Friday, 23 July 2021

STCI Finance Limited Through Subhash Chandra Modi, Resolution Professional of Parinee Developers Private Limited - Withdrawal Application U/s 12A & constituting Monitoring Committee under settlement agreement.

NCLT Mumbai-II (31.05.2021) in STCI Finance Limited Through Subhash Chandra Modi, Resolution Professional of Parinee Developers Private Limited (Corporate Debtor) (IA No.264 of 2021 IN  CP NO. (IB) 4147/MB/2019) held that;

  • From the settlement agreement, suspended directors will sell the assets  of the Corporate Debtor which is under moratorium to settle the  outstanding dues thereby they will be participating in the affairs of the  company (indirectly) which is prohibited when the corporate debtor is  under CIRP and moratorium is in existence.

  • the CoC had time and again  directed the RP to postpone the issue of EOI and FORM G, other  activities of CIRP as stated earlier. By exercising their Commercial  Wisdom, they cannot be permitted to not comply with the Provisions  of the I&B Code as well as Regulations framed thereunder. Neither  RP, CoC has filed any IA for seeking permission of this AA in this  regard thereby CoC in this case has taken Law into its hands and not complied with applicable provisions of I&B Code and CIRP  Regulations.

  • constituting Monitoring Committee etc is not in line the I&B  Code and CIRP Regulations further there is no backup plan is  provided in case of failure to meet the shortfall within the timeline  agreed by the parties etc, and the settlement proposal contains lot of  uncertainty, future events therefore the AA is of the confirmed view  that the present application filed under Section 12 A of I&B Code  read with Regulation 30 A of IBBI (CIRP) Regulations, 2016 deserves  no favourable consideration therefore this IA 264/2021 is dismissed. 

 

Excerpts of the order;

# 1. This Application is filed under section 12A of the Insolvency  and Bankruptcy Code, 2016 (“Code”) for Withdrawal of the  Corporate Insolvency Resolution Process (CIRP) of Parinee  Developers Private Limited by the Resolution Professional  (RP). 

 

# 2. The facts as stated by the Applicant are as under:- 

XXXXX

(d) The Applicant states that the promoters by the letter dated  08.12.2020, made a settlement proposal which outlined the plan  for the revival of operations of the Respondent and full payment  to the lenders including principal, interest and all the expenses.  

(e) The Applicant further submits that this Tribunal granted an  exclusion of time period of 135 days to complete the CIRP  process and extended it to 18.04.2021. 

(f) The Applicant further submits that he was advised to delay the  issue of Form G due to the lockdown imposed as well as  settlement talks by STCI Finance Limited and the same was  confirmed during the CoC meeting on 08.02.2021. 

(g) On 30.01.2021 the Applicant Financial Creditor admitted to the  RP that a settlement had been formulated and arrived at  between the Debtors and Creditors. 

(h) The Financial Creditor submitted Form FA in accordance with Regulation 30A of CIRP Regulations on 30.01.2021 and the  Financial Creditor also submitted a Bank Guarantee to cover  the CIRP costs for an amount not exceeding Rs. 78,55,723/- on 29.01.2021. 

(i) The CoC during the meeting held on 08.02.2021, the RP placed  Form FA before the Members of the CoC of the Corporate  Debtor, and a resolution was placed for their vote. The CoC  approved the resolution with 99.91% votes in favour of the  resolution thereby approving the withdrawal of the CIRP  under Section 12A of the Code.  

 

# 3. As per Section 12 A of the Code, 

  • “The Adjudicating Authority may allow the withdrawal of  application admitted under section 7 or section 9 or section 10, on an  application made by the applicant with the approval of ninety percent  voting share of the committee of creditors, in such manner as may be  specified.” 

 

# 4. The Additional Affidavit as directed by the Hon’ble NCLT, Mumbai  during the course of the hearing on 25.02.2021 of Application (IA  No. 264 of 2021) on behalf of the Resolution Professional states that :- 

a) The Corporate Debtor was Admitted to the CIRP on  09.06.2020 whereby Mr. Subhash Chandra Modi was  appointed as Resolution Professional of the Corporate Debtor. 

