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TMI Blog2019 (11) TMI 1517X X X X Extracts X X X X X X X X Extracts X X X X ..... he Corporate Debtor. The provisions of Section 53 make it amply clear that Operational Creditors are at the end of the list of beneficiaries as the Secured Financial Creditors have edge over the others - It would also be pertinent to mention here that Operational Creditors have no locus standi as far as approval of the Resolution Plan by the CoC is concerned. On perusal of the records, it is found that the Resolution Plan confirms to the criteria as provided under clauses (a) to (f) in section 30(2) of the Code and the CoC approved the Resolution Plan by 67.08 per cent majority of voting share. However, during the course of proceedings, the Bank of India submitted their acceptance to the Resolution Plan making the approval of the Resolution Plan by 83.89 per cent. The Resolution Plan also confirms to such other requirements as may be specified by the Board. The decisions of the CoC are based on their commercial wisdoms, hence does not attract any interference - On perusal of the Resolution Plan, it is found that it meets the requirement of Section 31 r/w Section 30(2) of the Code. Therefore, the present application IA 352 of 2019 is allowed subject to certain observations. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.3 The Resolution Professional, so appointed, made a public announcement inviting claims from all the creditors in Form A of the Schedule II as per Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as Regulations ) on 20th September, 2018 in Business Standard and Jai Hind where the registered office of the Corporate Debtor is situated. 2.4 It is stated that pursuant to the public announcement, the IRP inter alia received claims from the creditors of the Corporate Debtor and pursuant to Section 21 of the Code, constituted the CoC and filed the list of creditors and report, certifying the constitution of CoC with this Adjudicating Authority on 9th October, 2018. It is stated in Annexure A of the Exhibit 4 of the IA that IRP received claims from the creditors amounting to ₹ 254,58,89,078.57 and claims were admitted for the full amount i.e. ₹ 254,58,89,078.57. Further, the final list of members of CoC as on 9th March, 2019 with their respective voting shares are as under: S. No. Financial Creditors Voting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s order dated 28th March, 2019 extended the CIRP period by 90 days beyond 180 days which expired on 12.03.2019. 4. It is stated that RP received two resolution plans, one from Legend Trade Corp and the other from M/s. Fitcast. The Resolution Plan received from Legend Trade Corp was rejected by the CoC whereas the Resolution Plan received from M/s. Fitcast (hereinafter referred to as RA ) was discussed and deliberated upon by the CoC. In the said fourth meeting of CoC, RP informed the CoC that Central Bank of India has declared Corporate Debtor and its directors Mr. Prakash Shah and Mr. Sangeeta Shah as willful defaulters who are also shareholders of M/s. Fitcast, i.e. the RA and which may frustrate the chances of M/s. Fitcast being an eligible RA. However, the notarized affidavit submitted by M/s. Fitcast stating that Mr. Prakash Shah is neither part of the management nor having any controlling authority in the management at present, therefore as per Explanation No. (i) and (ii) of connected persons given in the Code, mitigates the negativity, in eligibility prospects of M/s. Fitcast under Section 29A of the Code. However, it was decided to take a legal opinion regarding eligib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 0 3.25 5. Edelweiss Asset Reconstruction Company Limited 0 0 7.67 7.67 6. Omkara Assets Reconstruction Pvt. Ltd. 1.57 0 0 1.57 7. Invent ARC Pvt. Ltd. Trust Invent/1516/S61 20.19 0 0 20.19 8. Union Bank of India 5.54 0 0 5.54 Total Count 67.08 0 32.92 100 5.2 The RP, the Applicant confirms the compliance of the Resolution Plan, as under Section 30(2) of the Code and Regulation 38A of the CIRP Regulations and provided a compliance checklist for seeking approval of the Resolution Plan from this Adjudicating Authority. The compliance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofessional made a determination if the corporate debtor has been subjected to any transaction of the nature covered under section 43, 45, 50 or 66, before the one hundred and fifteenth day of the insolvency commencement date, under intimation to the Board? No Resolution 38(1) Whether the Resolution Plan identifies specific sources of funds that will be used to pay the - (a) insolvency resolution process costs? Clause 7.6, Page No. 34 Yes (b) liquidation value due to operational creditors? Yes (c) liquidation value due to dissenting financial creditors? Yes Regulation 38(A) Whether the resolution plan includes a statement as to how it has dealt with the interests of all stakeholders? Clause 9, Page No. 40 Yes Regulation 38(2) Whether the Resolution Plan provides: Clause 7.7, Clause 8.0, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of Insolvency and Bankruptcy Code, 2016 and the rules and regulations framed there under. 6.3 On perusal of the Resolution Plan, it is found that Resolution Applicant viz. M/s. Fitcast Founders Engineers Private Limited, is a company engaged in the manufacturing and marketing of CI Castings and other Castings which are having a direct relevance with the business of the Corporate Debtor and accordingly, the promoters are to be considered as from the same line of business having better understanding of the manufacturing process, market as well as entire technical aspects which shall definitely result into proper resolution of the Corporate Debtor. The RA along with its consortium member viz. Omkara Assets Reconstruction Private Limited is having adequate net worth and accordingly, the commitment by the RA can be fulfilled without any hesitation. 