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TMI Blog2021 (7) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... to reject the Resolution Plan submitted by the Resolution Applicant M/s. Lissie Medical Institutions and also to reject the valuation report filed by Mr. R.K. Patel and to appoint another valuer convening another CoC.? 19. The bare reading of the history of the case mentioned above makes it crystal clear that the Resolution Professional took all steps as per the provisions of IBBI Regulations, before submitting the Resolution Plan to the CoC for its approval. Thereafter, only after the approval of CoC, the Resolution Professional filed the Resolution Plan for approval of this Adjudicating Authority. It is seen that wide publicity has been made inviting Expression of Interest for getting a prospective Resolution Applicant, so that the maximum value be received for the Corporate Debtor's properties. If the contention of the applicant is accepted, a question arises here why any other interested persons, who can offer a more valued Resolution Plan than the present one has not come forward to submit a Resolution Plan. The technical stags stated by the applicant that one of the valuer assessed a less value and other valuer has given a good value cannot be accepted. The value assessed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the scope of interference by the Adjudicating Authority is limited judicial review. The relevant portion of para 46 of the said judgement is quoted below: 46 This being the case, judicial review of the Adjudicating Authority that the resolution plan as approved by the Committee of Creditors has met the requirements referred to in Section 30(2) would include judicial review that is mentioned in Section 30(2)(e), as the provisions of the Code are also provisions of law for the time being in force. Thus, while the Adjudicating Authority cannot interfere on merits with the commercial decision taken by the Committee of Creditors, the limited judicial review available is to see that the Committee of Creditors has taken into account the fact that the corporate debtor needs to keep going as a going concern during the insolvency resolution process; that it needs to maximise the value of its assets; and that the interests of all stakeholders including operational creditors has been taken care of. If the Adjudicating Authority finds, on a given set of facts, that the aforesaid parameters have not been kept in view, it may send a resolution plan back to the Committee of Creditors to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the 'Resolution Plan' prepared was based on 'faulty Valuation Report' with variance of 15.62% amounting to a difference of Rupees Seven Crores and is in violation of Section 30(2) of the Insolvency and Bankruptcy Code and 35(1)(a), 35(1)(b) and 35(1)(c) of the Regulations. 5. It is the version of the 'Appellant' that the 'Adjudicating Authority' had failed to take into account the important fact that by holding the 99.2% to the 'Employee Doctors' under the category of 'Operational Creditor' - Employees - 2.35% to 'Consultant Doctors' under 'Operational Creditor' - except employee), the balancing of interest as envisaged in the preamble of the Insolvency and Bankruptcy Code and guided in the decision of Hon'ble Supreme Court in 'Committee of Creditors' of Essar Steel India Ltd. v 'Satish Kumar Gupta' dated 15.11.2019 vide Civil Appeal No.9877-8767 of 2019 reported in 2019 SCC online SC 1478 was not followed. 6. The Learned Counsel for the Appellant points out that the 'Adjudicating Authority' had committed an error in considering that the 'Operational Creditor's were paid a bare minimum of 2.34% of their dues although their nature of work precedents against the 'Operational ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 30-01-2020 to 25-02-2020, when the 'Corporate Debtor' premises was in standstill and that of value of the property would have gone up exponentially due, resumption of business. Apart from that, the 'CIRP' was conducted during the lock down period and that only one eligible bidder and further that sufficient opportunity was not given for a better bid. 14. The Learned Counsel for the Appellant submits that during the 'CIRP' the enhancement of the 'Resolution Plan' amount from Rs. 80 Crores to Rs. 126 Crores is a mere eye-wash, as it was evaluated based on a faulty valuation and further taken into consideration without keeping the best interests of the 'Corporate Debtor'. 