Rishima Sa Investments Llc (Mauritius) vs Sarga Hotel Private Limited & Anr on 4 April, 2024

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National Company Law Appellate Tribunal

Rishima Sa Investments Llc (Mauritius) vs Sarga Hotel Private Limited & Anr on 4 April, 2024

This Appeal by shareholder of the Corporate Debtor has been filed challenging the order dated 04.01.2024 passed by the Adjudicating Authority (National Company Law Tribunal), Division Bench, Court No. II, Kolkata in IA (IB) No.1054/KB/2023 by which order the Adjudicating Authority has allowed the application filed by the Resolution Professional for approval of Resolution Plan submitted by Successful Resolution Applicant, Respondent No.2 herein. Appellant aggrieved by approval of Resolution Plan has come up in this Appeal. Brief facts of the case necessary for deciding this appeal are:

(i) On 07.08.2008, a Share Subscription and Shareholders' Agreement was executed between the Appellant - Rishima SA Investments LLC (Mauritius), Shristi Infrastructure Development Corporate Ltd. and the Corporate Debtor, wherein the Appellant and Shristi acquired 35% and 65% shareholding of the Corporate Debtor, respectively.

Company Appeal (AT) (Insolvency) No.143 of 2024 -3-

(ii) A Singapore-seated Arbitration against Shristi Infrastructure Development Corporate Ltd. and the Corporate Debtor was commenced by the Appellant in which partial award dated 30.04.2019 and final award dated 12.07.2020 was passed. Under the final award payment of Rs.132.39 Crores was directed towards costs, interest, damages. Partial and final awards from Singapore Arbitration led to filing of enforcement petition before the Delhi High Court by the Appellant, which proceedings are still pending.

(iii) The CIRP against the Corporate Debtor - Sarga Hotel Pvt. Ltd.

commenced by order dated 11.02.2022 by the Adjudicating Authority on application filed under Section 7 by Yes Bank Ltd.

(i) Appellant filed its claim in Form C on 25.02.2022 followed by Form F, both were rejected by the Resolution Professional vide communications dated 16.03.2022 and 01.06.2022 on the ground the Corporate Debtor has filed objections to the partial award and the final award before the Delhi High Court.

(ii) Appellant has also filed I.A. (IB) No.1271/KB/2022 before the Adjudicating Authority seeking direction to the Resolution Professional to reject the claim made by Yes Bank to the tune of Rs.370,36,10,306/-.

(iii) An I.A. (IB) No.1131/KB/2022 was filed by the Appellant challenging the communications sent by the Resolution Company Appeal (AT) (Insolvency) No.143 of 2024 -4- Professional vis-à-vis the Appellant's claim which application was partly allowed by the Adjudicating Authority vide order dated 30.11.2023. The Adjudicating Authority although held that the Appellant is not a Financial Creditor but directed setting aside the order of the Resolution Professional rejecting entire claim of the Appellant of Rs.132 Crore.

(iv) Appellant wrote to the Resolution Professional on 07.12.2023 and thereafter to adhere to the direction issued by the Adjudicating Authority on 30.11.2023.

(v) On 04.01.2024, the Adjudicating Authority approved the Resolution Plan submitted by Respondent No.2 and allowed I.A. (IB) No.1054 (KB)/2023 filed by the Resolution Professional. Appellant aggrieved by which order has come up in this appeal.

2. Learned counsel for the Appellant challenging the approval of the Resolution Plan submits that the Adjudicating Authority has not adverted to order dated 30.11.2023 by which order the claim of the Appellant as 'Other Creditor' was rejected. It is submitted that the Resolution Plan does not balance the interest of all stakeholders. The Appellant who has claim of Rs.132,89,75,268/- has been offered in the Resolution Plan only an amount of Rs.1 Lakh. It is submitted that the Resolution Plan deserves rejection. It is submitted that under order dated 30.11.2023 the amount of Rs.132,89,75,268/- has to be kept in the Escrow Account, which having not done, the approval of the resolution plan is vitiated. Company Appeal (AT) (Insolvency) No.143 of 2024 -5-

