Canara Bank Vs. Mamta Binani, RP of Aristo Texcon Pvt. Ltd. - He (Resolution Professional) is an Officer of the Court and he is to exercise reasonable and responsible care for the company whose property and affairs are entrusted with him.

NCLAT (03.01.2022) in Canara Bank  Vs. Mamta Binani, RP of Aristo Texcon Pvt. Ltd. [(Company Appeal(AT)(Insolvency) No. 1117 of 2019) ] held that;

• He (Resolution Professional) is an Officer of the Court and he is to exercise reasonable and responsible care for the company whose property and affairs are entrusted with him.

• In case, the Resolution Plan is not meeting the requirement of Section 30 of the Code, the Resolution Professional is empowered to refuse to present the Plan to the Committee of Creditors.

• A ‘Resolution Professional’ is not required to take any decision but he is to confirm that the Resolution Plan does not violate any of the provisions of Law for the time being in force (including Section 29A of I&B Code). Suffice for this ‘Tribunal’ to pertinently point out that an ‘ex-facie’ opinion is to be offered to the ‘Committee of Creditors’ by the ‘Resolution Professional’ that the Law was not violated.

• A Resolution Plan submitted by the concerned Resolution Applicant on accounts of its confidentiality, cannot be disclosed to any competing Resolution Applicant nor any opinion can be taken or objection can be called for from other Resolution Applicants in regard to one other Resolution Plan.

Excerpts of the Order;

The ‘Appellant’ /Canara Bank as an ‘Aggrieved Person’ has preferred the instant Company Appeal (AT)(Insolvency) No.1117 of 2019 being dissatisfied with the with order dated 20.8.2019 in CA (IB)No.709/KB/2019 in CP(IB)No.570/KB/2018 passed by the ‘Adjudicating Authority’ (National Company Law Tribunal, Kolkata Bench, Kolkata).

 

# 2. The ‘Adjudicating Authority’ (National Company Law Tribunal, Kolkata Bench) while passing the impugned order dated 20.08.2019 in CA (IB)No.709/KB/2019 in CP(IB)No.570/KB/2018 (Filed by the Resolution Professional under Section 30(6) and 31 of the I&B Code, 2016 r/w Regulation 39(4) of the Insolvency & Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 at paragraph 8 to 15 had observed the following:-

• 8. “We have given our thoughtful consideration to the submission made by the Ld. Counsel for the Canara Bank. We hold that order passed by NCLAT in case of Standard Chartered Bank Vs Satish Kumar Gupta RP of Essar Steel Ltd and Ors is now the subject to appeal before Hon’ble Supreme Court. Hon’ble Supreme Court stayed the execution of that order. Secondly, the facts before Hon’ble NCLAT and point for consideration was whether Operational Creditor can be treated in discriminatory manner while distributing assets of the Corporate Debtor in between them and the Financial Creditors. In this case, there are some Operational Creditors but no provision is made to pay any sum in view of Section 53 of Insolvency and Bankruptcy Code, 2016. All Financial Creditors are equally treated while distributing funds.

• 9. In case of K. Sashidhar Vs Indian Overseas Bank Ltd (Civil Appeal No.10673 of 2018), the Hon’ble Apex Court hold that ‘the legislature has not endowed on the Adjudicating Authority (NCLT) with the jurisdiction or authority to analyse or evaluate commercial decision of CoC, which lies to enquire into the justness of the rejection of resolution plan by descending financial creditors.”

• 10. In short it is held that this Authority cannot sit in appeal against the financial decisions that are taken by CoC, In our considered opinion, it is within commercial wisdom of the CoC as to what Financial Creditors will get what share of the resolution funds.

• 11. Hence, we reject the objection of Canara Bank and proceed to check whether the resolution plan submitted for our approval complies the approval under Section 30(2) of Insolvency and Bankruptcy Code, 2016.

• 12. Section 30(2) of Insolvency and Bankruptcy Code, 2016 mandates that resolution plan shall provide:-

• (a) the payment of insolvency resolution process cause in priority and payment of other debts of the Corporate Debtor.

• (b) provides for payment of debts of Operational Creditors in such a manner specified by the Board subject to Section 153 of Insolvency and Bankruptcy Code, 2016.

• (c) provides mechanism for management of affairs of the Corporate Debtor after approval of the resolution plan.

• (d) provides mechanism for implementation and supervision of the resolution plan.

• (e) the plan should not contravene in provision of law for time being in force.

• (f) plan must confirm other requirement as specified by the Board.

• 13. Keeping before our sight, we have examined the resolution plan produced for our approval. It is seen that there is no Operational Creditor, employees or the workmen and hence no provision made towards their payment.

• 14. Para 6 of mandatory contents of the plan provides mechanism regarding management in control of affairs of the Corporate Debtor. It is also provided therein the mechanism for effective supervision and implementation of the plan. Provision is also made to pay resolution costs. The resolution fund appears to be equally distributed among all the Financial Creditors giving them equal share i.e. 23.43%. RP has certified the plan and compliance Certificate is produced as Annexure F. The affidavit of resolution applicant is also produced stating that they are not disqualified under Section 25A of Insolvency and Bankruptcy Code, 2016.

