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TMI Blog2024 (2) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant. Further, in Clause 2 as added on 18.01.2023 provided for option to elect the fresh equity allotment by the CoC. CoC never opted to accept equity allotment as offered by the Appellant. When equity allotment was never accepted there was no question of giving any marks to the Appellant on equity allotment. Thus, allocation of no marks in the equity allotment was as per the Process Document and evaluation matrix and the Adjudicating Authority did not commit any error in rejecting IA No.413 of 2023. Further, value of the equity offered by the Appellant is Rs.200 Crores which does not meet the minimum INR 250 Crores threshold as prescribed in the evaluation matrix - no error was committed in not allocating any marks to the Appellant on equity allotment and the first submission raised by the Appellant has no merit. Mis-calculation of the NPV of the Respondent No.2 which according to the Appellant is not accordance with the evaluation matrix - HELD THAT:- The determination of NPV of the Respondent No.2 as per final Resolution Plan as done by the Consolidated CoC and its advisors, thus, has to be treated as final and cannot be allowed to be challenged by any other Resolution Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ul, Mr. Pranjit Bhattacharya, Ms. Namrata Rastogi, Advocates. For the Respondents : Mr. Krishnendu Datta, Sr. Advocate with Mr. Navneet R., Mr. V.P. Singh, Mr. Raghav Shankar, Mr. Rahul Gupta, Mr. Bharat Makkar, Ms. Praneeta, Ms. Neha Agarwal, Advocates for R-1. Mr. Arun Kathpalia, Sr. Advocate with Mr. Saurav Panda, Mr. Vaijyant Paliwal, Ms. Charu Bansal, Ms. Arushi Chandra, Mr. Mehek Nayak, Ms. Rashi Sharma, Ms. Diksha Gupta, Advocates for CoC. Mr. Abhinav Vasisht, Sr. Advocate with Mr. Raunak Dhillon, Mr. Dhananjay Kumar, Mr. Anush Mathkar, Ms. Annie Jain, Mr. Nihaad Dewan, Advocates for R-2/NARCL. And Shri Gopal Jain, Senior Advocate for RBI. JUDGMENT ASHOK BHUSHAN, J. This Appeal has been filed challenging the order dated 11.08.2023 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Court-I, Kolkata in IA No. 413/KB/2023, IA No. 557/KB/2023, IA No.428/KB/2023 and IA No.557/KB/2023 in C.P.(IB) No.294-295/KB/2021. By the impugned order, the Adjudicating Authority has rejected IA No. 413/KB/2023 and IA No.557 /KB/2023 filed by the Appellant raising of objection to Resolution Process of the Corporate Debtors- SREI Infrastruct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.01.2023 which time period was further extended to 18.01.2023. On 18.01.2023, Appellant as well as Respondent No.2 submitted their final Resolution Plans. The Process Advisors of CoC provided a copy of the document titled Discussion on Evaluation Matrix Parameters for consolidated CIRP of SEFL and SIFL evaluating all three final resolution plans received from Appellant as well as Respondent No.2. On 13.02.2023, an addenda to Minutes of CoC Meeting dated 03.01.2023 was issued on the basis of comments received from SBI Capital Markets (CoC Process Advisors). The voting on the plan was concluded on 15.02.2023 and the plan submitted by Respondent No.2 was approved by the CoC by 84.86% votes. The Appellant filed an IA No.413 of 2023 on 17.02.2023 complaining about incorrect scores awarded for the Resolution Plan submitted by Applicant towards the equity allotment to financial creditors . Another IA No.295/KB/2023 was filed by certain debenture holders of Corporate Debtors in which Appellant was also impleaded, the Resolution Plan of the Respondent No.2 was also annexed, the Appellant being made party to the said application, he had also received the copy of the Resolution Plan of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x. Counsel for the Appellant further submitted that in IA No. 557 of 2023, Appellant has raised objection to NPV calculation of the Respondent No.2 who in its Resolution Plan has prayed for relaxation and computation of NPV to the Respondent No.2 was done on the relax criteria. Exemption was granted to NARCL on 13.02.2023 which is apparent from Annexure to the CoC meeting dated 03.01.2023 issued on 13.02.2023 only. NARCL s Resolution Plan includes part payment to the Financial Creditors by way of issuance of the security receipts. As per the evaluation matrix, 60% discounting rate was applicable on the security receipts whereas the NPV of the Appellant on the security receipts have not been computed with 60% discounting. Security receipts has been discounted under the heading first pari-passu secured with committed repayment schedule whereas security receipt which is defined under SARFAESI Act, 2002 covered the security receipt submitted by Respondent No.2 and computation of NPV with regard to security receipts submitted by Respondent No.2 was not as per the evaluation matrix which is binding on all Resolution Applicants. Definition of security receipt under the SARFAESI Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the Resolution Plan with overwhelming majority is not justiciable. Consolidated CoC is comprised of 44 Financial Creditors consisting of all major and public sector banks, foreign lenders and leading financial institutions which are led by seasoned bankers and lenders who deal and transact in all kinds of financial instruments and weigh the commercial effects. Challenge Process was completed