NCLAT (14.02.2022) in Noida Special Economic Zone Authority Vs. Mr. Manish Agarwal RP of Shree Bhomika International Ltd. [Company Appeal (AT) Insolvency No. 90-91 of 2021] held that;
It is a well settled preposition of law by the Hon’ble Supreme Court in a catena of Judgments that the commercial wisdom of CoC is non-justiciable except on the grounds of Section 30(2).
Excerpts of the order;
# 1. Challenge in these Appeals i.e. Company Appeal (AT) Ins. No. 90-91 of 2021 is to the Impugned Orders dated 27.11.2020 & 05.10.2020 passed by the Ld. Adjudicating Authority (National Company Law Tribunal, Court-III, New Delhi) in IA-4827/2020 filed in IB-324(ND)/2019. By the Impugned Order, the Adjudicating Authority has dismissed the Application preferred by the Applicant/Appellant challenging the approval of the Resolution Plan. The Adjudicating Authority vide Order dated 05.10.2020 has allowed CA-417/2020 preferred by the Resolution Professional (RP) under Sections 31(1) and 60(5) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘The Code’) seeking approval of the Resolution Plan approved by the Committee of Creditors (CoC).
# 2. The present Appeal has been filed by the Operational Creditor of the Corporate Debtor Company/M/s. Shree Bhomica International Ltd.
# 6. Assessment:
It is the main case of the Appellant that the approval of the Resolution Plan under Section 30 of the Code is in contravention of Section 30(2)(e) as the claim admitted is Rs. 6,29,18,121/- and the amount paid is only Rs. 50 lacs. It is the case of the Appellant that the Corporate Debtor has defaulted in paying the lease amount since 30.09.2019; that there are fixed charges and penalties for change in the pattern of the business model; that the Reserve Price for the land, building and machinery is Rs. 918 Lacs and that at the time of valuation, the valuer did not physically inspect the site but instead has based his valuation on the documents placed before him and in fact the valuer has admitted that the building plans were not given to him at the time of valuation.
# 7. It is seen from the record that the Resolution Plan was approved on 05.10.2020 and the Adjudicating Authority has dismissed the Application preferred by the Appellant herein vide Order dated 27.11.2020 observing as follows:
“IA-4827/2020 filed in IB-324/ND/2019:
Counsels for both sides are present. The prayer made in the Application is to dismiss the approved Resolution Plan, which was approved on 05th October, 2020. In other words, the Resolution Plan that came to be approved on 05th October, 2020 is sought to be dismissed through this Application.
It is noted that after the approval of the Resolution Plan, this Authority has no power to dismiss the approved Resoution Plan. The only course open to the Applicant is to file an Appeal under Section 61 of the Code.
In view of the above, the Application is dismissed in limine.”
# 8. At the outset, we observe that this Appellate Tribunal had, vide Order dated 12.02.2021 directed that the implementation of the approved Resolution Plan would be subject to the outcome of the Appeal.
# 9. Learned Counsel for the Appellant strenuously argued that when the Reserve Price for land and building in the said plot was Rs. 902 Lacs in the year 2018 there are no grounds for the valuation to have depreciated to Rs. 6.10 crores within a period of one year.
# 10. At this juncture, we find it apt to reproduce the relevant portion of Section 35 (c) of the Code:
“Section 35: Powers and duties of liquidator.
(1) Subject to the directions of the Adjudicating Authority, the liquidator shall have the following powers and duties, namely:—
(a) to verify claims of all the creditors;
(b) to take into his custody or control all the assets, property, effects and actionable claims of the corporate debtor;
(c) to evaluate the assets and property of the corporate debtor in the manner as may be specified by the Board and prepare a report;
(d) to take such measures to protect and preserve the assets and properties of the corporate debtor as he considers necessary;
(e) to carry on the business of the corporate debtor for its beneficial liquidation as he considers necessary;
(f) subject to section 52, to sell the immovable and movable property and actionable claims of the corporate debtor in liquidation by public auction or private contract, with power
…………….
(Emphasis Supplied)
# 11. It is not in dispute that the CoC has approved the Resolution Plan after appointing two registered valuers after determining the average of the two closest estimates.
# 12. In the present case as recorded by the Adjudicating Authority, the liquidation value of the Corporate Debtor as per the valuation report is 4.25 crores and the amount proposed in the Resolution Plan is Rs. 4.50 crores which is more than the liquidation value. We address to the contention raised by the Learned Counsel for the Appellant that the valuation itself is erroneous and therefore allotting Rs. 50 lacs when the claim is Rs. 6,29,18,121/- is unjustified. The Hon’ble Supreme Court in ‘Duncan Industries Pvt Ltd. Vs. State of U.P. & Ors.’ (Supra) has held that ‘the question of valuation is basically question of facts and this Court is normally reluctant to interfere with the finding on such a question of fact if it is based on relevant material on record’. Be that as it may, the record shows that the average of two closest estimates given by the valuers was taken into consideration as a fair value and the liquidation value.
# 13. The present Appeal has to be analysed in the touchstone of the ratio laid down by the Hon’ble Supreme Court in ‘Maharashtra Seamless Limited Vs. Padmanabhan Venkatesh & Ors.’, [(2020) 11 SCC 467], ‘K. Shashidhar Vs. Indian Overseas Bank & Ors.’ (2019 12 SCC 150) and ‘Ghanashyam Mishra & Sons Pvt. Ltd. Vs. Edelweiss Asset Reconstruction Company Limited & Ors.’ [(2021) SCC OnLine SC 313].
# 14. We find it relevant to reproduce Section 30 and 31 of the Code: . . .
# 15. It is an admitted fact that the Plan has successfully been implemented and all payments due under the said Resolution Plan have been paid.