3. Learned counsel for the Resolution Professional refuting the submissions of learned counsel for the Appellant submits that the Resolution Professional has rightly not accepted the claim of the Appellant as Financial Creditor, however, under the order of the Adjudicating Authority dated 30.11.2023, the Appellant's claim has been accepted as 'Other Creditor', taking which into consideration, the Successful Resolution Applicant has already allocated an amount of Rs.1 Lakh in the Resolution Plan for the Appellant. It is submitted that the order passed in I.A. (IB) No.1131/KB/2022 has been misread by the Appellant. There was no direction that amount of Rs.132,89,75,268/- should be kept in the escrow account. It is submitted that the Adjudicating Authority observed that the value provided against the Applicant's claim in the plan would be paid subject to the outcome of the execution petition pending before the Delhi High Court and till such time amount could be held in escrow account. There is no direction by the Adjudicating Authority that the entire amount of Rishima's claim has to be set aside and placed in escrow account. The total outlay of the plan is Rs.301 Crores out of which Rs.145 Crores is the first tranche payable within 45 days of the plan approval order, the Adjudicating Authority could not have directed for 50% of the total amount to be kept in escrow account. The plan already makes provision against Rishima's claim as 'Other Creditor'. Learned counsel for the Resolution Professional has referred to clause 7.10.1 and clause 7.10.2 of the Resolution Plan. It is submitted that the plan has been approved by the CoC in its commercial wisdom, which needs no interference by this Company Appeal (AT) (Insolvency) No.143 of 2024 -6- Appellate Tribunal. It is submitted that the Appellant is 35% shareholder i.e. related party of the Corporate Debtor, hence, its claim could be treated differently from non-related parties.

4. Learned counsel appearing for the Successful Resolution Applicant also refuting the submissions of the Appellant submits that the Adjudicating Authority vide order dated 30.11.2023 accepted the claim of the Appellant as 'Other Creditor' and the decision of the Resolution Professional was upheld. It is submitted that the order dated 30.11.2023 has been wrongly interpreted by the Appellant. The Resolution Plan considered the claim of the Appellant in Para 7.10.1 and 7.10.2. The plan provides assured financial proposal to the Appellant's contingent claim by providing payment of Rs.1 Lakh as final payment.

5. Learned counsel appearing for the CoC also supported the submission of learned counsel for the Resolution Professional and submitted that the Resolution Plan having been approved by the CoC, the commercial wisdom of the CoC cannot be questioned. It is further submitted that the liquidation value of the Corporate Debtor is much less than the total admitted claims of the Corporate Debtor. The liquidation value is not sufficient to discharge the debt of Secured Financial Creditors. In event, the Corporate Debtor is liquidated the entitlement of the Appellant as 'Other Creditor' would be 'Nil' in the waterfall mechanism. Under Section 53, the Appellant is not to receive any amount under the waterfall mechanism.

Company Appeal (AT) (Insolvency) No.143 of 2024 -7-

6. We have considered the submissions of learned counsel for the parties and perused the record.

7. As noted above, the Appellant in the CIRP of the Corporate Debtor has filed its claim in Form C and Form F, which were not accepted by the Resolution Professional. The Appellant has filed I.A. (IB) No.1131/KB/2022 before the Adjudicating Authority challenging the communications of the Resolution Professional dated 16.03.2022 and 01.06.2022. The Adjudicating Authority vide its order dated 30.11.2023 decided the application. The Adjudicating Authority has framed two questions in I.A. (IB) No.1131/KB/2022 in Para 31, which is as follows:

"31. For the sake of brevity, we are not reproducing the complete details of the case as what needs to be addressed in this application are:

a. Whether the claim made by the Applicant would qualify as "financial debt" or "other debt".

b. Whether the Resolution professional's action of admitting only Rs.1 against claim of Rs.132,89,52,568/- is legally correct or not.

8. The Adjudicating Authority in Para 35 held that the Appellant cannot be held as Financial Creditor, however, it was held that the Appellant being decree holder should be allowed as 'Other Creditor'. In Para 36 of the order it was held that the debt arising out of a foreign award has to be treated as 'other debt'. In Para 36 following has been held:

Company Appeal (AT) (Insolvency) No.143 of 2024 -8- "35. Therefore, we are of the view that the Applicant cannot be called as financial creditor, and he is not entitled to participate in the Committee of Creditors (CoC) meeting of the corporate debtor during CIRP process."

9. The Adjudicating Authority disapproved the action of the Resolution Professional in admitting the claim of the Appellant for notional value of INR 1. In Para 41, 42 and 43 following has been held:

"41. However, the plan could state that the value provided against the Applicant's claim in the plan would be paid subject to the outcome of the execution petition pending before the Hon'ble Delhi High Court and till such time amounts could be held in escrow account.

42. In case the Applicant fails in his execution petition, the amount held in the escrow account can be redistributed as per the Commercial wisdom of CoC. The provision in the plan against the claim made by the Applicant may be made based on the commercial wisdom of CoC but to be made on fair and equitable basis keeping in mind, that one of the objectives of IBC is to balance the interests of all the stakeholders.

43. In view of above this application being I.A. (IB) 1131/KB/2022 filed by Rishima SA Investments LLC (Mauritius). Applicant herein is partly allowed and disposed of in terms of the directions above."