in five rounds on 03.01.2023 in which NPV of Respondent No.2 was declared as highest as Rs.5555 Crores as opposed to the Appellant s NPV which was Rs.5526. The CoC as per clause 3.3 of the Process Document had reserved its right to approve any Resolution Plan as it deemed fit in its commercial wisdom, notwithstanding whether or not the resolution plan has highest NPV. The voting on the Resolution Plans took place between 21.01.2023 and 14.02.2023 during which CoC members carried out their own internal deliberations on the feasibility and viability of each Resolution Plan before casting their votes. SBI Capital Markets were CoC Process Advisors who has correctly evaluated the NPV as per the evaluation matrix and placed the same before the CoC, not only the evaluation of the Resolution Plan but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and cannot be modified in any manner subsequent to the Challenge Process. Resolution Plan submitted by the Appellant on 31.12.2022 as well as on 05.01.2023 did not contain any provision for equity allotment to the Financial Creditors. Even the plan submitted by the Appellant on 14.01.2023 did not contain any provision for equity allotment and it was only on 18.01.2023 plan of the Appellant by surreptitiously changed its financial proposal by including a choice between the profit sharing and equity allotment. The option of equity offered has rightly not been considered by the CoC and no marks have been awarded to the Appellant. It is further to notice that even as per the Resolution Plan submitted on 18.01.2023, option was given to the CoC to elect the fresh equity allotment or profit sharing. CoC has never elected to accept equity allotment there is no occasion to allot any marks to the Appellant. Further, the value of the equity offered by the Appellant i.e. Rs. 200 Crores does not meet the minimum Rs.250 Crores threshold as specified in the evaluation matrix for the award of points. 6. Shri Arun Kathpalia, Learned Senior Counsel appearing for Consolidated Committee of Credito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 03.01.2023 by e-mail which was issued at 12.49 PM which was much prior to the commencement of CoC meeting at 2.00 P.M. CoC in its Affidavit has already clarified that the e-mail dated 03.01.2023 was placed in the CoC meeting held on 03.01.2023 and was discussed. There were 44 members in the CoC, no one has controverted about e-mail dated 03.01.2023 sent by NARCL. Appendix on 13.01.2023 was issued by Respondent No.1 only recording what actually transpired on 03.01.2023. No member of the CoC has disputed the appendix or recording of appendix. No relaxation has been ever granted to Respondent No.2 and the marks have been allocated for calculation of NPV of the Respondent No.2 as per the evaluation matrix. Appendix is always issued after the meeting was over. It is relevant to notice that all the three PRAs issued clarification on 19.01.2023. In a meeting held on 29.01.2023, it was decided an addendum be issued regarding clarification. The Appellant filed addendum after 20.01.2023 on 23.01.2023. NARCL also submitted its addendum on 24.01.2023. Addendum however could not have altered financial proposal submitted by the PRAs in the Resolution Plan submitted by the Appellant. After Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 Qualitative Sub-total 150% 15 Grand Total 100 10. Evaluation Matrix for NPV of cash recovery to creditors is to the following effect:- EVALUATION MATRIX- NPV OF CASH RECOVERY TO CREDITORS S. No. Scale Weightage 2 NPV of cash recovery to creditors Period of cash recovery Discount Rate 0-10 550% 55 0-90 days 0% 91 days-1 year 8% 1 year-3 years 10% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % 19.99% 8 20.00% 25.00% 24.99% above 10 0 Financial Creditors may hold maximum of 49% stake in Corporate Debtor (subject to the terms of RFRP) and scoring will be basis fully diluted stake in the Corporate Debtors allocated to financial creditors only. The equity stake offered by the Resolution Applicant(s) to the financial creditors over and above (a) and Upfront Cash Recovery considered under parameter and (b) the instrument offered and considered under parameter 2, shall be considered for scoring. 12. We now come to the Challenge Process Document which was issued on 27.12.2022. Challenge Process Document dated 27.12.2022 noticed resolve of the CoC to conduct Challenge Process in following words:- Accordingly, the Consolidated CoC has, in terms of Regulation 39 (1A) of the CIRP Regulations read with Clause 4.4.5 (a) of the RFRP, resolved to conduct the following challenge process to maximise the value of assets and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss. The determination of NPV of the financial proposals by the Consolidated CoC and its advisors shall be binding on the Eligible RAs which shall not be challenged/ objected to by the Eligible RAs. It is clarified that the Discount rate set out in the EM shall be used for the purpose of computation of NPV for the purpose of this Challenge Process and the details are set out in the Annexure A. (iii)The Eligible RAs shall provide the calculated NPV for each financial proposal on a self- certification basis. Notwithstanding the aforesaid, the calculation of the NPV by the Consolidated CoC and its advisors will be based solely on the financial proposal(s) submitted by each of the Eligible RAs in the Excel/ PDF format; i.e., the details of the values filled up for the Identified Criteria. For avoidance of doubt, it is clarified that in the event of any inconsistency between the values provided for the Identified Criteria by the Eligible RAs in the financial proposal and the selfcertified NPV provided by the Eligible RAs, the values provided for the Identified Criteria by the Eligible RAs shall be considered by the CoC and its advisors for the calculation of the NPV. