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TMI Blog2025 (2) TMI 523X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal, Jaipur Bench. Company Appeal (AT) (Ins.) No.888 of 2023 has been filed challenging order dated 19.04.2023 passed in CP No.(IB)- 28/7/JPR/2022, by which order Section 7 Application filed by Bank of Baroda has been disposed of noticing admission of Pre-Packed Insolvency Resolution Process ("PPIRP") against the CD initiated vide order dated 19.04.2023, giving liberty to the Bank of Baroda to file claim before the IRP. Company Appeal (AT) (Ins.) No.890 of 2023 has been filed challenging order 19.04.2023 passed in CP No. (IBPP)-01/54C/JPR/ 2022, by which order Adjudicating Authority admitted Application filed under Section 54C by the Corporate Debtor ("CD") for initiation of PPIRP. Company Appeal (AT) (Ins.) No.1492 of 2023 has been filed against the order dated 22.08.2023 passed in IA No.451/JPR/2023 in CP No. (IBPP)- 01/54C/JPR/2022 by which order Adjudicating Authority approved the Resolution Plan in the PPIRP of the CD. These three Appeal(s) have been filed challenging aforesaid three orders. 2. Brief background facts of the case necessary to be noticed for deciding these Appeal(s) are: i. The CD - M/s Shree Rajasthan Syntex Ltd. had been extended Financial Facilities by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Application. vi. On 19.04.2023, the Adjudicating Authority passed an order admitting Application filed under Section 54C by the CD. The RP - Shri Lekhraj Bajaj was appointed, who was directed to make public announcement and take all other steps with respect to PPIRP. By an order of the same date, i.e. 19.04.2023, Section 7 Application filed by the Bank of Baroda was disposed of, relying on the admission of PPIRP. The Adjudicating Authority observed that Bank of Baroda may file a claim before the IRP. vii. The RP in the PPIRP of the CD, placed a Base Resolution Plan before the Committee of Creditors ("CoC"), where the State Bank of India had vote share of 47.21 vote share; IDBI Bank has 26.70% vote share and Bank of Baroda has 26.09% vote share. The Base Resolution Plan was placed before the CoC, which came to be approved with 73.91% vote shares. In the Base Resolution Plan approved by the CoC, which was placed before the Adjudicating Authority, the SBI and Bank of Baroda were proposed 30.02% payment of their outstanding dues. viii. The RP filed an Application seeking approval of Base Resolution Plan - being IA No.451/JPR/2023, which Application came to be heard and de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editor and dissenting Financial Creditor, which is not in accordance with statutory scheme as delineated by Section 30, sub-section (2) of the IBC. Hence, the Resolution Plan, which is not in accordance with Section 30, sub-section (2) deserves to be set aside on this ground alone. It is submitted that payments received by the Bank of Baroda in pursuance of the Resolution Plan were subject to interim orders passed in Company Appeal (AT) (Ins.) No.888 and 890 of 2023, i.e. "In the meantime, proceedings of implementation of the Resolution Plan may go on which shall abide by the result of the Appeal. It is submitted that orders passed by Adjudicating Authority questioned in these Appeal(s) are unsustainable and deserve to be set aside. It is submitted that Bank of Baroda, which was one of the Consortium Member of the Lenders had every right to initiate proceedings under Section 7 and did not require consent of other Members of the Consortium. The Bank of Baroda had every right to initiate proceeding under Section 7. The Learned Counsel for the Appellant submits that CD is not a MSME. It is submitted that as per Notification dated 26.06.2020 issued by Ministry of MSME, an enterprise ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under Section 11A, after the period for fulfilling the mandatory requirement are excluded. Hence, the Application filed by the CD, cannot be said to be beyond 14 days. It is submitted that the period of 14 days as referred to in Section sub-section (3) of Section 11A has to be read as 'directory'. The Application under Section 54C, can be filed by the CD, only after completing the mandatory procedures as prescribed in Section 54A and 54B of the IBC. It is submitted that period, which was taken for necessary statutory compliances, under Section 54A and 54B, if excluded, the Application under Section 54C was well within 14 days. The Adjudicating Authority did not commit error in admitting Section 54C Application filed by the CD and disposing of Section 7 Application filed by the Appellant. It is submitted that the Appellant and other Consortium Lenders, i.e., SBI and IDBI Bank have given their consent for negotiated settlement, much before filing of the Application by Bank of Baroda under Section 7. Other Consortium Members having agreed for negotiated settlement, i.e. Resolution of the CD, it was not open for the Bank of Baroda to initiate Section 7 proceedings. Initiation of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ently opposing the Application filed by the Bank of Baroda under Section 7. The SBI has further pleaded that in event Section 7 Application is admitted, it will cause great harm and injury to majority stakeholders, which is never the intent of legislature while enacting IBC. The stand taken by minority stakeholder, cannot be allowed to defeat the interest of majority stakeholders. The Bank of Baroda also participated in the Meeting dated 21.07.2022, where Base Resolution Plan came for consideration. The Base Resolution Plan having been approved by majority of vote shares, the Bank of Baroda is also bound by approval and cannot wriggle out from the decision on the pretext that it has filed Section 7 Application on 18.04.2022. It is further submitted that OTS proposal was given by the CD in February 2021 and Bank of Baroda without communicating any final decision, has proceeded to file Section 7 Application, which did not have approval of other Consortium Members of the Bank. Learned Counsel for the SBI submits that Section 7 Application deserve to be rejected. 