6.3.1 Omkara Asset Reconstruction Private Limited i.e. the Consortium Partner, is a Securitization and Reconstruction Company, registered with the Reserve Bank of India to carry on the business of Securitization of Assets and Reconstruction thereof under the provisions of Securitization and Reconstruction of Financial Assets an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the detailed explanation and financial outlay) 16,00,00,000* -1.78 Crore- Within T+2 Days (for Performance Commitmen t) -2.25 Crore- Within T+180 Days -12 Crore- Within T+360 Days Para 7.5 in Page No. 32 The RA will infuse ₹ 6 Crore and will get Equity Shares of Corporate Debtor worth ₹ 6 Crore in the name of Fitcast Founders Engineers Private Limited. -Omkara ARC shall pay to the existing bankers ₹ 10 Crores against the assignment of Debt. Further this amount shall be termed as Restructured term loan in the books of Corporate Debtor after the approval of resolution plan. -Out of ₹ 12 Crore (to be paid within 360 days), 1 Crore will be specifically paid against Corporate as well as Personal Guarantee Payment to Related Party Creditors Existing Shareholders of the Corporate Debtor NIL NA NA Payment towards Contingency Fund NIL NA NA Additional Capital Expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India (UBI) Invent ARC (who had been offered Corporate Guarantee of Corporate Debtor against the debt of Group concern viz. Shaifali Steel Ltd.) and ₹ 2.00 lacs to Omkara ARC against the unsecured loan originally granted by ICICI Bank whose debt has been acquired by Omkara ARC. Upon above payment, Corporate Guarantee of the Corporate Debtor will also be assigned to Omkara ARC. 6.7 Payment to Workmen: Though the workers/employees have not made any claim but as per Balance Sheet as on 31.03.2018, an amount of ₹ 1.17 crores was payable, which has been provided in the Resolution Plan. 6.8 Liquidation Value: The Liquidation Value of the Corporate Debtor Company has been taken at ₹ 14,93,26,000/- 6.9 Payment to Operational Creditors: Operational Creditors shall be paid ₹ 0.25 crores being 10% of the ₹ 2.53 crores as stated in the Resolution Plan. 6.10 Payment to Statutory Creditors: Statutory creditors of the Corporate Debtor who have already given their claims or whose cases are going on, shall be paid an amount of ₹ 0.53 crores as per the Resolution Plan. Sr. No. Operational Credito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the new management with the present RP as Chairman till the final payment as proposed in the Resolution Plan and the Chairman shall monitor the activities of the Corporate Debtor. One authorized representative of CoC members shall be part of the Monitoring Committee. 6.16 Share Capital: The existing equity shares and preference shares shall be de-rated and the equity shares and preference shares shall be reorganized. The existing equity shares and preference shares shall be acquired by the new promoters at a token value of ₹ 1/- 7. At this stage, it is appropriate to go through Section 53 of IB Code which reads as under: Section 53(1) Notwithstanding anything to the contrary contained in any law enacted by the parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, namely: - i. The insolvency resolution process costs and the liquidation costs paid in full; ii. The following debts which shall rank equally between and among the following: - (i) Workmen's dues for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to mention here that Operational Creditors have no locus standi as far as approval of the Resolution Plan by the CoC is concerned. 10. To decide the issue, it will also be pertinent to notice the very object of the 'IB Code', 'Resolution' and Role of CoC. The objective of the 'I B Code' The objective of the Insolvency and Bankruptcy Code, 2016 is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in time bound manner for maximization of the value of assets of such persons, to promote entrepreneurship, availability of credit, and balance the interests of all stakeholders including alteration in the priority of the payments of the government dues, to establish an Insolvency and Bankruptcy Fund and matters connected therewith or incidental thereto. The said objective of the I B Code is also affirmed by Hon'ble Supreme Court in Arcelor Mittal India Pvt. Ltd. Vs. Satish Kumar Gupta and Ors. wherein the Hon'ble Supreme Court observed that the Corporate Debtor consists of several employees and workmen whose daily bread is dependent on the outcome of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fidavit stating that he is eligible under section 29A] to the resolution professional prepared on the basis of the information memorandum. (2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan- (a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the 2[payment] of other debts of the corporate debtor; (b) provides for the 3[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 corporate debtor under section 53; (c) provides for the management of the affairs of the Corporate debtor after approval of the resolution plan; (d) the implementation and supervision of the resolution plan; (e) does not contravene any of the provisions of the law for the time being in force; (f) conforms to such other requirements as may be specified by the Board. 4 [Explanation. - For the purposes of clause (e), if any approval of shareholders is required under the Companies Act, 2013( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on plan as approved by the committee of creditors to the Adjudicating Authority. 12. Reliefs Sought: In this regard, we are of the view that approval of the Resolution Plan does not mean automatic waiver or abetment of any legal proceedings which are pending by or against the Company/Corporate Debtor as those are the subject matter of the concerned Competent authorities having their proper/own jurisdiction to pass any appropriate order as the case may be. The Resolution Applicant on approval of the Plan may approach those Competent Authorities/Courts/Legal Forums/Offices - Govt. or Semi Govt. / State or Central Govt, for appropriate relief(s) sought for in Clause No. 14 of the Resolution Plan. 12.1 Thus, not allowing the above said Clause No. 14 of the Resolution Plan is not going to make any hindrance for proper implementation of the Resolution Plan as those are the subject matter of the concerned/appropriate Competent Authorities. The Resolution Applicant(s) has/have liberty to approach Competent authorities for any concession, relief or dispensation as the case may be. 12.2 It is further directed that: i. The approved Resolution Plan shall come into force with i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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