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted by them. On receipt of Password from PRAs, the same was shared with CoC Advisors for further action. CoC Advisors then presented the NPV values calculated by CoC Advisors as well as self-certified NPV value submitted by the PRAs to the CoC : Round 5 S.N. NPV Values Arena-Varde NARCL Authum 1 Upfront Cash Recovery Not qualified to proceed from Round 2 as per the Challenge Process Document 3,180.00 3,240.00 2 Committed Instruments - - a Secured 2,375.58 2,286.00 b Unsecured - - Total NPV computed 5,555.58 5,526.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficate (along with supporting documents) will be provided to the Assenting Financial Creditors upon request. A representative illustration of the calculation of the Profit Sharing Amount is provided in Annexure B. 17. Appellant submitted its final Resolution Plan on 18.01.2023 in which plan Clause 2 dealt with Profit Sharing Amount (Equity Participation of FC) another clause was added which dealt with equity investment to be made by the CoC. Clause 2 of the final plan dated 18.01.2023 of the Appellant is as follows:- 2. Profit Sharing Amount (Equity Participation of FC) Over and above the Financial Creditors' Payment, the Resolution Applicant shall also, either directly or indirectly through the Corporate Debtor, pay to the Assenting Financial Creditors, the Profit Sharing Amount, if any. The obligation for paying the Profit Sharing Amount shall automatically cease to exist upon completion of 7 years from the Implementation Date. The Profit Sharing Amount will be calculated on a yearly basis upon adoption of the audited financial statements of the Corporate Debtor. Within a period of 60 days from the adoption of the audited financial statements of the Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this Appeal is regarding non-allocation of any marks on equity allotment to the Financial Creditors to the Appellant with regard to which IA No. 413 of 2023 was filed before the Adjudicating Authority. Admittedly, no marks were allocated to the Appellant on equity allotment. Evaluation matrix, as noted above, indicates that on equity allotment to Financial Creditors maximum score is provided as five. When we look into the Resolution Plan submitted by the Appellant, it is clear that the final Resolution Plan which was submitted by the Appellant initially on 14.01.2023 did not contain any clause of equity allotment and it was only on 18.01.2023 when time was extended for submitting the final Resolution Plan, a clause was added as extracted above providing for election by CoC on the equity allotment. The Resolution Plan submitted by the Appellant on 31.12.2022 did not contain any provision for equity allotment to the Financial Creditors. Challenge Process was conducted on 03.01.2023 on the financial proposal submitted by the Financial Creditors. As per Clause 1.4.6 of the Challenge Process Document, the financial proposal during the Challenge Process shall be unconditional and irre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .4.1 of the final Resolution Plan of the Respondent No.2, which is as follows:- 2.4 Proposal for Outstanding Financial Debt 2.4.1 Post the Effective Date, the Resolution Applicant and IDRCL will infuse funds into the Corporate Debtors and other funds towards Assignment Payments, and provide for Corporate Debtors to undertake repayment obligations in the farmer set out in this Resolution Plan, aggregating to INR 14,867,50,00,000 (Indian Rupees Fourteen Thousand Eight Hundred and Sixty Seven Crores Fifty Lakis Only) (the Total Revolution Amount), which amount shall be utilized for finding payments proposed to be made to the stakeholders of the Corporate Debtors, subject to the terms of this Resolution Plan. In addition, the CIRP Costs (to the extent unpaid as on Effective Date) and Interim Period Costs will be paid in the manner set out in Section 3.1 (Payment of CIRP Costs and Interim Period Cost) of this Resolution Plan. The components of the Total Resolution Amount are as follows: Sr. No. Particulars Amount (in INR Crore) 1. AFCs Cash Portion (1A+1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oposal, final plan submitted by the Respondent No.2 security receipts of INR 1800 Crores were backed by committed NCDs redeemable from recoveries of underlying assets of SEFL. When the security receipts were backed by committed NCDs, the submission which has been advanced by the Respondent is that the security receipts submitted by the Appellant with committed repayment schedule will fall in the Item No.1 and 2 in the Evaluation Matrix and security receipts were not to be discounted with 60% discount rate as is contended by the Appellant. The NPV of the Respondent No.2 has been calculated both by the Respondent No.2 as well as the Process Advisors of the CoC treating the security receipts not to be discounted with 60%. We have already noticed the