Case: MAHARASHTRA SEAMLESS LIMITED Vs. PADMANABHAN VENKATESH

The successful Resolution Applicant, Maharashtra Seamless Ltd. (MSL) is the appellant in C.A. No. 4242 of 2019. The total debt of the corporate debtor was Rs. 1897 crores, out of which Rs.1652 crores comprised of term loans from two entities of Deutsche Bank. These are DB International (Asia) Limited and Deutsche Bank AG, Singapore Branch. There was also debt on account of working capital borrowing of Rs. 245 crores from another bank, being Indian Bank. Said Indian Bank is the initiator of the CIRP, who filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (the Code). DB International (Asia Ltd.) is the appellant in C.A. No.4967-68 of 2019. A concern by the name of UMW had provided corporate guarantee to Deutsche Bank, Singapore as collateral to the said term loan. The Adjudicating Authority, the National Company Law Tribunal, Hyderabad Bench (NCLT) by an order passed on 21 st January, 2019 approved the resolution plan submitted by MSL in an application filed by the Resolution Professional. This resolution plan included an upfront payment of Rs. 477 crores. Ancillary directions were issued by the Adjudicating Authority while giving approval to the said resolution plan with the finding that the said plan met all the requirements of Section 30(2) of the Code. This order was carried up in appeal before the National Company Law Appellate Tribunal (NCLAT), being the Appellate Authority under the Code by two persons who were parties before the NCLT. They were one of the promoters of the corporate debtor, Padmanabhan Venkatesh and the Indian Bank. These appeals were registered as Company Appeal (AT) (Insol.) Nos. 128 & 247 of 2019. The appellant in Company Law (AT) (Insol.) No. 128/2019 was said Padmanabhan Venkatesh. The appellant in Company Law (AT) (Insol.) No. 247 of 2019 was the Indian Bank. These two appeals were heard with another appeal filed by the successful Resolution Applicant (MSL) against an order of the Adjudicating Authority passed on 28 th February 2019. The MSLs appeal was registered as Company Appeal (AT) (Insol.) No. 220 of 20192. This appeal by MSL was in connection with I.A. No. 125 of 2019 filed by them in CP(IB) No. 49/7/HDB/2017. In that application, MSL sought directions upon the corporate debtor as also the police and administrative authorities for effective implementation of the resolution plan. Grievance of MSL in that proceeding was that they were not being given access to the assets of the corporate debtor. The Adjudicating Authority, while disposing of the application, directed, inter-alia:-20. Even though appeal is preferred by Respondent No.5 to the Honble NCLAT, there is no stay and the appeal is coming up for hearing on07.03.2019. The implementation of this Plan is subject to the outcome of the Appeal. Therefore, a direction can be given to the concerned to extend cooperation to the Applicant herein in implanting the Resolution Plan of the Corporate Debtor Company and it is only subject to the outcome of the Appeal which is pending before Honble NCLAT21. A direction cannot be given to the Superintendent of Police and Collector because by the date of Application, the Applicant has not deposited the bid amount. Therefore, at the first instance direction can be given to all concerned of the Corporate Debtor Company to extend all cooperation to the Applicant. It is always open to the Applicant to approach the Tribunal for suitable direction, if so required22. In the result, Application is disposed of directing the concerned of the Corporate Debtor Company to extend all cooperation to the Applicant herein in implementing the Resolution Plan and it is open to Resolution Applicant to approach the Tribunal for necessary direction subsequent to this order, if so required3. In the common order dated 8 th April 2019 in the aforesaid appeals, the Appellate Tribunal, inter-alia, observed and held:-45. M/s. Maharashtra Seamless Ltd. (Successful Resolution Applicant) has taken plea that out of verified claims of Rs.2,02,88,948/-, and 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 unfettered possession of and rights to the Corporate Debtor. The 25% of verified claim of Rs.2,02,88,948/- is Rs. 50,72,237/- approximately, therefore, even if such offer is accepted then it will be Rs.577,50,237/- i.e. Rs.578 Crores approximately, which is also much less than the liquidation value of Rs.597.54 Crores46. Taking into consideration the nature of the case, we are of the view that M/s. Maharashtra Seamless Ltd. should increase upfront payment of Rs.477 Crores as proposed to the Financial Creditors, Operational Creditors and other Creditors to Rs.597.54 Crores by paying additional Rs. 120.54 Crores approximately to make it at par with the average liquidation value of Rs.597.54 Crores. If the upfront amount is increased to Rs.597.54 Crores, the total amount should be distributed amongst the Financial Creditors and the Operational Creditors at same ratio as suggested. As per suggestion of the Resolution Applicant, the Operational Creditors can be given same percentage of amount as allocated to the Financial Creditors47. If the Resolution Applicant fails to undertake the payment of additional amount of Rs.120.54 Crores in addition to Rs.477 Crores thereby raising it to Rs.597.54 Crores (total) and deposit the amount in the Escrow Account within 30 days in such case, the impugned order of approval of the Resolution Plan be treated to be set aside. Thereafter, the Adjudicating Authority will pass appropriate order in accordance with law4. So far as the appeal of MSL