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TMI Blog2024 (10) TMI 830X X X X Extracts X X X X X X X X Extracts X X X X ..... thority rejected the claim of the Appellant to be treated on par with other Financial Creditors and to make the Appellant eligible for distribution of claims as per Resolution Plan. 2. One Jayanta Kumar Panja, an ex-employee of Fort Gloster Industries Limited (Corporate Debtor) filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (in short IBC) for initiation of the Corporate Insolvency Resolution Process on account of default in payment of Rs.1,13,946/- towards his gratuity. The said application bearing CP (IB) No.61/KB/2018 was admitted by the Adjudicating Authority (National Company Law Tribunal, Kolkata Bench, Kolkata) on 09.08.2018. Manish Jain was appointed as the Interim Resolution Professional (IRP) who was replaced by Bijay Murmuria as the Resolution Professional (RP) in the second meeting of Committee of Creditors (CoC) held on 04.12.2018. 3. The RP published Form-G on 05.02.2019 in financial express (English) and in Aajkaal (Bengali) for the purpose of inviting Expression of Interests (EOIs) in which the last date for submission of EOIs was 20.02.2019. The RP received EOI from two Prospective Resolution Applicants (PRAs) on 20.02.2019 i.e. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous categories of claimants and also approved the Resolution Plan. Submission of the Appellant: 5. The Appellant West Coast Paper Mills Ltd., is a limited Company having its registered Office in district Uttar Kannada, Karnataka. The Corporate Debtor, M/s Fort Gloster Industries Ltd has its Offices in Kolkata and is involved in the business of manufacture of jute hessian, gunny bags, all types of rubber and PVC cables etc. 6. The claim of the Appellant is that an amount of Rs. 7,15,41,918/- (Rupees Seven crores, fifteen lakhs, forty-one thousand, nine hundred eighteen only) was paid by them on behalf of Corporate Debtor to KDCC Bank Ltd., due to default by the Corporate Debtor and Corporate Guarantee Bond executed by the Appellant. This payment was made on 25.08.2014. The said amount was transferred into a short term inter-corporate deposit and Corporate Debtor routinely issued balance confirmation to the Appellant. 7. After the initiation of CIRP against the Corporate Debtor, the Appellant filed its claim amounting to Rs. 89,20,02,003.54/- (Rupees Eighty-nine Cores, Twenty Lakhs, Two Thousand and three, paise fifty-four only) which included apart from principal, interest @ 18% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the application being C.A. No. 736/KB/2019. 11. It is further submitted that Appellant, despite being a financial creditor, although related party to the Corporate Debtor, was never provided with minutes of any meeting of the Committee of Creditor ('CoC') of Corporate Debtor. 12. The appellant contends that the Adjudicating Authority, while passing the impugned judgment, held that a related party financial creditor should be equated with the equity shareholder of the corporate debtor under the CIRP. Further, the Adjudicating Authority in the impugned order held that the liquidation value due to a related party Financial Creditor shall be in accordance with Section 53(1)(h) of the I & B Code, 2016 and not in accordance with Section 53(1)(d) of the I & B Code, 2016 under the water fall mechanism. 13. The appellant further submits that the reasons attributed by the Adjudicating Authority in the impugned order in para 75 (supra) are in teeth of the judgment passed by the Hon'ble Supreme Court in M.K. Rajagopalan (supra). He has invited attention to paras 201 to 203 of the aforesaid judgment, which are reproduced below: "201. After taking note of the fact that related party is pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elated party financial creditor with promoters as equity shareholders is far stretched and difficult to be reconciled with the operation of the statutory provisions. 15. Accordingly, the appellant has pleaded that the impugned judgment has been premised upon erroneous and wrong reasoning which is in teeth of the observations passed by the Hon'ble Supreme court in M.K. Rajagopalan (supra). As a consequence of equating the appellant at par with Equity shareholders, the appellant has been illegally and wrongly discriminated in as much as the claims of Central Government and the State Government; secured creditors who have exercised their enforcement rights; remaining debts and dues and preference shareholders have been illegally and wrongly given preference over the claim of the Appellant. Accordingly, the present appeal deserves to be allowed and resolution plan deserves to be set aside and/or remanded back to the CoC for ensuring that the resolution plan is not discriminatory against the Appellant. Submission of Respondents 16. The basic submission of RP who is Respondent No. 1 is that the prayers sought by the appellant are impermissible under the provisions of IBC. The appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 019) 2 SCC 1, the role of the RP is limited to ensuring that the resolution plan received by him is compliant with Section 30 (2) of the IBC before placing the same before the Committee of Creditors for their consideration. 