NCLAT (22.12.2022) in Paramvir Singh Tiwana Vs. Puma Realtors Pvt. Ltd.. [Comp. App. (AT) (Ins.) Nos. 554, 564, 664/2021] held that;
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.
It is clear that 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 CoC which is to negotiate and accept the Resolution Plan, which may involve differential payments to different classes of Creditor, together with negotiating with a Prospective Resolution Applicant for better or different terms which may also involve differences in amounts of distribution between the different classes of Creditors.
In the instant case, what has to be kept in mind is that the ‘Corporate Debtor’ is a Real Estate Company involved in construction of Housing and Commercial Units and the land on which the construction is to be completed belongs to GMADA. As the nature of the activity of the ‘Corporate Debtor’ is dependent on the land owned by GMADA, the commercial decision taken by the CoC to make a provision in the Resolution Plan with respect to the Statutory Dues owed to GMADA, cannot be faulted with, though GMADA has failed to make the requisite claim, as provided for under the Code, but has been in communication with the RP.
“Though we do not appreciate the act of GMADA not having filed their claim, the fact remains that the ‘Real Estate Project’ is being constructed on GMADA land and all approvals, permits and licences involves GMADA, which is a ‘Secured Creditor’.
“Further, the nature of business and the ground realities were kept in mind by the CoC before taking a commercial decision. In approval of the Resolution Plan, the CoC takes a business decision ‘based on ground realities, by a majority which binds all stakeholders including dissenting Creditors’.
Excerpts of the order;
1. Company Appeal (AT) Insolvency No. 544/2021 is preferred by 6 Appellants who are the ‘Operational Creditors’ stating to have rendered services to the ‘Corporate Debtor’; Company Appeal (AT) Insolvency No. 564/2021 is filed by 16 Appellants who are a group of Allottees of the Project IREO Hub; Company Appeal (AT) Insolvency No. 644/2021 is preferred by M/s. Akila Constructions Private Limited and M/s. S. Sony & Co. Pvt Ltd, who are the ‘Operational Creditors’ of the ‘Corporate Debtor’; Company Appeal (AT) Insolvency No. 645/2021 is filed by M/s. Larsen & Toubro Limited (‘L&T Ltd’); Company Appeal (AT) Insolvency No. 804/2021 is preferred by Greater Mohali Area Development Authority, (‘GMADA’) and Company Appeal (AT) Insolvency No.269/2022 is preferred by 6 Appellants who are Allottees, challenging the same Impugned Order dated 01.06.2021 passed by the Learned Adjudicating Authority (National Company Law Tribunal, New Delhi Principal Bench) in CA 2083(PB)/2019 in (IB) 934(PB)/2018, whereby the Learned Adjudicating Authority has approved the Resolution Plan. Since all these Appeals are arising out of a common Impugned Order, they are being disposed of by this common Order.
# 2. By the Impugned Order dated 01.06.2021, the Learned Adjudicating Authority, while exercising its power under Section 31 of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as ‘The Code’) has allowed I.A.2083(PB)/2019 with the following directions:
“1. It is hereby approved the Resolution plan as submitted by consortium of APM Infrastructure Private Limited & Once City Infrastructure Private Limited, which shall be binding on the Resolution Applicant, Corporate Debtor its Employees, Members, Creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the Resolution plan;
2. The moratorium as imposed by the Adjudicating Authority in pursuance to the Admission of the case on 17.10.2018 shall cease to have effect from the date of issue of this order;
3. The Resolution Professional is directed to forward all the records relating to the conduct of the CIRP and Resolution plan to the IBBI and also to all the concerned Authorities;
4. The Resolution Professional, as well as other Aggrieved Parties, whose Applications are pending on the file of this Adjudicating Authority, are at liberty to prosecute their respective litigations. And this order is passed without prejudice to the rights of the Parties in the pending Interim Applications.
