National Company Law Appellate Tribunal
Sp Coal Resources Pvt Ltd vs Indus Fila Limited on 23 January, 2023
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
AT CHENNAI
(APPELLATE JURISDICTION)
TA (AT) No. 13 of 2021
in
Company Appeal (AT) (INS.) No. 850 of 2019
Under Section 61 of the Insolvency and Bankruptcy Code, 2016)
(Arising out of the `Order' dated 10.05.2019 in CP(IB) No. 136 / BB /
2017, passed by the `Adjudicating Authority', (`National Company
Law Tribunal', Bengaluru Bench, Bengaluru)
In the matter of:
SP Coal Resources Pvt. Ltd.
No. 28 / 12, Door No. 4B, 4th Floor,
Second Line Beach Road,
Chennai - 600 001
Through its Authorized Signatory
Mr. N. Jagadeesh ..... Appellant
v.
Indus FILA Limited
Having its Registered Office at
Survey No. 285, 37th KM Stone,
Kasaba Holi, Nelamangala,
Bangalore - 562 123 ..... Respondent No. 1
SPG Macrocosm Limited
Having its Registered Office at
Unit No. 1207, B Wing,
One BKC, Plot C-66,
Bandra Kurla Complex,
East Mumbai - 400 051
Through its Director
Madanlal Goyal ..... Respondent No.2
SF Dyes
1012, Barton Centre
84, M.G. ROAD,
Bengaluru - 560 061 ..... Respondent No.3
TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019
Page 1 of 74
Mr. Udayraj Patwardhan,
Resolution Professional
Sumedha Management Solutions Pvt. Ltd.,
C-703, Marathon Innova,
Off. Ganapatrao Kadam Marg,
Lower Parel (West)
Mumbai City,
Maharashtra - 400 013
(Vide Order dated 24.09.2019) ..... Respondent No.4
Present:
For Appellant : Mr. K. Goutham Shivshankar, Advocate
For Respondent No.2 : Ms. Sahana Devanathan, Advocate
For Respondent No.4 : Mr. Tushar Mudgil and Mr. Tushar Tyagi,
Advocates.
JUDGMENT
(Virtual Mode) Justice M. Venugopal, Member (Judicial):
Introduction:
TA (AT) No.13 of 2021 in Comp.App (AT) (INS.)No. 850 of 2019:
The `Appellant' (one of the `Operational Creditor's of the `1st Respondent / Corporate Debtor'), has preferred the instant TA (AT) No. 13 of 2021 in instant Comp. App (AT) (INS.) No. 850 of 2019, on being aggrieved, in respect of the `impugned order' dated 10.05.2019 in IA/40 of 2019 in CP(IB) No. 136 / BB / 2017, whereby, the `Application', filed by the `4th Respondent / Resolution Professional' of the `1st Respondent', [under Section 30 (6) (c) and 31 of the I & B Code, 2016], seeking TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 2 of 74 approval of the `Resolution Plan' dated 07.01.2019., submitted by the `2nd Respondent' / `SPG Macrocosm Limited, through `SPV Vision Textile' (`2nd Respondent' / `Resolution Applicant'), as approved by the `Committee of Creditors' by `e-voting' on 15.01.2019, passed by the `Adjudicating Authority', (`National Company Law Tribunal', Bengaluru Bench, Bengaluru), in `Approving', the `Resolution Plan', dated 07.01.2019 .
2. Earlier, the `Adjudicating Authority', (`National Company Law Tribunal', Bengaluru Bench, Bengaluru), while passing the `impugned order' dated 10.05.2019 in IA/40 of 2019 in CP(IB) No. 136 / BB / 2017 (Filed by the `Petitioner / 2nd Respondent / Successful Resolution Applicant') through `SPV Vision Textile', wherein, inter alia at Paragraphs 4 to 6, had observed the following:
4. ``It is stated that last date of submission of Resolution Plan was 10 October 2018 and received on resolution plan from SPG Macrocosm Ltd (`Resolution Applicant') on 10th October 2018. The said resolution plan was presented to the CoC at its ninth meeting held on 12 October 2018. The CoC took the same on record and during the said meeting it was agreed to peruse the plan once it had been examined by the RP as per the provisions of the Code.
5. It is stated that upon examination of the Resolution Plan dated 10th October 2018, it is found that the Resolution Plan was not compliant with the Code. Consequently, vide email dated October 15, 2018 the Resolution Applicant was intimated of the discrepancies and requested to carry out the necessary changes TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 3 of 74 before October 16, 2016, 4 P.M. Thereafter, the Resolution Applicant on October 16, 2018.
6. It is stated that the resolution plan dated October 16, 2018, was also found non-compliant with the Code and CIRP Regulations and the same was intimated to the Resolution Applicant vide email dated October 22, 2018 with the request that the revisions be carried out by October 23, 2018, by noon. Moreover, the CoC, also requested the Resolution Applicant to improve the commercial terms and viability of the resolution plan and make the same procedurally compliant under the Code. The Resolution Applicant as a consequences submitted the modified resolution plan on October 23, 2018.'' and opined that on perusal of various documents / Balance Sheets / Audit Reports, filed by the `Resolution Applicant', prima facie established that the `2nd Respondent / Resolution Applicant', is financially competent enough to be a `Resolution Applicant', to carry out the terms and conditions of the Resolution Plan in question and further that the `Resolution Plan', is approved by the CoC with 69.04%, in accordance with Law and disposed of the `Application', by issuing necessary directions, thereto.
Appellant's Contentions:
3. The Learned Counsel for the Appellant submits that the `Appellant'/ `SP Coal Resources Pvt. Ltd.', had supplied the `imported Coal' to the Corporate Debtor', over several years and raised a total of 14 Invoices towards such supplies. Further, the `Appellant', is an TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 4 of 74 `Operational Creditor', because of the fact that the aforesaid Invoices, were not `paid', and that the `Adjudicating Authority' (`Tribunal'), through an `Order' dated 20.08.2018, had admitted the `Application'/`Petition', in CP(IB) No. 136 of 2017, filed by another `Operational Creditor' of the `Corporate Debtor' (under Section 9 of the I & B Code, 2016) and commenced the `Corporate Insolvency and Resolution Process'.
4. According to the Learned Counsel for the Appellant, pursuant to an invitation for Claims, by the Creditors of the Corporate Debtor, the `Appellant', as an `Operational Creditor' of the Corporate Debtor had furnished a Claim of Rs.6,05,00,111/- to the Resolution Professional who had admitted only Rs.3.53 Crores of such `Claim'. Also that, the interest portion of Appellant's claim was disallowed by the Resolution Professional, based on the reason that the `Interest' was not mentioned in the Invoice.
5. It is represented on behalf of the Appellant that even in regard to the `Admitted Claim' of Rs.3.54 Crores, nothing was paid to the Appellant, as per the Terms of the `Resolution Plan', approved by the `impugned order'. Apart from that, the `Appellant' came to know of the `inequitable' provisions of the Resolution Plan', which envisage `No Payment' whatsoever of the `Operational Creditors' of the `Corporate TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 5 of 74 Debtor', only when the `Resolution Professional', sent a communication dated 26.06.2019, stating that the Appellant's Admitted Claim against the Corporate Debtor, stood extinguished.
6. The Learned Counsel for the Appellant, adverts to the `Order' of this `Tribunal' dated 22.08.2019, `condoning the delay of 9 days', in IA No. 2584 of 2019, in the `instant Appeal', wherein, it was observed that in the meantime, the `Interim Resolution Applicant' intends to proceed with the Resolution Plan, it will be at his `own risk' and subject to the `Division of the Appellate Tribunal', and that the `Respondents', had proceeded to implement the `Resolution Plan', during pendency of the instant Appeal at their own risks. Therefore, the `Plea' of the Respondents that the instant Appeal has become an infructuous one, because of the implementation of the `Plan', by the `Resolution Applicant', and the `Orders', passed by the `Adjudicating Authority', are clearly without any merit.
7. The Learned Counsel for the Appellant strenuously contends that the `Adjudicating Authority', had failed to appreciate that the Resolution Plan makes no provision for any payment of Debts, owed by the `Corporate Debtor', to its `Operational Creditor', and that the Resolution Plan fails to meet the `two vital requirements' of the I & B Code, 2016, TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 6 of 74
(a) Maximisation of the Value of the Assets of the Corporate Debtor (b) Equitable and non-discriminatory treatment of operational creditors.
8. The main grievance of the Appellant is that, the mere glance of the Resolution Plan, makes it clear that the Resolution Applicant, had hijacked the `Substantial Assets' of the `Corporate Debtor', at a `Price', substantially below the Liquidated Value of the Corporate Debtor', as defined in Regulation 2 (k) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016 (`CIRP Regulations).
9. The Learned Counsel for the Appellant, refers to the term `Liquidation Value' (as defined in `CIRP' Regulations) meaning the `estimated realisable value' of the `Assets' of the Corporate Debtor, if the Corporate Debtor were to be `Liquidated' on the `Insolvency Commencement Date'.
10. Continuing further, it is projected on the side of the `Appellant', that the `Assets' of the `Corporate Debtor' (in the Approved `Resolution Plan' itself) as on the `Insolvency Commencement Date of 20.08.2018', was Rs.80.75 Crores. As a matter of fact, prima facie, the `Resolution Plan', appears to provide for the complete takeover of these `Assets', for only a sale consideration of Rs.50.50 Crores, which is substantially, below the `Value of the Assets' of the `Corporate Debtor'. Moreover, the TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 7 of 74 Resolution Plan', envisages an immediate `Restructuring of the Share Capital' of the `Corporate Debtor', through a combination of `Reduction of Share Capital' of the `Public Shareholders', and the `Preferential Allotment of Fresh Equity Shares', to the `Resolution Applicant' (for `Allotment Consideration of Rs.5 Crores' only).
11. The Learned Counsel for the Appellant, brings to the notice of this `Tribunal', that by `Restructuring', the `Resolution Applicant', became a 97.88% Shareholder of the `Corporate Debtor'. Besides this, the Resolution Applicant commits a further infusion of Share Capital of Rs.20 Crores, `as and when required in the Company for its Revival through its Group Companies, Associates, Investors and Promoters'.
12. The Learned Counsel for the Appellant points out that there is no `upfront investment', beyond Rs. 5 Crores, by the Resolution Applicant, which is given complete `Liberty', to bring in the `Funds', whenever it pleases. Also that, the `Plan', provides for the Balance Part of the ostensible consideration of Rs.50.50 Crores (i.e. Rs.45,50,00,000/-) to be paid from the sale of the Non-Core Assets of the Corporate Debtor itself, which means that the `Resolution Applicant', had gained `control', of the `Corporate Debtor' (whose assets are valued at Rs.80.75 Crores), by infusion of only Rs. 5 Crores of its own `Funds'.
TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 8 of 74
13. The Learned Counsel for the Appellant in regard to the payments to the `Operational Creditors', adverts to the Resolution Plan which mentions as under:
``As per section 30(2)(b) payment of debts of Operational Creditors shall not be less than the amount to be paid to the Operational Creditors in the event. Of a liquidation of the corporate debtor under section 53.
As per Regulation 38(1), the amount due to operational creditors under a resolution plan shall be given priority in payment over financial creditors.
As the liquidation value due to operational creditor is NIL, hence no provision for payment of dues of operational creditors is made in Resolution Plan for payment of operational creditors.'' (emphasis supplied)
14. The Learned Counsel for the Appellant, points out that the `Resolution Plan', provides for a whole waiver of the Operational Debt of the Corporate Debtor, by mentioning as under:
``The Resolution Plan seeks total waiver, of any amount due to the Operational Creditors, the other sundry creditors, and other current liabilities including advances from customers, distributors, etc. recorded/unrecorded in the books of accounts, claimed or not for the period till the commencement of the CIRP date. Thus, on admission of resolution plan the amount due to operational creditor whether admitted or not by Resolution Professional shall be treated as waived off without any further action on part of Resolution Professional shall be treated as waived off without any further action on part of Resolution Applicant as there is no liquidation value available for the same.'' TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 9 of 74
15. The Learned Counsel for the Appellant, submits that although the I & B Code, 2016, does not require equal treatment of differently situated `classes of Creditors', in a Resolution Plan, it certainly requires an `Equitable Treatment' of the Classes in `non-discriminatory' manner.
