9911796707
TMI Blog2022 (5) TMI 460X X X X Extracts X X X X X X X X Extracts X X X X ..... Lekhi and Mr. Kanay Pisal, Advocates J U D G M E N T (VIRTUAL MODE) [Per.: Dr. Alok Srivastava, Member (Technical)] The two appeals, namely first one preferred by Rana Saria Poly Pack Private Limited [CA (AT) (Ins) No. 422 of 2021] and the second one preferred by Simbhaoli Sugars Ltd. [CA (AT) (Ins) No. 741 of 2021] have been filed under section 61 of the Insolvency and Bankruptcy Code, 2016 (hereinafter called 'IBC'). The appellants in both appeals are aggrieved by the order dated 17.3.2021 in IA No. 290 of 2020 in CP/IB/ALD/ No. 120 of 2017 (hereinafter called "Impugned Order"). Both the appeals are being disposed of by this common judgment as the issues raised in both the appeals pertain to the same Impugned Order. 2. The Appellant in CA No. 422 of 2021 M/s. Rana Saria Poly Pack Private Limited has stated that the corporate debtor -a Special Purpose Vehicle constituted as a Joint Venture Company of M/s. Simbhaoli Sugars Limited(in short 'SSL') and EDF Mann Group - took a loan of Rs. 100 crores from IDBI Bank to set up a refinery in the year 2012. These loans were secured by personal guarantees provided by the promoters of SSL and their shareholding in the SPV was also ple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the entire exercise of CIRP was carried out against the interest of the stakeholders and in violation of the mandatory provisions of IBC. He has added that the Resolution Professional and CoC proceeded to seek contrary reliefs from the Adjudicating Authority under Chapter II and Chapter III of the IBC, and once proceedings under section 33 in Chapter III of IBC had commenced upon filing of CA (AT) (Ins) No. 83 of 2019 by the Resolution Professional, the CoC became functous officio and could not consider and approve a resolution plan which was prepared in accordance with erroneously obtained report of the liquidation amount which was not acceptable to the stakeholders. He has further stated that the resolution plan approved by the Impugned Order has resulted in transfer of the business of the company at a value which is much below its actual worth causing loss to all the stakeholders including the creditors. He has also stated that various applications which involved recovery of approximately Rs. 85 crores (namely CA No. 227 of 2018, CA No.235 of 2018 and CA No. 236 of 2018) were pending before the Adjudicating Authority, and while approving the faulty resolution plan, the Adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion noted in the minutes of the 20th CoC meeting at pp.46-48 of the Rejoinder Affidavit to show that the Resolution Professional pointed out in the meeting that he had, in an earlier 15th meeting of the CoC, apprised the members that no further fresh valuation was required to which they had consented. The minutes also note the view of Ms. Nancy Agarwal, authorized representative of Union Bank of India that under Regulation 27 of CIRP Regulations, the Resolution Professional has been given the power to obtain a third valuation report in case of major disparity in the initial two valuations and that the cost of valuation should be included in the CIRP cost. The Learned Counsel for Appellant has urged that the cost of third valuation if met by CoC members will not be in accordance with CIRP regulations, and furthermore in undertaking the third valuation only one valuer for each class, namely, (i) Securities or Financial Assets, (ii) Land and Building, and (iii) Plant and Machinery, were appointed instead of two valuers as stipulated in the CIRP Regulations. 6. The Learned Counsel for Appellant has stated that using the liquidation valuation report obtained from the third valuation, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Corporate Insolvency Resolution Process in the matter of Uniworld Sugars Private Limitged was commenced w.e.f. 29.05.2018 and as on date of commencement of CIRP Regulation 36B of the IBBI CIRP Regulations was not into existence. It was inserted vide Notification No. IBBI/2018-19/GN/REG031, dated 3rd July, 2018 (w.e.f. 04-07-2018). Xx xx xx xx 7. The amounts provided for the stakeholders under the resolution plan is as under: (Amount in Rs. Crore) S.No. Category of Stakeholders Sub-Category of Stakeholders Amount claimed Amount Admitted Amount Provided under the Amount Plan Provided to the Amount claimed xx xx xx xx xx xx 2. Operational Creditors (a)Related Party of corporate debtor 371.90 122.53 NIL NIL (b)Other than (a) above: (i)Government (ii)Workmen 0.34 0.34 0.28 81.57% (iii)Employees 1.55 1.51 0.30 20.25% (iv)Others 10.05 8.34 1.58 18.940% Total (a)+(b) 383.84 132.72 2.16 7. The Learned Counsel for appellant has urged that the issue of withdrawal of approximately Rs. 85 crores by the joint venture group promoters of the corporate de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge No. 7 of the Appeal Paperbook in CA 741 of 2021 to point out that the liquidation value as per the evaluation carried out by valuer Jagdish Mistry and Parag Seth on 28.5.2018 are Rs. 126.30 crores and Rs. 121.01crores respectively, whereas the third valuation carried out on 8.10.2020, under the directions of CoC and paid for by the CoC has estimated liquidation value as Rs. 52.69crores. He has urged that the third liquidation valuation which is significantly different from the first two valuations was done without any legal justification and hence consideration of the third liquidation valuation of Rs. 52.69 crores ignoring the first two valuations is neither justified nor legally tenable. He has also argued that the CIRP was initiated on 29.5.2018 and the 10th meeting of the CoC took place on 7.4.2019, when the CoC resolved not to seek any extension beyond the stipulated period of 270 days for the CIRP. Furthermore, an