# 16. The Hon’ble Supreme Court in ‘Maharashtra Seamless Limited Vs. Padmanabhan Venkatesh & Ors.’, [(2020) 11 SCC 467] has observed as follows:
“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.” (Emphasis Supplied)
17. The Hon’ble Supreme Court in ‘Ghanashyam Mishra & Sons Pvt. Ltd. Vs. Edelweiss Asset Reconstruction Company Limited & Ors.’ [(2021) SCC OnLine SC 313] has observed as follows:
71. Perusal of the SOR would reveal, that one of the prime objects of I&B Code was to provide for implementation of insolvency resolution process in a time bound manner for maximisation of value of assets in order to balance the interests of all stakeholders. However, it was noticed, that in some cases there was extensive litigation causing undue delays resultantly hampering the value maximisation. It was also found necessary to ensure, that all creditors are treated fairly. It was therefore in view of the various difficulties faced and in order to fill the critical gaps in the corporate insolvency framework, it was necessary to amend certain provisions of the I&B Code. Clause (f) of para 3 of the SOR of the Insolvency and Bankruptcy Code (Amendment) Bill, 2019 would amply make it clear, that the legislative intent in amending subsection (1) of Section 31 of I&B Code was to clarify, that the resolution plan approved by the Adjudicating Authority shall also be binding on the Central Government, any State Government or any local authority to whom a debt is owed in respect of payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, including tax authorities.
72. In the Rajya Sabha debates, on 29.7.2019, when the Bill for amending I&B Code came up for discussion, there were certain issues raised by certain Members. While replying to the issues raised by certain Members, the Hon’ble Finance Minister stated thus:
“IBC has actually an overriding effect. For instance, you asked whether IBC will override SEBI. Section 238 provides that IBC will prevail in case of inconsistency between two laws. Actually, Indian courts will have to decide, in specific cases, depending upon the material before them, but largely, yes, it is IBC. […] There is also this question about indemnity for successful resolution applicant. The amendment now is clearly making it binding on the Government. It is one of the ways in which we are providing that. The Government will not raise any further claim. The Government will not make any further claim after resolution plan is approved. So, that is going to be a major, major sense of assurance for the people who are using the resolution plan. Criminal matters alone would be proceeded against individuals and not company. There will be no criminal proceedings against successful resolution applicant. There will be no criminal proceedings against successful resolution applicant for fraud by previous promoters. So, I hope that is absolutely clear. I would want all the hon. Members to recognize this message and communicate further that this Code, therefore, gives that comfort to all new bidders. So now, they need not be scared that the taxman will come after them for the faults of the earlier promoters. No. Once the resolution plan is accepted, the earlier promoters will be dealt with as individuals for their criminality but not the new bidder who is trying to restore the company. So, that is very clear …………….. (emphasis supplied)”
………
77. It is clear, that the mischief, which was noticed prior to amendment of Section 31 of I&B Code was, that though the legislative intent was to extinguish all such debts owed to the Central Government, any State Government or any local authority, including the tax authorities once an approval was granted to the resolution plan by NCLT; on account of there being some ambiguity, 12 (2009) 12 SCC 209 the State/Central Government authorities continued with the proceedings in respect of the debts owed to them. In order to remedy the said mischief, the legislature thought it appropriate to clarify the position, that once such a resolution plan was approved by the Adjudicating Authority, all such claims/dues owed to the State/Central Government or any local authority including tax authorities, which were not part of the resolution plan shall stand extinguished.
……..
CONCLUSION
95. In the result, we answer the questions framed by us as under:
(i) That once a resolution plan is duly approved by the Adjudicating Authority under sub section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan;
(ii) 2019 amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which I&B Code has come into effect;
(iii) Consequently all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval under Section 31 could be continued. (Emphasis Supplied)
# 18. From the aforenoted observations made by the Hon’ble Supreme Court, it is clear that all the dues including statutory dues owed to the Central Government, State Government and the Local Authority if not part of the Resolution Plan, shall stand extinguished and no proceeding in respect of such dues for the period prior to the date on which the Adjudicating Authority has approved the Resolution Plan, could be continued.
# 19. It is a well settled preposition of law by the Hon’ble Supreme Court in a catena of Judgments that the commercial wisdom of CoC is non-justiciable except on the grounds of Section 30(2). In the instant case, we do not find any material on record to substantiate that the approval of the Resolution Plan is in contravention of any law for the time being in force. Further we also address to the contention of the Learned Counsel for the Appellant that the Resolution Plan is in contravention of the Special Economic Zone Act and Rules thereof:
““10.9 Exemptions from Noida Special Economic Zone (NSEZ):
There should be exemption of payment to NSEZ of any type of fees/penalty for renewal of sublease and/or transfer charges dues to change in 100% directorship/shareholding or both in favour of resolution applicant irrespective of the fact that the original Allottee has obtained completion certificate or not”
# 20. Section 238: Provisions of this Code to override other laws.
238. The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.
It is well settled that Insolvency and Bankruptcy Code overrides other law and under Section 31 of the Code, the Resolution Plan approved by the CoC and meeting the requirements under Section 30(2) has to be approved by the Adjudicating Authority. Commercial Wisdom of the CoC with respect to viability and financial decision taken while evaluating the Resolution Plan has to prevail, unless the Plan approved by the CoC is in conflict with any provision of the law and the distribution mechanisation suppressed the interest of the stakeholders besides taking care of the maximisation of the value of the assets of the corporate debtor, judicial intervention would not be warranted. Additionally, in the instant case, the Resolution Plan has already been implemented a year ago and we do not wish to set the clock back.
For all the aforenoted reasons, this Appeal fails and is accordingly dismissed. No order as to costs.
----------------------------------------------------
No comments:
Post a Comment