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TMI Blog2019 (9) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... Creditors with more than 90% voting share approves the proposal as is apparent from Section 12A. From Section 12A and the decision of the Hon ble Supreme Court in SWISS RIBBONS PVT. LTD. AND ANR. VERSUS UNION OF INDIA AND ORS. [ 2019 (1) TMI 1508 - SUPREME COURT ] it is clear that the Promoters/Shareholders are entitled to settle the matter in terms of Section 12A and in such case, it is always open to an applicant to withdraw the application under Section 9 of the I B Code on the basis of which the Corporate Insolvency Resolution Process was initiated. 13. In view of the aforesaid provisions of law, we hold that Section 29A is not applicable for entertaining/considering an application under Section 12A as the Applicants are not entitled to file application under Section 29A as resolution applicant . In the present case, the Corporate Insolvency Resolution Process was initiated pursuant to an application under Section 7 filed by the Andhra Bank (Appellant herein). The application under Section 12A having been approved by the Committee of Creditors more than 90% of the voting share, it was not open to the Adjudicating Authority to reject the same and that too o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal Company Law Tribunal), Mumbai Bench, Mumbai on the ground that the Promoter not eligible to file the resolution plan under Section 29A cannot file the application under Section 12A of the I B Code . The impugned order dated 8th May, 2019 passed by the Adjudicating Authority has also been challenged by the Andhra Bank in Company Appeal (AT) (Ins.) No. 612 of 2019 and the Resolution Professional in Company Appeal (AT) (Ins.) No. 527 of 2019, but on different grounds. 2. Learned counsel appearing on behalf of the Andhra Bank submits that Section 29A is not applicable to an application filed under Section 12A for withdrawal of application under Section 7 filed by Andhra Bank, if the Committee of Creditors accept the same with more than 90% of the voting share. 3. The Resolution Professional has challenged the order dated 8th May, 2019 insofar it relates to observations made by the Adjudicating Authority against Mr. Sundaresh Bhat ( Resolution Professional ). 4. Notices were issued on the Respondents. The Andhra Bank , lead Bank of the Committee of Creditors , has already filed an appeal and challenged the impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a financial entity and is not a related party to the corporate debtor. Explanation I.-For the purposes of this proviso, the expression related party shall not include a financial entity, regulated by a financial sector regulator, if it is a financial creditor of the corporate debtor and is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares, prior to the insolvency commencement date. Explanation II.-For the purposes of this clause, where a resolution applicant has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset and such account was acquired pursuant to a prior resolution plan approved under this Code, then, the provisions of this clause shall not apply to such resolution applicant for a period of three years from the date of approval of such resolution plan by the Adjudicating Authority under this Code;'; ( d) has been convicted for any offence punishable with imprisonment ---- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation .- For the purposes of this clause, the expression connected person means- ( i) any person who is the promoter or in the management or control of the resolution applicant; or ( ii) any person who shall be the promoter or in management or control of the business of the corporate debtor during the implementation of the resolution plan; or ( iii) the holding company, subsidiary company, associate company or related party of a person referred to in clauses (i) and (ii): Provided that nothing in clause (iii) of this Explanation I shall apply to a resolution applicant where such applicant is a financial entity and is not a related party of the corporate debtor: Provided further that the expression related party shall not include a financial entity, regulated by a financial sector regulator, if it is a financial creditor of the corporate debtor and is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares, prior to the insolvency commenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicant with the approval of ninety per cent. voting share of the committee of creditors, in such manner as may be specified. 11. In Swiss Ribbons Pvt. Ltd. Anr. vs. Union of India Ors. - 2019 SCC Online SC 73 , the Hon ble Supreme Court of India considered the stages in which an application can be withdrawn including Section 12A observed and held : 75. Since the financial creditors are in the business of moneylending, banks and financial institutions are best equipped to assess viability and feasibility of the business of the corporate debtor. Even at the time of granting loans, these banks and financial institutions undertake a detailed market study which includes a techno-economic valuation report, evaluation of business, financial projection, etc. Since this detailed study has already been undertaken before sanctioning a loan, and since financial creditors have trained employees to assess viability and feasibility, they are in a good position to evaluate the contents of a resolution plan. On the other hand, operational creditors, who provide goods and services, are involved only in recovering amounts that ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eatment as financial creditors, and if they are not, such plans are either rejected or modified so that the operational creditors' rights are safeguarded. It may be seen that a resolution plan cannot pass muster under Section 30(2)(b) read with Section 31 unless a minimum payment is made to operational creditors, being not less than liquidation value. Further, on 5-10-2018, Regulation 38 has been amended. Prior to the amendment, Regulation 38 read as follows: 38. Mandatory contents of the resolution plan .-( 1) A resolution plan shall identify specific sources of funds that will be used to pay the- ( a) insolvency resolution process costs and provide that the insolvency resolution process costs, to the extent unpaid, will be paid in priority to any other creditor; ( b) liquidation value due to operational 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 fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hers Pride Dairy India (P) Ltd. v. Portrait Advertising and Marketing (P) Ltd. [Mothers Pride Dairy India (P) Ltd. v. Portrait Advertising and Marketing (P) Ltd., 2017 SCC OnLine SC 1789] ; Uttara Foods and Feeds (P) Ltd. v. Mona Pharmachem [Uttara Foods and Feeds (P) Ltd. v. Mona Pharmachem, (2018) 15 SCC 587] ]. This practice was deliberated in light of the objective of the Code as encapsulated in the BLRC Report, that the design of the Code is based on ensuring that all key stakeholders will participate to collectively assess viability. The law must ensure that all creditors who have the capability and the willingness to restructure their liabilities must be part of the negotiation process. The liabilities of all creditors who are not part of the negotiation process must also be met in any negotiated solution. Thus, it was agreed that once CIRP is initiated, it is no longer a proceeding only between the applicant creditor and the corporate debtor but is envisaged to be a proceeding involving all creditors of the debtor. The intent of the Code is to discourage individual actions for enforcement and settlement to the exclusion of the general benefit of all creditors. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In so far the assets of the Corporate Debtor is concerned, if it is based on the proceeds of crime, it is always open to the Enforcement Directorate to seize the assets of the Corporate Debtor and act in accordance with the Prevention of Money Laundering Act, 2002 (for short, the PMLA ). 16. However, it will not come in the way of the individual such as Promoter or Shareholder or Director , if he pays not from the proceeds of crime but in his individual capacity the amount from his account and not from the account/assets of the Corporate Debtor and satisfies all the stakeholders, including the Financial Creditors and the Operational Creditors . There is nothing on the record to suggest that the individual property of the Promoter / Shareholder / Director who proposed to pay the amount has been subjected to restraint by the Enforcement Directorate . Therefore, even if the asset of the Corporate Debtor is held to be proceeds of crime, the Adjudicating Authority cannot reject the prayer for withdrawal of application under Section 7, if the Promoter / Director or Shareholder in their individual capacity satisfy the creditors. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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