5. No order as to costs.” (Emphasis Supplied)
Assessment:
# 7. At the outset, we address to the contention of the Appellants that there were procedural irregularities and that the Impugned Order was passed in violation of the Principles of Natural Justice and further that their Applications were kept pending though they were reserved for Orders and the Application I.A.2083/2019 ‘approving the Resolution Plan’ was allowed without passing Orders in the other IAs filed by all the Appellants herein. It is the case of the Appellants that though the Adjudicating Authority had reserved I.A.1208/2020, 3824/2020 & 1409/2020 and other Applications preferred by the Appellants in these Appeals, without deciding on these IAs, the Adjudicating Authority had approved the Resolution Plan, conditionally which is against the principles laid down by the Hon’ble Supreme Court in ‘Ghanshyam Mishra & Sons Pvt. Ltd.’ (Supra), that after approval of the Plan no claim of the Creditors or any change in the Resolution Plan would survive.
# 8. Admittedly, the CIRP was initiated on 17.10.2018, the Public Announcement was made on 23.10.2018, the Expression of Interest (‘EoI’) in ‘Form-G’ was published on 16.04.2019, but no response was received and another EoI was published on 28.05.2019 and 9 EoIs were received by the RP. On 08.06.2019, the list of legible Prospective Resolution Applicants was issued and the 9th CoC Meeting was convened on 23.08.2019, when the Resolution Plan was placed before the CoC. On 05.09.2019, the CoC Members approved the Resolution Plan by 100% voting majority. On 01.06.2021, the Adjudicating Authority approved the Resolution Plan under Section 31 of the Code.
# 9. Learned Counsel filed his Additional Written Submissions stating that the Impugned Order was uploaded only on 15.06.2021 when the Adjudicating Authority had Summer Vacations from 12.06.2021 and that the Hon’ble Acting President was appointed only on 31.05.2021 and 01.06.2021 and could not have possibly prepared the Order in a single day. The material on record evidences that the ‘status of the Cause List’ was uploaded on the NCLT website on 01.06.2021, indicating the approval of the ‘Resolution Plan’ the Hon’ble Acting President was conducting the proceedings virtually from Bangalore and the Technical Member from New Delhi and therefore the pronouncement was made virtually and status of the Cause List was uploaded on the website on the very same day. The contention of the Learned Counsel that the Impugned Order was uploaded only on 15.06.2021 and therefore is a procedural irregularity is untenable as it is their own case that the Hon’ble Acting President was appointed only for a single day. It is not the case of the Appellant that the Cause List did not show I.A.2083/2019, on 01.06.2021. We find force in the contention of the Learned Sr. Counsel for the Respondent that the Adjudicating Authority had pronounced that the Application will be allowed and the Resolution Plan filed by the SRA was approved. It was clarified that a detailed Order would be passed during the course of the day. We find no legal or procedural irregularities in this pronouncement. At this juncture, we find it pertinent to reproduce the Order of the Hon’ble High Court of Delhi dated 12.07.2021, in ‘Paramvir Singh Tiwana’ Vs. ‘Union of India & Ors.’10 preferred by the Appellants in Company Appeal (AT) (Insolvency) No.554/2021:
CM APPL. 20046-47/2021
“1. Exemptions allowed, subject to all just exceptions
2. The notarized affidavit be filed within two weeks of the court resuming physical hearing.
3. The applications stand disposed of.
W.P. (C) 6377/2021 & CM APPL. 20045/2021 (stay)
4. The present petition has been filed assailing the order dated 01.06.2021 passed in company application being Company Application No. 2083/2019 in Company Petition No. (IB)-934(PB)/2018 titled as “Paramjit Singh Saini Vs. Puma Realtors Private Limited, whereby the learned Tribunal has approved the resolution plan of respondent no. 4 company.
5. After arguing the matter vehemently for about an hour, learned counsel for the petitioners seeks leave to withdraw the present petition with liberty to assail the impugned order on merits before the appropriate appellate forum.
6. The petition is, accordingly, dismissed as withdrawn with liberty as prayed for.
7. It is made clear that grant of the aforesaid liberty to the Petitioner to approach the appropriate forum will not amount to any expression opinion by this Court.”
(Emphasis Supplied)
Civil Appeal No. 6234 of 2021
“Heard learned Counsel for the parties.
In light of the order passed by this Court in Civil Appeal No. 6127 of 2021 dated 8th October, 2021, the present Civil Appeal also stands dismissed.
Pending application(s), if any, shall stand disposed of.”