22. The Respondent No.2 Committee of Creditors has not entered their submissions in the matter. 23. Respondent No. 3 SRA (Gloster Limited), has submitted that the annual report and accounts of the Corporate Debtor for the year 2017-18 shows that the appellant is a promoter entity holding 33% shares in the Corporate Debtor. The said annual report of the Corporate Debtor shows that the West Coast at the material time was a related party. 24. Respondent No. 3 further invited attention to the Clause 32 of Section VI of the resolution plan which provides as follows: - "32. All contracts between the Corporate Debtor and its Related Parties shall stand terminated with immediate effect without any further act, deed or instrument and all Liabilites and obligations of the Corporate Debtor to such Related Parties shall be discharged and be permanently extinguished." Thus, under the resolution plan all claims of the related parties against the corporate Debtor stood e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mandatorily required payment to the related party in parity with the unrelated party. 30. In the appeal filed against the order of Adjudicating Authority, it was held by Appellate Tribunal that IBC treats the related party as a separate category for specified purposes viz. excluding from CoC under Section 21 and disqualifying them from being resolution applicant under Section 29 (A), but IBC does not treat related party as a separate class for any other purpose and the related parties, financial or operational creditor cannot be discriminated against under the resolution plan, denying their right to get payment under the resolution plan only on being a related party. The relevant paragraph 173 of the Judgment of Appellate Tribunal is given below: "173. Thus, it is clear that IBC treats related parties as a separate category for specified purposes, excluding from the CoC under Section 21 and disqualifying them from being Resolution Applicants under section 29A. However, the IBC does not treat Related Party as a separate class for any other purpose. Therefore, a rationale nexus must exist for any classification between the object sought to achieve the classification and sub-class ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djudicating Authority has equated the related party with equity shareholders and the same is not permissible under the aforesaid judgment passed by Hon'ble Supreme Court and therefore, the aforesaid judgment does not apply in this case. Whereas, the case of appellant challenging the resolution plan before the Adjudicating Authority was on the ground that the resolution plan does not provide for equal pro rata distribution of the proceeds for the applicant as a financial creditor. The point that the appellant has been equated with equity shareholders was made by the appellant and not by SRA or Resolution Applicant. 36. The respondent finally submits that whether the appellant is equated with equity shareholder or not is totally irrelevant, because it is admittedly an unsecured financial creditor and there is no payment allocated in the resolution plan for any unsecured financial creditor. Analysis and Findings 37. We have heard the appellant, Respondent No. 1 (Resolution Professional) and Respondent No. 3 (SRA). The Respondent No. 2 (Committee of Creditors) though impleaded, did not make any submission. 38. The present appeal was adjourned sine-die vide an order of two Members o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provided under Section 53 (1) (h) of the Code. This issue has been taken in isolation by the appellant the issue under reference relates to a judgment passed by NCLT, Allahabad Bench. The relevant paras are Para 74 and 75 of the impugned order. The same are reproduced below: "74. An Unsuccessful Bidder in the above said Company Application No. 59 of 2018 filed an appeal before the Hon'ble Appellate Tribunal. The Hon'ble Appellate Tribunal in CA (AT) Insolvency No. 408 of 2018, confirmed the order of direction issued by the NCLT, Allahabad Bench directing the RP in the said case to modify the resolution plan as per the observation in the above said judgement. The Ld. Counsel also referred to us the order passed by the Hon'ble NCLT, Allahabad Bench in CP No. (IB) 13/ALD/2017 by approving the modified resolution plan wherein it is mentioned that all the Financial Creditors and Operational Creditors of the Corporate Debtor were equally treated. According to the Ld. Counsel for the applicant, the Committee of Creditors in the above said case, accepted the modified resolution plan by 100% vote share wherein the Unsecured Financial Creditors were treated at par with the Op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsecured financial creditors 7.5.1 Amount- claim filed and admitted under this head is Rs. 104.69 crores, since the entire amount is relating to claim made by the related parties, RA proposes to pay NIL amount under this head". 