XXXX 

c) The CoC of the Corporate Debtor was constituted on  10.07.2020 as per the provisions of the Code and Regulations  thereunder. The report of constitution of CoC of the  Corporate Debtor was filed before this Tribunal on  12.07.2020. 

XXXXX

g) On 29.09.2020 and 30.09.2020 requests were received from  members of CoC constituting 96.77% of voting share vide  email for further Postponement of issue of invitation of  expression of interest and the publication of Form G from  01.10.2020 to 15.10.2020 which was consented by majority of  the members of the CoC constituting 96.86% of voting share.  

h) On 15.10.2020, 17.10.2020 and 21.10.2020 a request from  members of CoC vide emails for further postponement of issue  of invitation of expression of interest and the publication of  Form G from 16.10.2020 to 24.10.2020 which was consented  by the members of the CoC. 

i) On 05.11.2020, 07.11.2020 and 26.11.2020 a request from  members of CoC vide emails for further postponement of issue  of invitation of expression of interest and the publication of  Form G from 28.11.2020 to 07.12.2020 which was consented  by majority of the members of the CoC constituting 75.17% of  voting share. 

j) On 14.01.2021 and 30.01.2021 requests were received from  members of CoC vide emails for further postponement of issue  of invitation of expression of interest and the publication of  Form G from 15.01.2021 to 02.02.2021, which was consented  by majority of the members of the CoC constituting 100% of  voting share. 

XXXXX

q. In accordance with the provisions of the Code, the RP duly  filed on 14.1.2021 a Progress Report as on 31.12.2020 wherein the RP has categorically apprised about the  postponement of publication of Form-G with the Hon’ble  Adjudicating Authority. It is evident from the records of the  meeting that he informed the CoC at various stages about  the need to publish Form-G.  

r. Therefore the RP submits that with all good intentions he  followed the directions of the CoC. As evident from the  Application under section 12A of the Code filed before this  Hon’ble NCLT, Mumbai, the said settlement talks have led  to fructification in the form of Settlement Deed entered into  by the said parties. 

s. The RP had no intention at any point of time to keep the  above facts away from the Hon’ble Adjudicating Authority  and this is evident from the submissions of the Progress  Report filed by RP. 

t. An appeal was also filed by one of the suspended directors  namely Mr. Vipul Shah against the admission of the  Corporate Debtor to the CIRP process before the Hon’ble  NCLAT bearing Company Appeal No. 602 of 2020 in which  appeal the RP is Respondent No.1. 

u. In the said hearings it was only informed to the Hon’ble  NCLAT that in view of the settlement proposal which was  being undertaken between these Suspended Directors and the Financial Creditors, the RP is unable to proceed with the  publication of Form G. Since the lenders of the Corporate  Debtor and the suspended directors of the Corporate Debtor  had arrived at a settlement, one of the suspended director  namely Mr. Vipul Shah who had filed the Company Appeal,  had withdrawn the same before the Hon’ble NCLAT and  the same was noted in the Order of the Hon’ble NCLAT  dated 17.02.2021. 

v. The RP has approached this Bench by filing an IA under  Section 12 read with Section 60(5) of the Code for extension  of time limit for completing the CIRP process.  

w. The RP had no intention at any time to disregard any of the  provisions of thee Code nor the alleged lapse of not  approaching the Hon’ble NCLT in its capacity as the  Adjudicating Authority, to report regarding the decision  taken by the CoC to postpone invitation of EOI and the  publication of Form-G. 

x. The CoC in its wisdom decided that in view of the  impending settlement, it will not be wise enough to publish  the Form G prior to the settlement talks which was  undertaken by and between the Financial Creditors and the  suspended directors. The RP has taken all steps to inform the  CoC that the above decision needs to be reconsidered. 

y. The action of not reporting to the Hon’ble  Adjudicating Authority in a formal manner other than  through the medium of submission of Progress Reports was  never intentional. 

 

# 5. In the interim, the Promoters of the Corporate Debtor viz. Vipul D.  Shah, Dhaval D. Shah, Mukesh B. Patel, Ranjanben M. Patel,  Parinee Realty Private Limited and Shreeram Vessel Scrap Private  Limited (“PDPL Promoters'') by their letter dated 8th December,  2020 made a Settlement Proposal (''Settlement Proposal”) which  outlined the plan for the revival of operations of the Corporate Debtor  and full payment to the Lenders including principal, interest and all  costs, charges and expenses from the assets mortgaged to each of  them. This Settlement Proposal was however, subject to the Hon’ble  NCLT allowing withdrawal of the Section 7 Petition. 

