Friday 8 October 2021

Gail India Ltd. Vs. Ajay Joshi (RP of Alok Industries Ltd. & Ors.) - There is no embargo for the classification of Operational creditor(s) into separate/different classes for deciding the way in which the money is to be distributed to them.

NCLAT (04.10.2021) In Gail India Ltd. Vs. Ajay Joshi (RP of Alok Industries Ltd. & Ors.) [Company Appeal (AT) (Ins.) 492 of 2019] held that;

  • this Tribunal, is of the considered opinion that the ‘Operational Creditors’ were paid as per Section 30(2) (b) of the I&B Code, 2016, and coupled with Regulation 38 of the ‘CIRP Regulations’ the ‘Operational Creditors’ are entitled to receive only such money that are payable to them as per Section 53 of Code.

  • In reality, there is no embargo for the classification of Operational creditor(s) into separate/different classes for deciding the way in which the money is to be distributed to them by the ‘Committee of Creditors’ because of the fact, undoubtedly, they do have the subjective final discretion of ‘Collective Commercial Wisdom’ in relation to 

  • (1) The amount to be paid 

  • (2) The quantum of money to be paid, to a certain category or the incidental category of creditors, of course, nicely balancing the interests of the ‘Stakeholders’ and the ‘Operational Creditors’, as the case may be. 


Excerpts of the order;

# 56. According to the Appellant/Applicant in I.A. No. 41/2019 a ‘Gas Sale Agreement’ dated 27.05.2013 was executed by it and M/s. Alok Industries (Corporate Debtor) in respect of the supply of (Re-liquified Natural Gas) for a period of 15 years, coming to an end in 2028. Later, the ‘Gas Transmissions Agreement’ dated 27.05.2013 came to be executed together with all capacity ‘Trench Agreement’ between the Applicant and the ‘Corporate Debtor’ for the transportation of ‘Re-liquified Natural Gas’.

 

# 57. Further, in terms of the Article 6, the ‘Corporate Debtor’ was required to take minimum quantity of gas of 0.185 MMSCMD (approx. average daily volume) against which the Applicant would raise the gas supply bills to the ‘Corporate Debtor’, to be repaid within 15 days by the ‘Corporate Debtor’. Article 14 of the ‘Gas Sale Agreement’ pertains to the ‘Take or Pay Obligation’ and Article 12.3 of the ‘Gas Sale Agreement’ provides the due date of payment.

 

# 58. The stand of the Appellant (Applicant in IA No. 41/2019) is that in terms of Article 14 of the ‘Gas Sale Agreement’, it claimed bills / letters in respect of ‘TOP’ charges/claimed the payment of gas as a ‘Guarantee Demand’ to the ‘Corporate Debtor’. However, the ‘Corporate Debtor’ had not received / consumed it. The Appellant / Applicant in respect of unpaid contractual dues by the ‘Corporate Debtor’ in respect of the years 2014- 2016 had made a claim and the Appellant / Applicant, had projected Section 9 application (filed under the Arbitration and Reconciliation Act, 1996) before the ‘Civil Court of Dadra and Nagar Haveli’ against the ‘Corporate Debtor’ and later the Arbitration Clause was invoked against the Appellant / Applicant through letter dated 16.05.2017 against the ‘Corporate Debtor’ for resolving the disputes as per ‘Gas Sale Agreement’ (in respect of all claims inclusive of TOP charges).

 

# 59. It is represented on behalf of the Appellant that Appellant / Applicant that the Appellant made a claim for Rs. 506.60 crores on 23.11.2017 before the ‘Resolution Professional’ and that the ‘Resolution Professional’ rejected the Appellant/Applicant’s claim based on the reason that the ‘Take or Pay Obligation’ under the ‘Gas Sale Agreement’ was not to be termed as ‘Operational Debt’, resting on the reason that the said obligation is not for the ‘Goods’ and ‘Services’ used for production or output turned out by the ‘Corporate Debtor’. Besides this, the ‘Resolution Professional’ opined that any claim furnished after the lapse of ‘CIRP’ period was not to be considered.