16. According to the Learned Counsel for the Appellant, the instant TA No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019, is to be allowed, by setting aside the `impugned order' dated 10.05.2019 in IA/40 of 2019 in CP(IB) No. 136 / BB / 2017, in `Approving the Resolution Plan', made by the `Adjudicating Authority' (`Tribunal'), and thereby the interests of the `Operational Creditors', are protected in a sufficient manner.
Appellant's Citations:
17. The Learned Counsel for the Appellant, refers to the decision of the Hon'ble Supreme Court of India, in Binani Industries Limited v. Bank of Baroda (2018) SCC Online NCLAT 521, wherein at Paragraph 47 and 48, it is observed as under:
47. ``We have noticed the relevant provision of the 'process document' and Section 25(2)(h) and held that the 'Committee of Creditors' have not acted in terms with the provisions of the 'I & B Code' and the 'process document'. The maximization of the value assets of the 'Corporate Debtor' cannot be ignored nor it can be ignored that the same should balance all the stakeholders.
48. If the 'Operational Creditors' are ignored and provided with 'liquidation value' on the basis of misplaced notion and misreading TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 10 of 74 of Section 30(2)(b) of the 'I&B Code', then in such case no creditor will supply the goods or render services on credit to any 'Corporate Debtor'. All those who will supply goods and provide services, will ask for advance payment for such supply of goods or to render services which will be against the basic principle of the 'I&B Code' and will also affect the Indian economy. Therefore, it is necessary to balance the 'Financial Creditors' and the 'Operational Creditors' while emphasizing on maximization of the assets of the 'Corporate Debtor'. Any 'Resolution Plan' if shown to be discriminatory against one or other 'Financial Creditor' or the 'Operational Creditor', such plan can be held to be against the provisions of the 'I & B Code'.''
18. The Learned Counsel for the Appellant, relies on the decision of the Hon'ble Supreme Court of India, in the matter of Swiss Ribbons Pvt.
Ltd. v. Union of India & Ors., reported in (2019) 4 SCC 17 at Spl Pgs.: 84 and 85, wherein at Paragraphs 76 and 77, it is observed as under:
76. ``Quite apart from this, the United Nations Commission on International Trade Law, in its Legislative Guide on Insolvency Law [the UNCITRAL Guidelines] recognises the importance of ensuring equitable treatment to similarly placed creditors and states as follows:
"Ensuring equitable treatment of similarly situated creditors
7. The objective of equitable treatment is based on the notion that, in collective proceedings, creditors with similar legal rights should be treated fairly, receiving a distribution on their claim in accordance with their relative ranking and interests. This key objective recognises that all creditors do not need to be treated identically, but in a manner that reflects the different bargains they have struck with the debtor. This is less relevant as a defining factor where there is no specific debt contract with the debtor, such as in the case of damage claimants (e.g. for environmental damage) TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 11 of 74 and tax authorities. Even though the principle of equitable treatment may be modified by social policy on priorities and give way to the prerogatives pertaining to holders of claims or interests that arise, for example, by operation of law, it retains its significance by UNCITRAL Legislative Guide on Insolvency Law ensuring that the priority accorded to the claims of a similar class affects all members of the class in the same manner. The policy of equitable treatment permeates many aspects of an insolvency law, including the application of the stay or suspension, provisions to set aside acts and transactions and recapture value for the insolvency estate, classification of claims, voting procedures in reorganization and distribution mechanisms. An insolvency law should address problems of fraud and favouritism that may arise in cases of financial distress by providing, for example, that acts and transactions detrimental to equitable treatment of creditors can be avoided.
77. NCLAT has, while looking into viability and feasibility of resolution plans that are approved by the Committee of Creditors, always gone into whether operational creditors are given roughly the same treatment as financial creditors, and if they are not, such plans are either rejected or modified so that the operational creditors' rights are safeguarded. It may be seen that a resolution plan cannot pass muster under Section 30(2)(b) read with Section 31 unless a minimum payment is made to operational creditors, being not less than liquidation value. Further, on 05-10- 2018, Regulation 38 has been amended. Prior to the amendment, Regulation 38 read as follows:
38. Mandatory contents of the resolution plan.-- (1) A resolution plan shall identify specific sources of funds that will be used to pay the--
(a) insolvency resolution process costs and provide that the insolvency resolution process costs, to the extent unpaid, will be paid in priority to any other creditor;
TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 12 of 74
(b) liquidation value due to operational creditors and provide for such payment in priority to any financial creditor which shall in any event be made before the expiry of thirty days after the approval of a resolution plan by the Adjudicating Authority; and
(c) liquidation value due to dissenting financial creditors and provide that such payment is made before any recoveries are made by the financial creditors who voted in favour of the resolution plan.'' Post amendment, Regulation 38 reads as follows:
38. Mandatory contents of the resolution plan.-- (1) The amount due to the operational creditors under a resolution plan shall be given priority in payment over financial creditors.
(1-A) A resolution plan shall include a statement as to how it has dealt with the interests of all stakeholders, including financial creditors and operational creditors, of the corporate debtor.'' The aforesaid Regulation further strengthens the rights of operational creditors by statutorily incorporating the principle of fair and equitable dealing of operational creditors' rights, together with priority in payment over financial creditors.''
19. The Learned Counsel for the Appellant points out the decision of the Hon'ble Supreme Court of India, in the Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta, reported in (2020) 8 SCC 531 at Spl Pgs.: 592 - 593 and 606 - 608, wherein at Paragraphs 71
- 73, 88 - 90, it is observed as under:
71. ``However, as has been correctly argued on behalf of the operational creditors, the preamble of the Code does speak of TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 13 of 74 maximisation of the value of assets of corporate debtors and the balancing of the interests of all stakeholders. There is no doubt that a key objective of the Code is to ensure that the corporate debtor keeps operating as a going concern during the insolvency resolution process and must therefore make past and present payments to various operational creditors without which such operation as a going concern would become impossible. Sections 5(26), 14(2), 20(1), 20(2)(d) and (e) of the Code read with Regulations 37 and 38 of the 2016 Regulations all speak of the corporate debtor running as a going concern during the insolvency resolution process. Workmen need to be paid, electricity dues need to be paid, purchase of raw materials need to be made, etc. This is in fact reflected in this court's judgment in Swiss Ribbons (supra) as follows:
"26. The Preamble of the Code states as follows:
`An Act 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 maximisation 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 of priority of payment of government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.'
27. As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first and foremost, a Code for reorganisation and insolvency resolution of corporate debtors. Unless such reorganisation is effected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximisation of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 14 of 74 plan takes off and the corporate debtor is brought back into the economic mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands of banks and financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a beneficiary of the resolution scheme-- workers are paid, the creditors in the long run will be repaid in full, and shareholders/investors are able to maximise their investment. Timely resolution of a corporate debtor who is in the red, by an effective legal framework, would go a long way to support the development of credit markets. Since more investment can be made with funds that have come back into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy. What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern. (See ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1] at para 86, Footnote 46.)'' (emphasis supplied)
72. This is the reason why Regulation 38(1-A) speaks of a resolution plan including a statement as to how it has dealt with the interests of all stakeholders, including operational creditors of the corporate debtor. Regulation 38(1) also states that the amount due to operational creditors under a resolution plan shall be given priority in payment over financial creditors. If nothing is to be paid to operational creditors, the minimum, being liquidation value - which in most cases would amount to nil after secured creditors have been paid - would certainly not balance the interest of all stakeholders or maximise the value of assets of a corporate debtor if it becomes impossible to continue running its business as a going concern. Thus, it is clear that when the Committee of Creditors TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 15 of 74 exercises its commercial wisdom to arrive at a business decision to revive the corporate debtor, it must necessarily take into account these key features of the Code before it arrives at a commercial decision to pay off the dues of financial and operational creditors.
73. There is no doubt whatsoever that the ultimate discretion of what to pay and how much to pay each class or sub-class of creditors is with the Committee of Creditors, but, the decision of such Committee must reflect the fact that it has taken into account maximising the value of the assets of the corporate debtor and the fact that it has adequately balanced the interests of all stakeholders including operational creditors. This being the case, judicial review of the Adjudicating Authority that the resolution plan as approved by the Committee of Creditors has met the requirements referred to in Section 30(2) would include judicial review that is mentioned in Section 30(2)(e), as the provisions of the Code are also provisions of law for the time being in force. Thus, while the Adjudicating Authority cannot interfere on merits with the commercial decision taken by the Committee of Creditors, the limited judicial review available is to see that the Committee of Creditors has taken into account the fact that the corporate debtor needs to keep going as a going concern during the insolvency resolution process; that it needs to maximise the value of its assets; and that the interests of all stakeholders including operational creditors has been taken care of. If the Adjudicating Authority finds, on a given set of facts, that the aforesaid parameters have not been kept in view, it may send a resolution plan back to the Committee of Creditors to re-submit such plan after satisfying the aforesaid parameters. The reasons given by the Committee of Creditors while approving a resolution plan may thus be looked at by the Adjudicating Authority only from this point of view, and once it is satisfied that the Committee of Creditors has paid attention to these key features, it must then pass the resolution plan, other things being equal.
88. By reading paragraph 77 (of Swiss Ribbons8) dehors the earlier paragraphs, the Appellate Tribunal has fallen into grave TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 16 of 74 error. Paragraph 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 paragraph 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, paragraph 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 paragraph 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 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.
89. Indeed, by vesting the Committee of Creditors with the discretion of accepting resolution plans only with financial creditors, operational creditors having no vote, the Code itself differentiates between the two types of creditors for the reasons given above. Further, as has been reflected in Swiss Ribbons (supra), most financial creditors are secured creditors, whose TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 17 of 74 security interests must be protected in order that they do not go ahead and realise their security in legal proceedings, but instead are incentivised to act within the framework of the Code as persons who will resolve stressed assets and bring a corporate debtor back to its feet. Shri Sibal's argument that the expression "secured creditor" does not find mention in Chapter II of the Code, which deals with the resolution process, and is only found in Chapter III, which deals with liquidation, is for the reason that secured creditors as a class are subsumed in the class of financial creditors, as has been held in Swiss Ribbons (supra). Indeed, Regulation 13(1) of the 2016 Regulations mandates that when the resolution professional verifies claims, the security interest of secured creditors is also looked at and gets taken care of.
Similarly, Regulation 36(2)(d) when it provides for a list of creditors and the amounts claimed by them in the information memorandum (which is to be submitted to prospective resolution applicants), also provides for the amount of claims admitted and security interest in respect of such claims.
90. Under Regulation 39(4), the compliance certificate of the resolution professional as to the CIRP being successful is contained in Form H to the Regulations. This statutory form, in paragraphs 6 and 7, states as under:
"6. The Resolution Plan includes a statement under regulation 38(1-A) of the CIRP Regulations as to how it has dealt with the interests of all stakeholders in compliance with the Code and Regulations made thereunder.