 

6. In order to ensure that the PDPL Promoters were serious about the  Settlement Proposal and not merely lending the Lenders on without  any intention of repaying their dues, the Lenders insisted on upfront  deposit which was made in the following manner

 

(i) STCI FINANCE LIMITED (“STCI”) 

STCI has received Demand Drafts amounting to Rs.  14,43,75,000/- from the proposed Purchasers of various  units in the Bharatiya Bhavan Property. It is however,  expressly clarified that there is no sale effected of the  Bharatiya Bhavan units nor has an agreement/s for sale been  entered into with any Proposed Purchaser/s. In fact the 34  Tripartite Agreements entered into between STCI, the PDPL  Promoters and the Proposed Purchasers (“Tripartite  Settlement Agreements”) provide that the same will take  effect and be enforceable only if the Section 12A application  for withdrawal of the Section 7 Petition is allowed by the  Hon’ble NCLT. Thus even the aforesaid Demand Drafts  cannot be encashed till the withdrawal of the captioned  Petition being allowed. The balance amount payable is also  payable by the proposed Purchasers within an outer limit of  60 days from the NCLT Approval Date. The entire  settlement is hence dependent on the Hon’ble NCLT  allowing withdrawal of the Section 7 Petition. 

 

(ii) CENTRAL BANK OF INDIA (“CBI”) 

A sum of Rs. 5.50 Crores was deposited by the Promoters  with CBI and on the Hon’ble NCLT allowing Withdrawal.  CBI would be entitled to appropriate the sum of Rs. 5.50  Crores towards part satisfaction of the CBI outstanding.  

 

(iii) PUNJAB NATIONAL BANK (“PNB”) 

A sum of Rs. 4.50 Crores was deposited by the Promoters  with PNB and PNB was entitled to appropriate the sum of  Rs. 4.50 Crores towards part satisfaction of the PNB  outstanding. 

 

(iv) STATE BANK OF INDIA (“SBI”) 

A sum of Rs. 4.50 Crores was deposited by the Promoters with  SBI and SBI was entitled to appropriate the sum of Rs. 4.50  Crores towards part satisfaction of the SBI outstanding. 

 

# 7. Pursuant thereto, the Lenders all having received their internal  approvals consented to the Settlement Proposal. The PDPL  Promoters and the Lenders hence entered into a Deed of Settlement  dated 30th January 2021. To ensure the bonafide of the PDPL  Promoters that they would implement the Deed of Settlement, the  Lenders insisted on payment/deposit of amounts. Accordingly, in  addition to the demand drafts deposited with STCI as mentioned  above the deposits were also made in favour of the other 3 Lenders  too as mentioned above. 

 

Some of the important clauses of the said Deed of Settlement are  reproduced verbatim herein below for ease of references :- 

 

The above preamble/recital shall be considered as an essential part of the  present Deed of Settlement. This Deed of Settlement shall become effective  only upon : (1) approval by CoC with the requisite voting share as required  under Section 12A of IBC, and (2) approval of Hon’ble NCLT for withdrawal  of Section 7 Petition under Section 12A of IBC (“NCLT Approval Date”) 

1. The primary objective of this Deed of Settlement is to repay and  settle the entire Outstandings of each Lender due by PDPL. The  PDPL and the PDPL Promoters acknowledge that there is a present  due and payable debt of Rs. 461,74,91,791.54 (Rupees Four  Hundred and Sixty One Crores Seventy Four Lacs Ninety One  Thousand Seven Hundred and Ninety One and Fifty Four Paise  Only). On the date their respective settlements as per the terms of this  Deed of Settlement, the Lenders shall endeavor to inform PDPL of  their Outstandings as on such date, which notice/s shall be binding  on PDPL. In case there is any of the Outstands as on the respective  dates of settlement, the determination, made by the concerned  Lender/s shall prevail. 