application for orders on liquidation of the corporate debtor was filed vide CA No. 83/2019, which was heard on 9.7.2019, wherein the fact that the CIRP is complete was brought to the notice of the Adjudicating Authority, who thought it fit at that stage to give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned Senior Counsel for Respondent No.1/Resolution Professional has argued that the Appellant does not have locus standi to challenge the approval of the resolution plan, as it is based on commercial wisdom of the CoC, and therefore, an appeal against an order approving the resolution plan under Section 31 can be assailed only on grounds under section 61(3) of the IBC. In support, he has cited the judgments of Hon'ble Supreme Court in the matter of Committee of Creditors of Essar Steel vs. Satish Kumar Gupta (2020 8 SCC 531)and also K. Sashidaran vs. Indian Overseas Bank (Civil Appeal No. 10678 of 2018) to maintain that the decision taken by the majority of creditors is binding on minority creditors and creditors who have no voting share, and therefore in the present case the Appellant has no locus standi to challenge the commercial wisdom of CoC and hence the approval of the resolution plan. 14. The Learned Senior Counsel for Respondent No. 1 has also cited the judgments of Hon'ble Apex Court in the matters of Pratap Technocrats Pvt. Ltd. vs. Monitoring Committee of Reliance Infratel and Anr. [2021SCC Online SC 569] and in India Resurgence ARC Pvt. Ltd. vs. M/s. Amit Metaliks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve;-vis the liquidation value. 16. The Learned Senior Counsel for Respondent No. 1 has stated that no objection was raised on the Forensic Audit Report by the erstwhile management and creditors and hence is would have had no adverse impact on the resolution plan, and also this report was not available to the Adjudicating Authority when the application for approval of the resolution plan was filed. Finally, he has urged that since the Impugned Order does not go against any legal provisions of IBC and the Adjudicating Authority has acted well within its jurisdiction and mandate under law, the Impugned Order should not be interfered with. 17. The Learned Counsel for Respondent No. 3/Successful Resolution Applicant (M/s. NCIRCLE Exim LLP) in CA No. 741 of 2021 has argued that the resolution plan which was approved by the Adjudicating Authority was submitted in the year 2020, the SRA is still committed to implementing it. He has further claimed that though the payments to the operational creditors on the basis of the first, second and third valuation reports is 'nil' yet the SRA is providing some payments to the operational creditors under the approved resolution plan. He has also ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt it for comments on 8.2.2021. Since the Forensic Audit Report was available on 20.1.2021, it was desirable that the Resolution Professional should have taken action on the omissions and commissions that came out in the report, even if he did not put it up before the CoC. He has cited the judgement in the matter of Binani Industries Ltd. vs. Bank of Boarda and Another (2018 SCC Online NCLAT 521), wherein this Tribunal has held in para 48 that if the operational creditors are ignored and provided with liquidation value on the basis of misplaced notion and misreading of section 30(2(b), then the objectives of IBC will not be achieved and in such a situation, such a plan can be held to be against the provisions of IBC. 19. The provisions of IBC and regulations made there under that are relevant to this case are reproduced below for ready reference:- Regulation 27 of CIRP Regulations, 2016 27. Appointment of Professionals.- (1) The resolution professional shall, within seven days of his appointment but not later than forty-seventh day from the insolvency commencement date, appoint two registered valuers to determine the fair value and the liquidation value of the corporate debtor i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on receiving an undertaking from the member to the effect that such member shall maintain confidentiality of the fair value and the liquidation value and shall not use such values to cause an undue gain or undue loss to itself or any other person and comply with the requirements under sub-section (2) of section 29: (3) The resolution professional and registered valuers shall maintain confidentiality of the fair value and the liquidation value. Section 25 of IBC 25. Duties of resolution professional. - (1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor. (2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely: - (a) take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor; (b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings; (c) raise interim finances subject to the approval o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itors of the corporate debtor or for any fraudulent purpose, the Adjudicating Authority may on the application of the resolution professional pass an order that any persons who were knowingly parties to the carrying on of the business in such manner shall be liable to make such contributions to the assets of the corporate debtor as it may deem fit. (2) On an application made by a resolution professional during the corporate insolvency resolution process, the Adjudicating Authority may by an order direct that a director or partner of the corporate debtor, as the case may be, shall be liable to make such contribution to the assets of the corporate debtor as it may deem fit, if- (a) before the insolvency commencement date, such director or partner knew or ought to have known that the there was no reasonable prospect of avoiding the commencement of a corporate insolvency resolution process in respect of such corporate debtor; and (b) such director or partner did not exercise due diligence in minimising the potential loss to the creditors of the corporate debtor. Explanation. - For the purposes of this section a director or partner of the corporate debtor, as the case may be, shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions obtained from them are as follows:- Date Name of Valuer Liquidation value (in Rs.) Fair value(in Rs.) 28.5.2018 Jagdish Mistry 126. 