7. The amounts provided for the stakeholders under the Resolution Plan is as under:
(Amount in Rs. Lakh) Sl. Category of Amount Amount Amount Amount No. Stakeholder* Claimed Admitted provided Provided to under the amount the Plan Claimed (%) 1 Dissenting Secured Financial Creditors TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 18 of 74 2 Other Secured Financial Creditors 3 Dissenting Unsecured Financial Creditors 4 Other Unsecured Financial Creditors 5 Operational Creditors, Government, Workmen, Employees 6 Other Debts and Dues Total Quite clearly, secured and unsecured financial creditors are differentiated when it comes to amounts to be paid under a resolution plan, together with what dissenting secured or unsecured financial creditors are to be paid. And, most importantly, operational creditors are separately viewed from these secured and unsecured financial creditors in S.No.5 of paragraph 7 of statutory Form H. Thus, it can be seen that the Code and the Regulations, read as a whole, together with the observations of expert bodies and this Court's judgment, all lead to the conclusion that the equality principle cannot be stretched to treating unequals equally, as that will destroy the very objective of the Code - to resolve stressed assets. Equitable treatment is to be accorded to each creditor depending upon the class to which it belongs:
secured or unsecured, financial or operational.'' 2nd Respondent's Submissions:
20. It is the contention of the 2nd Respondent that Section 30 (2) (b) of the I & B Code, 2016, envisages two ways in which a `Resolution Plan', may provide for `Payment of Debts' of the `Operational Creditor', i.e. (i) The amount to be paid to the `Operational Creditors', shall in no event be TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 19 of 74 lesser than the amount to be paid to such Creditors, in the event of Liquidation of the Corporate Debtor, as per Section 53 of the Code (or)
(ii) The Sum that would have been to such Creditors, if the `Sum' under the `Resolution Plan' were to be `distributed', as per `priority', given under Section 53(1) of the I & B Code, 2016.
21. The Learned Counsel for the 2nd Respondent, points out that in the instant case, the `Liquidation Value' of the `Operational Creditors', is `Nil', the `Sum', assigned to them, under the `Resolution Plan', being `Nil', is in no way, lesser than the `Liquidation Value', and thus the `Resolution Plan', complies with the ingredients of Section 30(2)(b)(i) of the I & B Code, 2016.
22. It is projected on the side of the 2nd Respondent, the amount to be paid to the `Operational Creditors', as per Section 53(1) of the Code, is `Nil', as the `Liquidation Value' is `Nil', and hence, the `Resolution Plan', also satisfies the requirements of Section 30(2)(b)(ii) of the I & B Code, 2016.
23. The Learned Counsel for the 2nd Respondent brings it to the notice of this `Tribunal', that the 2nd Respondent by way of Resolution Plan has offered INR 50.70 Crores, as Full and Final Settlement of all Liabilities of the Corporate Debtor, which duly `approved', by the Requisite Majority of the Committee of Creditors of the Corporate Debtor on 15.01.2019.
TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 20 of 74
24. The contention of the 2nd Respondent is that because of the ingredients of Section 53 of the Code, dues of Secured Financial Creditors and Workmen' rank much higher than the `Dues' of the `Operational Creditors', and the Liquidation Value of the corporate Debtor being `Nil', no amount was assigned to such `Creditors'. In effect, according to the 2nd Respondent, the `Resolution Plan', is in conformity with the ingredients of Section 30(2)(b) read with Section 53 (1) of the Code.
25. According to the 2nd Respondent, its intention is to maximise the `Value of the Assets', of the `Corporate Debtor', and to ensure it is run as a `Going Concern', is evident from the `Resolution Plan', submitted by it.
In fact, in Clause 3.9 of the Resolution Plan, the 2nd Respondent had laid down the objections it has for the Corporate Debtor which run as under:
a) To engage in textile manufacturing and e-commence the operations after due repairs and renovation
b) Once the production is stabilised - to carry out modernisation and expansion
c) To carry on backward and forward integration TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 21 of 74
d)To add diversified / value added services such as trading, manufacturing, merchant manufacturing, letting out space for warehousing, processing centre, distribution centre targeting all the industries like agro-products, iron and steel, engineering FMCG, etc.
26. Also, in Clause 3.10 of the Resolution Plan, the 2nd Respondent had listed its `capabilities to revive the Corporate Debtor', and run it as a `Going Concern', and the same is as follows:
(i) The Resolution Applicant is financially sound with a net worth of around Rs. 2024 lakhs.
(ii) This acquisition will generate new employment to labour and staff. The acquisition will also increase the revenue to the Government of India and boost exports.
(iii) Resolution Applicant being a trader / merchant exporter of textile over years, has good network in the industry on the manufacturing as well as marketing front.
27. It is the version of the 2nd Respondent that the `Resolution Plan' contemplates a sum of Rs.50.70 Crores, as `Full and Final Settlement Sum', against all `Existing Liabilities' and `Contingent Liabilities', for the entire `Assets / Rights / Business', as a `Going Concern' of the `Corporate Debtor'. Moreover, the 2nd Respondent, had undertaken to TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 22 of 74 infuse approximately INR 20 Crores in the Corporate Debtor , as and when required for its `Revival', through its Group Companies, Associates, Investors and Promoters.
28. The Learned Counsel for the 2nd Respondent takes a stand that the Resolution Plan initially had provided for Rs.17 Lakhs, in respect of the Workmen Dues, as per Section 53 of the Code. However, at the instance of the `Adjudicating Authority', and taking a `compassionate view', of the matter, the 2nd Respondent had revised the Resolution Plan and allocated INR 34 Lakhs towards `Workmen Dues'.
29. The Learned Counsel for the 2nd Respondent points out that, since the `Value of the Corporate Debtor is Nil', and the sum of INR 50.70 Crores was fully used in payment of (a) the CIRP Costs (b) the aforesaid dues of the `Financial Creditors' and the `Workmen'. No amount remains to be assigned towards the other `Creditors', in accordance with Section 30 (2) (b) read with Section 53 of the I & B Code, 2016, Hence, all the Creditors had taken a significant hair cut in the `CIRP' of the `Corporate Debtor'.
30. According to the 2nd Respondent, in the present case, the Resolution Plan is not discriminatory between two similarly situated Financial Creditors or Operational Creditors, as was wrongly alleged by the `Appellant'. Furthermore, the decision of this `Tribunal' in Central TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 23 of 74 Bank of India v. Resolution Professional of Sirpur Paper Mills Ltd. (vide Comp. App (AT) (INS) No. 526 of 2018 dated 12.09.2018), is inapplicable to the facts of the present case.
31. The Learned Counsel for the 2nd Respondent takes a plea that the Judgment in Standard Chartered Bank v. Satish Kumar Gupta, RP of Essar Steel Ltd & Ors. CA AT INS No. 242 of 2019, is `incorrectly relied on', by the `Appellant'.
32. The Learned Counsel for the 2nd Respondent while concluding, submits that the `Resolution Plan' is in consonance with the amended Provisions of the I & B Code, 2016, and the same was `upheld' by the `Adjudicating Authority', and therefore, the `Appellant' is not entitled to get any `relief', in the instant `Appeal', and the same is liable to be dismissed, to `secure the ends of justice'.
2nd Respondent's Decisions:
33. The Learned Counsel for the 2nd Respondent, cites the decision of the Hon'ble Supreme Court of India in Swiss Ribbons Pvt. Ltd. and Anr.
v. Union of India & Ors. (2019) 4 SCC 17, wherein, at Paragraphs, 28, 82 and 84, it is observed as under:
28. ``It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 24 of 74 back on its feet, not being a mere recovery legislation for creditors.
The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters / those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again protects the corporate debtor's assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends.
82. It is clear that once the Code gets triggered by admission of a creditor's petition under Sections 7 to 9, the proceeding that is before the Adjudicating Authority, being a collective proceeding, is a proceeding in rem. Being a proceeding in rem, it is necessary that the body which is to oversee the resolution process must be consulted before any individual corporate debtor is allowed to settle its claim. A question arises as to what is to happen before a committee of creditors is constituted (as per the timelines that are specified, a committee of creditors can be appointed at any time within 30 days from the date of appointment of the interim resolution professional). We make it clear that at any stage where the committee of creditors is not yet constituted, a party can approach the NCLT directly, which Tribunal may, in exercise of its inherent powers under Rule 11 of the NCLT Rules, 2016, allow or disallow an application for withdrawal or settlement. This will be decided after hearing all the parties concerned and considering all relevant factors on the facts of each case.
84. A frontal attack was made by Shri Mukul Rohatgi on the ground that private information utilities that have been set up are not governed by proper norms. Also, the evidence by way of loan TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 25 of 74 default contained in the records of such utility cannot be conclusive evidence of what is stated therein. The BLRC Report had stated:
``Under the present arrangements, considerable time can be lost before all parties obtain this information. Disputes about these facts can take up years to resolve in court...... Hence, the Committee envisions a competitive industry of ``information utilities'' who hold an array of information about all firms at all times. When the IRP commences, within less than a day, undisputed and complete information would become available to all persons involved in the IRP and thus address this source of delay.''
34. The Learned Counsel for the 2nd Respondent, adverts to the decision of the Hon'ble Supreme Court of India in Swiss Ribbons Pvt.
Ltd. and Anr. v. Union of India & Ors. (2019) 4 SCC 17, wherein at Paragraph 27, it is observed as under:
27. ``The Code is first and foremost, a Code for reorganization and insolvency resolution of corporate debtors.
Unless such reorganization is effected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximization of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the corporate debtor is brought back into the economic mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands of banks and financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a beneficiary of the resolution scheme - workers are paid, the creditors in the long run will be repaid in full, and TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 26 of 74 shareholders/investors are able to maximize their investment. Timely resolution of a corporate debtor who is in the red, by an effective legal framework, would go a long way to support the development of credit markets. Since more investment can be made with funds that have come back into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy.'' 3535. The Learned Counsel for the 2nd Respondent, refers to the Judgment of the Hon'ble Supreme Court of India in Transmission Corporation of Andhra Pradesh Ltd. v. Equipment Conductors and Cables Limited (vide Civil Appeal No. 9597 of 2018 dated 23.10.2018), wherein at Paragraph 15, it is observed as under:
15. ``In a recent judgment of this Court in Mobilox Innovations Private Limited vs. Kirusa Software Private Limited (2018) 1 SCC 353, this Court has categorically laid down that IBC is not intended to be substituted to a recovery forum. It is also laid down that whenever there is existence of real dispute, the IBC provisions cannot be invoked...''
36. The Learned Counsel for the 2nd Respondent, refers to the Judgment of the Hon'ble Supreme Court of India in the matter of Pratap Technocrafts Pvt. Ltd. and Ors. v. Monitoring Committee of Reliance Infratel Ltd. & Anr., (vide Civil Appeal No. 676 of 2021 dated 10.08.2021), reported in India Kanoon, wherein, at Part F29, it is observed that ``The statute has indicated that once the requirements of Section 30(2)(b) are fulfilled, the distribution in accordance with its TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 27 of 74 provisions is to be treated as fair and equitable to the operational creditors.''
37. The Learned Counsel for the 2nd Respondent, refers to the Judgement of the Hon'ble Supreme Court of India, in the matter of Jaypee Kensington Boulevard Apartments Welfare Association & Ors. v.
NBCC (India) Ltd. & Ors., (vide Civil Appeal No. 3395 of 2020 dated 24.03.2021), reported in India Kanoon, wherein at Paragraphs 76 and 77.6.1, it is observed as under:
76. ``The expositions aforesaid make it clear that the decision as to whether corporate debtor should continue as a going concern or should be liquidated is essentially a business decision; and in the scheme of IBC, this decision has been left to the Committee of Creditors, comprising of the financial creditors. Differently put, in regard to the insolvency resolution, the decision as to whether a particular resolution plan is to be accepted or not is ultimately in the hands of the Committee of Creditors; and even in such a decision making process, a resolution plan cannot be taken as approved if the same is not approved by votes of at least 66% of the voting share of financial creditors. Thus, broadly put, a resolution plan is approved only when the collective commercial wisdom of the financial creditors, having at least 2/3rd majority of voting share in the Committee of Creditors, stands in its favour.