# 10. From the aforenoted Order, it is clear that the matter was heard at length for an hour and that the Petitioners therein and the Appellants in Company Appeal (AT) (Insolvency) No.554/2021 here have sought to withdraw the Petition with a liberty to assail the Impugned Order ‘on merits’ before the appropriate forum and therefore the contention of the Appellants/Paramvir Singh Tiwana that there were procedural irregularities and Principles of Natural Justice have not been followed, cannot be raised now at this appellate stage. Having first approached the Hon’ble Delhi High Court impugning the very same Order dated 01.06.2021, and on the same facts enumerated in this Appeal, and then having withdrawn with the liberty to assail the Order ‘on merits’, they cannot now raise the very same issue. Be that as it may, at the cost of repetition, the status of Cause List was uploaded on the website of the NCLT on the very same date i.e., on 01.06.2021 categorically stating that the Resolution Plan has been duly approved. Rule 150 of the NCLT Rules, 2016, stipulates that after hearing, the Tribunal shall make and pronounce an Order either at once or as soon as thereafter as may be practicable. In the instant case, the Order was pronounced as the Bench had allowed the Application and the Cause List states as such. For all the aforenoted reasons, i.e., the Order of the Hon’ble Delhi High Court dated 12.07.2021, the fact that the status of the Cause List was uploaded on 01.06.2021, we do not find it a fit case to hold that there were any procedural or legal irregularities.
# 11. The Hon’ble Supreme Court in a catena of Judgements has held that the Tribunal does not have residual equity based jurisdiction to direct modifications of claims provided for in the Resolution Plan once the Plan is approved. We place reliance on the Judgement of the Hon’ble Supreme Court in ‘Pratap Technocrat Private Limited & Ors.’ Vs. ‘Monitoring Committee of Reliance Infratech Ltd & Anr.’11:
“23. The third aspect relates to the order of NCLT in Doha Bank proceedings. The order of NCLT in the application which was moved by Doha Bank for the removal of certain financial creditors from the CoC, has no bearing on the status of the approval of the resolution plan for the reason that it had received a unanimous approval with the 100% voting share in the CoC. The exclusion of certain financial debts and hence, the exclusion of certain financial creditors from the CoC, pursuant to the order of NCLT in the Doha Bank proceedings, has no practical implication since the resolution plan continues to be approved with a 100% majority even after their exclusion.”
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“26. The resolution plan was approved by the CoC, in compliance with the provisions of IBC. The jurisdiction of the adjudicating authority under Section 31(1) is to determine whether the resolution plan, as approved by the CoC, complies with the requirements of Section 30(2). NCLT is within its jurisdiction in approving a resolution plan which accords with IBC. There is no equity-based jurisdiction with NCLT, under the provisions of IBC.”
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“30. The jurisdiction which has been conferred upon the adjudicating authority in regard to the approval of a resolution plan is statutorily structured by sub-section (1) of Section 31. The jurisdiction is limited to determining whether the requirements which are specified in sub-section (2) of Section 30 have been fulfilled. This is a jurisdiction which is statutorily-defined, recognised and conferred, and hence cannot be equated with a jurisdiction in equity, that operates independently of the provisions of the statute. The adjudicating authority as a body owing its existence to the statute, must abide by the nature and extent of its jurisdiction as defined in the statute itself.”
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“47. These decisions have laid down that the jurisdiction of the adjudicating authority and the appellate authority cannot extend into entering upon merits of a business decision made by a requisite majority of the CoC in its commercial wisdom. Nor is there a residual equity based jurisdiction in the adjudicating authority or the appellate authority to interfere in this decision, so long as it is otherwise in conformity with the provisions of IBC and the Regulations under the enactment.” (Emphasis Supplied)
# 12. In the aforenoted Judgement, the ratio laid down by the Hon’ble Apex Court is that once the Resolution Plan is approved, the Adjudicating Authority has a very limited jurisdiction except in determining whether the requirements which are specified in sub-Section (2) of Section 30 have been fulfilled or not and cannot interfere in the merits of the ‘Business Decision of the CoC’. The Hon’ble Supreme Court in ‘Bank of Baroda & Anr.’ Vs. ‘MBL Infrastructures Ltd. & Ors.’12:
“62. Having held so, we would like to come to the last part of our order. Though the very resolution plan submitted by Respondent 3, being ineligible is not maintainable, much water has flown under the bridge. The requisite percentage of voting share has been achieved. We may also note that the percentage has been brought down from 75% to 66% by way of an amendment to Section 30(4) of the Code.