15. The Learned Counsel for the Appellant adverse to the Report of Valuer Mr.R.K.Patel who had mentioned in the report as under:- "It is submitted that the Report of R.K.Patel has mentions as follows: "...the matter was taken up at the instance of resolution Professional Mr.Bijoy Prabhakaran Pulipra ... In the matter of M/s. Galaxy Cotton & Textile Private Limited.." (vide Annexure 6, Vol I, Pg 199 of the Appellant Paper Book) "....for evaluating Fair Value of the Land and Building, the subject land is assu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land into separate sections to enable to identify the area of land based on its unique size and that the per cent value provided is in the value of Rs. 42 lakhs, 22.50 lakhs, 15 lakhs, 11.25 lakhs for the different survey numbers and for ease of calculation Rs. 42,00,000 can be identified as the value per cent (vide Annexure 7, Vol II, Page 299, 300). 18. The Learned Counsel for the Appellant refers to the Valuation Report of Mr.R.K. Patel which is in Tabular Form runs as under:- Valuation report of R K Patel Hospital Area 78.54 Ares 194,0765666 cents Annexure 6, Vol II, Pg 211 of Appellant Paper Books Per cent value 48,56,228 Fair Value for 194.07 cents 94,24,80,000 (A) Valuation report of Tom Panikulam Hospital Area 78.54 Ares 194,0765666 cents Annexure 7, Vol II, Pg 298 of Appellant Paper Books Per cent value 42,00,000 Fair Value for 194.07 cents 81,51,21,580 (B) Difference in FV for 194.07 Cents (A- B) 12,73,58,420 % 15.62% 19. The Learned Counsel for the Appellant refers to the Valuation Report of Mr.Tom Panikulam which is shown as under:- Va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various classes of creditors. As an example, take the case of a resolution plan which does not provide for payment of electricity dues. It is certainly open to the Committee of Creditors to suggest a modification to the prospective resolution Applicant to the effect that such dues ought to be paid in full, so that the carrying on of the business of the corporate debtor does not become impossible for want of a most basic and essential element for the carrying on of such business, namely, electricity. This may, in turn, be accepted by the resolution Applicant with a consequent modification as to distribution of funds, payment being provided to a certain type of operational creditor, namely, the electricity distribution company, out of upfront payment offered by the proposed resolution Applicant which may also result in a consequent reduction of amounts payable to other financial and operational creditors..." "46... If the Adjudicating Authority finds, on a given set of facts, that the aforesaid parameters have not been kept in view, it may send a resolution plan back to the Committee of Creditors to re-submit such plan after satisfying the aforesaid parameters. The reasons given by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onally accepted valuation standards, after physical verification of the inventory and fixed assets of the 'Corporate Debtor'. In short, the inadvertent clerical errors crept in, while typesetting the 'Valuation Report' are not material in nature and had no material impact on the Fair Value as well as the Liquidation Value. Apart from this, the Fair Value and the Liquidation Value of the 'Corporate Debtor' arrived at by the groups of Registered Valuers were not significantly different and therefore there was no requirement to appoint another 'Registered Valuer' by the 'Resolution Professional' to submit an estimate of the value, computed in the same manner. 27. The Learned Counsel for the Respondent contends that the 'Valuation Report' is only an estimate to assist the 'Committee of Creditors to take a commercial decision and the same is not mandatory document to be relied upon by the committee to take a decision on the 'Resolution Plan' in front of it. 28. The Learned Counsel for the Respondent points out that the summary of the 'Valuation Report' furnished by the two Registered Valuers are as under:- Sl. No. Name of the lead Registered Valuer Fair Value (as on 31st March, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Code is to ascertain that a resolution plan meets the requirement of Sub-sections (2) and (4) of Section 30 thereof. We, per se, do not find any breach of the said Provisions in the order of the Adjudicating Authority in approving the resolution plan. 28.The Appellant Authority has, in our opinion, proceeded on equitable perception rather than Commercial Wisdom. On the face of it, release of assets at a value 20% below its liquidation value arrived at by the valuers seems inequitable. Here, we feel the Court ought to cede ground to the Commercial Wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis. Such is the scheme of the Code, Section 31(1) of the Code lays down in clear terms that for final approval of a resolution plan, the Adjudicating Authority has to be satisfied that the requirement f Sub-section 31(1) of the Code stipulates the other point on which an Adjudicating Authority has to be satisfied. That factor is that the resolution plan has provisions for its implementation. The scope of interference by the Adjudicating Authority in limited judicial review has been laid down in the case of Essar Steel (supra), the relevant