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TMI Blog2019 (5) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... resolution and further, did not even supply a copy of the final draft of the resolution plan to the other participant of the CoC meetings i.e. NSEL. Second, the RP filed the present application before this Tribunal on the basis of a conditional approval and the written non-conditional approval of SBI dated 29,05.2018 was submitted to this Tribunal only on 25.07.2018 as a response to NSEL's objection. Third, the application for approval of resolution plan was filed on 30.06.2018 when the CIRP period of 270 days had expired on 26.05.2018. The resolution plan is not approved and the application filed by the RP is dismissed and the application filed by the objector, in view of the said dismissal, succeeds. - C.A.-143/(ND)/2018, C.A.-174/(ND)/2018 In C.P. No. IB-89/(ND)/2018 - - - Dated:- 13-3-2019 - MR R. VARADHARAJAN, MEMBER (JUDICIAL) MR AND DR. V.K. SUBBURAJ, MEMBER (TECHNICAL) For The Appearing Parties : Ms. Pooja Mahajan, Ms. Mahim Singh, Savar Mahajan, Advs., Virender Ganda, Sr. Adv., Sandeep, Anuj Tewari, Ms. Shelly Khanna, Ajeyo Sharma, Advs. and Nitin Mishra, Adv. ORDER 1. The present order deals with two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt price for procurement of buffer stocks, volatility in the prices of both rice and paddy etc. 5. The RA Rajinder Singh Sandhu in his individual capacity is carrying on the business of manufacturing of tiles and allied products under the name and style of M/s. Sandhu Tile Industries and has a business experience of over 20 years. The RA holds 1.12% share of the CD, his sister Karamjit Kaur holds 3.10% share of the CD and his sister's husband Surjeet Singh is an outgoing promoter and guarantor of the CD. Thus, the RA is the brother-in-law of an outgoing promoter and guarantor of the CD. The RP states that this fact was known before the resolution plan was submitted and the financial creditor namely SBI was informed about it but it did not raise any objections in relation to it. 6. Even though SBI being the sole financial creditor and thereby possessing 100% voting strength in the CoC has approved the resolution plan, however, being the Adjudicating Authority named under the Code, this Tribunal has to exercise its judicial discretion as per Section 31 of the Code while approving or rejecting the resolution plan as brought before this Tribunal by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other creditors (Pg. 27 of resolution plan) S.30(2)(b) - provides for the payment of the debts of operational creditors in such manner as may be specified by the Board which shall not be less than the amount to be paid to the operational creditors in the event of a liquidation of the CD under section 53. Regulation 38(1) - amount due to the operational creditors under a resolution plan shall be given priority in payment over financial creditors. Operational creditors including the trade creditors but excluding related party creditors and NSEL will be paid on pro rata basis on receipt of respective claims and verification thereof by the RA, at the rate of 30% of the claimed amount within the maximum period of two years from the date of approval of plan by this Tribunal and remaining liability will be written off. All claims even those rejected, if substantiated along with the one not considered by the resolution professional will be treated at par with operational creditors who have not filed claims and will be entitled for pro rata amount, (pg. 32-33 of the resolution plan) As discussed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 51.02 crores will be paid to NSEL. d . No utilities bills are outstanding. e . The outstanding statutory dues have been paid during the period of CIRP. f . The due amount of ₹ 7,21,361/- shall be paid in full to the workmen/employees within one month from the date of approval of the plan. g . The RA has sought waiver of the disputed claims of the Income Tax and Sales Tax/VAT amounting to ₹ 1.27 crores and ₹ 26.21 crores, respectively. As discussed in paragraphs 12-16 the payment plan stated in the resolution plan falls foul of the orders of the Hon'ble NCLAT and the Hon'ble Supreme Court. S.30(2)(c) - provides fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CoC has approved the resolution plan by a vote of 100% by SBI which is the sole financial creditor. However, as discussed in paragraphs 20-24 the procedure undertaken to vote on the resolution plan was irregular. Eligibility of Resolution Applicant 8. It is pertinent to note that one of the conditions which is required to be satisfied and as provided in clause (e) of sub-section (2) of Section 30 is that the resolution plan does not contravene any of the provisions of the law for the time being in force, which obviously will include the provisions of the Code as well and more specifically Section 29A of the Code. Thus, first a reference is required to be made to Section 29A of the Code which states who is ineligible to be a resolution applicant: 29A. Persons not eligible to be resolution applicant - A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person- (a) is an undischarged insolvent; (b) is a wilful defaulter in accordance with the guidelines of the Reserv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for seven years or more under any law for the time being in force: Provided that this clause shall not apply to a person after the expiry of a period of two years from the date of his release from imprisonment: Provided further that this clause shall not apply in relation to a connected person referred to in clause (iii) of Explanation I; (e) is disqualified to act as a director under the Companies Act, 2013 (18 of 2013): Provided that this clause shall not apply in relation to a connected person referred to in clause (iii) of Explanation I; (f) is prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities markets; (g) has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under this Code: Provided that this clause shall not apply if a preferential transaction, undervalued transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or regulator, notify in this behalf namely:- (a) a scheduled bank; (b) any entity regulated by a foreign central bank or a securities market regulator or other financial sector regulator of a jurisdiction outside India which jurisdiction is compliant with the Financial Action Task Force Standards and is a signatory to the International Organisation of Securities Commissions Multilateral Memorandum of Understanding; (c) any investment vehicle, registered foreign institutional investor, registered foreign portfolio investor or a foreign venture capital investor, where the terms shall have the meaning assigned to them in regulation 2 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 made under the Foreign Exchange Management Act, 1999 (42 of 1999); (d) an asset reconstruction company register with the Reserve Bank of India under section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (e) an Alternate Investment Fund registered with Securities and Exchange Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set management company; (viiia) an alternative investment fund and its sponsor, trustees, trustee company and manager; (ix). [***] (x) a merchant banker and its client, who is an acquirer; (xi) a portfolio manager and its client, who is an acquirer; (xii) banks, financial advisors and stock-brokers of the acquirer, or of any company which is a holding company or subsidiary of the acquirer, and where the acquirer is an individual, of the immediate relative of such individual: Provided that this sub-clause shall not apply to a bank whose sole role is that of providing normal commercial banking services or activities in relation to an open offer under these regulations; (xiii) an investment company or fund and any person who has an interest in such investment company or fund as a shareholder or unitholder having not less than 10 per cent of the paid-up capital of the investment company or unit capital of the fund, and any other investment company or fund in which such person or his associate holds not less than 10 per cent of the paid-up capital of that investment com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a resolution applicant under Section 29A (c) and (h) of the Code, the RA, Rajinder Singh Sandhu is also ineligible to submit a resolution plan. 12. Further, note should be taken of the observations made by the Hon'ble Supreme Court in Arcelormiital India which are as follows: Since Section 29A (c) is a see-through provision, great care must be taken to ensure that persons who are in charge of the corporate debtor for whom such resolution plan is made, do not come back in some other form to regain control of the company without first paying off its debts. The Code has bifurcated such persons into two groups, as a perusal of sub-clauses (c) and (g) of Section 29A shows. If a person has been a promoter, or in the management, or control, of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place, and in respect of which an order has been made by the Adjudicating Authority under the Code, such person is ineligible to present a resolution plan under Section 29A(g). This ineligibility cannot be cured by paying off the debts of the corporate debtor. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd issue that comes to light in relation to this resolution plan and has also been raised as an objection by NSEL is the treatment meted out to NSEL's claim. Before we discuss the facts relevant to this issue it would be helpful to discuss the principles which guide the treatment that has to be provided to the claims of all the creditors as stated in the recent judgment of the Hon'ble Supreme Court in Swiss Ribbons (P.) Ltd. v. Union of India where the Hon'ble Supreme Court observed as follows: 45. Quite apart from this, the United Nations Commission on International Trade Law, in its Legislative Guide on Insolvency Law [ UNCITRAL Guidelines ] recognizes the importance of ensuring equitable treatment to similarly placed creditors and states as follows: Ensuring equitable treatment of similarly situated creditors 7. The objective of equitable treatment is based on the notion that, in collective proceedings, creditors with similar legal rights should be treated fairly, receiving a distribution on their claim in accordance with their relative ranking and interests. This key objective recognizes that all creditors do not n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditors and provide for such payment in priority to any financial creditor which shall in any event be made before the expiry of thirty days after the approval of a resolution plan by the Adjudicating Authority; and (c) liquidation value due to dissenting financial creditors and provide that such payment is made before any recoveries are made by the financial creditors who voted in favour of the resolution plan. Post amendment, Regulation 38 reads as follows: 38, Mandatory contents of the resolution plan.- (1) The amount due to the operational creditors under a resolution plan shall be given priority in payment over financial creditors, (1-A) A resolution plan shall include a statement as to how it has dealt with the interests of all stakeholders, including financial creditors and operational creditors, of the corporate debtor, xxx xxx xxx 47. The aforesaid Regulation further strengthens the rights of operational creditors by statutorily incorporating the principle of fair and equitable dealing of operational creditors ' rights, together with priority in payment over financial creditors. ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not stand in light of the observations made by the Hon'ble Supreme Court. The resolution plan is discriminatory against NSEL and thus, deserves to be rejected on a standalone basis on this ground. Acquisition of Promoters' Properties by CD 16. Further, the objector NSEL has raised another objection against the resolution plan relating to the properties sought to be acquired by means of the resolution plan. The resolution plan on page 25 under Clause (c) and the heading 'Basis of Resolution Plan' provides a list of properties of the promotors/guarantors which are to be acquired by the CD for operation of the resolution plan. If the list in the resolution plan is compared with the list of properties which have been attached by the Hon'ble High Court of Judicature at Bombay (annexed to C.A. 174/ND/2018) it can be seen that the list in the resolution plan includes individual properties owned by the outgoing promotors/guarantors of the CD, which have been attached by the Hon'ble High Court of Bombay. Further, the RA at page 38 of the resolution plan has prayed that the personal properties of the promotors/directors/guarantors of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is clear that in the vast majority of cases, personal guarantees are given by Directors who are in management of the companies. The object of the Code is not to allow such guarantors to escape from an independent and coextensive liability to pay off the entire outstanding debt, which is why Section 14 is not applied to them. 17. Thus, it is seen that what cannot be directly achieved by the promoters/directors of the CD cannot be allowed to be achieved through indirect means under the guise of a resolution plan, thereby militating against the very object of the Code as succinctly extracted by Hon'ble Supreme Court in the paragraph above. The answer can be only a resounding 'No'. Conditional Resolution Plan 18. Further, the conditionality of the plan does not inspire confidence in this Tribunal that the plan is feasible or effective, it is dangerous to encourage a situation where the RA makes his resolution plan conditional on the satisfaction of reliefs which are unreasonable or beyond the scope of the Adjudicating Authority or have been made in bad faith. In fact, such a condition raises doubts regarding the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plan dated 20.05.2018 was approved by the CoC at the 9th meeting held on 23.05.2018 with 100% voting share with certain modifications as suggested by SBI. The said suggestions were incorporated by the RA and the revised resolution plan with such modifications was sent to the RP on 26.05.2018, which was forwarded to the SBI by the RP. The RP examined the modified resolution plan and bad discussions with SBI wherein SBI orally confirmed that it is satisfied with the modifications made by the RA to the RP. Hence, the application was filed by the RP for approval of the resolution plan by this Tribunal on 30.05.2018. Subsequently, at the request of the RP, SBI confirmed the same in writing to the RP vide letter dated 29.05.2018. 21. It is important to note that neither the provisions of the Code nor its attendant regulations provide for conditional approval of the resolution plans submitted to the CoC. The RP in his reply has tried to rely on Regulation 39(3) of the CIRP Regulations which reads as follows: (3) The committee may approve, any resolution plan with such modifications as it deems fit. 22. The above regulation does not give r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a copy of the final draft of the resolution plan to the other participant of the CoC meetings i.e. NSEL. Second, the RP filed the present application before this Tribunal on the basis of a conditional approval and the written non-conditional approval of SBI dated 29,05.2018 was submitted to this Tribunal only on 25.07.2018 as a response to NSEL's objection. Third, the application for approval of resolution plan was filed on 30.06.2018 when the CIRP period of 270 days had expired on 26.05.2018. Thus, the resolution plan was submitted after expiry of CIRP period and as on the date of the expiry of the CIRP period there was no resolution plan before this Tribunal, which according to Section 33(1)(a) of the Code calls for initiation of liquidation of the CD and as construed as well by the Hon'ble Supreme Court in K Shashidhar v. Indian Overseas Bank Ors as follows: 33. ...From the legislative history and the background in which the I B Code has been enacted, it is noticed that a completely new approach has been adopted for speeding up the recovery of the debt due from the defaulting companies. In the new approach, there is a calm period followed by a swift ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... another insolvency professional to be appointed as liquidator. c. This Tribunal after referring to the list provided by IBBI for appointment of insolvency professionals appoints Mr. Rakesh Kumar Gupta (e-mail: [email protected]) as the liquidator for the present liquidation. The liquidator shall issue the public announcement that the CD is in liquidation and file his report to this Tribunal as mandated in terms of the Liquidation Regulations. d. In relation to officers/employees and workmen of the CD, taking into consideration Section 33(7) of the Code, this order shall be deemed to be a notice of discharge. e. The liquidator appointed shall investigate the financial affairs of the CD particularly, in relation to preferential transactions/undervalued transactions and such other like transactions. f. The liquidator shall also submit a preliminary report to this Tribunal within 75 days from date of commencement of liquidation in accordance with the regulations. g. A copy of this order shall be communicated to the Registrar of Companies, NCT of Delhi and Haryana. h. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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