7. We have considered the submissions of learned Counsel for the parties and have perused the record. 8. From the submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a micro enterprise, where the investment in plant and machinery or equipment does not exceed one crore rupees and turnover does not exceed five crore rupees; (ii) a small enterprise, where the investment in plant and machinery or equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees; and (iii) a medium enterprise, where the investment in plant and machinery or equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees. 4. Calculation of investment in plant and machinery or equipment.-- (1) The calculation of investment in plant and machinery or equipment will be linked to the (2) In case of a new enterprise, where no prior ITR is available, the investment will be based on self-declaration of the promoter of the enterprise and such relaxation shall end after the 31st March of the financial year in which it files its first ITR. (3) The expression ―plant and machinery or equipment‖ of the enterprise, shall have the same meaning as assigned to the plant and machinery in the Income Tax Rules, 1962 framed under the Income Tax Act, 1961 and shall include all tangible assets (other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent in plant and machinery has to be on the basis of Income Tax Return filed by the CD. The Notification dated 26.06.2020 as extracted above in Clause 4 clearly provides that "The calculation of investment in plant and machinery or equipment will be linked to the Income Tax Return (ITR) of the previous years filed under the Income Tax Act, 1961. In the reply, which was filed by the CD to Company Appeal (AT) (Ins.) No.888 of 2023, the CD has given the details of the ITR of the CD based on which the classification of MSME was changed automatically from year to year. It is useful to notice paragraph 8 of the reply of the CD, which gives all relevant facts and explain the process. Paragraph 8 of the reply is as follows: "8. That the said contention is in teeth with criteria 4 of the said Notification dated 26.06.2020 which in unequivocal terms lays down that the calculation of investment in plant, machinery or equipment will be linked with the Income Tax Return (hereinafter referred to as the "ITR") of the previous year filed under the Income Tax Act, 1961. The same has been further clarified vide Office Memorandum dated 06.08.2020 of Ministry of MSME as under: "Para 5 (iii): It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o role to submit any data or figures related to investments and turnover. The copy of the investment in plant and machinery or equipment, turnover and ITR is annexed herewith and marked as Annexure-3." 12. We, thus, do not find any error in classification of the CD as MSME. Learned Counsel for the Respondent has also placed reliance of the judgment of this tribunal in Amit Guptaq vs. Yogesh Gupta, RP (Company Appeal (AT) (Ins) No.903 of 2019) decided on 20.12.2019 wherein it is held that in the summary procedure under IBC, the Adjudicating Authority is not expected to go into account and investigate if and in which category an application falls under Section 7 examining Notifications under the MSME Act. This Tribunal in Company Appeal (AT) (Insolvency) No. 1672-1673 of 2023 in Ramesh Shah vs. Central Bank of India & Ors. had occasion to consider the issue and this Tribunal had clearly laid down that the Adjudicating Authority is not expected to go into accounts and examination of certificates issued by the competent authority under MSME Act and notification issued thereunder or modify/ revise/ revoke or interfere in any manner with the MSME registration granted etc. In paragraph 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 54C, in respect of the same corporate debtor. (2) Where an application under section 54C is filed within fourteen days of filing of any application under section 7 or section 9 or section 10, which is pending, in respect of the same corporate debtor, then, notwithstanding anything contained in sections 7, 9 and 10, the Adjudicating Authority shall first dispose of the application under section 54C. (3) Where an application under section 54C is filed after fourteen days of the filing of any application under section 7 or section 9 or section 10, in respect of the same corporate debtor, the Adjudicating Authority shall first dispose of the application under section 7, section 9 or section 10. (4) The provisions of this section shall not apply where an application under section 7 or section 9 or section 10 is filed and pending as on the date of the commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2021." 