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TMI Blog2022 (5) TMI 1365X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellant Operational Creditor is fair and equitable or not? Whether the consideration of Resolution Plan of Respondent No.3 by the CoC after expiry of 330 days, vitiate the approval of the Resolution Plan? - HELD THAT:- This Tribunal in the same very judgment while relying on judgment of the Hon ble Supreme Court in COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LIMITED THROUGH AUTHORISED SIGNATORY VERSUS SATISH KUMAR GUPTA OTHERS [ 2019 (11) TMI 731 - SUPREME COURT ] held that time-line provided in Section 12 is not mandatory and in certain cases, time-line can be extended. The Appeal filed by WBFC on the aforesaid ground was dismissed. The same very ground, which were raised by WBFC unsuccessfully before the Adjudicating Authority as well as before this Tribunal, are being pressed by the learned Senior Counsel for the Appellant - there are no error in extension of 330 days time by the Adjudicating Authority, the consideration of the Resolution Plan was also approved by this Tribunal and cannot be permitted to be reagitated in the instant Appeal. Whether the Appellant is entitled to claim its unpaid CIRP dues as per West Bengal Electricity Regulatory Commission (Electricity Supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... THAT:- The present is not a case where the Appellant is contending that payment of debt to the Appellant/ Operational Creditor is not as per provisions of Section 30, sub-section (2), sub-clause (b), (i) and (ii). It is not a case that Appellant could not have been entitled to receive any higher amount in event of liquidation of the Corporate Debtor under Section 53, in event amount to be distributed under the Plan is distributed in accordance with priority of sub-section (1) of Section 53 - Law being now settled that mere fact that Operational Creditors and Financial Creditors are not paid same amount and same percentage, cannot be said to be inequitable. It is settled that the Code and the Regulations does not contemplates that there could be equal treatment to all creditors. The Insolvency Law Committee Report 2018 deliberated upon the objection to Section 30, sub-section (2), sub-clause (b), insofar as it provides for minimum payment of liquidation value. It was also noticed that public comments were received by the Committee stating that the liquidation value, which is guaranteed to the Operational Creditors may be negligible as they fall under the residual category of credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en filed against the order dated 08.10.2021 passed by the National Company Law Tribunal, Kolkata Bench, Kolkata allowing I.A. No.479/KB/2021 filed by Resolution Professional for approval of Resolution Plan, by which order, Resolution Plan submitted by Respondent No.3 - C.P. Ispat Private Limited has been approved. 2. Brief facts of the case necessary to be noticed for deciding this Appeal are: (i) The Corporate Debtor - Dimension Steel and Alloys Private Limited had obtained and entered into Power Purchase Agreement with the Appellant for supply of electricity in the premises of Corporate Debtor on 30.11.2012. (ii) The Corporate Debtor committed default in making payment of electricity dues. Hence, disconnection notices were issued by the Appellant to the Corporate Debtor and on 07.06.2019 the power supply was disconnected. (iii) On Application filed by M/s Carbon Resources Pvt. Ltd. under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the "Code"), Corporate Insolvency Resolution Process ("CIRP") was initiated against the Corporate Debtor by the Adjudicating Authority vide order 18.10.2019. (iv) The Interim Resolution Professional (IRP) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtaining the Resolution Plan as well as its approval is vitiated, since the Plan was received much after expiry of 330 days' time, which is the maximum time allowed under Section 12 of the Code. It is submitted that 330 days' time came to an end on 12.09.2020 and the extensions granted by CoC also came to an end in December, 2020, after which, the Plan of Respondent No.3 could not have been entertained. It is submitted that Adjudicating Authority committed error in passing order on 16.03.2021 directing for consideration of Plan of Respondent No.3, which could not have been done after expiry of the time-line prescribed in the Code. It is further submitted that in the Resolution Plan, dues of the Appellant had not been reflected. The Appellant's electricity dues of Rs.36,35,64,214/- were of pre-CIRP period against which the Appellant was given a meagre amount of Rs.7,45,608/-. It is further submitted that the Plan does not comply with the provisions of Section 30, sub-section (2), insofar as the Operational Creditor is concerned, as neither fair nor equitable amount has been allowed. 5. Learned Senior Counsel for the Appellant further submitted that the Adjudicating Authority by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lectricity as directed by the Adjudicating Authority. 7. The learned Counsel appearing for Respondent No.2 has also supported the submissions of Shri Joy Saha. 8. We have heard submission of learned Counsel for the parties and have perused the record. 9. From the submission of learned Counsel for the parties and material on record, following are the questions, which arose for consideration in this Appeal: (1) Whether the consideration of Resolution Plan of Respondent No.3 by the CoC after expiry of 330 days, vitiate the approval of the Resolution Plan? (2) Whether the Appellant is entitled to claim its unpaid CIRP dues as per West Bengal Electricity Regulatory Commission (Electricity Supply Code) Regulations, 2013 even after approval of the Plan by order dated 08.10.2021? (3) Whether Resolution Plan violates Section 30, sub-section (2), sub-clause (e) in view of West Bengal Electricity Regulatory Commission (Electricity Supply Code) Regulations, 2013 since it contravenes Regulation 4.6.4 as well as Regulation 4.6.1 of the Statutory Regulations? (4) Whether the Resolution Plan is in accordance with Section 30, sub-section (2), sub-clause (b) and the distribution to the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strictly follow the time frame given by the Adjudicating Authority and displeasure was expressed, when Adjudicating Authority exercised discretion not to pass order of liquidation and wait, we will not interfere in the discretion. When the Resolution Plan is on the verge of being accepted or rejected by the CoC it would not make much difference if little time is extended." 