• 15. Perusal of plan shows that it does not contravene any provision of law time being in force and it complies all requirement of Insolvency and Bankruptcy Board of India (in short IBBI).”

 

accepted and approved the Resolution Plan of M/s Jagannath Financial Advisory Pvt Ltd.

 

RESOLUTION PROFESSIONAL’S DUTIES

# 31. A Resolution Professional has a duty among other things to invite the prospective Resolution Applicant who satisfies the requirements as prescribed by him with the approval of the ‘Committee of Creditors’ keeping in mind the complexity and scale of operation of the business of the ‘Corporate Debtor’ and other conditions as may be prescribed by the IBBI to place forward the Resolution Plans, project such plan to the ‘Committee of Creditors’ etc. He is an Officer of the Court and he is to exercise reasonable and responsible care for the company whose property and affairs are entrusted with him. He has an absolute duty to secure the best prize in the given circumstances and he is not made liable because his perception is wrong, of course, with the rider that unless it is not a reasonable one.

 

# 32. As per Section 25(2)(i) of the Code, a duty is cast on the Resolution Professional to scrutinize the Resolution Plan to ensure that it is in accordance with Section 30 of the I&B Code and Regulation 37 of the IBBI(Insolvency Resolution Process for Corporate Persons) Regulations, 2016. In case, the Resolution Plan is not meeting the requirement of Section 30 of the Code, the Resolution Professional is empowered to refuse to present the Plan to the Committee of Creditors.

 

# 33. A Resolution Professional is only to examine and confirm that each Resolution Plan conforms to what is mentioned by Section 32 of the Code. The ‘Resolution Professional’ shall undertake to project all the Resolution Plans during the Meetings of the ‘Committee of Creditors’ and as per Section 30(3) of the Code the Resolution Professional shall present to the ‘Committee of Creditors’ for its approval, such Resolution Plans which confirms the condition mentioned in sub-section (2).

 

# 34. A ‘Resolution Professional’ is to scrutinise that the Resolution Plan furnished by numerous applicants is complete in all aspects, before presenting it to the Committee of Creditors. A ‘Resolution Professional’ is not required to take any decision but he is to confirm that the Resolution Plan does not violate any of the provisions of Law for the time being in force (including Section 29A of I&B Code). Suffice for this ‘Tribunal’ to pertinently point out that an ‘ex-facie’ opinion is to be offered to the ‘Committee of Creditors’ by the ‘Resolution Professional’ that the Law was not violated.

 

# 35. It is the duty of the ‘Resolution Professional’ to determine as to whether the eligibility criteria of Resolution Applicants prescribed in Section 29-A of the Code are satisfied. He is to consider the objections brought to his notice prior to the submission of the Resolution Plan to the ‘Committee of Creditors’. As per Section 30(2) of the I & B Code, the Resolution Professional is to examine each Resolution Plan received by him to confirm that the Resolution Plan provides for payment of Insolvency Resolution Process Costs, Payment of Debts of the Operational Creditors, management of the affairs of Corporate Debtor, the fulfillment and supervision of Resolution Plan, other requirement as may be specified by the Board and does not violate any of the provisions of the law for the time being in force.

 

# 36. A Resolution Plan submitted by the concerned Resolution Applicant on accounts of its confidentiality, cannot be disclosed to any competing Resolution Applicant nor any opinion can be taken or objection can be called for from other Resolution Applicants in regard to one other Resolution Plan.

 

RESOLUTION PLAN’S APPROVAL:

# 37. Subjective satisfaction is a pre-requisite for approval of Resolution Plan. A threadbare scrutiny and a study of the Resolution Plan is to be made prior to the ‘satisfaction’ being arrived at by the ‘Adjudicating Authority’ in a written form. The I & B Code speaks of accountability of the Insolvency Professional and also the ‘Committee of Creditors’ who comprise of the Lender Banks.

 

ASSESSMENT:

# 38. The First Respondent/Resolution Professional before the ‘Adjudicating Authority’ filed CA(IB) No. 709/KB/219 in CP(IB) No. 570/KB/2019 (under Section 30(6) & 31 of the Insolvency & Bankruptcy Code 2016 r.w. Regulation 39(4) of Insolvency & Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) praying for an approval of the Resolution Plan dated 19.04.2019 submitted by Jagannath Advisory Pvt. Ltd. as per Section 31(1) of the code as approved by the ‘Committee of Creditors’.

 

# 39. The First Respondent/Resolution Professional in CA(IB) No. 709/KB/219 in CP(IB) No. 570/KB/2019 had averred that the Resolution Plan dated 19.04.2019 submitted by Jagannath Advisory Pvt. Ltd was examined and was found to be fulfilling the mandatory provision of Section 30(2) of the Code and the relevant regulations. Furthermore, Jagannath Advisory Pvt. Ltd was identified as a ‘Successful Resolution Plan’ and that the First Respondent/Resolution Professional resting on the instructions of and due authorization from the ‘Committee of Creditors’ issued the Letter of Intent (LOI) to Resolution Application on 22.05.2019.