15. The learned Counsel for the Appellant relied on Report of the Insolvency Law Committee dated July 2021 on 'Pre-Packaged Insolvency Resolution Process'. The learned Counsel for the Appellant has relied on paragraph 3.16 of the Report, where t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with simultaneous applications as it considers the application that has been filed first before any subsequent applications. d. In order for this mechanism outlined in paragraph b and c. to work as intended, the Committee noted that it was critical that the 14-day time-limit be strictly adhered to (see para 4.9.). The filing systems of the NCLTs will need to monitor this closely to prevent abuse of the process." 16. The learned Counsel for the Appellant has referred to the decision of the Committee as reflected in Clauses (c) and (d). 17. The statutory scheme delineated by Section 11A provides the same priorities as recommended by the Insolvency Law Committee. In the present case, the relevant dates for filing of the Application under Section 7 or Section 54C are not disputed. Section 7 Application was filed by the Bank of Baroda on 18.04.2022, whereas Application under Section 54C was filed by the CD on 25.07.2022. The submission, which has been pressed by the Appellant is that Application under Section 7 having been filed on 18.04.2022 and the Application under Section 54C having been filed much beyond 14 days period, Application under Section 7 ought to have been first dispo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the corporate debtor, as the case may be, have made a declaration, in such form as may be specified, stating, inter alia, that- (i) the corporate debtor shall file an application for initiating pre-packaged insolvency resolution process within a definite time period not exceeding ninety days; (i) the pre-packaged insolvency resolution process is not being initiated to defraud any person; and (ii) the name of the insolvency professional proposed and approved to be appointed as resolution professional under clause (e); (g) the members of the corporate debtor have passed a special resolution, or at least three-fourth of the total number of partners, as the case may be, of the corporate debtor have passed a resolution, approving the filing of an application for initiating prepackaged insolvency resolution process. (3) The corporate debtor shall obtain an approval from its financial creditors, not being its related parties, representing not less than sixty-six per cent. in value of the financial debt due to such creditors, for the filing of an application for initiating pre- packaged insolvency resolution process, in such form as may be specified: Provided that where a corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod, which is taken by the CD for completing the mandatory compliances under Section 54A and 54B need to be excluded from 14 days period as provided in Section 11A(3). 20. The issue which has arisen before us is interpretation of Section 11A and the object and purpose of Section 11A. Provision for PPIRP was inserted in IBC when amendment in Code was found necessary to provide for PPIRP. When Chapter III-A was inserted by Act No.26 of 2021, legislator was well aware that against the CD there might be Applications under Section 7, 9 and 10 pending or will be filed. Chapter III-A and Section 11A, after Chapter II was inserted by the same amending Act No.26 of 2021. Three different scenario have been contemplated by Section 11A in sub-sections (1), (2) and (3). The present is a case where Application under Section 7 was filed on 18.04.2022 and Application under Section 54C was filed on 25.07.2022. The facts of present case are covered by sub-section (3) of Section 11A. It is well settled principle of statutory interpretation that when the statute itself contemplate consequence the provision is always treated as mandatory. Sub-section (3) of Section 11A deals with time period and is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. It may be mentioned in this connection that the first and foremost principle of interpretation of a statute in every system of interpretation is the literal rule of interpretation. The other rules of interpretation e.g. the mischief rule, purposive interpretation, etc. can only be resorted to when the plain words of a statute are ambiguous or lead to no intelligible results or if read literally would nullify the very object of the statute. Where the words of a statute are absolutely clear and unambiguous, recourse cannot be had to the principles of interpretation other than the literal rule, vide Swedish Match AB v. SEBI [Swedish Match AB v. SEBI, (2004) 11 SCC 641] ." 68. In Lalita Kumari v. State of U.P. [Lalita Kumari v. State of U.P., (2014) 2 SCC 1 : (2014) 1 SCC (Cri) 524] , this Court construed the use of the word "shall" in Section 154(1) of the Code of Criminal Procedure, 1973 and held that Section 154(1) postulates the mandatory registration of an FIR on receipt of information of a cognizable offence. If, however, the information given does not disclose a cognizance offence, a preliminary enquiry may be ordered, and if the enquiry discloses the commission of a cogniz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly affirm the mandatory nature of the proviso to Section 31(4) of the IBC. For a Resolution Plan containing a combination, the CCI's approval to the Resolution Plan, in our opinion, must be obtained before and consequently, the CoC's examination and approval should be only after the CCI's decision. This interpretation respects the original legislative intent, and deviation from the same would not only undermine the statute but would also erode the faith posed by the stakeholders in the integrity of our legal and regulatory framework. 