before the Appellate Authority is concerned, the same had direct correlation with the other two appeals. In this appeal, it was held and observed by the NCLAT:-54. In the present case, we find that the Resolution Plan is against the statement and object of the I&B Code and, therefore, we have directed M/s. Maharashtra Seamless Limited to modify the plan. Till the plan is modified, as ordered above, M/s. Maharashtra Seamless Limited cannot take over the Corporate Debtor without complying with the direction as given and recorded above55. However, it does not mean that the Promoters/ Ex-Directors will create hindrance in the matter of taking over the premises and plant of the Corporate Debtor which for the present should be taken over by the Resolution Professional. The Adjudicating Authority will direct the Resolution Professional to take over the possession of the plant and offices and other premises and assets of the Corporate Debtor to ensure that the assets remain intact till the plan is improved by the Resolution Applicant in a manner as directed above. For taking over such possession, the Adjudicating Authority will direct the concerned District Collector and the Superintendent of Police of the District to provide necessary force to enable the Resolution Professional to take over the premises and plant of the Corporate Debtor and all the moveable and immoveable assets56. If the Resolution Applicant modifies the Resolution Plan, as ordered above and deposits another sum of Rs.120.54 Crores within 30 days, by improving the plan, the Adjudicating Authority will allow M/s. Maharashtra Seamless Limited to take over the possession of the Corporate Debtor including its moveable and immoveable assets and the plant. On failure, the plan approved in favour of M/s. Maharashtra Seamless Ltd. deemed to be set aside and the Adjudicating Authority will pass appropriate order in accordance with law5. There is an application registered as I.A. No. 115118 of 2019, taken out by MSL in connection with their own appeal before us. In this application, they have, in substance, sought refund of the sum deposited in terms of the resolution plan alongwith interest. In this application, MSL has also applied for withdrawal of the resolution plan. Their grievance is that in order to take over the corporate debtor, they had availed of substantial term loan facility and deposited the sum of Rs.477 crores for resolution of the corporate debtor in a designated escrow account on 19th February, 2019 but because of delay in implementation of the resolution plan, they were compelled to bear the interest burden. It is also their case that the export orders they had accepted in anticipation of successful implementation of the resolution plan were cancelled as a result of which takeover of the corporate debtor had become unworkable6. The application of the Indian Bank under Section 7 of the Code was filed on 12 th June 2017. An Interim Resolution Professional was appointed initially, who was changed later in the proceeding. The Resolution Professional on 10 th January, 2018, issued invitation calling applications from interested parties by 28 th February, 2018. This timeline was subsequently extended from time to time, and altogether four resolution plans were placed before the Committee of Creditors (CoC). This Committee was constituted on 18 th August 2017 by the Interim Resolution Professional. One of these plans was by MSL. The other Resolution Applicant whose offer was considered was M/s. Area Projects Consultants Private Limited. MSL had offered upfront payment of Rs.477 crores. The resolution plan of MSL was approved by the financial creditors having 87.10% of the voting shares. This voting block consisted of the two aforesaid Deutsche Bank entities. The Deutsche Bank International (Asia) Limited had 73.40% vote share and the Indian Bank had 12.90% voting share in CoC7. Two registered valuers being K. Vijay Bhasker Reddy and P. Madhu were initially appointed for determining the value of the corporate debtor. Their valuations were to the tune of Rs.681 crores and Rs.513 crores respectively. On account of substantial difference in their valuations, the Committee appointed a third valuer, Duff and Phelps. They valued the Corporate debtor at Rs.352 crores. The Committee thereafter took into consideration the average of the two closest estimates of valuation by P. Madhu and Duff and Phelps and liquidation value was assessed to be Rs.432.92 crores8. Subsequently, an application was filed before the Adjudicating Authority by the Resolution Professional in which he sought approval of the resolution plan. That application was disposed of by the Adjudicating Authority by an order passed on 28 th September, 2018, inter-alia, directing the Resolution Professional to re-determine the liquidation value of the corporate debtor by taking into consideration the first and second valuation of P. Madhu and K. Vijay Bhaskar. It was, inter alia, directed in this order of 28 th September, 2018:-(2) The Resolution Professional shall convene a meeting of CoC to place the qualified Resolution Plans along with Resolution Plan of MSL before CoC for reconsideration, in the light of revised liquidation value of the Corporate Debtor Company(3) 30 days time is excluded from the CIRP period with effect from today for completing the above direction(4) The Resolution Professional is directed to allow Directors / Suspended Board to participate in the CoC meetings and permit them to express their views and suggestions and record the same in the Minutes of the meeting of the CoC9. Revised valuation