 

# 60. The core plea taken on behalf of the Appellant/Applicant is that the ‘Trade Creditors’ were allotted only Rs. 4.83 crores and the said ‘Trade Creditors’ with balance of below Rs. 3 lacs were paid 100% of their verified claims and the remaining ‘Trade Creditors’ were provided with nil value.

 

# 61. The pivotal stand of the Appellant is that if the Appellant’s interest is brushed aside in the ‘Resolution Plan’ it will affect the interests of ‘Operational Creditors’. In fact, the proposed ‘Resolution Plan’ can be assailed as per Section 60(5) of the Code relating to 

  • (i) any claim made by or against the ‘Corporate Debtor’ or Corporate person, including claims by or against any of its subsidiaries situated in India and 

  • (ii) any question of priorities or any question of law or facts arising out of or in relation to the ‘Insolvency Resolution’ or ‘Liquidation proceedings of the Corporate Debtor’ or ‘Corporate Person’ under the ‘I&B’ Code.

 

# 62. On behalf of the Respondent, it is projected before this Tribunal that the ‘Resolution Plan’ got the nod of approval by the ‘Committee of Creditors’ during June, 2018 and the I.A. 41/2019 was projected by the Appellant/Applicant very lately and during the ‘Corporate Insolvency Resolution Process’ (CIRP) of the ‘Corporate Debtor’ the Appellant / Applicant had not expressed its objections in regard to the ‘Resolution Plan’. Moreover, the ‘Corporate Debtor’ had not utilised the gas subsequent to January, 2014.

 

# 63. Continuing Further, it is the stand of the Respondents that the ‘Supremacy of the Committee of Creditors’ and their ‘Commercial Wisdom’ are not to be challenged and further that the ‘Adjudicating Authority’ has no jurisdiction to gauge the said ‘Commercial Wisdom’ of the ‘Committee of Creditors’.

 

# 64. It is represented on behalf of the Appellant that the Adjudicating Authority had not noticed the fact that the Resolution Plan is at the threshold is discriminatory and crates a ‘class within a class’, which classification is without any intelligible criteria. Further, it is the plea of the approval of the Resolution Plan by the Adjudicating Authority is in violation of the provisions of the I&B Code. Moreover, the stand of the ‘Appellant’ is that, it being an operational creditor (without any voting right in the Committee of Creditors) was at a disadvantageous position by disentitling it of any payment in respect of the Resolution Plan, pertaining to its legitimate Claims.

 

# 65. The crux of the plea of the 1st Respondent (former Resolution Professional of Alok Industries Ltd) is that the average liquidation value of the Corporate Debtor comes to Rs.4,433/- crores (in terms of the liquidation value estimated by two valuers appointed by the Resolution Professional) and the total financial outlay in terms of the Resolution Plan is Rs.6252/- crores.

 

# 66. The clear cut stand of the 1st Respondent is that upon an application of the ‘’Waterfall Mechanism’ under the Head ‘Distribution of Assets’ in terms of the ingredients of Section 53 of the I&B Code, 2016, the sum of Rs.4433 crores (Liquidation value) will be exhausted as regards the payment of the Insolvency Resolution Process costs, workmen dues and the dues to be paid to the ‘Financial Creditors’, which are above Rs.4433 crores.

67. Although, according to the 1st Respondent, ‘Operational Creditors were entitled to ‘Nil’ payment as per Section 32 of the Code, the fact of the matter is that the ‘Resolution Applicants’ in their commercial wisdom had provided for the full payment of Rs.4.83 crores in respect of ‘Approved Resolution Plan’ for ‘Operational Creditors’ with admitted claims of a sum of rupees upto Rs.3 Lakhs only.