 

# 40. It transpires that the Successful Resolution Applicant / Jagannath Advisory Pvt. Ltd had furnished an unconditioned Performance Deposit in the form Demand Draft amounting to Rs. 30 lakhs, drawn in favour of the ‘Corporate Debtor i.e., ‘Aristo Texon Private Limited’ dated 22.05.2019 in regard to the implantation of the ‘Successful Resolution Plan’. Moreover, the Performance Deposit was given together with an undertaking towards the maintaining the Instruments validity for a period of at least six months from the date of communication of approval of the Resolution Plan by the Resolution Professional or till the end of the Resolution Plan, implementation period whichever is later.

 

# 42. In the present case, the 1st Respondent/Resolution Professional and the ‘Committee of Creditors’ were in receipt of four Resolution Plans- (1) Dalmia Industrial Development Limited (2) Damani Infra com Pvt. Ltd. (3) Jagannath Financial Advisory Pvt. Ltd. (4)KNG Industrial Traders Pvt. Ltd.

 

# 43. It is brought to the fore that in the 11th Meeting of the ‘Committee of Creditors’ held 24..04.2019 the decided to accord approval to the Resolution Plan furnished by M/s Jagannath Financial Advisory Pvt. Ltd. Because of the fact that the required period for CIRP was to come to an end, the ‘Committee of Creditors’ had turned down the contentions of the Appellant and approved the Resolution Plan in its meeting that took place on 21.05.2019. In short, the distribution of Resolution Fund was decided as (a) Canara Bank- 24-30% (b) North Eastern Development Financial Corporation- 47.77% (c) Punjab National Bank – 27.93%.

 

# 44. Although, the Appellant/Canara Bank gave a dissenting Vote for the approval of the Plan, based on the reason that ‘Distribution of Resolution Fund’ was discriminatory as against them and despite its plea that it was entitled to the equal and share in regard to the distribution of the Resolution Fund on the footing that the Bank held more than 80% of the assents of the ‘Corporate Debtor’ as security, the fact of the matter is that the ‘Committee of Creditors’ had approved the Resolution Plan of Jagannth Financial Advisory Pvt. Ltd by 75.70% of votes.

 

# 45. It cannot be gainsaid that the ‘Resolution Fund’ was equally distributed among all the ‘Financial Creditors’ showring them equal share i.e., 23.43 % and that the 1st Respondent/Resolution Professional had certified the plan and the compliance certificate was furnished. There is no illegality in the Resolution Plan as opined by this Tribunal, it comes to be known that the Successful Resolution Applicant/Respondent No. 4 had implemented the Resolution Plan in part and made part payments quite in tune with the ‘Approved Resolution Plan’.

 

# 46. Besides the above, at this juncture, this ‘Tribunal’ aptly points out the decision of Hon’ble Supreme Court in India Resurgence ARC Pvt. Ltd. V. Amit Metalks & Anr. 2021 SCC online SC 409 wherein a paragraph 21 it is mentioned as under:

• 15. “ The limitation on the extent of the amount receivable by a dissenting financial creditor is innate in Section 30(2)(b) of the Code and has been further exposited in the decisions aforesaid. It has not been the intent of the legislature that a security interest available to a dissenting financial creditor over the assets of the corporate debtor gives him some right over and above other financial creditors so as to enforce the entire of the security interest and thereby bringing about an inequitable scenario, by receiving excess amount, beyond the receivable liquidation value proposed for the same class of creditors.”

 

# 47. To be noted, in the present case, the distribution of the amount was made by the ‘Committee of Creditors’ resting on the total dues of individual Creditor and the same is not either whimsical or arbitrary in any manner. To put it differently, the ‘distribution of the amount’ between the Creditors provide the equal treatment to all of them. Also that the Appellant was provided with a fair value as per decision of the ‘Committee of Creditors’ and the value proportionate to the dues was allotted same as that of other Financial Creditors.

 

# 48. Undoubtedly, the commercial decision and matters pertaining to it solely comes within the ambit of the ‘Committee of Creditors’ who in the present case had approved the Resolution Plan with a majority of 75.70% affirmative votes. In effect, the acceptance and approval of Resolution Plan of 4th Respondent/M/s Jagannath Financial and Advisory Pvt. Ltd. by the ‘Adjudicating Authority’ (National Company Law Tribunal, Kolkata Bench) as per its order 28.02.2019 in CA(IB) No. 709/KB/2019 in CP(IB) No. (IB) 570/KB/ 2018 does not suffer from any vice of material irregularities or patent illegalities in the eye of law, as opined by this Tribunal. Viewed in that perspective, the instant Appeal sans merits.

 

RESULT:

# 49. In fine, the instant Company Appeal (AT)(Insolvency) No. 1117 of 2019 is dismissed. No costs. Consequent to the dismissal of Company Appeal (AT)(Insolvency) No. 1117 of 2019, C.A. No. 13 of 2020 (Contempt Application) filed by the Appellant/Applicant Bank is closed.

 

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