Supreme Court (22.01.2020) in Maharasthra Seamless Limited Vs. Padmanabhan Venkatesh & Ors. [Civil Appeal No. 4242 Of 2019 With Civil Appeal Nos. 4967-4968 Of 2019].; held that;
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.
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.
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. . . . . . . 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.
Excerpts of the Order;
# 14. The appeal of MSL argued by Mr. Kapil Sibal, learned senior counsel, is mainly on the ground that the NCLAT had exceeded its jurisdiction in directing matching of liquidation value in the resolution plan. MSL in the appeal have sought to sustain the resolution plan but their prayer in the interlocutory application is refund of the amount remitted coupled with the plea of withdrawal of resolution plan. However, their main case in the appeal is that final decision on resolution plan should be left to the commercial wisdom of the Committee of Creditors and there is no requirement that resolution plan should match the maximized asset value of the corporate debtors. On the other hand, Mr. Abhishek Manu Singhvi, learned senior counsel appearing for two main financial creditors, while supporting the main appeal of Mr. Sibal has resisted the plea for withdrawal of the resolution plan and refund of the sum already remitted by Mr. Sibal’s clients. Mr. Singhvi has highlighted the fact that the exposure of his clients to the total debt of the corporate debtors is Rs.2060 crores and his clients being the primary creditors to the tune of 87.10% of the total dues, it was his clients who would have suffered loss, if any, on account of resolution plan not matching the liquidation value.
# 15. On the aspect of withdrawal of the plan, Mr. Singhvi has referred to Section 12-A of the 2016 Code. His submission is that the only route through which a resolution applicant can travel back after admission of the resolution plan is the aforesaid provision. Section 12-A of the 2016 Code stipulates:-
“12A. Withdrawal of application admitted under section 7, 9 or 10. – 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 per cent. voting share of the committee of creditors, in such manner as may be specified.”
# 16. It is admitted position that approximately Rs.472 crores have been remitted to the financial creditors which was received from Mr. Sibal’s 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 MSL.
# 17. We shall address two issues in this appeal. The first one is whether the scheme of the Code contemplates that the sum forming part of the resolution plan should match the liquidation value or not. The second question we shall deal with is as to whether Section 12-A is the applicable route through which a successful Resolution Applicant can retreat. Before 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 dues.
# 21. 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 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 creditors. It has also been held in that judgment in paragraph 70 of the said report:-
“70. By reading paragraph 77 de hors the earlier paragraphs, the Appellate Tribunal has fallen into grave 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.”
# 25. 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. 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. 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.
# 26. 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 judgment.
# 27. 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 plan.
# 28. 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 upfront.
# 29. 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 not.
# 30. 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.
# 31. We, accordingly, allow the appeal of MSL and set aside the order of the NCLAT under appeal before us. The order of the Adjudicating Authority passed on 21st January 2019 is affirmed. MSL, however, shall remit additional sum of Rs.50,72,237/- to the Resolution Professional for further remittance to the operational creditors as per their dues. This sum has already been offered to the operational creditors, as recorded in the impugned order. We dismiss the I.A.No.115118 of 2019 taken out in connection with C.A.No.4242 of 2019. C.A.No.4967-68 of 2019 are also allowed on the same reasoning. In view of our aforesaid findings and these directions, we are not going into the question as to whether any illegality was committed by MSL as regards change in composition of Board of Directors of the corporate debtor.
# 32. We, accordingly, direct the Resolution Professional to take physical possession of the assets of the corporate debtor and hand it over to the MSL (appellant in C.A.No.4242 of 2019) within a period of four weeks. The police and administrative authorities are directed to render assistance to the Resolution Professional to enable him to carry out these directions.
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