77.6.1. The assessment about maximisation of the value of assets, in the scheme of the Code, would always be subjective in nature and the question, as to whether a particular resolution plan and its propositions are leading to maximisation of value of assets or not, would be the matter of enquiry and assessment of the Committee of Creditors TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 28 of 74 alone. When the Committee of Creditors takes the decision in its commercial wisdom and by the requisite majority; and there is no valid reason in law to question the decision so taken by the Committee of Creditors, the adjudicatory process, whether by the Adjudicating Authority or the Appellate Authority, cannot enter into any quantitative analysis to adjudge as to whether the prescription of the resolution plan results in maximisation of the value of assets or not. The generalised submissions and objections made in relation to this aspect of value maximisation do not, by themselves, make out a case of interference in the decision taken by the Committee of Creditors in its commercial wisdom.''
38. The Learned Counsel for the 2nd Respondent, refers to the Judgement of Hon'ble Supreme Court of India, in K. Sashidar v. Indian Overseas Bank and Ors., (vide Civil Appeal No. 10673 of 2018 dated 05.02.2019), reported in India Kanoon, wherein at Paragraphs 11, 33, 34, 47 and 48, it is observed as under:
11. ``..... In the present case, contends learned counsel, the only plea taken by the dissenting financial creditors before the adjudicating authority (NCLT), was that they had taken a commercial decision and it was not open to judicial scrutiny....''
33. As aforesaid, upon receipt of a "rejected" resolution plan the adjudicating authority (NCLT) is not expected to do anything more; but is obligated to initiate liquidation process under Section 33(1) of the I&B Code. The legislature has not endowed the adjudicating authority (NCLT) with the jurisdiction or authority to analyse or evaluate the commercial decision of the CoC muchless to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors. From the legislative history and the background in which the I&B Code has been enacted, it is noticed that a completely new approach has TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 29 of 74 been adopted for speeding up the recovery of the debt due from the defaulting companies. In the new approach, there is a calm period followed by a swift resolution process to be completed within 270 days (outer limit) failing which, initiation of liquidation process has been made inevitable and mandatory. In the earlier regime, the corporate debtor could indefinitely continue to enjoy the protection given under Section 22 of the Sick Industrial Companies Act, 1985 or under other such enactments which has now been forsaken.
Besides, the commercial wisdom of the CoC has been given paramount status without any judicial intervention, for ensuring completion of the stated processes within the timelines prescribed by the I&B Code. There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject matter expressed by them after due 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.
34. In the report of the Bankruptcy Law Reforms Committee of November 2015, primacy has been given to the CoC to evaluate the various possibilities and make a decision. It has been observed thus:
"The key economic question in the bankruptcy process When a firm (referred to as the corporate debtor in the draft law) defaults, the question arises about what is to be done. Many possibilities can be envisioned. One possibility is to take the firm into liquidation. Another possibility is to negotiate a debt restructuring, where the creditors accept a reduction of debt on an NPV basis, and hope that the negotiated value exceeds the liquidation value. Another possibility is to sell the firm as a going concern and use the proceeds to pay creditors. Many hybrid structures of these TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 30 of 74 broad categories can be envisioned. The Committee believes that there is only one correct forum for evaluating such possibilities, and making a decision: a creditors committee, where all financial creditors have votes in proportion to the magnitude of debt that they hold. In the past, laws in India have brought arms of the Government (legislature, executive or judiciary) into this question. This has been strictly avoided by the Committee. The appropriate disposition of a defaulting firm is a business decision, and only the creditors should make it."
(emphasis supplied)
47. The change brought about by this amendment is insertion of words "after considering its feasibility and viability, and such other requirements as may be specified by the Board". In addition, three provisos have been added to sub−section (4). For considering the issue on hand, the three provisos are not relevant. As regards the insertion of the above quoted words in sub−section (4), that does not alter the requirement regarding approval of a resolution plan, by a vote of not less than 75% of voting share of the financial creditors. The amendment is only to declare that the financial creditors ought to consider the feasibility and viability and such other requirements as may be specified by the Board, while exercising their option on the resolution plan − to approve or not to approve the same. It is rudimentary that the financial creditors (in most cases are national Bankers), who are called upon to consider the proposed resolution plan would take into account all the relevant materials, including the feasibility and viability and such other requirements as may be specified by the Board. Additionally, the financial creditors are also required to bear in mind that the legislative intent is to bring about resolution and revival of the corporate debtors so as to benefit not only the corporate debtor but also other stake−holders in equal measure.
48. Suffice it to observe that the amended provision merely restates as to what the financial creditors are expected to bear in mind whilst expressing their choice during consideration of the proposal for approval of a resolution plan. No more and no less.
TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 31 of 74 Indubitably, the legislature has consciously not provided for a ground to challenge the justness of the "commercial decision"
expressed by the financial creditors - be it to approve or reject the resolution plan. The opinion so expressed by voting is non−justiciable. Further, in the present cases, there is nothing to indicate as to which other requirements specified by the Board at the relevant time have not been fulfilled by the dissenting financial creditors. As noted earlier, the Board established under Section 188 of the I&B Code can perform powers and functions specified in Section 196 of the I&B Code. That does not empower the Board to specify requirements for exercising commercial decisions by the financial creditors in the matters of approval of the resolution plan or liquidation process. Viewed thus, the amendment under consideration does not take the matter any further.''
39. The Learned Counsel for the 2nd Respondent refers to the Judgement of the Hon'ble Supreme Court of India, in the matter of Kalparaj Dharamshi v. Kotak Investment Advisors Ltd., vide Civil Appeal Nos. 2943 - 2944 of 2020 dated 10.03.2021), wherein at Paragraphs 155 to 158, it is observed as under:
155. ``This Court observed, that the Court ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis. This Court clearly held, that the appellate authority ought not to have interfered with the order of the adjudicating authority by directing the successful resolution applicant to enhance their fund inflow upfront.
156. It would thus be clear, that the legislative scheme, as interpreted by various decisions of this Court, is unambiguous. The commercial wisdom of CoC is not to be interfered with, excepting the limited scope as provided under Sections 30 and 31 of the I&B Code.
TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 32 of 74
157. No doubt, it is sought to be urged, that since there has been a material irregularity in exercise of the powers by RP, NCLAT was justified in view of the provisions of clause (ii) of sub−section (3) of Section 61 of the I&B Code to interfere with the exercise of power by RP. However, it could be seen, that all actions of RP have the seal of approval of CoC. No doubt, it was possible for RP to have issued another Form 'G', in the event he found, that the proposals received by it prior to the date specified in last Form 'G' could not be accepted. However, it has been the consistent stand of RP as well as CoC, that all actions of RP, including acceptance of resolution plans of Kalpraj after the due date, albeit before the expiry of timeline specified by the I&B Code for completion of the process, have been consciously approved by CoC. It is to be noted, that the decision of CoC is taken by a thumping majority of 84.36%. The only creditor voted in favour of KIAL is Kotak Bank, which is a holding company of KIAL, having voting rights of 0.97%. We are of the considered view, that in view of the paramount importance given to the decision of CoC, which is to be taken on the basis of 'commercial wisdom', NCLAT was not correct in law in interfering with the commercial decision taken by CoC by a thumping majority of 84.36%.
158. It is further to be noted, that after the resolution plan of Kalpraj was approved by NCLT on 28.11.2019, Kalpraj had begun implementing the resolution plan. NCLAT had heard the appeals on 27.2.2020 and reserved the same for orders. It is not in dispute, that there was no stay granted by NCLAT, while reserving the matters for orders. After a gap of five months and eight days, NCLAT passed the final order on 5.8.2020. It could thus be seen, that for a long period, there was no restraint on implementation of the resolution plan of Kalpraj, which was duly approved by NCLT. It is the case of Kalpraj, RP, CoC and Deutsche Bank, that during the said period, various steps have been taken by Kalpraj by spending a huge amount for implementation of the plan. No doubt, this is sought to be disputed by KIAL. However, we do not find it necessary to go into that aspect of the matter in light of our TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 33 of 74 conclusion, that NCLAT acted in excess of jurisdiction in interfering with the conscious commercial decision of CoC.''
40. The Learned Counsel for the 2nd Respondent, relies on the decision of the Hon'ble Supreme Court of India in Karad Urban Co-operative Bank Ltd. v. Swwapnil Bhingardevay, reported in (2020) 9 SCC at Page 729 at Spl. Pgs: 734 to 736, wherein at Paragraphs 12 to 14, it is observed as under:
12. ``We have carefully considered the rival submissions. On the first question regarding the viability and feasibility of a resolution plan, the law is now well−settled. In K. Sashidhar (supra), it was held as follows:
``52. ... There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan... The opinion on the subject matter expressed by them after due 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 nonjusticiable.
57. .... The provisions investing jurisdiction and authority in NCLT or NCLAT as noticed earlier, have not made the commercial decision exercised by CoC of not approving the resolution plan or rejecting the same, justiciable. This position is reinforced from the limited grounds specified for instituting an appeal that too against an order "approving a resolution plan" under Section 31.
TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 34 of 74
58. .... Further, the jurisdiction bestowed upon the appellate authority (NCLAT) is also expressly circumscribed. It can examine the challenge only in relation to the grounds specified in Section 61(3) of the I&B Code, which is limited to matters "other than" enquiry into the autonomy or commercial wisdom of the dissenting financial creditors."
64. ..... At best, the adjudicating authority (NCLT) may cause an enquiry into the "approved" resolution plan on limited grounds referred to in Section 30(2) read with Section 31(1) of the I&B Code. It cannot make any other inquiry nor is competent to issue any direction in relation to the exercise of commercial wisdom of the financial creditors
-- be it for approving, rejecting or abstaining, as the case may be. Even the inquiry before the appellate authority (NCLAT) is limited to the grounds under Section 61(3) of the I&B Code. It does not postulate jurisdiction to undertake scrutiny of the justness of the opinion expressed by financial creditors at the time of voting."
13. Thereafter, in Essar Steel India Ltd. (supra), this Court held:
``67 Thus, it is clear that the limited judicial review available, which can in no circumstance trespass upon a business decision of the majority of the Committee of Creditors, has to be within the four corners of Section 30(2) of the Code, insofar as the Adjudicating Authority is concerned, and Section 32 read with Section 61(3) of the Code, insofar as the Appellate Tribunal is concerned.......
73..... Thus, while the Adjudicating Authority cannot interfere on merits with the commercial decision taken by the Committee of Creditors, the limited judicial review available is to see that the Committee of Creditors has taken into account the fact that the corporate debtor needs to keep going as a TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 35 of 74 going concern during the insolvency resolution process; that it needs to maximise the value of its assets; and that the interests of all stakeholders including operational creditors has been taken care of."
14. The principles laid down in the aforesaid decisions, make one thing very clear. If all the factors that need to be taken into account for determining whether or not the corporate debtor can be kept running as a going concern have been placed before the Committee of Creditors and the CoC has taken a conscious decision to approve the resolution plan, then the adjudicating authority will have to switch over to the hands off mode. It is not the case of the corporate debtor or its promoter/Director or anyone else that some of the factors which are crucial for taking a decision regarding the viability and feasibility, were not placed before the CoC or the Resolution Professional. The only basis for the corporate debtor to raise the issue of viability and feasibility is that the ownership and possession of the ethanol plant and machinery is the subject matter of another dispute and that the resolution plan does not take care of the contingency where the said plant and machinery may not eventually be available to the Successful Resolution Applicant.
41. The Learned Counsel for the 2nd Respondent, refers to the Judgment of this `Tribunal', in Damodar Valley Corporation v.
Dimension Steel & Alloys Pvt. Ltd. and 2 Ors., (vide Comp. App (AT) (INS.) 62 of 2022), wherein at Paragraph 26, it is observed as under:
26. ``Law being now settled that mere fact that Operational Creditors and Financial Creditors are not paid same amount and same percentage, cannot be said to be inequitable. It is settled that the Code and the Company TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 36 of 74 Appeal (AT) (Insolvency) No. 62 of 2022, 26 Regulations does not contemplates that there could be equal treatment to all creditors. Hon'ble Supreme Court has held in paragraph 77 in Essar Steel (supra) that equitable treatment of creditors is equitable treatment only within the same class.