19. In the present case, the Adjudicating Authority vide Order dated 16.03.2021 condoned the delay of 43 days in submitting the Resolution Plan by the CP Ispat Pvt. Ltd. (R2) and RP was directed that the Resolution Plan be placed before the COC for consideration on or before 22.03.2021 and the COC shall be deliberate on the Resolution Plan in its feasibility and viability and take a decision on or before 25th March, 2021. This Order was not challenged by the Appellant. It is true that the COC has not strictly adhered to the timeline fixed by the Adjudicating Authority and on 08.04.2021, the COC approved the Resolution Plan of R2. The Appellant has challenged this action and filed an Application I.A. No.426 of 2021 praying an injunction restraining the COC from considering the Resolution Plan. 20. In the earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... error in extension of 330 days' time by the Adjudicating Authority, the consideration of the Resolution Plan was also approved by this Tribunal and cannot be permitted to be reagitated in the instant Appeal. Question Nos.(2) and (3) 12. Question Nos.(2) and (3) being interconnected are taken up together. 13. The submission of learned Senior Counsel for the Appellant is that under Statutory Regulations, that is, West Bengal Electricity Regulatory Commission (Electricity Supply Code) Regulations, 2013, which are law within the meaning of Section 30, sub-section (2) (e), have been contravened by the Resolution Plan. It is submitted that for giving new connection in a premises where there are pending electricity dues, only after payment of the entire electricity dues, new connection can be given, whereas in the impugned order, Adjudicating Authority has directed for restoration of the electricity without payment of pre-CIRP dues. The Appellant has filed a claim of Rs. 36,35,64,214/-, which claim was admitted by Resolution Professional. It is also on the record that against the aforesaid claim, an amount of Rs.7,45,608/- has been paid to the Appellant. After the approval of the Resol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contrary elsewhere in these Regulations were deemed termination of agreement has taken place, then on the basis of application for any consumer new service connection can only be provided in the same premises if the outstanding dues against the deemed terminated consumer is cleared along with the late payment surcharge." 17. There can be no quarrel with the Statutory Regulations of the West Bengal Electricity Regulatory Commission (Electricity Supply Code) Regulations, 2013. In Regulation 4.6.4, it is contemplated that new service connection can only be provided in the same premises if the outstanding dues against the deemed terminated consumer is cleared, but the said Regulations cannot be pressed in service, when the Resolution Plan has been approved in the CIRP under the Code. The Code has been given overriding effect, on any other inconsistent law under Section 238. When any statutory provision including the provisions of West Bengal Electricity Regulatory Commission (Electricity Supply Code) Regulations, 2013 are overridden, the question of contravention of such provision does not arise. In event, the submission of learned Senior Counsel is accepted that all laws in force, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C contract that C shall continue to supply B with oil for ready money, and that the payments shall be applied to the then, existing debts between B and C. A is not liable on his guarantee for any goods supplied after: this new arrangement. (e) C contracts to lend B 5,000 rupees on the 1st March. A guarantees repayment. C pays the 5,000 rupees to B on the 1st January. A is discharged from his liability, as the contract has been varied, inasmuch as C might sue B for the money before the 1st of March." The question which arose for consideration in the above judgment is as to whether when the Resolution Plan modifies the debt, whether guarantor shall stand released from their guarantee by virtue of Section 133. The same was answered by Hon'ble Supreme Court in paragraph 25 to the following effect: "25. Section 31 of the Act was also strongly relied upon by the respondents. This section only states that once a resolution plan, as approved by the Committee of Creditors, takes effect, it shall be binding on the corporate debtor as well as the guarantor. This is for the reason that otherwise, under Section 133 of the Contract Act, 1872, any change made to the debt owed by the corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Resolution Plan, so that the operations of the Corporate Debtor can be restarted without any delay. The Corporate Debtor under the new management shall pay the applicable security deposit as for a new connection." 20. Thus, under the Plan, the Appellant electricity supply provider is obliged to reconnect the electricity, which is provision of the Resolution Plan and Appellant cannot be heard in saying that since the Statutory Regulation 4.6.1 and 4.6.4 are not complied, the Appellant is not obliged to reconnect the electricity without payment of outstanding electricity dues. In view of the above, the Question Nos.