10. One of the issue which has arisen for consideration is as to what is the import of order dated 30.11.2023, whether the entire amount of claim Company Appeal (AT) (Insolvency) No.143 of 2024 -9- of Rs.132,89,52,568/- was to be kept in escrow account or only the amount provided in the plan against the admitted claim has to be kept in the escrow account.

11. When we look into Para 41 and 42 of the order, it is clear that what was intended by the Adjudicating Authority was that value provided against the claim in the plan should be held in escrow account subject to decision in the execution petition. Resolution Plan has provided amount of Rs.1 Lakh against the claim of the Appellant and the Successful Resolution Applicant proposed to pay said amount to the Appellant. The submission of the Appellant that order meant that entire amount of Rs.132 crores be kept in escrow account cannot be accepted. We, thus, are of the view that order dated 30.11.2023 cannot be read to mean that amount of Rs.132,82,52,568/- has to be kept in escrow account.

12. The challenge in this Appeal is to the order of the Adjudicating Authority approving the Resolution Plan. The Adjudicating Authority in the impugned order has noticed the amount claimed, amount admitted and amount provided under the Resolution Plan in Para 6 of the order, which is as follows:

"6. The Shriram Multicom Private Limited under this Resolution Plan, has provided for a total plan value for the Corporate Debtor of Rs.30,099.01 Lakhs. The amount claimed, amount admitted and the amount provided under the Resolution Plan are enumerated below:

Company Appeal (AT) (Insolvency) No.143 of 2024 -10- Class of Amount Amount Amount provided Creditors/ Claimed Admitted under the Particulars (Amount in (Amount in Resolution Plan Lakhs) Lakhs) (Amount in Lakhs) Secured 76,382.63 76,382.63 30,033.17 Financial Creditor Unsecured 2,329.60 2,327.89 23.28 Financial Creditors Operational 8,705.25 2,927.56 41.56 Creditors Other Debts 13,289.75 1.00 1.00 and Dues Grand Total 1,00,707.23 81,639.08 30,099.01

13. When we look into Para 6 of the order, it is clear that against the column 'Other Debts and Dues' the admitted claim of the Appellant of Rs.132,289.75 Lakhs has been noted against which amount of Rs.1 Lakh was proposed in the Plan. From Para 6 of the order, it is clear that amount claimed by the Secured Financial Creditor was Rs.76,382.63 Lakhs against which total plan value of Rs.30,099.01 Lakhs has been proposed.

14. Hon'ble Supreme Court in "Committee of Creditors of Essar Steel India Limited through Authorised Signatory vs. Satish Kumar Gupta and Others, (2020) 8 SCC 531" has held that allocation of plan value to different category of creditors can be different. It was held that Operational Creditor has to be given priority of payment above all Financial Creditors. In Para 88 of the judgment following has been held:

"88. By reading para 77 (of Swiss Ribbons) dehors the earlier paragraphs, the Appellate Tribunal Company Appeal (AT) (Insolvency) No.143 of 2024 -11- has fallen into grave error. Para 76 clearly refers to the UNCITRAL Legislative Guide which makes it clear beyond any doubt that equitable treatment is only of similarly situated creditors. This being so, the observation in para 77 cannot be read to mean that financial and operational creditors must be paid the same amounts in any resolution plan before it can pass 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 majority of the Committee of Creditors which is to negotiate and accept a resolution plan, which may involve differential payment to different classes of Company Appeal (AT) (Insolvency) No.143 of 2024 -12- creditors, together with negotiating with a prospective resolution applicant for better or different terms which may also involve differences in distribution of amounts between different classes of creditors."

15. It is also relevant to notice that commercial wisdom of the CoC in approving Resolution Plan has to be given paramount importance and NCLT and this Appellate Tribunal can interfere in the order approving the Resolution Plan only when there is violation of statutory provisions of Section 30(2) of the Code. Present is not a case where violation of any statutory provision under Section 30(2) of the Code has been alleged by the Appellant. Appellant's claim was accepted as 'Other Creditor' and in the allocation of amount of Rs.1 Lakh against the claim of the Appellant it is not shown that there is any violation of any statutory provision. We, thus, do not find any ground to interfere with the order dated 04.01.2024 passed by the Adjudicating Authority approving the Resolution Plan by allowing IA (IB) No.1054/KB/2023. We do not find any error in the order impugned. Appeal is dismissed.

[Justice Ashok Bhushan] Chairperson [Barun Mitra] Member (Technical) NEW DELHI 4th April, 2024 Archana Company Appeal (AT) (Insolvency) No.143 of 2024

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