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TMI Blog2024 (4) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... nterfere in the approval of the Plan by the Adjudicating Authority or the Appellate Tribunal, i.e., only when the Plan is not in compliance with statutory provisions of Section 30, sub-section (2). The law is thus well settled that commercial wisdom of the CoC approving the Plan cannot be interfered and it can be interfered only when there is statutory non-compliance, i.e., non-compliance of Section 30, subsection (2). Thus, we need to answer the question as to whether there is statutory non-compliance in the present case - the Hon ble Supreme Court in JAYPEE KENSINGTON BOULEVARD APARTMENTS WELFARE ASSOCIATION ORS. VERSUS NBCC (INDIA) LTD. ORS. [ 2021 (3) TMI 1143 - SUPREME COURT] , held that Operational Creditors are to be paid in priority over the Financial Creditors only by cash and not by issuing of equity. The distribution of the amount to the Operational Creditor (other than Government Departments) is clearly contrary to provisions of Section 30 (2)(b)(ii). The Adjudicating Authority has failed to advert to Section 30, sub-section (2) (b) (ii) and failed to notice that amount proposed to the Operational Creditor is clearly contrary to Section 30(2)(b)(ii) - order of Adjudicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Resolution Plan have been noticed by Adjudicating Authority in paragraph 7 of the judgment, which is as follows: 7. THE KEY FEATURES OF THE RESOLUTION PLAN ARE SUMMARIZED BELOW : Resolution Applicant Proposed Amount Admitted Amount Amount (in Rs.) Timeline Section of Resolution Plan Payment of CIRP cost (at actual) 35,00,000 Within 25 days of NCLT Approval Date Para 7.3.1 Payment to the Secured Financial Creditors 19,65,908 19,65,908 Within 25 days of NCLT Approval Date Para 7.3.3 Payment to the Secured Financial Creditors NA NA NA NA Payment to the Secured Creditors Operational Creditors Government Departments NA NA NA NA Payment towards the Operational Creditors (Government Departments) whose claims are contingent Total contingent claim as per claim register is Rs.377,37,53,914 4 (notional amount of Rs.1/- each statutory department) 15,00,000 With 25 Days of NCLT Approval Date Para 7.3.4.1 Payment towards the Operational Creditors (Non- Government) 16,36,64,956 35,34,092 PLUS Option of Partly Paid redeemable Preference Shares 1,60,00,000 Rs.8,00,00,000 PLUS Balance lying in CIRP bank account of Corporate Debtor as on Approval of this Plan by AA (other than the amount of E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Plan by AA, shall have an Option (in proportion to the aggregate of their admitted claims) for subscription of the 6% total 1,60,00,000 partly paid (Rs 5/- paid) Non Cumulative, Non-Participating, Redeemable preference shares having face value of Rs 10/- each, redeemable at the end of 15 years from the date it becomes fully paid up. The said partly paid preference shares is proposed to be allotted in proportion to their admitted claims which is unpaid after upfront cash payment to the operational creditors who have exercised its/their option for subscription of partly paid preference share. After the approval of this resolution plan by AA, RA shall send communication to each operational creditor (other than Statutory Claim of Government Departments whose claims are accepted as contingent claim by RP) for exercise of option for subscription and if such option is exercised, then such operational creditors will be allotted such redeemable partly paid (Rs. 5/- paid up per share) preference shares of Rs. 10/- each within 45 days from the Approval Date. The Resolution Applicant shall a have a right, in its sole discretion, to call for the balance amount of Rs. 5/- per each preference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (CLAIM FILED) 3, 62, 54, 74, 594/- 2. Department of CGST C. Excise Noida Sector 3, Gautam buddha nagar, Uttar Pradesh (CLAIM NOT FILED) 6, 38, 80, 498/- 3. Office of principal Commissioner of C.GST and Excise: Mumbai (CLAIM NOT FILED) 44, 17, 634/- 4. Dy. Commissioner of Income Tax, Circle 76 (1), Laxminagar Delhi (CLAIM NOT FILED). 7, 99, 81, 187/- TOTAL 3,77,37,53,914 It may be noted that out of the said government departments, only one government department at Serial no. 1 of the above table had filed its claim with the RP. The contingent claims are pending at respective Appellate level and are disputed. To protect the interest of those disputed government demands and to ensure that this resolution plan does not affect prejudicially to any stakeholders and to buy peace, the RA proposes to pay abovementioned an Upfront Amount of INR 15,00,000/-(Fifteen Lacs only) in proportion to contingent claim, in respect of disputed demand amount of the respective government department, within a period of 25 days from the Approval Date of this Resolution Plan towards full and final settlement / discharge of the entire amounts of such government dues. Any and all liabilities and all amounts du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 88 of the IA. (v) Under the Resolution Plan, total claim of the Operational Creditor was admitted as Rs.16,36,64,956/- and the amount proposed to the Operational Creditor was Rs.35,34,092/-, i.e., 2.16% as a cash payment. The Plan also proposed partly paid redeemable preference share of CD at the option of Operational Creditor, whose value was mentioned @ 49.96%. The Appellant - Operational Creditor aggrieved by the order has come up in this Appeal. 3. We have heard Shri Nipun Gautam, learned Counsel appearing for the Appellant; Shri Navin Pahwa, learned Senior Counsel with Shri Karan Valecha, learned Counsel appearing for Respondent No.2. Learned Counsel for the parties have also filed their written submissions. 