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TMI Blog2021 (2) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Section was to be applied, the figure arrived at under Section 53 (1) for the Appellant would be 8.60 Crores. It is claimed that this has been provided in the Resolution Plan. The challenge put up by the Appellant to the Resolution Plan with regard to provisions made for the Appellant in the Resolution Plan even if looked at from the alternative angle considering the amended provisions of Section 30 of IBC, would not survive. X X X X Extracts X X X X X X X X Extracts X X X X ..... It appears that there were disputes and arbitration proceedings were initiated between Appellant and Corporate Debtor. Subsequently, to resolve the disputes, it is claimed that Corporate Debtor and its group/associate Companies approached the Appellant for one-time settlement and Loan-cum-Hypothecation Agreement dated 22nd September, 2016 was entered by the Appellant with Corporate Debtor, M/s. Maave Electronics Pvt. Ltd. and M/s. Micronet Pvt. Ltd. The Agreement is referred by the Appellant at Annexure A-2 (Page - 14). Appellant is referred in it as Lender/Company; Corporate Debtor as "Borrower" and the other two Companies by their name/s and/or as Third Part/Fourth Part. The Appellant has referred to the contents of the said Agreement and claimed that the four loan agreements were rescheduled and restructured and the total agreed dues of ₹ 35.20 Crores were settled for ₹ 23.50 Crores. It is claimed that from this amount, ₹ 10 Crores were to be repaid as per Schedule - II of the Agreement and balance ₹ 13.50 Crores was to be paid by issuing and allotting 52 Lakhs equity shares of the Corporate Debtor at ₹ 26/- each equity share with a lock-in period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 10.40 Crores and voting share of Appellant was reduced from 16.09% to 12.25%. Being aggrieved, the Appellant filed I.A. 665 of 2018 (Annexure A-12 - Page 169) against such reducing of voting share. The CIRP continued and the eleventh meeting of COC took place on 6th December, 2018 (Minutes - Annexure A-13 - Page 175). In this meeting, the Resolution Plan was approved and the Appellant participated in the meeting and voted against the Resolution Plan. 6. Thereafter, the Appellant filed I.A. 52 of 2019 (Annexure A-14 - Page 197) seeking direction to COC to include the claim of Appellant to the extent of ₹ 10.40 Crores and restore original claim to the extent of ₹ 43,68,84,792/- and to restore original voting share of the Appellant to 62.09% and to reconsider the Resolution Plan. 7. Adjudicating Authority on 08.04.2019 by Order (Annexure A-15 - Page 204) in I.A. 407/2018 held that the terms/clauses of the Agreements cannot be challenged before it and that as Resolution Professional has in 7th Meeting himself reduced voting percentage of Appellant, the I.A. had become infructuous. 8. The Adjudicating Authority heard the parties and the Impugned Order dated 25.04.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issuing 52 Lakhs equity shares at the price of ₹ 26/- per share with lock-in period of one year. According to the RP, the Appellant - Lender is still holding the same shares in its Demat Account. The Resolution Professional claims that as per the Agreement, 52 Lakhs shares @ ₹ 20/- each were allotted to the Appellant on 31.03.2017 is not in dispute. (Issued and allotted on 12.5.2017 as per Demat Credit Statement - Annexure R-2). According to him, they are not pledged shares but they are free shares. The shares were allotted is not in dispute. Demat Statement for the period 1st January, 2017 to 15th May, 2017 is at Pages - 11 and 12 - Diary No.13078. It is stated that as loan payment was defaulted, ₹ 35.02 Crores of original dues were to be restored but when 52 Lakhs shares worth ₹ 10.40 Crores had been issued, the outstanding was required to be reduced. The Resolution Professional has referred the dues of the Appellant as under, in Written Submissions - Diary No.21866:- "The correct dues of the Appellant (See page 2, para 2 of Counter). Sl. No. Particulars Amount In Crore 1 Total Dues to SERI 35.02 2 12.05.2017- Allotment of 52,00,000 shares at pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0000/- (Rupees Thirty Five Crores and Two Lacs Only). [ii] Out of the aforesaid amount of ₹ 35,02,00,000 - (Rupees Thirty Five Crores Two Lacs Only), a sum of ₹ 23.50 (Rupees Twenty Three Crore Fifty Lakh) only would be repaid alongwith interest in the following manner: [a] The parties have agreed that the Borrower will pay off ₹ 10 Crores (Rupees Ten Crores Only) alongwith interest as mentioned in Schedule I and in the manner as set out in Schedule II. This amount of 10 Crores will be considered as a facility extended to the Borrower Company. [b] It is further agreed between the parties that the Borrower would as a security keep the property more fully described in this Schedule V herein below, which was also part of the security of the earlier agreements being HL0044090 dated May 12, 2011 and Agreement No. HL0046121 dated June 15, 2011 in favour of the party of the First Part by a registered Memorandum of Deposit of Title Deeds executed on 30th August, 2011. [c] i) Against the balance amount of ₹ 13.5 crores (Rupees Thirteen Crores Fifty Lakhs Only) provided to the Borrower, the Borrower Company would issue 52,00,000/-numbers of shares of the Borro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Second Part and after completion of all formalities since the assets are lying in the custody of several Receivers." 