 

# 68. The plea of 2nd and 3rd Respondent is that the ‘Resolution Applicant’ based on ‘Good Faith’ a sum of Rs.4.83 crores was allotted in respect of payment of dues relating to debt of ‘Operational Creditors’ post admitted claims were upto Rs.3 Lakhs and this allocation had culminated in the debts of Operational Creditors numbering 357 were fulfilled in entirety. Added further, the said allotment of the aforesaid sum in respect of the operational debt of the Corporate Debtor was made Bona fide by the ‘Committee of Creditors’ exercising their ‘Commercial Wisdom’.

 

# 69. According to the Learned Counsel for the 4th Respondent, the ‘Distribution of amounts’ in respect of a Resolution Plan comes within the ambit of the Committee of Creditors while exercising their ‘commercial wisdom’ and in short, the proceeding under the I&B Code, 2016(being summary in character) is not to be resorted to as an ‘Debt Enforcement Procedure’. Also that, the Appellant’s claim(s) pertain to the same being arising out of the Corporate Debtor’s purported obligations to pay for goods, and obviously, the disputes are of contractual in nature.

 

# 70. Furthermore, it is the stand of the 4th Respondent that the instant ‘Appeal’ of the ’Appellant’ has become an ‘Infructuous’ one because of the fact that the Resolution Plan was implemented and that the ‘Monitoring Committee’ was dissolved.

 

# 71. As far as the present case is concerned, although on behalf of the ‘Appellant’ a plea is raised that the ‘Appellant’ was discriminated as an ‘Operational creditor’ and that the ‘Equality Concept’ was not adhered to by the ‘Adjudicating Authority’ while approving the ‘Resolution Plan’ (especially in the teeth of the ‘Resolution Plan’ 100% payment to the ‘Operational Creditors’ with claim upto Rs. 3 Lakhs were admitted), this Tribunal, is of the considered opinion that the ‘Operational Creditors’ were paid as per Section 30(2) (b) of the I&B Code, 2016, and coupled with Regulation 38 of the ‘CIRP Regulations’ the ‘Operational Creditors’ are entitled to receive only such money that are payable to them as per Section 53 of Code.

 

# 72. In reality, there is no embargo for the classification of Operational creditor(s) into separate/different classes for deciding the way in which the money is to be distributed to them by the ‘Committee of Creditors’ because of the fact, undoubtedly, they do have the subjective final discretion of ‘Collective Commercial Wisdom’ in relation to 

  • (1) The amount to be paid 

  • (2) The quantum of money to be paid, to a certain category or the incidental category of creditors, of course, nicely balancing the interests of the ‘Stakeholders’ and the ‘Operational Creditors’, as the case may be. 

Suffice it for this Tribunal to pertinently make a significant mention that it cannot be lost sight of that the ‘Appellant’s’ claim is not relatable to the supply of goods or services so as to keep the ‘Corporate Debtor’ as a ‘Going Concern’. It is to be remembered that the ‘’Appellant’ had commenced ‘Arbitration proceedings’ in regard to its claim emanating from the ‘Gas Sale Agreement’. In fact, the ‘Appellant’s’ claim pertains to supposed obligation to pay for goods, even where, these were not made use of as “take or pay obligation’. Looking at from any angle, the impugned order dated 08.03.2019 passed by the Adjudicating Authority (National Company Law Tribunal), Ahmedabad Bench in dismissing the I.A. 41/2019 in IA 259/2018 (filed by the Applicant for Appellant) in CP (IB)48/2017 does not suffer from any material irregularity or patent illegality in the eye of Law. Resultantly the instant ‘Appeal’ sans merits.

 

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The sole purpose of this post is to create awareness on the "IBC - Case Law" and to provide synopsis of the concerned case law, must not be used as a guide for taking or recommending any action or decision. A reader must refer to the full citation of the order & do one's own research and seek professional advice if he intends to take any action or decision in the matters covered in this post.

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