We, thus, do not find any substance in the submission that Resolution Plan violates Section 30, sub-section (2)(b) of the Code.'' 4th Respondent's Contentions:
42. The stand of the 4th Respondent is that, based on the discussions in the 15th CoC Meeting, an amendment was proposed to the Resolution Plan dated 07.01.2019, by the 2nd Respondent, through amendment letters dated 09.01.2019 and 11.01.2019. In fact, the Resolution Plan dated 07.01.2019 along with amendments was approved by the CoC through e-
voting, that took place on 15.01.2019, by 69.04% votes. Ultimately, the Resolution Plan, presented by the `Resolution Professional', before the `Adjudicating Authority', in IA No. 40 of 2019 in CP(IB)/136/BB/2017 (under Section 30(6)(c) and Section 31 of the Code) was approved on 10.05.2019, by the `Adjudicating Authority'.
43. The contention of the 4th Respondent is that, the instant `Appeal', is per se not maintainable, because of the fact that the `Appellant', is endeavouring to impugned the merits of the commercial decision taken by the Committee of Creditors in approving the Resolution Plan of the Corporate Debtor.
TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 37 of 74
44. Moreover, the jurisdiction under the I & B Code, 2016, does not extend to altering / changing the commercial wisdom of the Committee of Creditors', which took into consideration, the feasibility and viability of the Resolution Plan. Besides this, the Resolution Professional does not have any role to play, because of the supremacy being given to the commercial wisdom of the Committee of Creditors. Also that, any objection or contention relating to the `approval' of the `Resolution Plan' or its contents, including the aspect of distribution proposed, can only be addressed by the Members of the CoC and not by the Resolution Professional.
45. The Learned Counsel for the 4th Respondent points out the reading of the Regulation 39 of the CIRP Regulations, coupled with the ingredients of Section 30 (4) of the Code, unerringly, proceeds to point out that the `approval by a majority of the `Committee of Creditors', takes into account the `Feasibility' and `Viability', of the `Resolution Plan', along with the aim of `revival' of the `Corporate Debtor'.
4th Respondent's Decisions:
46. The Learned Counsel for the 4th Respondent refers to the decision of the Hon'ble Supreme Court of India in the matter of K. Sashidhar v.
Indian Overseas Bank, vide Civil Appeal No. 10673 of 2018 dated TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 38 of 74 05.02.2019 (2019) 12 SCC 150 at Spl Pgs.: 169, 170 and 173, wherein at Paragraphs 20, 21, 22 and 31, it is observed as under:
20. ``With regard to the second amendment to Section 30(4) of the I&B Code which came into effect from 6th June, 2018, reducing the voting threshold from 75% to 66%, the learned counsel contends that even the same operates from the time the section was brought on the statute book. For, the legislature consciously lowered the threshold requirement to 66%. It was to infuse more flexibility in the resolution processes and to maximise the effort for revival of the corporate debtor in the larger public interests. The intention of the Parliament was to cure the mischief that the high threshold was causing; and by reducing it, Parliament intended to encourage revival of the corporate debtor and maximisation of the value of assets and to discourage liquidation resulting in closure of the functioning company on which many stakeholders depended, such as its workers.
21. With regard to the objection to the locus of the appellant being the former Chairman and Managing Director of the corporate debtor, it is contended that the same is raised for the first time, and in any case, cannot be countenanced in view of the express provision contained in Section 61 of the I&B Code and moreso because the appellant had initiated proceedings by filing an application before the adjudicating authority (NCLT) and the appellant, being the shareholder, had reason to insist for revival of the corporate debtor instead of its liquidation. As regards the objection about the eligibility of the appellant as a person acting jointly or in concert with the corporate debtor in terms of Section 29-A of the I&B Code, it is contended that even this objection was being taken for the first time. Notably, Section 29-A of the I&B Code came into force only from 23-11-2017, and it did not exist when the resolution plan was considered by the CoC. Further, the scope of appeal preferred by the appellant was to call upon the adjudicating authority to interfere with the unreasonable rejection of the resolution plan by the dissenting financial creditors and not to propound an independent plan of the appellant. Thus TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 39 of 74 understood, Section 29-A of the I&B Code would have no application and in any case, if the proposed resolution plan is to be taken forward, the appellant has no causal connection with the resolution applicant. The learned counsel submits that the appeal be allowed and the matter be restored to the file of the adjudicating authority (NCLT) for reconsideration of the proposed resolution plan afresh.
22. Mr. Colin Gonsalves, learned Senior Counsel appearing for the workers' union concerning corporate debtor (IIL) submits that the rejection of the plan would have a direct impact on the workers engaged by the corporate debtor. According to him, the resolution plan manifests that the company is a viable company and all efforts should be made to revive the company and not to shove it into liquidation because of the whims and fancies of the minority financial creditors or, for that matter, in the guise of their commercial wisdom. Reliance is placed on United Bank of India, Calcutta Vs. Abhijit Tea Co. Pvt. Ltd.22, SCC para 20 and Karan Singh Vs. Bhagwan Singh23, SCC para 7 and additionally, on the decision of NCLAT in the case of another corporate debtor (Alok Employees Benefit and Welfare Trust) in SICOM Ltd. v. Alok Employees Benefit and Welfare Trust24 decided on 29-11-2018. He had also invited our attention to the chart given in Economic Survey 2017−18 Volume 2, to contend that there will be hardly any impact if this Court was to remit the case for reconsideration on the basis of the amended provisions by the adjudicating authority (NCLT) and especially because there is ample material on record to indicate that the corporate debtor (IIL) is a viable company and needs to be revived and not liquidated.
31. Ms. Mahima Singh, learned counsel appearing for the Official Liquidator in the case of corporate debtor (IIL), had sought liberty to place on record certain subsequent developments which may have bearing on the concerned appeals. That affidavit dated 23-11-2018, has also been filed and is allowed to be taken on record.'' TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 40 of 74
47. The Learned Counsel for the 4th Respondent, relies on the decision of Hon'ble Supreme Court of India in the matter of Committee of Creditors of Essar Steel v. Satish Kumar Gupta & Ors. (2020) 8 SCC 531, at Spl Pgs: 568-569, 577, 581-584, and 585-586, wherein at Paragraphs 40, 54, 61, 62, 64 and 67, it is observed as under:
40. `` The ball starts rolling with the Adjudicating Authority, after admitting an application under either Sections 7, 9 or 10, ordering that a public announcement of the initiation of the CIRP together with calling for the submission of claims under Section 15 shall be made - see Section 13(1)(b) of the Code. For this purpose, the Adjudicating Authority appoints an interim resolution professional in the manner laid down in Section 16 - see Section 13(1)(c) of the Code. In the public announcement of the CIRP, under Sections 15(1), information as to the last date for submission of claims, as may be specified, is to be given; details of the interim resolution professional, who shall be vested with the management of the corporate debtor and be responsible for receiving claims, shall also be given, and the date on which the CIRP shall close is also to be given - see Section 15(1)(c), (d) and (f) of the Code.
Under Section 17 of the Code, the management of the affairs of the corporate debtor shall vest in the interim resolution professional, the Board of Directors of the corporate debtor standing suspended by law. Among the important duties of the interim resolution professional is the receiving and collating of all claims submitted by creditors and the constitution of a Committee of Creditors - see Section 18(1)(b) and (c) of the Code. Under Section 20 of the Code, the interim resolution professional is to make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern.
54. Since it is the commercial wisdom of the Committee of Creditors that is to decide on whether or not to rehabilitate the TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 41 of 74 corporate debtor by means of acceptance of a particular resolution plan, the provisions of the Code and the Regulations outline in detail the importance of setting up of such Committee, and leaving decisions to be made by the requisite majority of the members of the aforesaid Committee in its discretion. Thus, Section 21(2) of the Code mandates that the Committee of Creditors shall comprise all financial creditors of the corporate debtor. "Financial creditors"
are defined in Section 5(7) of the Code as meaning persons to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred. "Financial debt" is then defined in Section 5(8) of the Code as meaning a debt along with interest, if any, which is disbursed against the consideration for the time value of money. "Secured creditor" is separately defined in Section 3(30) of the Code as meaning a creditor in favour of whom a security interest is created and "security interest" is defined by Section 3(31) as follows:
"3. Definitions. - In this Code, unless the context otherwise requires. -
(31) "security interest" means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person:
Provided that security interest shall not include a performance guarantee;"
61. Regulations 18 to 26 of the 2016 Regulations deal with meetings to be conducted by the Committee of Creditors. The quorum at the meeting is fixed by Regulation 22, and the conduct of the meeting is to take place as under Regulation 24. Voting takes place under Regulation 25 and 26. Most importantly, Regulation 39(3) states:
"39. Approval of resolution plan. __(1)-(2) TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 42 of 74 (3) The committee shall evaluate the resolution plans received under sub-regulation (1) strictly as per the evaluation matrix to identify the best resolution plan and may approve it with such modifications as it deems fit:
Provided that the committee may approve any resolution plan with such modifications as it deems fit.'' This Regulation fleshes out Section 30(4) of the Code, making it clear that ultimately it is the commercial wisdom of the Committee of Creditors which operates to approve what is deemed by a majority of such creditors to be the best resolution plan, which is finally accepted after negotiation of its terms by such Committee with prospective resolution applicants.
62. In K. Sashidhar (supra), the role of the Committee of Creditors in the corporate resolution process was laid down by this Court thus:
"34. The CoC is constituted as per Section 21 of the I&B Code, which consists of financial creditors. The term 'financial creditor' has been defined in Section 5(7) of the I&B Code to mean any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to. Be it noted that the process of insolvency resolution and liquidation concerning corporate debtors has been codified in Part II of the I&B Code, comprising of seven Chapters. Chapter I predicates that Part II shall apply in matters relating to the insolvency and liquidation of corporate debtor where the minimum amount of default is Rs. 1,00,000/-. Section 5 in Chapter I is a dictionary clause specific to Part II of the Code. Chapter II deals with the gamut of procedure to be followed for the corporate insolvency resolution process. For dealing with the issue on hand, the provisions contained in Chapter II will be significant. From the scheme of the provisions, it is clear that the provisions in Part II of the Code are self-contained code, providing for the procedure for consideration of the resolution plan by the CoC.
TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 43 of 74
35. The stage at which the dispute concerning the respective corporate debtors (KS&PIPL and IIL) had reached the adjudicating authority (NCLT) is ascribable to Section 30(4) of the I&B Code, which, at the relevant time in October 2017, read thus:
`30(4)- The committee of creditors may approve a resolution plan by a vote of not less than seventy-five per cent of voting share of the financial creditors.' If CoC had approved the resolution plan by requisite per cent of voting share, then as per Section 30(6) of the I&B Code, it is imperative for the resolution professional to submit the same to the adjudicating authority (NCLT). On receipt of such a proposal, the adjudicating authority (NCLT) is required to satisfy itself that the resolution plan as approved by CoC meets the requirements specified in Section 30(2). No more and no less. This is explicitly spelt out in Section 31 of the I&B Code, which read thus (as in October 2017):
31. Approval of resolution plan.-(1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of Section 30 meets the requirements as referred to in sub-
section(2) of Section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.
(2) Where the Adjudicating Authority is satisfied that the resolution plan does not conform to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan.
(3) After the order of approval under sub-section (1),-
(a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 44 of 74
(b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database.'