4. Learned Counsel for the Appellant, challenging the impugned order submits that the Resolution Plan submitted by Respondent No.2 was not in compliance of Section 30, sub-section (2) (b). It is submitted that under the Resolution Plan cash upfront amount, which has been offered to the Operational Creditor is contrary to Section 30 (2) (b) (ii). It is submitted that liquidation value of the Corporate Debtor is Rs.5.74 lakhs and the total Plan amount offered by Resoluti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of provisions of Section 30, subsection (2). The extent of judicial review of Resolution Plan approved by the CoC in its commercial wisdom are very limited. The Hon ble Supreme Court in Committee of Creditors of Essar Steel India Ltd. vs. Satish Kumar Gupta and Ors. - (2020) 8 SCC 531 as well as in K. Sashidhar v. Indian Overseas Bank - (2019) 12 SCC 150 has laid down that commercial wisdom of the CoC has to be given paramount importance and limited jurisdiction provided to interfere in the approval of the Plan by the Adjudicating Authority or the Appellate Tribunal, i.e., only when the Plan is not in compliance with statutory provisions of Section 30, sub-section (2). 8. The law is thus well settled that commercial wisdom of the CoC approving the Plan cannot be interfered and it can be interfered only when there is statutory non-compliance, i.e., non-compliance of Section 30, subsection (2). Thus, we need to answer the question as to whether there is statutory non-compliance in the present case. We may also notice judgment of the Hon ble Supreme Court in Jaypee Kensington Boulevard Apartments Welfare Association and Ors. vs. NBCC (India) Ltd. Ors. (2022) 1 SCC 401, where the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Insolvency and Bankruptcy Code, 2016 (the Code) was enacted with a view to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order or priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India. 2. The Preamble to the Code lays down the objects of the Code to include the insolvency resolution in a time bound manner for maximisation of value of assets in order to balance the interests of all the stakeholders. Concerns have been raised that in some cases extensive litigation is causing undue delays, which may hamper the value maximisation. There is a need to ensure that all creditors are treated fairly, without unduly burdening the Adjudicating Authority whose role is to ensure that the resolution plan complies with the provisions of the Code. Various stakeholders have suggested that if the creditors were treated on an equal footing, when they have dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to facilitate decision making in the committee of creditors, especially when financial creditors are large and heterogeneous group; (e) to amend sub-section (2) of section 30 of the Code to provide that (i) the operational creditors shall receive an amount that is not less than the liquidation value of their debt or the amount that would have been received if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priorities in section 53 of the Code, whichever is higher; (ii) the financial creditors who do not vote in favour of the resolution plan shall receive an amount that is not less than the liquidation value of their debt; (iii) the provisions shall apply to the corporate insolvency resolution process of a corporate debtor (A) where a resolution plan has not been approved or rejected by the Adjudicating Authority; or (B) an appeal is preferred under section 61 or 62 or such appeal is not time barred under any provision of law for the time being in force; or (C) where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan; (f) to amend sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Adjudicating Authority; (ii) where an appeal has been preferred under section 61 or section 62 or such an appeal is not time barred under any provision of law for the time being in force; or (iii) where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan; 11. The legislative change, which has been brought by the aforesaid amendment with regard to Operational Creditor has been brought with the object of balance the interests of all the stake holders and opportunity provided for fair treatment to all stake holders. Sub-clause (b) of subsection (2) of Section 30 provides that the Operational Creditor has to be paid an higher amount out of amount as provided in Section 30(2)(b) (i) and 30(2)(b)(ii). It is admitted fact between the parties that liquidation value of the Financial Creditor is INR 5.74 lakhs and the total Plan amount offered by SRA is INR 9.05 crores. The Plan value being higher, the payment to the Operational Creditor has to be made as per Section 30(2)(b)(ii). It is relevant to notice that there is only one Financial Creditor in the present case, who is 100% CoC Member and the Resolu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Operational Creditor has been made under the Plan, no other part of the Resolution Plan is being sought to be challenged. In the facts of the present case, we are of the view that order passed by Adjudicating Authority dated 09.11.2023 requires to be modified. No other part of the Resolution Plan being under challenge, ends of justice will be served in modifying the order of the Adjudicating Authority only with respect to distribution to the Operational Creditor. It was obligatory for the Resolution Plan to comply with the provisions of Section 30(2)(b)(ii) in the facts of the present case. Hence, the order is modified to make it in compliance of the provisions of Section 30, sub-section (2) (b)(ii). 13. In the facts of the present case, ends of justice will be served in disposing of the Appeal with following directions : (I) The order of Adjudicating Authority dated 09.11.2023 is modified to the extent of approving the distribution to the Operational Creditors, including the Appellant. Rest of the order is affirmed. (II) To save the approval of Resolution Plan in its entirely, we direct that Resolution Applicant shall distribute the Resolution Plan amount to the Operational Cre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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