63. Secondly, majority of the creditors have given their approval to the resolution plan. The adjudicating authority has rightly noted that it was accordingly approved after taking into consideration, the techno-economic report pertaining to the viability and feasibility of the plan. The plan is also put into operation since 18-4-2018, and as of now Respondent 1 is an on-going concern. Though, Respondent 11 has taken up the plea that its offer was conditional, it has got a very minor share which may not be sufficient to impact by adding it with that of the appellant and Respondent 7. Respondent 7 and Respondent 11 did not choose to challenge the order of the Appellate Tribunal.
64. We need to take note of the interest of over 23,000 shareholders and thousands of employees of Respondent 1. Now, about Rs 300 crores has also been approved by the shareholders to be raised by Respondent 1. It is stated that about Rs 63 crores has been infused into Respondent 1 to make it functional. There are many on-going projects of public importance undertaken by Respondent 1 in the nature of construction activities which are at different stages.
65. We remind ourselves of the ultimate object of the Code, which is to put the corporate debtor back on the rails. Incidentally, we also note that no prejudice would be caused to the dissenting creditors as their interests would otherwise be secured by the resolution plan itself, which permits them to get back the liquidation value of their respective credit limits. Thus, on the peculiar facts of the present case, we do not wish to disturb the resolution plan leading to the on-going operation of Respondent 1.” (Emphasis Supplied)
# 13. In this judgement, the Hon’ble Apex Court has observed that as the requisite percentage of the Voting Share has been achieved, majority of the Creditors have given their approval, and the Plan was also put into operation, and much water has flown under the bridge has categorically held that the ultimate objective of the Code is ‘Maximisation of Assets in a time bound manner’ is to be kept in mind. We do not find any material irregularity in contravention of the Code in the Adjudicating Authority having approved the Plan and given liberty to the Appellants to prosecute litigation, and is therefore not a reason to set aside the approval of the Resolution Plan.
# 14. Now we address ourselves to the issue raised by the Appellant/‘Operational Creditors’ in these Appeals that there is discrimination between the class of Creditors and that GMADA was paid 100% of the amount in the Books of the ‘Corporate Debtor’, though they did not prefer any claim, while the Appellants were given only 25% of the claim amounts which is in violation of Section 30(2)(b) & (e) of the Code. The Hon’ble Supreme Court has laid down in ‘Committee of Creditors of Essar Steel Ltd.’ Vs. ‘Satish Kumar Gupta & Ors.’13:
“64. Thus, what is left to the majority decision of the Committee of Creditors is the “feasibility and viability” of a resolution plan, which obviously takes into account all aspects of the plan, including the manner of distribution of funds among the various classes of creditors. As an example, take the case of a resolution plan which does not provide for payment of electricity dues. It is certainly open to the Committee of Creditors to suggest a modification to the prospective resolution applicant to the effect that such dues ought to be paid in full, so that the carrying on of the business of the corporate debtor does not become impossible for want of a most basic and essential element for the carrying on of such business, namely, electricity. This may, in turn, be accepted by the resolution applicant with a consequent modification as to distribution of funds, payment being provided to a certain type of operational creditor, namely, the electricity distribution company, out of upfront payment offered by the proposed resolution applicant which may also result in a consequent reduction of amounts payable to other financial and operational creditors. What is important is that it is the commercial wisdom of this majority of creditors which is to determine, through negotiation with the prospective resolution applicant, as to how and in what manner the corporate resolution process is to take place.”
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“85. Indeed, if an “equality for all” approach recognising the rights of different classes of creditors as part of an insolvency resolution process is adopted, secured financial creditors will, in many cases, be incentivised to vote for liquidation rather than resolution, as they would have better rights if the corporate debtor was to be liquidated rather than a resolution plan being approved. This would defeat the entire objective of the Code which is to first ensure that resolution of distressed assets takes place and only if the same is not possible should liquidation follow.”
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“88. By reading para 77 (of Swiss Ribbons [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17] ) dehors the earlier paragraphs, the Appellate Tribunal has fallen into grave error. Para 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 para 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, para 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 para 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.”