52. As aforesaid, upon receipt of a "rejected" resolution plan the adjudicating authority (NCLT) is not expected to do anything more; but is obligated to initiate liquidation process under Section 33(1) of the I&B Code. The legislature has not endowed the adjudicating authority (NCLT) with the jurisdiction or authority to analyse or evaluate the commercial decision of the CoC much less to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors. From the legislative history and the background in which the I&B Code has been enacted, it is noticed that a completely new approach has been adopted for speeding up the recovery of the debt due from the defaulting companies. In the new approach, there is a calm period followed by a swift resolution process to be completed within 270 days (outer limit) failing which, initiation of liquidation process has been made inevitable and mandatory. In the earlier regime, the corporate debtor could indefinitely continue to enjoy the protection given under Section 22 of Sick Industrial Companies Act, 1985 or under other such enactments which has now been forsaken. Besides, the commercial wisdom of the CoC has been given paramount status without any judicial intervention, for ensuring completion of the stated processes within the timelines prescribed by the I&B Code. There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 45 of 74 their team of experts. The opinion on the subject matter expressed by them after due deliberations in the 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 nonjusticiable.
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 of Creditors to suggest a modification to the prospective resolution applicant to the effect that such dues ought to be paid in full, so that the carrying on of the business of the corporate debtor does not become impossible for want of a most basic and essential element for the carrying on of such business, namely, electricity. This may, in turn, be accepted by the resolution applicant with a consequent modification as to distribution of funds, payment being provided to a certain type of operational creditor, namely, the electricity distribution company, out of upfront payment offered by the proposed resolution applicant which may also result in a consequent reduction of amounts payable to other financial and operational creditors. What is important is that it is the commercial wisdom of this majority of creditors which is to determine, through negotiation with the prospective resolution applicant, as to how and in what manner the corporate resolution process is to take place."
TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 46 of 74
67. After adverting to the 2016 Regulations, the Court set out the jurisdiction of the Adjudicating Authority as well as the Appellate Tribunal as follows:
"55. Whereas, the discretion of the adjudicating authority (NCLT) is circumscribed by Section 31 limited to scrutiny of the resolution plan "as approved" by the requisite per cent of voting share of financial creditors. Even in that enquiry, the grounds on which the adjudicating authority can reject the resolution plan is in reference to matters specified in Section 30(2), when the resolution plan does not conform to the stated requirements. Reverting to Section 30(2), the enquiry to be done is in respect of whether the resolution plan provides: (i) the payment of insolvency resolution process costs in a specified manner in priority to the repayment of other debts of the corporate debtor, (ii) the repayment of the debts of operational creditors in prescribed manner, (iii) the management of the affairs of the corporate debtor, (iv) the implementation and supervision of the resolution plan, (v) does not contravene any of the provisions of the law for the time being in force, (vi) conforms to such other requirements as may be specified by the Board. The Board referred to is established under Section 188 of the I&B Code. The powers and functions of the Board have been delineated in Section 196 of the I&B Code. None of the specified functions of the Board, directly or indirectly, pertain to regulating the manner in which the financial creditors ought to or ought not to exercise their commercial wisdom during the voting on the resolution plan under Section 30(4) of the I&B Code.'' TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 47 of 74
48. The Learned Counsel for the 4th Respondent, cites the decision of Hon'ble Supreme Court of India in the matter of Kalparaj Dharamshi & Anr. v. Kotak Investment Advisors Ltd. & Anr., 2021 SCC OnLine SC 204 at Spl Pgs.: 206 to 208, wherein at Paragraphs 142 to 145, it is observed as under:
142. After considering the judgment of this Court in the case of Arcelormittal India Private Limited vs. Satish Kumar Gupta46 and the relevant provisions of the I&B Code, this court further observed in K. Sashidhar (supra) thus:
"52. As aforesaid, upon receipt of a "rejected"
resolution plan the adjudicating authority (NCLT) is not expected to do anything more; but is obligated to initiate liquidation process under Section 33(1) of the I&B Code. The legislature has not endowed the adjudicating authority (NCLT) with the jurisdiction or authority to analyse or evaluate the commercial decision of CoC much less to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors. From the legislative history and the background in which the I&B Code has been enacted, it is noticed that a completely new approach has been adopted for speeding up the recovery of the debt due from the defaulting companies. In the new approach, there is a calm period followed by a swift resolution process to be completed within 270 days (outer limit) failing which, initiation of liquidation process has been made inevitable and mandatory. In the earlier regime, the corporate debtor could indefinitely continue to enjoy the protection given under Section 22 of the Sick Industrial Companies Act, 1985 or under other such enactments which has now been forsaken. Besides, the commercial wisdom of CoC has been given paramount status without any judicial intervention, for ensuring completion of the stated processes TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 48 of 74 within the timelines prescribed by the I&B Code. There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject-matter expressed by them after due deliberations in CoC meetings through voting, as per voting shares, is a collective business decision. The legislature, consciously, has not pro− vided 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."
(emphasis supplied)
143. This Court has held, that it is not open to the Adjudicating Authority or Appellate Authority to reckon any other factor other than specified in Sections 30(2) or 61(3) of the I&B Code. It has further been held, that the commercial wisdom of CoC has been given paramount status without any judicial intervention for ensuring completion of the stated processes within the timelines prescribed by the I&B Code. This Court thus, in unequivocal terms, held, that there is an intrinsic assumption, that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. It has been held, that the opinion expressed by CoC after due deliberations in the meetings through voting, as per voting shares, is a collective business decision. It has been held, that the legislature has consciously not provided any ground to challenge the "commercial wisdom" of the individual financial creditors or their collective decision before the Adjudicating Authority and that the decision of CoC's 'commercial wisdom' is made non−justiciable.
144. This Court in Committee of Creditors of Essar Steel India Limited through Authorised Signatory (supra) after referring TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 49 of 74 to the judgment of this Court in the case of K. Sashidhar (supra) observed thus:
"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 of Creditors to suggest a modification to the prospective resolution applicant to the effect that such dues ought to be paid in full, so that the carrying on of the business of the corporate debtor does not become impossible for want of a most basic and essential element for the carrying on of such business, namely, electricity. This may, in turn, be accepted by the resolution applicant with a consequent modification as to distribution of funds, payment being provided to a certain type of operational creditor, namely, the electricity distribution company, out of upfront payment offered by the proposed resolution applicant which may also result in a consequent reduction of amounts payable to other financial and operational creditors. What is important is that it is the commercial wisdom of this majority of creditors which is to determine, through negotiation with the prospective resolution applicant, as to how and in what manner the corporate resolution process is to take place."
(emphasis supplied)
145. This Court held, that what is left to the majority decision of CoC is the "feasibility and viability" of a resolution plan, which is required to take into account all aspects of the plan, including the manner of distribution of funds among the various classes of creditors. It has further been held, that CoC is entitled to suggest a modification to the prospective resolution applicant, so that carrying on the TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 50 of 74 business of the Corporate Debtor does not become impossible, which suggestion may, in turn, be accepted by the resolution applicant with a consequent modification as to distribution of funds, etc. It has been held, that what is important is, the commercial wisdom of the majority of creditors, which is to determine, through negotiation with the prospective resolution applicant, as to how and in what manner the corporate resolution process is to take place.''
49. The Learned Counsel for the 4th Respondent, falls back upon the decision of the Hon'ble Supreme Court of India in the matter of Karad Urban Co-operative Bank Ltd., v. Swwapnil Bhingardevay, 2020 9 SCC 729 at Spl Pgs.: 733 to 736 and 740, wherein at Paragraphs 10.1, 12, 13 and 41, it is observed as under:
10.1. ``That the question of viability and feasibility, is to be left to the commercial wisdom of CoC and the same cannot be lightly interfered with by the Tribunal, in view of the law laid down by this court in Essar Steel India Ltd.6 and K. Sashidhar7.
12. We have carefully considered the rival submissions. On the first question regarding the viability and feasibility of a resolution plan, the law is now well−settled. In K. Sashidhar7, it was held as follows (SCC pp. 183, 186-87 & 189, paras 52, 57-58 & 64) ``52 ... There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan.... The opinion on the subject matter expressed by them after due 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 TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 51 of 74 financial creditors or their collective decision before the adjudicating authority. That is made nonjusticiable.
57. ... The provisions investing jurisdiction and authority in NCLT or NCLAT as noticed earlier, have not made the commercial decision exercised by CoC of not approving the resolution plan or rejecting the same, justiciable. This position is reinforced from the limited grounds specified for instituting an appeal that too against an order "approving a resolution plan" under Section 31.
58. ... Further, the jurisdiction bestowed upon the appellate authority (NCLAT) is also expressly circumscribed. It can examine the challenge only in relation to the grounds specified in Section 61(3) of the I&B Code, which is limited to matters "other than" enquiry into the autonomy or commercial wisdom of the dissenting financial creditors.
64. ... At best, the adjudicating authority (NCLT) may cause an enquiry into the "approved" resolution plan on limited grounds referred to in Section 30(2) read with Section 31(1) of the I&B Code. It cannot make any other inquiry nor is competent to issue any direction in relation to the exercise of commercial wisdom of the financial creditors
-- be it for approving, rejecting or abstaining, as the case may be. Even the inquiry before the appellate authority (NCLAT) is limited to the grounds under Section 61(3) of the I&B Code. It does not postulate jurisdiction to undertake scrutiny of the justness of the opinion expressed by financial creditors at the time of voting.''
13. Thereafter, in Essar Steel India Ltd. (supra), this Court held:
``67. ... Thus, it is clear that the limited judicial review available, which can in no circumstance trespass upon a business decision of the majority of the Committee of Creditors, has to be within the four corners of Section 30(2) of the Code, insofar as the Adjudicating Authority is TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 52 of 74 concerned, and Section 32 read with Section 61(3) of the Code, insofar as the Appellate Tribunal is concerned....
73. .... Thus, while the Adjudicating Authority cannot interfere on merits with the commercial decision taken by the Committee of Creditors, the limited judicial review available is to see that the Committee of Creditors has taken into account the fact that the corporate debtor needs to keep going as a going concern during the insolvency resolution process; that it needs to maximise the value of its assets; and that the interests of all stakeholders including operational creditors has been taken care of."
41. The third ground on which NCLAT proceeded, related to the ethanol plant and machinery. We have already dealt with this issue in detail, while dealing with the first issue. As stated therein, the SRA admittedly did not make his Resolution Plan on the strength of the ethanol plant and machinery in question. The threat looming large over the availability of the ethanol plant and machinery has admittedly been taken note of by the SRA and the CoC. The Resolution Plan does not give an indication anywhere that without this plant and machinery the whole resolution plan will fail. In paragraph 8.04 of the Resolution Plan, the SRA has undertaken to continue the operations in the normal course of business. It is a commercial decision that they have taken. The corporate debtor cannot cry wolf over the said decision. Therefore, the third ground on which NCLAT chose to interfere, is also bound to be rejected.''
50. The Learned Counsel for the 4th Respondent, adverts to the Judgment of the Hon'ble Supreme Court in Maharashtra Seamless Ltd. v.
Padmanabhan Venkatesh and Ors., reported in (2020) 11 SCC at Page 467, wherein at Paragraphs 21 to 31, it is observed as under:
TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 53 of 74
21. ``The manner in which the claims of the operational creditors shall be considered in a CIRP has been dealt with by a co-ordinate Bench of this Court (of which two of us, Nariman, J. and Ramasubramanian J. were members) in Essar Steel India Limited, Committee of Creditors v. Satish Kumar Gupta. It has been held in paras 71-73 of this judgment in the said report: (SCC pp. 592-93)
71. However, as has been correctly argued on behalf of the operational creditors, the preamble of the Code does speak of maximisation of the value of assets of corporate debtors and the balancing of the interests of all stakeholders.
There is no doubt that a key objective of the Code is to ensure that the corporate debtor keeps operating as a going concern during the insolvency resolution process and must therefore make past and present payments to various operational creditors without which such operation as a going concern would become impossible. Sections 5(26), 14(2), 20(1), 20(2)(d) and (e) of the Code read with Regulations 37 and 38 of the 2016 Regulations all speak of the corporate debtor running as a going concern during the insolvency resolution process. Workmen need to be paid, electricity dues need to be paid, purchase of raw materials need to be made, etc. This is in fact reflected in this court's judgment in Swiss Ribbons as follows: (SCC pp. 54-55, paras 26-27) "26. The Preamble of the Code states as follows:
"An Act 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 maximisation 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 of priority of payment of government dues and to establish an Insolvency and TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 54 of 74 Bankruptcy Board of India, and for matters connected therewith or incidental thereto."