Challenge Process Document dated 27.12.2022 where clause 2 (ii) Challenge Process provides The determination of NPV of the financial proposals by the Consolidated CoC and its advisors shall be binding on the eligible RAs which shall not be challenged/ objected to by the eligible RAs. It is clarified that the Discount Rate set out in the EM shall be used for the purpose of computation of NPV for the purpose of this Challenge Process and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Resolution Plan as extracted above are security receipt with committed repayment schedule and not applying 60% discount rate is in accordance with the evaluation matrix and Process Document. As noted above, as per the Process Document dated 27.12.2022, eligible RAs were to provide calculation of NPV for each financial proposal or on self-certification basis, the Respondent No.2 on the self-certification basis providing NPV. The said NPV is in accordance with the Process Document and calculation made by the Respondent No.2 on the basis of selfcertification is in accordance with the Process Document. 24. It is further relevant to note that in the Process Document dated 27.12.2022, sub-clause 3.3 of Clause 3 clearly reserves right of CoC to approve any Resolution Plan as it deems fit whether or not the Resolution Plan has the highest NPV and Resolution Plan has scored highest in the Evaluation Matrix. Sub-Clause 3.3 of Clause 3 is as follows:- 3.3 The Consolidated CoC, reserves its right to approve any resolution plan as it deems fit, in its commercial wisdom, whether or not the resolution plan has the highest NPV or the resolution plan has been scored the highest in the EM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deliberations in CoC meetings through voting, as per voting shares, is a collective business decision. The legislature, consciously, has not provided any ground to challenge the commercial wisdom of the individual financial creditors or their collective decision before the adjudicating authority. That is made non-justiciable. 27. Next judgment relied by the Respondent is CoC of Essar Steel India Limited vs. Satish Kumar Gupta Ors. (2020) 8 SCC 53 wherein the Hon ble Supreme Court in Paragraphs 64 and 65 of the judgment has held that the decision of the CoC on the feasibility or viability and it is the majority of the CoC who have been left with the decision of feasibility and viability of the plan. Paragraph 64 of the judgment is as follows: 64. Thus, what is left to the majority decision of the Committee of Creditors is the feasibility and viability of a resolution plan, which obviously takes into account all aspects of the plan, including the manner of distribution of funds among the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 77.2. The limitations on the scope of judicial review are reinforced by the limited ground provided for an appeal against an order approving a resolution plan, namely, if the plan is in contravention of the provisions of any law for the time being in force; or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Applicant to challenge the score granted as per the Evaluation Matrix prepared by the CoC. In paragraphs 38 and 39, following has been held:- 38. In view of the decisions of the Hon'ble Supreme Court, it is the settled proposition of law that the commercial wisdom of the Committee of Creditors in approving or rejecting a resolution plan is essentially based on a business decision which involves evaluation of resolution plan based on its feasibility besides the Committee of Creditors being fully informed about the viability of the Corporate Debtor. The Committee of Creditors invariably examine the Resolution Plan and an assessment is made through their team of experts in that regard. 39. Further, there is no such mechanism under the Code that gives the right to the Unsuccessful Resolution Applicant to challenge the score granted as per the evaluation matrix prepared by the CoC and the Resolution Professional as per the provisions of CIRP Regulations. Though, Section 61 of the Code provides Appeals against the orders of the Adjudicating Authority and Sub-section (3) thereof provides an Appeal against an order approving a Resolution Plan under Section 31 which may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Plan provides clear tenure rights, security interest. Counsel for the Appellant has also raised question on the Appendix issued on 13.02.2023 to the CoC dated 03.01.2023. It is useful to extract the Appendix to 32th CoC meeting as brought on record, which is to the following effect:- SREI Infrastructure Finance Limited (SIFL) and SREI Equipment Finance Limited (SEFL) Appendix to 32nd CoC (29th Consolidated CoC Meeting) held on 03-01- 2023 02:00 PM onwards through Virtual Platform (Zoom) The following Appendix to the Minutes of the 32nd CoC (29th Consolidated CoC) meeting is issued based on certain comments received from SBI Capital Markets (CoC Process Advisors) on 13 February 2023. Appendix A Comments by Clarification Sought Modification SBI Capital Markets Addition to Section. 2 on Page No. 2 Addition: The Administrator informed the CoC that a clarification has been received from NARCL before the Challenge Mechanism stating the following 1. Maturity Period for Security Receipts may be read ..... X X X X Extracts X X X X X X X X Extracts X X X X
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