p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen legislation is challenged as being violative of the principle of equality, have been settled by this Court time and again. Since equality is only among equals, no discrimination result if the Court can be shown that there is an intelligible differentia which separates two kinds of creditors so long as there is some rational relation between the creditors so differentiated, with the object sought to be achieved by the legislation. This aspect of Article 14 has been laid down in judgments too numerous to cite, from the very inception." "54. Indeed, if an "equality for all" approach recognizing the rights of different classes of creditors as part of an insolvency resolution process is adopted, secured financial creditors will, in many cases, be incentivized to vote for liquidation rather than resolution, as they would have better rights if the corporate debtor was to be liquidated rather than a resolution plan being approved. This would defeat the entire objective of the Code which is to first ensure that resolution of 89 distressed assets takes place and only if the same is not possible should liquidation follow." 34. The Learned Counsel for the Respondent refers to the Judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m' to an extent of Rs. 13,01,55,997 who had rendered 'Health Care Services' to the patients visiting the 'Corporate Debtor' on the 'Consultancy Basis'. 38. According to the 'Appellant' [he being the 'Power of Attorney' Holder of 46 Doctors] and they are qualified professional Doctors who attend the inpatients and outpatients on a daily basis like a normal employee would perform and the significant difference lies in 'finance and accounting' perspective viz. in respect of employees, there will be deduction in respect of 'Provident Fund' and 'Employees State Insurance', whereas in the case of a Consultant Doctor, there will be deduction towards tax at source. 39. The pith and substance of the contentions of the 'Appellant' is that in the 'Sanctioned Plan', there was inequitable provisions which discriminate the 'employee Doctors' and 'Consultant Doctors' and as such, the 'Resolution Plan' submitted by the 'Resolution Applicant' passed by the 'Committee of Creditors' is not in consonance with Article 14 of the Constitution of India and therefore, cannot be considered as one complying with all the prevailing laws for the time being in force, as mentioned in Section 30(2)(e) of the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy and Bankruptcy Code and Regulations and the 'Committee of Creditors' is not to 'waive' of any procedure enunciated under Code and the Regulations. 42. Repudiating the contentions of the 'Appellant', the Respondent has come out with a stand that except certain minor clerical errors there are no deviations/discrepancies in the final Valuation amounts and that the 'Valuers' had considered of the properties and assets of the 'Corporate Debtor' and for arriving at the Fair Value and Liquidation Value and in fact paragraph No.9 of the 'Valuation Report' of Mr.R.K. Patel (Valuer) under the heading Valuation Results reads as under: Sr.No. Asset Description Fair Market Value (Rs.) Liquidation Value (Rs.) 1 PVS HOSPITAL COMPLEX 1392453980 1068965786 2 8.29 ARES LAND AT MAMANKUZY POTTALAM ROAD 30673000 24538400 3 FLAT 6CAT KALOOR RESIDENCY 5139500 436875 Total (Round off) 142,82,66,480/- 109,78,72,761/- Fair Value: 43. It may not be out of place for this 'Tribunal' to make a relevant mention that a 'Fair Value' is estimated realisable value of assets of 'Corporate Debtor' if they were to be exchanged on the Insolvency commencement date and Liquid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to put it precisely, the difference of 15.92% as regards the Valuation of Land in the two registered 'Valuers Reports' can be termed as minimal, in view of the fact that the 'Fair Value' and 'Liquidation Value' were made, taking into account variety of considerations. Besides this, one cannot brush aside a primordial fact that the Estimated Values as furnished by the two registered Valuers can at best be an aid to the 'Committee of Creditors', to take a call on 'Commercial Decision', which cannot anyway stifle them in any manner. As such, the contra plea taken on behalf of the Appellant is not acceded to by this 'Tribunal'. 49. In so far as the plea of the Appellant that third Valuer was not appointed for reasons best known to the 'Resolution Professional' when there is a difference in the valuation made by the two registered Valuers, this 'Tribunal' at the risk of repetition points out that the difference of 15.62% between the two registered Valuers in regard to the Valuation made is not a substantial/material one so as to warrant an appointment of a 'third Valuer' as per Regulation 35(1)(a)(b) and (c) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepted the Valuation Report made by the Valuer Mr.R.K.Patel. Not resting with that, the 'Resolution Professional' had resorted to the agreed 'International Valuation Standards' and carried out the physical verification of the 'Corporate Debtor's fixed assets. Therefore, the question of appointing a 'third Valuer' on the purported ground of difference of 15.92% in the 'Fair Value' does not arise, in the considered opinion of this 'Tribunal'. 