30 crore 184.95 crore 28.5.2018 Parag Seth 121.01 crore 175.29 crore 23. We note that under the CIRP Regulations no power has been given to CoC to call for any valuation of fair and liquidation value though we don't think there is any bar under IBC provisions for the CoC to call for a fresh valuation report. Assuming that the CoC were to call for a valuation report to assist itself in the decision making, we are of the opinion that the procedure and process as outlined in regulations 27 and 35 ought to be followed. The reasons for obtaining two valuations, we feel, is so that a single valuation should not form the basis of decision making and in case it is far off the mark the entire exercise would become defective and faulty leading to incorrect formulation of resolution plan and payments to creditors. Further, the third valuation under regulation 35 is required only if the two estimates of fair and liquidation value obtained earlier are significantly different. Such check and balance in the appointment of registered valuers and esti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IBBI just for the reason that he upon requisition of COC got the third valuation done and the cost of valuation was borne by corporate debtor. IBBI held that since there is no provision of fresh valuation within the IBC, 2016 therefore the cost of any such valuation would not be borne by the corporate debtor. In his explanation Mr. Madaan continued that in line of the said decision the cost of fresh valuation and other associated expenses should only be borne by the COC members. Mr. Madaan further submitted that lot of time has already been spent non this entire process, but resolution professional is duty bound by this law to conduct everything within a time frame he cannot wait fo9r an indefinite period of time. Ms. Nancy of UBI said that regulation 27 says about the confidentiality of the valuation report however if COC accepts valuation from third party there is straight away violation of confidentiality. Mr. Madaan said RP regulation 27 has been duly complied by RP in 2018. Since the valuation which was conducted at behest of a third party or i.e. one of the RA Sakuma Exports regulation 27 would not apply. Mr. Madaan further explained that RA submitted the valuation report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jay Tapriya CEO of the corporate debtor to explain the same in detail. CEO explained as how road lock pending conversion of part of land for industrial purposes and abundantly available land in vicinity has affected the valuation in last two years. He also added that presently in Kandla and surroundings where the refinery plant of corporate debtor is situated, there is no buyer for industrial land, with lack of further industrialization no property is easily sellable over there and market has become very limited and volatile and Kandla is not having a regular Industrial area as well and therefore with lack of sellable proposition of industrial land the market price of existing land is close to agriculture land plus conversion thereof." 25. In the instant case, we find that the first valuation by two registered valuers were made on 28.5.2018 and the two valuations of liquidation value were Rs.126.30 crores and Rs.121.01 crores, leading to average value of Rs.123.66 crores. We feel that even if the CoC thought it fit to get another valuation of a more recent date, it was desirable that the procedure outlined in regulations 27 and 35 should have been followed. The source of payment f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation exercise be undertaken with absolute impartiality and. Hence, in our view the relevance and application of Regulations 27 and 35 are pertinent in the process of appointment of valuers and for establishing the need for a fresh valuation. 29. The Ld. Senior Counsel of Respondent has pointed out the observation of Hon'ble Supreme Court that a report obtained in the process of payment of insurance amount can form the basis of decision in the matter of Sri Venkateswara Syndicate vs. Oriental Insurance Company Limited and Anr. [(2009 8 Supreme Court cases 507] wherein Hon'ble Supreme Court held that: "37. The option to accept or not to accept the report is with the insurer. However, if the rejection of the report is arbitrary and based on no acceptable reasons, the courts or other forums can definitely step in and correct the error committed by the insurer while repudiating the claim of the insured. We hasten to add, if the reports are prepared in good faith, with due application of mind and in the absence of any error or ill motive, the insurance company is not expected to reject the report of the surveyors. 