Applicant to make full payment of the admitted claim of Rs. 24,40,65,594/- towards provident fund dues to the Regional Provident Fund Commissioner, as non-payment would breach Section 30(2)(e) of the IBC.

10. Claims of the Department of State Tax:
The Tribunal held that the Department of State Tax is an Operational Creditor and not a secured creditor. The claim was admitted as an Operational Creditor, and the liquidation value being nil, no additional payment was warranted under the Resolution Plan.

Reliefs Granted:
1. Payment of Rs. 113 crores to workmen.
2. Full payment of unpaid provident fund and gratuity dues to workmen and employees.
3. Payment of admitted provident fund dues to the Regional Provident Fund Commissioner.
4. Dismissal of appeals by the Department of State Tax and Concor Air Ltd.

The Tribunal upheld the Resolution Plan subject to the above directions and appreciated the assistance provided by the counsel for the parties.