54. A cursory perusal of the 'impugned Order' dated 22.02.2021 in IA(IBC)No.46/KOB/2021 in IA(IBC)/13/KOB/2021 in TIBA No.11/KOB/2019 passed by the 'Adjudicating Authority' (National Company Law Tribunal, Kochi Bench) latently and abundantly indicates that the 'Resolution Plan' of M/s. Lissie Medical Institutions had satisfied the requirements of the ingredients of Section 30(2) of the Code, prior to the submission of the 'Resolution Plan' for approval of the 'Adjudicating Authority'. It is an axiomatic principle in law that the ambit of 'Judicial Review' to be made by the 'Adjudicating Authority' revolves around a narrow and restricted compass. 55. It is relevant to point out that the Judgment of the Hon'ble Supreme Court in Kalpra Dharanshi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta, decided on 15th November, 2019 in Civil Appeal Nos. 8766-8767 of 2019 (MANU/SC/1577/2019). It has been held in paragraph 53 of this judgment in the said report: 53. However, as has been correctly argued on behalf of the operational creditors, the preamble of the Code does speak of maximisation of the value of assets of corporate debtors and the balancing of the interests of all stakeholders. There is no doubt that a key objective of the Code is to ensure that the corporate debtor keeps operating as a going concern during the insolvency resolution process and must therefore make past and present payments to various operational creditors without which such operation as a going concern would become impossible. Sections 5(26), 14(2), 20(1), 20(2)(d) and (e) of the Code read with Regulations 37 and 38 of the 2016 Regulations all speak of the corporate debtor running as a going concern during the insolvency resolution process. Workmen need, to be paid, electricity dues need to be paid, purchase of raw materials need to be made, etc. This is in fact reflected in this Court's judgment in Swiss Ribbons (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a going concern. (See ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta, MANU/SC/1123/2018: (2019) 2 SCC 1] at para 83, fn3). (emphasis supplied) 54. This is the reason why Regulation 38(1A) speaks of a resolution plan including a statement as to how it has dealt with the interests of all stakeholders, including operational creditors of the corporate debtor. Regulation 38(1) also states that the amount due to operational creditors under a resolution plan shall be given priority in payment over financial creditors. If nothing is to be paid to operational creditors, the minimum, being liquidation value which in most cases would amount to nil after secured creditors have been paid - would certainly not balance the interest of all stakeholders or maximise the value of assets of a corporate debtor if it becomes impossible to continue running its business as a going concern. Thus, it is clear that when the Committee of Creditors exercises its commercial wisdom to arrive at a business decision to revive the corporate debtor, it must necessarily take into account these key features of the Code before it arrives at a commercial decision to pay off the dues of financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rational and as secured or unsecured. Full freedom and discretion has been given, as has been seen hereinabove, to the Committee of Creditors to so classify creditors and to pay secured creditors amounts which can be based upon the value of their security, which they would otherwise be able to realise outside the process of the Code, thereby stymying the corporate resolution process itself." 57. Suffice it for this 'Tribunal' to point out that neither the 'Adjudicating Authority' nor the 'Appellant Tribunal' can substitute its 'Wisdom' over the 'Commercial Wisdom' of the 'Committee of Creditors'. In fact, the 'Appellate Tribunal' has no jurisdiction to question the distribution made by the 'Committee of Creditors' as per Section 30(4) of the Code. Be it noted, that the Section 30(2)(b) of the Code refers to Section 53 of the Code not in the context of priority of payment of Creditors, but only to provide for a minimum payment to the 'Operational Creditors'. 58. In so far as the aspect of the 'Consultant Doctors' are discriminated in the 'Committee of Creditors' approved 'Resolution Plan', who are on par with 'Employee Doctors', it is to be pertinently pointed out that the 'Consul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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