27. As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first and foremost, a Code for reorganisation and insolvency resolution of corporate debtors. Unless such reorganisation is effected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximisation of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the corporate debtor is brought back into the economic mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands of banks and financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a beneficiary of the resolution scheme-- workers are paid, the creditors in the long run will be repaid in full, and shareholders/investors are able to maximise their investment. Timely resolution of a corporate debtor who is in the red, by an effective legal framework, would go a long way to support the development of credit markets. Since more investment can be made with funds that have come back into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy.
What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern. (See ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1] at para 83, fn 3)."
TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 55 of 74
72. This is the reason why Regulation 38(1-A) speaks of a resolution plan including a statement as to how it has dealt with the interests of all stakeholders, including operational creditors of the corporate debtor. Regulation 38(1) also states that the amount due to operational creditors under a resolution plan shall be given priority in payment over financial creditors. If nothing is to be paid to operational creditors, the minimum, being liquidation value - which in most cases would amount to nil after secured creditors have been paid - would certainly not balance the interest of all stakeholders or maximise the value of assets of a corporate debtor if it becomes impossible to continue running its business as a going concern. Thus, it is clear that when the Committee of Creditors exercises its commercial wisdom to arrive at a business decision to revive the corporate debtor, it must necessarily take into account these key features of the Code before it arrives at a commercial decision to pay off the dues of financial and operational creditors.
73. There is no doubt whatsoever that the ultimate discretion of what to pay and how much to pay each class or sub-class of creditors is with the Committee of Creditors, but, the decision of such Committee must reflect the fact that it has taken into account maximising the value of the assets of the corporate debtor and the fact that it has adequately balanced the interests of all stakeholders including operational creditors. This being the case, judicial review of the Adjudicating Authority that the resolution plan as approved by the Committee of Creditors has met the requirements referred to in Section 30(2) would include judicial review that is mentioned in Section 30(2)(e), as the provisions of the Code are also provisions of law for the time being in force. Thus, while the Adjudicating Authority cannot interfere on merits with the commercial decision taken by the Committee of Creditors, the limited judicial review available is to see that the Committee of Creditors has taken into TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 56 of 74 account the fact that the corporate debtor needs to keep going as a going concern during the insolvency resolution process; that it needs to maximise the value of its assets; and that the interests of all stakeholders including operational creditors has been taken care of. If the Adjudicating Authority finds, on a given set of facts, that the aforesaid parameters have not been kept in view, it may send a resolution plan back to the Committee of Creditors to re- submit such plan after satisfying the aforesaid parameters. The reasons given by the Committee of Creditors while approving a resolution plan may thus be looked at by the Adjudicating Authority only from this point of view, and once it is satisfied that the Committee of Creditors has paid attention to these key features, it must then pass the resolution plan, other things being equal."
(emphasis in original)
22. It has been further been held in the Essar Steel (SCC p. 641, para 145) "145. The other argument of Shri Sibal that Section 53 of the Code would be applicable only during liquidation and not at the stage of resolving insolvency is correct. Section 30(2)(b) of the Code refers to Section 53 not in the context of priority of payment of creditors, but only to provide for a minimum payment to operational creditors. However, this again does not in any manner limit the Committee of Creditors from classifying creditors as financial or operational and as secured or unsecured. Full freedom and discretion has been given, as has been seen hereinabove, to the Committee of Creditors to so classify creditors and to pay secured creditors amounts which can be based upon the value of their security, which they would otherwise be able to realise outside the process of the Code, thereby stymying the corporate resolution process itself."
TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 57 of 74
23. Submission of the respondents supporting the impugned order of NCLAT has been in reference to Section 30(2)(b) of the 2016 Code. We have taken note of submission made by Dr. Singhvi that the operational creditors of the corporate debtor come way down in the priority list for distribution of assets under Section 53 of the Code in forming our opinion over applicability of clause 38(1) of the 2016 Regulations expressed in the previous paragraph. But on this point, a clear guidance comes from the decision of co-ordinate Bench in the case of Essar Steel (supra) on the point of dealing with the claims of operational creditors. It has also been held in that judgment in para 88 of the said report: (SCC p. 606) "88. By reading para 77 of Swiss Ribbons dehors the earlier paragraphs, the Appellate Tribunal 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 TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 58 of 74 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 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."
(emphasis in original)
24. But the controversy on there being no provision in the resolution plan for operational creditors is only academic now. Before the Appellate Authority itself the successful Resolution Applicant had agreed to clear the dues of the operational creditors in percentage on a par with the financial creditors. Moreover, none of the operational creditors has come before us questioning the legality of the resolution plan. It would appear from para 29 of the order under appeal: (Padmanabhan Venkatesh case, SCC OnLine NCLAT) "29. It was submitted that the claims received of the 'Operational Creditors' by the Respondent No.1 were to the tune of Rs.2,26,70,153/- whereas the claims verified were of Rs.2,02,88,948/-. However, it was submitted that the 4th Respondent is willing to pay the verified 'Operational Creditors' at the same percentage as that of the 'Financial Creditors', i.e. 25%, which shall be paid within 30 days of the 'Successful Resolution Applicant' getting clear and TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 59 of 74 unfettered possession of and rights to the 'Corporate Debtor'."
(quoted verbatim)
25. The Adjudicating Authority has primarily relied on Section 31 of the Code in approving the resolution plan. The said provision reads:
"31. Approval of resolution plan. - (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan.
Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation.
(2) Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1) - it may, by an order, reject the resolution plan.
(3)After the order of approval under sub-section (1) --
(a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and
(b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database.
TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 60 of 74 (4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later:
Provided that where the resolution plan contains a provision for combination, as referred to in section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors."
26. On behalf of Indian Bank and the said promoter of the corporate debtor, reliance was placed on Regulation 35 of The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016:
"35. Liquidation value. (1) Liquidation value is the estimated realizable value of the assets of the corporate debtor if the corporate debtor were to be liquidated on the insolvency commencement date.
(2) Liquidation value shall be determined in the following manner:
(a) the two registered valuers appointed under Regulation 27 shall submit to the interim resolution professional or the resolution professional, as the case may be, an estimate of the liquidation value computed in accordance with internationally accepted valuation standards, after physical verification of the inventory and fixed assets of the corporate debtor;
(b) if in the opinion of the interim resolution professional or the resolution professional, as the case may be, the two estimates are significantly different, TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 61 of 74 he may appoint another registered valuer who shall submit an estimate computed in the same manner; and
(c) the average of the two closest estimates shall be considered the liquidation value.
(3) .... the resolution professional shall provide the liquidation value to every member of the committee in electronic form...."
27. Now the question arises as to whether, while approving a resolution plan, the Adjudicating Authority could reassess a resolution plan approved by the Committee of Creditors, even if the same otherwise complies with the requirement of Section 31 of the Code. The learned counsel appearing for the Indian Bank and the said erstwhile promoter of the corporate debtor have emphasised that there could be no reason to release property valued at Rs.597.54 crores to MSL for Rs.477 crores. The learned counsel appearing for these two respondents have sought to strengthen their submission on this point referring to the other Resolution Applicant whose bid was for Rs.490 crores which is more than that of the appellant MSL.
28. No provision in the Code or Regulations has been brought to our notice under which the bid of any Resolution Applicant has to match liquidation value arrived at in the manner provided in Regulation 35 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. This point has been dealt with in Essar Steel. We have quoted above the relevant passages from this judgment.
29. It appears to us that the object behind prescribing such valuation process is to assist the CoC to take decision on a resolution plan properly. Once, a resolution plan is approved by the CoC, the statutory mandate on the Adjudicating Authority under Section 31(1) of the Code is to ascertain that a resolution plan meets the requirement of sub-sections (2) and (4) of Section 30 thereof. We, per se, do TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 62 of 74 not find any breach of the said provisions in the order of the Adjudicating Authority in approving the resolution plan.
30. The Appellate Authority has, in our opinion, proceeded on equitable perception rather than commercial wisdom. On the face of it, release of assets at a value 20% below its liquidation value arrived at by the valuers seems inequitable. Here, we feel the Court ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis. Such is the scheme of the Code. Section 31(1) of the Code lays down in clear terms that for final approval of a resolution plan, the Adjudicating Authority has to be satisfied that the requirement of sub-section (2) of Section 30 of the Code has been complied with. The proviso to Section 31(1) of the Code stipulates the other point on which an Adjudicating Authority has to be satisfied. That factor is that the resolution plan has provisions for its implementation. The scope of interference by the Adjudicating Authority in limited judicial review has been laid down in the case of Essar Steel, the relevant passage (para 54) of which we have reproduced in earlier part of this judgment. The case of MSL in their appeal is that they want to run the company and infuse more funds. In such circumstances, we do not think the Appellate Authority ought to have interfered with the order of the Adjudicating Authority in directing the successful Resolution Applicant to enhance their fund inflow upfront.
31. So far as the IA taken out by the MSL is concerned, in our opinion they cannot withdraw from the proceeding in the manner they have approached this Court. The exit route prescribed in Section 12-A is not applicable to a Resolution Applicant. The procedure envisaged in the said provision only applies to applicants invoking Sections 7, 9 and 10 of the code. In this case, having appealed against the NCLAT order with the object of implementing the resolution plan, MSL cannot be permitted to take a contrary stand in an application filed in connection with the very same appeal.
TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 63 of 74 Moreover, MSL has raised the funds upon mortgaging the assets of the corporate debtor only. In such circumstances, we are not engaging in the judicial exercise of determining the question as to whether after having been successful in a CIRP, an applicant altogether forfeits their right to withdraw from such process or not.''
51. The Learned Counsel for the 4th Respondent, refers to the Judgment of this Tribunal dated 07.04.2022, in the matter of Genius Security and Allied Services v. Mr. Shivadutt Bannanje & Anr., reported in (2022) SCC Online NCLAT 291, wherein at Paragraphs 44 and 45, it is observed as under:
44. ``Once the Plan is approved by the Adjudicating Authority under Sub-Section (1) of Section 31 it shall be binding on the Creditors including the Operational Creditors i.e. the Appellants herein.
45. From the perusal of the Resolution Plan this Tribunal finds that there is no infirmity or illegality in the Plan as approved by the Committee of Creditors by majority vote of 95.07% and approved by the Adjudicating Authority and the same shall be binding on the Appellants apart from other stakeholders. This Tribunal comes to a resultant conclusion that the approval of Resolution Plan is legal and valid. It is also seen that there is no discrimination amongst the Operational Creditors, for the reason that no amounts earmarked for any of the Operational Creditors.
Moreover, in the Plan nil payments have been shown against the payments to be made to the Operational Creditors. While so the question of discrimination arises when some of the Operational Creditors paid the dues by excluding some of the Operational Creditors. In the present case no such situation arises. Hence, there is no discrimination as alleged by the Appellants. No grounds have been made out to interfere in the order passed by the Adjudicating TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 64 of 74 Authority dated 29.01.2021 in approving the Resolution Plan. Accordingly, the issue is answered against the Appellants.''
52. The Learned Counsel for the 4th Respondent points out that only one `Resolution Plan' was submitted, which was also revised several times, by the `Committee of Creditors', and once by the `Adjudicating Authority', to include `Workmen Dues', and the same was complied with, and further that the `commercial wisdom' of the `Committee of Creditors', in approving the `Resolution Plan', cannot be questioned.
Resolution Plan:
53. A `Resolution Plan', is not a `Sale' / `Recovery' / `Liquidation' / an `Auction'. A `Resolution Plan', ought to be planned for `Insolvency Resolution' of the `Corporate Debtor', as a `Going Concern', and not for `Addition of Value', with an `intent to sell', the `Corporate Debtor'.