2.  The PDPL Promoters shall, immediately on or within 60 days from  the NCLT Approval Date, either themselves or through PDPL, settle  any outstanding insolvency resolution process costs as may be unpaid  on the NCLT Approval Date. Such unpaid insolvency resolution  process costs shall be settled without any impact on full settlement of  Lenders under this Deed of Settlement. The PDPL Promoters shall  ensure that consequent on such settlement of the outstanding  insolvency resolution process costs, the Bank Guarantee/s furnished by  STCI to the Resolution Professional of PDPL shall stand discharged. 

37. It is clarified that, unless released earlier in their sole discretion and  subject to such conditions as may be specified, the Lenders shall  continue to have charge and security as currently available with them  under the finance and security documents (including without  limitation, their mortgage on the properties as mentioned in this Deed  of Settlement) till such time their Outstandings are paid in full within  the time stipulated under this Deed of Settlement”. 

39. In case of default in making payment of STCI Outstandings, and/or  CBI Outstandings and/or PNB Outstandings and/or SBI  Outstandings as per the timelines mentioned in Clauses 15, 32, 34 and  36 above, time being the essence of the contract, it will be open to all or  any of the Lenders to move the Adjudicating Authority i.e. the NCLT  Mumbai for revival of the Corporate Insolvency Resolution Process  against PDPL by setting aside the order of withdrawal that may be  passed under Section 12A and for a direction that the Resolution  Professional Mr. Subhash Modi (or any other Insolvency Professional  retakes charge of PDPL). It is clarified that any such default shall be  taken as continuation of existing default of PDPL for the purposes of  Section 10A of IBC, and as such, Section 10A of IBC will not be  applicable for any such default. The Lenders or any of them may also  file an application for initiation of contempt proceedings against any or  all of PDPL and PDPL Promoters in such a case in addition to  enforcement, filing or adopting any proceedings available to the Lenders  including in the DRT under the DRT Act or under the provisions of the SARFAESI Act or under IBC. This clause is without prejudice to, and  in addition to, any other remedies which the Lenders may have under  law and equity against PDPL, PDPL Promoters, Individual Owners  Guarantors, Proposed Purchaser/s, Alternative Purchaser/s and  Buyers (collectively “Counterparties”), including any proceedings for  seeking relief of specific performance, injunctive relief, and any civil  and/or criminal proceedings form any breach or threatened breach of  this Deed of Settlement, Escrow Agreement, Transfer Deed/s or any  other documents related with the terms of settlement as contained herein  designated as such by the Monitoring Committee (collectively,  Settlement Documents”). The liability of PDPL, Promoters shall be  joint and several in this Deed of Settlement. 

40. In the event of such default as mentioned in Clause 39 above, PDPL  and/or PDPL Promoters and/or the Individual Owners shall jointly  and/or severally continue to be liable to repay all the outstandings of  the Lenders. In such an event, interest, penal interest / liquidated  damages, and all other fees, costs and expenses, shall be payable by  PDPL or PDPL Promoters and/or Individual Owners on the amounts  Outstanding to the Lenders or any of them as per their respective Loan  Agreements and other security documents. 

42. The Lenders shall with a view to ensure the smooth implementation  and supervision of this Settlement constitute a “Monitoring  Committee” comprising of one representative of each of the Lenders. It  is clarified that as and when a Lender’s share of Outstandings against  PDPL is repaid and settled in full, such Lender shall no longer remain  a part of the Monitoring Committee, and the Monitoring Committee  shall continue with the remaining Lenders. The terms of Monitoring  Committee shall be on and from the NCLT Approval Date, till such  time all Lenders have been paid in full as per the terms of this Deed of  Settlement. All decisions of the Monitoring Committee shall be taken  within 4 working days of the issue being communicated to the Lenders,  and shall be taken unanimously by Lenders comprising the Monitoring  Committee, the decision of the lender whose security is being sold shall  be final and binding on all other Lenders. The Monitoring Committee  shall continue to have powers and immunity as available to CoC under  IBC, and any action in relation to PDPL as stated in Section 28 of IBC  shall require prior written consent of Monitoring Committee.  