151. Where the provisions allow for dilution or departure from the intended scheme of the IBC or the Competition Act, it is the responsibility of the legislature to rectify such inconsistencies through appropriate legislative measures and the judiciary should not normally venture into the legislative domain. 152. Further, the indispensability of procedural safeguards as an integral component of a just legal order must be given its due weight, especially as procedural requirements are not mere formalities to be circumvented for expediency but substantive protections designed to ensure fairness and transparency. In that light, the procedural lapses w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'filed in the office of the Registry of the Tribunal'. 24. We, thus are of the view that Application under Section 54C was filed after 14 days from filing of Section 7 Application and as per Section 11A, sub-section (3), the Adjudicating Authority was obliged to consider the Application under Section 7 before proceeding to dispose of Section 54A Application. Question Nos.(3) and (4) are answered accordingly. Question Nos.(5) and (6) 25. While interpreting the provisions of Section 11A, we have found that period of 14 days referred to in sub-section (3) of Section 11 is 'mandatory' and the said period of 14 days, cannot be read as 'directory'. Consequence of above interpretation is that when an Application under Section 54C is filed after 14 days of filing of Section 7 Application, the Adjudicating Authority was to proceed to decide Section 7 Application first. 26. The question to be considered is as to whether in view of above interpretation in the facts of the present case, we need to set aside order dated 19.04.2023, admitting Section 54C Application and direct for a fresh consideration of Section 7 Application filed by the Bank of Baroda. 27. The facts as noticed above, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 04.02.2022 pending, proceeded to submit Section 7 application under the Code before the Hon'ble NCLT and that during the pendency of Section 7 Application before the Hon'ble NCLT have still been regularly participating in all the meetings being convened for deciding the pre-package proposal. 6. That it would also be relevant to state here that the Resp. 3 - Bank of Baroda participated in the said meeting held on 21.07.2022 by the consortium members along with the Corporate Applicant whereby with the full understanding therein that the decision taken therein by majority would prevail and when once, the majority stake holders have decided in the said meeting that the pre-package proposal offered by the Corporate Applicant be accepted then the Resp. 3- Bank of Baroda is bound by it and cannot now be allowed to wriggle-out of the decision so taken in the said meeting in the garb of having preferred the said Section 7 Application under the code before the Hon'ble NCLT on 18.04.2022 prior to approval of the pre-package insolvency resolution proposal vide the said meeting held on 21.07.2022." 29. The above facts indicate that OTS proposal, which was submitted by CD in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IBC is Resolution of the CD. The present is a case, which consist of three Consortium Members of the Bank - SBI being 47.21% vote share; IDBI Bank 26.70% vote share and Bank of Baroda with 26.09% vote share. Both the Lenders, i.e., SBI and IDBI had also granted approval of negotiated settlement much prior to filing of Section 7 Application. Both the above Lenders have also approved the Resolution Plan and Resolution Plan now stand approved with 73.91% vote shares. Lenders are receiving the payouts under the Plan, which is more than 30% of their outstanding dues. Section 7 Application filed by the Bank of Baroda was for resolution of the CD and today when the CD stands resolved and payments have been received by all Financial Creditors, including the Bank of Baroda, we are of the view that at this stage, no useful purpose shall be served in setting aside order dated 19.04.2023 passed by Adjudicating Authority admitting Section 54C Application and directing for fresh consideration of Section 7 Application. We, thus, in the facts of the present case, are of the view that the CD having been resolved by making payments to all the Lenders, including the Appellant, it is not in the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be less than the amount to be paid to such creditors in accordance with sub-section (1) of Section 53. Section 53(1), is as follows: "53. Distribution of assets. - (1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period as may be specified, namely: - (a) the insolvency resolution process costs and the liquidation costs paid in full; (b) the following debts which shall rank equally between and among the following: (i) workmen's dues for the period of twenty-four months preceding the liquidation commencement date; and (ii) debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52; (c) wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date; (d) financial debts owed to unsecured creditors; (e) the following dues shall rank equally between and among the following: - (i) any amount due to the Cen ..... 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