44. It is clear from the aforesaid discussion that both the CoC and Adjudicating Authority has treated the appellant as unsecured Financial Creditor. There are two entries in the category of unsecured financial creditors, in the resolution plan, one being West Coast Papers and second one is Gloster cables Ltd. In both these cases full amount of claim filed by them has been admitted by the RP. They were admitted as part of CoC. Later on, after their being identified as related parties, the RP informed the concerned parties that they could not attend the CoC meetings henceforth. The SRA has proposed NIL amount to the claimants under this head on account of them being related parties. Appellant in its submission has also accepted that he is a related party unsecured creditor. The resolution plan reflecting the status of Appellant as related party unsecured financial creditor has been approved by the CoC and Adjudicating Authority. In view of position explain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Another factor taken into consideration by the Appellate Tribunal has been in relation to the so-called discrimination in the resolution plan in relation to a related party of the corporate debtor. 199. Learned counsel for the appellant in Civil Appeal No.1827 of 2022 has referred to several decided cases to submit that therein, even when certain dues of related parties were admitted, the resolution plans not providing for any payment to such related parties were upheld by this Court; and that the principles of non-discrimination would not be applicable to the decision of CoC. It has been argued on behalf of the resolution professional that none of the statutory requirements are of any mandate that a provision has to be made in the resolution plan for payment to the related parties. According to the learned counsel, the need is, essentially, to ensure that the plan provides for payment to financial creditors (including dissenting financial creditors) entitled to vote. Thus, the plan in question cannot be said to be standing in contravention of any mandatory requirements. Per contra, the learned counsel appearing for the related party would submit that even when related party is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imately, subject to the commercial wisdom of CoC and no fault can be attached to the resolution plan merely for not making the provisions for related party. 203. On the facts of the present case, we find no reason to discuss this matter any further when it is noticed that the promoter and erstwhile director, the contesting respondent before us, has been holding the position of Chairman of the said related party. Suffice it would be to observe for the present purpose that the Appellate Tribunal has erred in applying the principles of non-discrimination and thereby holding against the resolution plan in question for want of provision for related party. 47. It is seen from the records that the Appellant was aware of the fact, that it was being treated as a related party and was accordingly removed from the Committee of Creditors. The same is evident from emails dated 25.01.2019 and 16.02.2019 sent by the RP to the appellant. However, the Appellant never challenged its treatment as a related party at any stage of the insolvency resolution proceedings, despite have complete knowledge of its status as that of a related party. In this case, the Appellant was held to be a related party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the resolution plan is ultimately, subject to the commercial wisdom of CoC and no fault can be attached to the resolution plan merely for not making provisions for a related party, so long as provision of the IBC and CIRP regulations are met. 53. The Court observed in Para 203 of the Judgment of M.K. Rajagopalan (supra) that in the case under reference, promoter and erstwhile director who was also a contesting respondent in the matter, was also holding the post of Chairman of the said related party. It held that the Appellate Tribunal has erred in applying the principles on non-discrimination between related and non-related parties and held back the resolution plan. 54. We have seen that the Judgment of M.K. Rajagopalan (supra) squarely applies to the facts of the present case. The CoC and Adjudicating Authority were well within their rights not to treat a related party unsecured creditor on par with secured financial creditors. We, therefore, find no infirmity in the order of Adjudicating Authority in this regard. 55. Thus, in view of the aforesaid discussion, we do not find any merit in the present appeal and the same is hereby dismissed. There would be no order as to costs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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