30. The observations in the abovementioned Sri Venkateswara Syndicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 'resolution Plan' submitted by 'Ultratech Cement Limited, gist of which noticed earlier and being satisfied that the 'resolution Plan' approved by the 'Committee of Creditors' under sub-section (4) of Section 30 in its 17th meeting held on 28th May, 2018 meets the requirements as referred to in sub-section (2) of Section 30, we approve the revised 'Resolution Plan' submitted by 'Ultratech Cement Limited' which shall be binding on the 'corporate debtor' and its employees, members, Creditors, guarantor and other stakeholders involved in the 'Resolution Plan'." As opposed to the contention of Ld. Counsel for Respondents, the Ld. Counsel for Appellant has sought to distinguish the observations in this judgment by stating that the CIRP period has to be extended by a formal and proper order of Adjudicating Authority which was not done in the instant case. 33. The relevance of liquidation value for fixing of payments to various classes of creditors is evident in the observations made in the judgment of Hon'ble Supreme Court in Pratap Technocrats (P) Ltd. & Ors. v. Monitoring Committee of Reliance Infratel Limited and Anr. [(2021) 10 Supreme Court Cases 623] wherein the following is he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with. The proviso to 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 passage (para 54) of which we have reproduced in earlier part of this judgment. The case of MSL in their appeal is that they want to run the company and infuse more funds. In such circumstances, we do not think the Appellate Authority ought to have interfered with the order of the Adjudicating Authority in directing the successful Resolution Applicant to enhance their fund inflow upfront. 29. The other contention raised that upfront payment is below the revised liquidation value and therefore, the Plan could not be accepted. On the other hand, Hon'ble NCLAT has held in Company Appeal No.637/2018 that this Tribunal to decide the Application under Section 31 of IBC without being influenced by the previous order. When such is the case, the revised Liquidation value has no role to play while considering the resolution plan submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res of the Code before it arrives at a commercial decision to pay off the dues of financial and operational creditors. There is no doubt whatsoever that the ultimate discretion of what to pay and how much to pay each class or subclass of creditors is with the Committee of Creditors, but, the decision of such Committee must reflect the fact that it has taken into account maximising the value of the assets of the corporate debtor and the fact that it has adequately balanced the interests of all stakeholders including operational creditors. 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 duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 61 as regards the scope of appeal against the order of approval. 77.1. Such limitations on judicial review have been duly underscored by this Court in the decisions above-referred, where it has been laid down in explicit terms that the powers of the Adjudicating Authority dealing with the resolution plan do not extend to examine the correctness or otherwise of the commercial wisdom exercised by the CoC. The limited judicial review available to Adjudicating Authority lies within the four corners of Section 30(2) of the Code, which would essentially be to examine that the resolution plan does not contravene any of the provisions of law for the time being in force, it conforms to such other requirements as may be specified by the Board, and it provides for: (a) payment of insolvency resolution process costs in priority; (b) payment of debts of operational creditors; (c) payment of debts of dissenting financial creditors; (d) for management of affairs of corporate debtor after approval of the resolution plan; and (e) implementation and supervision of the resolution plan. &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration of the Adjudicating Authority. The matter of undertaking forensic audit was discussed by the CoC in its 20th meeting and it was conducted on the direction of the CoC. This report was received on 20.1.21 by the RP, who sent it to the creditors vide e-mail dated 8.2.2021. The Learned Counsel for Respondent has claimed that since the creditors did not raise any objection or concerns regarding the contents of the Forensic Audit report, it was not placed before the Adjudicating Authority. The Learned Counsel for Appellant has claimed that the CoC approved the resolution plan on 27.10.2020 which was subsequently submitted by the Resolution Professional for Adjudicating Authority's approval. Hence when the Forensic Audit Report became available, the resolution plan was still under consideration of the Adjudicating Authority, and hence it was desirable that the forensic audit report should have been put before the Adjudicating Authority, more so when it contained glaring instances of omission and commission with regard to the assets of the corporate debtor which could have been recovered thereby adding to the kitty available with the corporate debtor which could have accrued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders and creditors are concerned. In order to assess the quantum of payments we disregard the third valuation of liquidation value for reasons that have been discussed extensively earlier in this judgment and assume that the liquidation value would be the average of the first two liquidation value estimations, which would be Rs. 123.66 crores. The full CIRP cost of Rs. 8 crores would be paid out of the assumed liquidation valuation of Rs.123.66 crores and Rs.115.66 crores will remain available for payment to workmen, employees, financial creditors and operational creditors. The appellant Simbhaoli Sugars has raised the issue of payments to creditors in its appeal. 44. After careful consideration of the rival submissions of the parties and the record and as per detailed discussion and analysis, we are of the view that the third valuation report of fair and liquidation should be discarded as it is not in accordance with the stipulated provision and procedure in the CIRP Regulations, and moreover the wide variance of the liquidation value of the third valuation report from the first two valuation reports also necessitates discarding of the third valuation report. Therefore, the avera ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