of the corporate debtor was made, enhancing the same to Rs.597.54 crores from Rs.432.92 crores. In its 9 th meeting held on 16 th October, 2018, the Committee took into consideration the revised valuation and on majority voting approved again the resolution plan of MSL. The directors of suspended Board were given opportunity to express their views and suggestions before the Committee10. The order of the Adjudicating Authority passed on 28 th September 2018 was appealed against by MSL before NCLAT. This appeal was registered as Company Appeal (AT) (Insolvency) No.637 of 2018. That appeal was disposed of by the Tribunal on 12 th November 2018 with the following observation and direction:-Learned counsel appearing on behalf of the member of the Committee of Creditors submits that during the pendency of this appeal in compliance of the order of the Adjudicating Authority, revised liquidation value was taken into consideration by the Committee of Creditors whereinafter the resolution plan of the appellant – Maharashtra Seamless Ltd. has been approved. It is also accepted by the learned counsel appearing on behalf of the Resolution Professional and the learned counsel appearing on behalf of the appellant. In view of the aforesaid position, we are not inclined to deliberate on the question as raised in the present appeal, which may be answered in some other case. The Adjudicating Authority is now required to pass order under Section 31 of the I&B Code without granting unnecessary adjournments to any of the party uninfluenced by its earlier order, which is under challenge. The appeal is disposed of with aforesaid observations and directions11. Before disposal of Company Appeal (AT) (Insolvency) No.637 of 2018, on 25 th October 2018 the resolution professional had filed an application (I.A.No.472/2018) before the Adjudicating Authority seeking approval of the resolution plan as per the decision in the 9 th meeting of the committee held on 16 th October 2018. We have referred to the outcome of the said meeting earlier in this judgment. The order of the Adjudicating Authority was issued on 21 st January 2019 approving the resolution plan upon considering Section 31 of the 2016 Code. The Adjudicating Authority, inter-alia, held and observed:-27. The Resolution Professional has filed the present Application enclosing the minutes of 9 th CoC. The question whether the plan submitted by M/s MSL is in conformity with Section 30 (2) of the Code. If it is in conformity, then the plan is to be approved under Section 31 of the Code. The CoC has examined all eligible resolution plans again in the 9 th CoC meeting held on 16.10.2018. The Resolution Plan submitted by M/s MSL is below the revised Liquidation Value. The difference is about Rs.120 crores. However, as per directions of the Honble NCLAT, this Tribunal to decide the plan filed by M/s. MSL without being influenced by its previous order28. The CoC has approved the Resolution Plan submitted by M/s MSL with a majority of voting share of Financial Creditors at 87.10%. The CoC in its wisdom has approved the Plan. No doubt Indian Bank, the other Financial Creditor having voting share at 12.90% opposed for approval of the Resolution Plan. The minimum required percentage of voting for approval of the Resolution Plan as per the latest amendment is 66%. In this case, the Resolution Plan with voting share of 87.10 of the Financial Creditors approved the plan29. The other contention raised that upfront payment is below the revised liquidation value and therefore, the Plan could not be accepted. On the other hand, Honble NCLAT has held in Company Appeal No.637/2018 that this Tribunal to decide the Application under Section 31 of IBC without being influenced by the previous order. When such is the case, the revised Liquidation value has no role to pay while considering the Resolution Plan submitted by M/s MSL. The Tribunal has to test the Resolution Plan with reference to provisions of Section 30 (2) of IBC. The Resolution Professional certified that Plan of M/s MSL is in conformity with provisions of Section 30 (2) of the Code. So, the Liquidation Value prior to re-determination if taken into account, the upfront payment offered by M/s MSL is over and above the Liquidation Value. Therefore, the objection taken by the Director (Suspended Board) and also Indian Bank could not be taken into account in view of the direction of Honble NCLAT30. The next contention raised that the Resolution Applicant has not obtained prior approval of the CCI as required under Section 31 (4) of the Code. The Counsel for Resolution Professional would contend that there is no need to obtain prior approval of CCI as the plan submitted by M/s MSL does not fall under the provisions of CCI. The Director (Suspended Board) has raised the same in the 9 th CoC meeting and it is answered that such approval is not necessary. Even otherwise Section 31(4) provides that necessary approval required under any law for the time being in force is to be obtained by Resolution Applicant within a period of one year or within the prescribed period under such law. Therefore, Resolution Applicant can obtain necessary approvals in a period of one year if it is required. Thus, the Resolution Plan of M/s MSL filed by Resolution Professional is to be approved as it meets all the requirements of Section 30 (2) of IBC31. In the result, the Resolution plan submitted by M/s Maharashtra Seamless Limited is approved and that the same shall be binding on the Corporate Debtor and its employees, members, creditors, guarantors and other stakeholders involved in the