13. The Appellant is trying to interpret these terms of the Agreement, now to claim that the shares to be issued were in the nature of pledge. The learned Counsel for the Appellant accepted that the terms nowhere state that the shares would be held as pledge. There is no dispute that 52 Lakhs shares were issued by the Corporate Debtor to the Appellant on 12th May, 2017 (see Appeal Para 7(k)). The Application under Section 7 was filed only subsequent to such issue on 3rd January, 2018. The Appellant has continued to hold the shares. What the Appellant is trying to interpret as pledge in Sub-Clause C(iv) is a contingent Clause which contingency has not arisen. Shares of listed Company have been transferred in name of Appellant and are held by Appellant with right to sell after one year (which is now over). When to sell after 1 year, the period is not fixed. When title in the shares has passed with right to further sell by choice (after the lock in period as per SEBI guidelines), the transaction cannot be held to be pledge under Section 172 of the Indian Contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Resolution Professional has argued that in law, under Section 67 of The Companies Act, 2013, also, the Corporate Debtor cannot buy back its shares. We do not find that the Resolution Professional erred in reducing the claim of the Appellant in proportion and in reducing the voting share of the Appellant. We do not find error with the Impugned Order. The learned Counsel for Appellant has referred to some Judgements on the basis that there is relationship of Pawnor and Pawnee. As we find that pledge itself is not established, we need not refer to the Judgements cited. 16. The learned Counsel for the Appellant argued that while admitting the Appeal, the Adjudicating Authority had treated the amount claimed in this context as pledge. What appears is that in Application under Section 7 (Annexure A-5), Appellant claimed the shares to be pledged and the Adjudicating Authority at the time of arguments (Order Annexure A-6) after referring to the rival claims and some observations, proceeded on the basis that there is occurrence of default in respect of ₹ 10 Crores due and payable in Para - 19 of the admission Order and referred to the Judgement in the matter of "Innoventive Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 2019 (referred supra). 20. Coming to the Resolution Plan approved, this Appeal claims that the Adjudicating Authority failed to consider the 2019 Amendment. The Resolution Plan submitted by Respondents 1 to 3 makes provision to pay Appellant only ₹ 8.64 Crores out of admitted amount of ₹ 32.29 Crores. It is stated that the admitted amount is challenged in Company Appeal No.552 of 2019. Appellant claims that being dissenting Financial Creditor, Appellant is entitled to at least value of secured assets which at the time of execution of Loan Agreement was ₹ 35,02,00,000/-. According to Appellant, the average liquidation value of the securities of Appellant is ₹ 12.98 Crores. The Appellant is, however, being paid only ₹ 8.64 Crores and thus it is necessary to interfere in the Resolution Plan which has been approved. 21. The Respondents 1 to 3 were served in this Appeal. However, only Respondent No.3 has appeared and filed Reply (Diary No.19641). Respondent No.3 who is part of the consortium which has been Successful Resolution Applicant, has justified the acceptance of the Resolution Plan by COC. It is stated that the Plan was approved on 06.12.2018 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficial provision in favour of operational creditors and dissentient financial creditors as they are now to be paid a certain minimum amount, the minimum in the case of operational creditors being the higher of the two figures calculated under sub-causes (i) and (ii) of clause (b), and the minimum in the case of dissentient financial creditor being a minimum amount that was not earlier payable. As a matter of fact, pre-amendment, secured financial creditors may cramdown unsecured financial creditors who are dissentient, the majority vote of 66% voting to give them nothing or next to nothing for their dues. In the earlier regime it may have been possible to have done this but after the amendment such financial creditors are now to be paid the minimum amount mentioned in sub-section (2). Mrs. Madhavi Divan is also correct in stating that the order of priority of payment of creditors mentioned in Section 53 is not engrafted in sub-section (2)(b) as amended. Section 53 is only referred to in order that a certain minimum figure be paid to different classes of operational and financial creditors. It is only for this purpose that Section 53(1) is to be looked at as it is clear that it is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al that the value of the shares was correctly reduced and the listed company cannot buy back its own shares under Section 67 of the Companies Act, 2013. It is argued that the benefit of the Amendment in Section 30(2) of IBC cannot be extended to the Appellant as the Explanation 2 which gives retrospective benefit would not help the Appellant as on 16th August, 2019, the present Appeal had not been filed and the same was filed only on 13th September, 2019. 