(2) and (3) are answered accordingly. Question No.4 21. The next submission of learned Senior Counsel for the Appellant is that the Plan is not in accordance with Section 30, sub-section (2), sub-clause (b) and the distribution to the Appellant, who is an Operational Creditor is neither fair nor equitable. Section 30, sub-section (2), sub-clause (b), on which reliance is placed, provides as follows: "30. Submission of resolution plan. (2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan - (b) pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. The Hon'ble Supreme Court in Committee of Creditors of Essar Steel India Ltd. (supra) had occasion to consider the provision of Section 30, sub-section (4) of the Code and the grounds on which challenge to a Resolution Plan can be entertained by the Adjudicating Authority or by this Appellate Tribunal. The Hon'ble Supreme Court also considered the submission as to whether payment, which is not similar to both Financial Creditors and Operational Creditors is inequitable distribution. The Hon'ble Supreme Court in the said judgment has clearly laid down that minimum value that is required to be paid to Operational Creditors is set out in Section 30(2)(b). In paragraph 70, following has been laid down: "70. The minimum value that is required to be paid to operational creditors under a resolution plan is set out under Section 30(2)(b) of the Code as being the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under Section 53. The Insolvency Committee constituted by the Government in 2018 was tasked with studying the major issues that arise in the working of the Code and to recommend changes, if any, required to be made to the Code. The Insol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cult. The Committee also discussed the possibility of using "resolution value" or "bid value" as the floor to be guaranteed to operational creditors but neither of these were deemed suitable. 18.4. It was stated to the Committee that liquidation value has been provided as a floor and in practice, many operational creditors may get payments above this value. The Committee appreciated the need to protect interests of operational creditors and particularly Micro, Small and Medium Enterprises ("MSMEs"). In this regard, the Committee observed that in practice most of the operational creditors that are critical to the business of the corporate debtor are paid out as part of the resolution plan as they have the power to choke the corporate debtor by cutting off supplies. Illustratively, in Synergies-Dooray Automative Ltd., In re [Synergies-Dooray Automative Ltd., In re, 2017 SCC OnLine NCLT 20883] , the original resolution plan provided for payment to operational creditors above the liquidation value but contemplated that it would be made in a staggered manner after payment to financial creditors, easing the burden of the 30-day mandate provided under Regulation 38 of the CIRP Regulati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... muster. On the contrary, para 77 itself makes it clear that there is a difference in payment of the debts of financial and operational creditors, operational creditors having to receive a minimum payment, being not less than liquidation value, which does not apply to financial creditors. The amended Regulation 38 set out in para 77 again does not lead to the conclusion that financial and operational creditors, or secured and unsecured creditors, must be paid the same amounts, percentage wise, under the resolution plan before it can pass muster. Fair and equitable dealing of operational creditors' rights under the said regulation involves the resolution plan stating as to how it has dealt with the interests of operational creditors, which is not the same thing as saying that they must be paid the same amount of their debt proportionately. Also, the fact that the operational creditors are given priority in payment over all financial creditors does not lead to the conclusion that such payment must necessarily be the same recovery percentage as financial creditors. So long as the provisions of the Code and the Regulations have been met, it is the commercial wisdom of the requisite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. What is important is that it is the commercial wisdom of this majority of creditors which is to determine, through negotiation with the prospective resolution applicant, as to how and in what manner the corporate resolution process is to take place." 28. When we read paragraph 64 of the judgment along with paragraph 71, it is clear that the observations in paragraph 64 were with respect to electricity dues during the CIRP period, since the Hon'ble Supreme Court wanted to ens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y commencement date between a willing buyer and a willing seller in an arm's length transaction, after proper marketing and where the parties had acted knowledgeably, prudently and without compulsion." However, it was felt that assessment and payment of the fair value upfront, may be difficult. The Committee also discussed the possibility of using 'resolution value' or 'bid value' as the floor to be guaranteed to operational creditors but neither of these were deemed suitable. 18.4 It was stated to the Committee that liquidation value has been provided as a floor and in practice, many operational creditors may get payments above this value. The Committee appreciated the need to protect interests of operational creditors and particularly Micro, Small and Medium Enterprises ("MSMEs"). In this regard, the Committee observed that in practice most of the operational creditors that are critical to the business of the corporate debtor are paid out as part of the resolution plan as they have the power to choke the corporate debtor by cutting off supplies. Illustratively, in the case of Synergies-Dooray Automative Ltd.105, the original resolution plan provided for payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t part of CoC like Financial Creditors and they have no control over the CIRP. It is the Financial Creditors, who control the entire process and take commercial decision regarding payment to the Financial Creditors, Operational Creditors and other creditors. Law gives complete freedom to the Committee of Creditors to take commercial decision and it is not obligatory that in the Resolution Plan, if the liquidation value of Operational Creditor is negligible/ nil to allot any higher amount to the Operational Creditors. We are consistently receiving the Plans, where Operational Creditors either not paid any amount towards their claim or paid negligible amount, sometime even less than 1%. In the present case, the Operational Creditors have been given only miniscule of their admitted claim to the extent of only 0.19%. As the law stand today, no exception can be taken to such Plans, which provide payment to Operational Creditor in accordance with Section 30(2)(b) of the Code. However, the time has come when it should be examined by the Government and the Board to find out as to whether there are any grounds for considering change in the legislative scheme towards the payment to the Opera ..... X X X X Extracts X X X X X X X X Extracts X X X X
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