 

# 8. OBSERVATION OF THE ADJUDICATING AUTHORITY (AA). 

Time and again (10 times) the CoC had decided to postpone issue of EOI, FORM G and no approval for the same was obtained from AA.  As per I&B Code, Regulation 40-A, CIRP regulations Model time  line is provided to perform, complete various activities, functions, viz.  RP to form an opinion on preferential and other transactions (within  75 days of commencement), RP to make a determination on  preferential and other transactions (within 115 days of  commencement), RP to file an application to AA for appropriate  relief (within 135 days of commencement), submission of Information  Memorandum to CoC (within 2 weeks of appointment of RP, but  not later than 54th day of commencement), Publish Form G (within  75 days of commencement Invitation of EOI), Submission of EOI,  Provisional List of RAs by RP, Final List of RAs by RP etc. however,  COC had postponed on the pretext of settlement. NCLT had already  granted an exclusion of 135 days and CIRP to be completed by  18.04.2021 

 

# 9. From the settlement agreement, suspended directors will sell the assets  of the Corporate Debtor which is under moratorium to settle the  outstanding dues thereby they will be participating in the affairs of the  company (indirectly) which is prohibited when the corporate debtor is  under CIRP and moratorium is in existence

 

# 10. The Applicant stated that the promoters by letter dated 08.12.2020,  made a settlement proposal which outlined the plan for the revival of  operations of the Respondent and full payment to the lenders  including principal, interest and all the expenses.  

 

# 11. PDPL Promoters acknowledge that there is a present due and  payable debt of Rs. 461,74,91,791.54 (Rupees Four Hundred and  Sixty One Crores Seventy Four Lacs Ninety One Thousand Seven  Hundred and Ninety One and Fifty Four Paise Only). Against which  as a settlement proposal STCI has received Demand Drafts  amounting to Rs. 14,43,75,000/- from the proposed Purchasers of  various units in the Bharatiya Bhavan Property. It is however,  expressly clarified that there is no sale effected of the Bhartiya Bhavan  units nor has an agreement/s for sale been entered into with any  Proposed Purchaser/s. In fact the 34 Tripartite Agreements entered  into between STCI, the PDPL Promoters and the Proposed  Purchasers (“Tripartite Settlement Agreements”) provide that the  same will take effect and be enforceable only if the Section 12A  application for withdrawal of the Section 7 Petition is allowed by the  Hon’ble NCLT. The balance amount payable is also payable by the  proposed Purchasers within an outer limit of 60 days from the NCLT  Approval Date. A sum of Rs. 5.50 Crores was deposited by the  Promoters with CBI, Rs. 4.50 Crores was deposited with PNB and  Rs. 4.50 Crores was deposited by the Promoters with SBI. 

 

# 12. Further it is stated that the Lenders shall with a view to ensure the  smooth implementation and supervision of this Settlement constitute a  “Monitoring Committee” and the Monitoring Committee shall  continue to have powers and immunity as available to CoC under  IBC, and any action in relation to PDPL as stated in Section 28 of IBC  shall require prior written consent of Monitoring Committee. 

 

13. I&B Code and CIRP Regulations provide for various activities to be  completed in a time bound manner and model timelines is provided as stated above in spite of the same, the CoC had time and again  directed the RP to postpone the issue of EOI and FORM G, other  activities of CIRP as stated earlier. By exercising their Commercial  Wisdom, they cannot be permitted to not comply with the Provisions  of the I&B Code as well as Regulations framed thereunder. Neither  RP, CoC has filed any IA for seeking permission of this AA in this  regard thereby CoC in this case has taken Law into its hands and not complied with applicable provisions of I&B Code and CIRP  Regulations.  

 

# 14. Further after receipt of NCLT approval for the present withdrawal  application, within 60 days they would receive their outstanding  amount, constituting Monitoring Committee etc is not in line the I&B  Code and CIRP Regulations further there is no backup plan is  provided in case of failure to meet the shortfall within the timeline  agreed by the parties etc, and the settlement proposal contains lot of  uncertainty, future events therefore the AA is of the confirmed view  that the present application filed under Section 12 A of I&B Code  read with Regulation 30 A of IBBI (CIRP) Regulations, 2016 deserves  no favourable consideration therefore this IA 264/2021 is dismissed. 

 

# 15. Since IA is dismissed. CIRP in CP No. 4147/2019 would continue and RP is directed to complete the process as per the timelines  provided in I&B Code and IBBI (CIRP) Regulations, 2016. 

 

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