24. Section 30 Sub-Section (1) and (2) after amendment as per Act 26 of 2019 was enforced w.e.f. 16.08.2014 may be reproduced for reference and the same reads as under:- "30. Submission of resolution plan.- (1) A resolution applicant may submit a resolution plan [along with an affidavit stating that he is eligible under section 29-A] 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 [payment] of other debts of the corporate debtor; [(b) provides for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t part of Amended Sub-Section 4 of Section 30 reads as under:- "(4) The Committee of Creditors may approve a resolution plan by a vote of not less than [sixty-six] per cent. of voting share of the financial creditors, after considering its feasibility and viability, [the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor] and such other requirements as may be specified by the Board:.……..]" 25. The present Appeal was filed on 13th September, 2019. The effort of the learned Counsel for the Respondent to submit that the benefit of amended Sections 30(2) and 30(4) cannot be extended as date on which the Amendment was enforced i.e. 16th August, 2019, no proceeding or Appeal was pending or that it had become time barred, needs to be rejected. When the Impugned Order was passed and the Appeal was filed, we had heard the Appellant and Counsel for Respondent No.3 who had appeared and the delay of six days in preferring Appeal was condoned on 20th September, 2019. That Order has not been challenged. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim of Appellant was admitted for dues of ₹ 32.29 Crores. 5) Appellant has relied on Amendment Act 26 of 2019 and Judgement in the matter of "Committee of Creditors of Essar Steel India Limited versus Satish Kumar Gupta & Ors." (2019 SCC OnLine SC 1478) para - 109. 6) We have already heard the parties in Company Appeal (AT) (Ins) No.552 of 2019 and this Appeal and are yet to decide the issues raised in both Appeals. We have noticed that Resolution Professional has not responded to the averments made in this Appeal and we require his response, especially to the above claims of the Appellant. 7) (i) Keeping all issues still open, we direct Resolution Professional to file Affidavit responding to above averments and claims of Appellant. (ii) The Affidavit should further confirm in terms of Amended Section 30(2)(b)(ii) if the Resolution Plan provides for the payment of debts of Appellant - Financial Creditor, who did not vote in favour of the Resolution Plan (in such manner as may have been specified by the Board), which shall not be less than the amount to be paid to such Creditor in accordance with Sub-Section 1 of Section 53 of IBC, in the event of a liquidation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l should also remain available in Virtual Mode." 28. Consequently, the Resolution Professional appeared in Virtual Mode before us on 28th January, 2021 after filing the second Affidavit/further Affidavit dated 21st January, 2021 vide Diary No.24977. We had then directed that we will hear the parties with regard to these two Affidavits filed. Accordingly, the parties were heard on 1st February, 2021. 29. It would be appropriate to reproduce the further Affidavit filed by the Resolution Professional which reads as under:- "1. I, N. Prabhakar, S/o. N. Suryanarayana, aged about 55 years, R/o. Door No. 11-12-7, Road No. 1 Income Tax Colony, Sri Rama Krishna Puram, Hyderabad - 500035, do hereby solemnly affirm and state as under: 2. I am the Resolution professional of MIC Electronics Limited, Hyderabad. 3. As per the directions of Hon'ble NCLAT dt. 19.01.2021, the Respondent (RP) herein submits the following: 1) After due deliberations the COC approved the resolution plan on 06.12.2018 during its 11th COC Meeting. The Resolution plan was approved by Hon'ble NCLT on 31.07.2019 and the amendment to Section 30(2)(b)(ii) was on 16.08.2019, having retrospective effect on certain con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para - 109 in the matter of "Essar Steel" is the relevant paragraph for consideration. 31. We have gone through the material placed before us and keep in view provisions of amended Section 30(1)(2)(ii) and read the same with Section 53(1) of IBC with paragraphs - 2 and 3 of the Affidavit filed by the Resolution Professional is material. The Resolution Professional has accepted that the average value of the secured asset of the Appellant is ₹ 12.86 Crores and has given his calculation in para - 3 of the Affidavit that even if the amended Section was to be applied, the figure arrived at under Section 53 (1) for the Appellant would be ₹ 8.60 Crores. It is claimed that this has been provided in the Resolution Plan. 32. In view of the above, the challenge put up by the Appellant to the Resolution Plan with regard to provisions made for the Appellant in the Resolution Plan even if looked at from the alternative angle considering the amended provisions of Section 30 of IBC, would not survive. However, the Appellant, as dissenting Financial Creditor, needs to be paid on Priority. As such we pass following order:- ORDER A. Company Appeal (AT) (Insolvency) No. 976 of 2019 is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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