Role of Resolution Professional:
54. The `Resolution Professional', is to ensure that a `Resolution Plan, is complete in all respects and to conduct a `due diligence', with a view to `report', to the `Committee of Creditors', whether or not, it is in order.
55. The `purport / intent' of the `Legislature' is that, the `Committee of Creditors', while `approving' or `rejecting' one or other `Resolution Plan', ought to follow such procedure, which is a `transparent' one.
TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 65 of 74 Adjudicating Authority:
56. An `Adjudicating Authority' (`Tribunal), is to take a decision in terms of Section 31 of the I & B Code, 2016, and can go through the reasoning to `accept' or `reject', one or other `objection' or `suggestion', and may express its own `opinion' or `decision', as per the Judgment of this `Tribunal' in Rajputana Properties (Pvt) Ltd. v Ultra Tech Cements Limited, reported in (2018) 14 CLA 490 (NCLAT).
Discussions:
57. Before the `Adjudicating Authority', the `4th Respondent / Mr. Udayraj Patwardhan', Resolution Professional, representing the `1st Respondent / Indus FILA Ltd.', Bengaluru (Corporate Debtor had preferred an `Interlocutory Application No.40 of 2019, in CP(IB) No. 136 / BB / 2017 (under Section 30 (6) (c) under Section 31 of the I & B Code, 2016, read with Rule 11 of the NCLT Rules, 2016, seeking approval of the `Resolution Plan' dated 07.01.2019, as approved by the Committee of Creditors in its 15th Meeting, in the interests of Justice'.
58. According to the `Appellant / S.P. Coal Resources Pvt. Ltd.', had supplied the `imported coal' to the `1st Respondent / Corporate Debtor'.
over several years and raised, 14 Invoices in respect of the supply made.
Because of the fact that the said Invoices, had remained unpaid, the TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 66 of 74 Appellant is an `Operational Creditor' of the 1st Respondent / Corporate debtor.
59. It transpires, before the `Adjudicating Authority' / `Tribunal', another `Operational Creditor' Viz. SF Dyes, Bengaluru (3 rd Respondent in the instant `Appeal') of the `1st Respondent / Corporate Debtor' (`INDUS Fila), had filed an `Application' in CP(IB)/136/BB/2017 under Section 9 of the I & B Code, 2016, which was admitted by the `Adjudicating Authority', on 20.08.2018, resulting in the commencing of the `Corporate Insolvency Resolution Process'.
60. It is brought to the fore that based on the commencement of the `CIRP' of the `1st Respondent / Corporate Debtor', the 4th Respondent / Resolution Professional, had issued an `Invitation' for `Claims', by the Creditors of the Corporate Debtor, and the `Appellant' as an Operational Creditor of the 1st Respondent / Corporate Debtor had furnished a `Claim' of Rs.6,05,00,111/- to the `Resolution Professional', and only Rs.3.50 Crores of the `Claim', was admitted by the `Resolution Professional'.
61. According to the Appellant, he was not a part of the Committee of Creditors of the Corporate Debtor, being an `Operational Creditor'), and therefore, was unaware of the Resolution Plan terms. Upon receipt of communication dated 26.06.2019, by the Resolution Professional, the Appellant came to know that the `Appellant's Admitted Claim against the TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 67 of 74 1st Respondent / Corporate Debtor stood extinguished. Furthermore, the `Appellant' has filed the present `Appeal', on coming to know of the terms of the `Resolution Plan', and is assailing the `impugned order' dated 10.05.2019, passed by the `Adjudicating Authority', in approving Resolution Plan (vide IA/40/2019 in CP (IB)/136/BB/2017).
62. The grievance of the Appellant is that, the `Resolution Plan', make no provision for any payment of the Debts', owed by the Corporate Debtor to its `Operational Creditor', and that the `Resolution Plan', fails to meet the requirement of (a) maximisation of the Value of the Assets of the Corporate Debtor (b) equitable and non-discriminatory treatment of the `Operational Creditors'.
63. The stand of the Appellant is that in the approved `Resolution Plan', assets of the Corporate Debtor, as on the 20.08.2018 (date of the commencement of Insolvency) was Rs.80.75 Crores and the `Resolution Plan' seems to provide for the complete takeover of these `Assets', for only a sale consideration of Rs.50.50 Crores, which is well below the `Value of the Assets of the Corporate Debtor.
64. According to the Appellant, the Resolution Plan requires the Resolution Applicant only to bring in Rs.5 Crores of its own funds to start with and further Rs.45.50 Crores is to be raised by the `Sale of the Non-
core Assets of the Corporate Debtor, itself.
TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 68 of 74
65. The categorical plea of the Appellant is that, there is discriminatory and grossly inequitable treatment, meted out to the `class of the Operational Creditors', based on the reasons that the Liquidation Value of the Operational Creditors is `Nil'. Hence, the approved `Resolution Plan and the `Impugned order, passed by the Adjudicating Authority (Tribunal) in IA / 40 of 2019 in CP(IB)/136/BB/2017 in approving the Resolution Plan dated 07.01.2019, as approved by the `Committee of Creditors', through its 15th Meeting, are to be set aside because the `impugned order', is against the well laid down principles of the I & B Code, 2016.
66. In the present case, it is quite evident that the 2nd Respondent through a `Resolution Plan', had offered Rs.50.70 Crores as `Full and Final Settlement' of all the `Liabilities' of the `1 st Respondent / Corporate Debtor', which was duly approved with requisite majority of the `Committee of Creditors', in its `commercial wisdom', ofcourse, after numerous rounds of discussions and negotiations.
67. In this connection, this `Tribunal', pertinently points out that in respect of the dues of the Workmen, initially only Rs.17 Lakhs was provided and at the behest of the Adjudicating Authority, the 2nd Respondent had revised the Resolution Plan and earmarked Rs. 34 Lakhs, towards the Workmen dues. Also that, a Sum of Rs.50.70 Crores was TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 69 of 74 fully used in the payment of (a) CIRP Costs (b) the dues of the Financial Creditors and the Workmen. As such, no amount remains to be allotted in respect of the other Creditors. Therefore, the `Liquidation Value', payable to the `Operational Creditors', is `Nil'. Besides this, all the `Creditors', had a significant haircut in the `Corporate Insolvency Resolution Process' of the `1st Respondent / Corporate Debtor'.
68. As far as the present case is concerned, keeping in mind the payment to all the `Operational Creditors', is `Nil', there is no aspect of discrimination between the `Operational Creditors', in the considered opinion of this `Tribunal'. Further, when the ingredients of Section 30 (2)
(b) of the I & B Code, 2016, are satisfied, the distribution is to be treated as `Fair' and `Equitable' one. After all, the `Plea' of the `Fair' and `Equitable' treatment is not between the different classes of `Creditors', and the same is between the `Operational Creditors', as a `Class', as opined by this `Tribunal'.
69. In the instant case on hand, the `2nd Respondent', had undertaken to infuse approximately a Sum of Rs.20 Crores in the `1 st Respondent / Corporate Debtor', when required for its `revival', through its `Group Companies', `Promoters', `Investors' and `Associates'. Suffice it, for this `Tribunal', to make a relevant mention that whether a certain `Resolution Plan', leads to the maximisation of Value of the Assets or not is within TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 70 of 74 the `subjective realm of assessment' of the `Committee of Creditors', and the same cannot be a matter of enquiry.
70. One cannot brush aside a vital fact that a `Resolution Plan', as approved by the `Committee of Creditors', in exercise of its `subjective commercial wisdom', cannot be tinkered and tampered with, when the `Resolution Plan', was approved with a `Requisite Majority' of 69.04%, after indulging in due discussions / deliberations, as regards the `feasibility' and `viability' of the `Resolution Plan'.
71. At this juncture, this `Tribunal', bearing in mind the ingredients of Regulation 39 of the CIRP Regulations which provides for an `Approval' of `Resolution Plan', by the `Committee of Creditors', in terms of strict evaluation, to identify the best `Plan' and showers `Power', to `approve' the `Plan', with `such modifications / changes', as it deems fit. A cumulative reading of the contents of the Regulation 39 of the CIRP Regulations, coupled with the ingredients of Section 30 (4) of the I & B Code, 2016, in the instant case, exhibits that the `approval', by the `majority' of the `Committee of Creditors', had indeed, took into account the `viability' and `practicability' of the `Resolution Plan', together with the objective of the `revival' of the `1st Respondent / Corporate Debtor'.
72. It is brought to the fore that the `Resolution Plan', was fully implemented and further that it must be borne in mind that the `2nd TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 71 of 74 Respondent' (after the `impugned order' dated 10.05.2019), was passed in IA/40 of 2019 in CP(IB)/136/BB/2017, by the `Adjudicating Authority' (`Tribunal'), had paid all the amounts, to be paid under the `Resolution Plan', to the `Financial Creditors' and the concerned `Stakeholders', and the amounts were `appropriated' and that the `majority' of the `Financial Creditors', had given `No Due Certificates'.
73. Be it noted, that the I & B Code, 2016, is not a `Debt Enforcement Procedure', and the same cannot be used as a mechanism for the `Recovery of Dues', for the `Creditors'. It is an axiomatic principle in `Law', there is not rule for substituting any `commercial' term(s) of the `Resolution Plan', approved by the `Committee of Creditors', especially, in the teeth of the `Resolution Plan', satisfying the requirements of the ingredients of the I & B Code, 2016.
74. Added further, in the instant case, the `method and manner of infusion of funds by the `2nd Respondent / `Resolution Applicant', into the `1st Respondent / Corporate Debtor', in the earnest opinion of this `Tribunal', on the facts and circumstances of the case, is not to be `displaced', because of the latent and patent fact that the conclusions / decisions, were arrived at, by the `Committee of Creditors', in exercise of their `subjective commercial wisdom', which has a `supremacy and primacy', in `Law'.
TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 72 of 74
75. Before the Karnataka Labour Welfare Fund, the `2nd Respondent', had deposited the `Unclaimed Monies', due to `Workmen', as directed by the `Adjudicating Authority' (`Tribunal') and it cannot be lost sight off, that the `Monitoring Agency' of the `Corporate Debtor', stood `Dissolved'.
76. It is to be remembered that the `2nd Respondent' took physical possession of the `Assets' of the `1st Respondent / Corporate Debtor', and the `Adjudicating Authority', through an `Order' dated 21.04.2022, had acclaimed the implementation of the `Resolution Plan' in an `entirety'.
77. An `Adjudicating Authority' (`NCLT') or an `Appellate Tribunal' (`NCLAT'), cannot sit in an `Appeal', to find out the `Viability' and `Feasibility' of `Financial Matrix' of such `Resolution Plan', as opined by this `Tribunal'.
78. Be that as it may, this `Tribunal', on a careful consideration of divergent contentions advanced on either side, in the light of foregoing discussions, keeping in mind the facts and circumstances hovering around the instant case and also on going through the `impugned order' dated 10.05.2019 in IA/40 of 2019 in CP(IB) No. 136 / BB / 2017, passed by the `Adjudicating Authority' (`National Company Law Tribunal', Bengaluru Bench), comes to a cocksure conclusion that the `Resolution Plan' dated 07.01.2019, submitted by the `2 nd Respondent' / `SPG TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 73 of 74 Macrocosm Limited', through `SPV Vision Textile' (`Resolution Applicant'), was rightly `approved' by the `Adjudicating Authority' (`Tribunal'), which is free from any `Legal Flaws', Resultantly, the instant `Appeal' sans merits and it fails.
Result:
In fine, the instant TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 is dismissed. The connected pending `Interlocutory Applications', if any, are closed.
[Justice M. Venugopal] Member (Judicial) [Naresh Salecha] Member (Technical) 23/01/2023 SR / TM TA (AT) No. 13 of 2021 in Comp. App (AT) (INS.) No. 850 of 2019 Page 74 of 74