Resolution Plan32. The revival plan of the company in accordance with the approved resolution plan shall come into force with immediate effect. The moratorium order passed by this Tribunal under Section 14 shall cease to have vacated33. The resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the IBBI to be recorded on its database34. CA No. 472/2018 in CP (IB) No.49/7HBD/2017 is disposed of in terms of the above12. The complaint of Padmanabhan Venkatesh, one of the original promoters and the Bank before the NCLAT was primarily on the ground that the approval of resolution plan amounting to Rs.477 crores was giving the Resolution Applicant windfall as they would get assets valued at Rs.597.54 crores at much lower amount. The other ground urged by the Bank was that the Area Projects Consultants Private Limited, one of the Resolution Applicants had made revised offer of Rs.490 crores, which was more than the amount offered by the MSL. In course of the hearing of the appeal, it appears that the successful Resolution Applicant had indicated infusion of more funds, which was taken into consideration by the NCLAT. This would appear from the following passage of the order of the NCLAT under appeal before us:-24. It was submitted that actually the total exposure of the Successful Resolution Applicant is around Rs.657.50 Crores although Rs. 477 Crores is upfront amount. In addition to that Rs. 180.50 Crores which would be infused directly in the Corporate Debtor by M/s. Maharashtra Seamless Ltd.- (4 th Respondent). Further, Rs. 57 Crores would be infused towards 25% margin money of working capital expenditure. Moreover, in fact, the total working capital Rs. 224 Crores, the balance to be taken as loan from Bank(s), which would also require Corporate Guarantees of the 4 th Respondent25. It was further contended that the Corporate Debtor plant has been lying closed for the last three years. Additionally, in all its operational life prior thereto, the Corporate Debtor over a period of seven years could not produce even a total of 1,50,000 MT, which is supposed to be its production capacity of one year. Thus, it was only after due and in-depth consideration, including taking into account extensive further investments, which would mandatorily have to be made to get the Corporate Debtor up and running, that the Successful Resolution Applicant offered Rs. 477 Crores, which was payable within 30 days of the approval of the plan26. Therefore, according to counsel for 4 th Respondent, the aforesaid infusion of funds by the 4 th Respondent aggregating Rs.657.50 Crores is for the maximization of the assets of the Corporate Debtor13. The NCLAT, however, found the reasoning of the Adjudicating Authority flawed, inter-alia, for the following reasons:-34. Therefore, it is clear that the Committee of Creditors has also accepted the average of the liquidation value which comes to Rs. 597.54 Crores and on the basis of which the Resolution Plan was considered. If the Resolution Plan is considered, then it will be evident that 25% of the admitted dues of the Financial Creditors have been allowed in the Resolution Plan. On the other hand, the Operational Creditors have been discriminated. The liquidation value being Rs.597.54 Crores, the upfront payment suggested by the Resolution Applicant being less i.e., Rs. 477 Crores, the payment to the Operational Creditors is lower than the proportionate liquidation value, therefore, the Resolution Plan, as approved by the Adjudicating Authority is against Section 30(2) (b) of the I&B CodeWe have reproduced the final finding and directions of the NCLAT earlier in this judgment.

Court's reasoning:
16. It is admitted position that approximately Rs.472 crores have been remitted to the financial creditors which was received from Mr. Sibals clients. The D.B. International Asia Limited, having 73.40% voting shares in the CoC has also assailed the impugned order on grounds similar to that taken by the MSLBefore we proceed to answer these two questions, we must indicate that before the Appellate Authority substantial argument was advanced over failure on the part of the Adjudicating Authority to maintain parity between the financial creditors and operational creditors on the aspect of clearing duesWe have taken note of submission made by Mr. 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 creditors26. 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 Clause 35 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. This point has been dealt with in the case of Essar Steel (supra). We have quoted above the relevant passages from this judgment27. 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 not find any breach of the said provisions in the order of the Adjudicating Authority in approving the resolution plan28. 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 (supra), 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 upfront29. 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. 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 not30. Certain allegations were made by the MSL over failure on the part of the Resolution Professional in taking possession of the assets of the corporate debtor and subsequently in their failure in handing over the same to MSL. These issues are factual. Mr. Neeraj Kishan Kaul, learned senior counsel appearing for the Resolution Professional disputed such allegations. The order of the NCLAT does not deal with this aspect of the controversy and we do not think we, in exercise of our jurisdiction under Section 62 of the Code ought to engage ourselves in determining that question.