# 15. From the aforenoted Judgement, it is clear that 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 CoC which is to negotiate and accept the Resolution Plan, which may involve differential payments to different classes of Creditor, together with negotiating with a Prospective Resolution Applicant for better or different terms which may also involve differences in amounts of distribution between the different classes of Creditors. It is observed by the Hon’ble Apex Court that the equity principle cannot be stretched to treating unequal equally as they will destroy the very objective of the Code while the Adjudicating Authority cannot interfere on merits with the commercial decision taken by the CoC, the limited Judicial Review available is to see that the CoC has taken into account the fact that the ‘Corporate Debtor needs to be kept going as a going concern during the Insolvency Resolution Process, that it needs to ‘maximise the value of its assets’ and the interest of all stakeholders’.
# 16. In the instant case, what has to be kept in mind is that the ‘Corporate Debtor’ is a Real Estate Company involved in construction of Housing and Commercial Units and the land on which the construction is to be completed belongs to GMADA. As the nature of the activity of the ‘Corporate Debtor’ is dependent on the land owned by GMADA, the commercial decision taken by the CoC to make a provision in the Resolution Plan with respect to the Statutory Dues owed to GMADA, cannot be faulted with, though GMADA has failed to make the requisite claim, as provided for under the Code, but has been in communication with the RP. Though we do not appreciate the act of GMADA not having filed their claim, the fact remains that the ‘Real Estate Project’ is being constructed on GMADA land and all approvals, permits and licences involves GMADA, which is a ‘Secured Creditor’. Further, the nature of business and the ground realities were kept in mind by the CoC before taking a commercial decision. In approval of the Resolution Plan, the CoC takes a business decision ‘based on ground realities, by a majority which binds all stakeholders including dissenting Creditors’.
17. As regarding the grievances of the Homebuyers who are arrayed as ‘Financial Creditors’, it is relevant to see the voting percentage of the CoC, which has approved the Resolution Plan;
(a) Homebuyers 85.87% out of 100% (total voting 60.44%, 54.04% and 5.14% in dissent.)
(b)Banks 14.13%.
Having regard to the fact that a substantial majority of the Homebuyers have voted in favour of the Plan and the Project Hamlet 1 is 90% complete as on 01.06.2022, (as submitted by the Learned Sr. Counsel, Mr Datta appearing for the SRA) and Conveyance Deeds were executed and possession offered to 161 Homebuyers and compensation to be paid to 100 Homebuyers in the Group Housing Project and 50% of the Hamlet 2 Project having been completed with Builder Buyer Agreements (‘BBA’) having been executed for 238 Homebuyers and 25 BBAs having been executed in the SCO Hub, we are of the considered view that it would be futile and would go against the scope and spirit of the Code, if we set the clock back at this stage. Learned Counsel has also drawn the attention of the Bench to the payments having been infused/paid to the Creditors, keeping in view the progress of construction and the interest of 700 Homebuyers. It is submitted by the Learned Sr. Counsel representing Axis Bank that Axis Bank being a Secure Financial Creditor has claims of Rs.30,25,78,912/- together with interest and that the Plan was approved by 100% majority:
# 18. We are also conscious of the principle laid down by the Hon’ble Apex Court in a catena of Judgements that any delays in the approval of the Resolution Plan would adversely affect the commercial assessment of the Resolution Plan. The Hon’ble Supreme Court in ‘K. Sashidhar’ Vs. ‘Indian Overseas Bank & Anr.’14, and ‘Kalparaj Dharamshi & Anr.’ Vs. ‘Kotak Investment Advisors Limited’15, has clearly laid down that the Commercial Wisdom of the CoC is not justiciable and it is not open to the Adjudicating Authority or the Appellate Authority to take into consideration any factor other than those specified in Section 30(2) or Section 61(3) of the Code. Learned Counsel for the Appellant, Mr. Bilal Ali has strenuously contended that the Adjudicating Authority has approved the Resolution Plan in violation of Section 30(2) of the Code and this is in contravention of the ratio laid down by the Hon’ble Supreme Court in ‘State Tax Officer (1)’ Vs. ‘Rainbow Papers Limited’16, wherein the Hon’ble Apex Court has held that the word ‘May’ arising in Section 31(1) of the Code would read as ‘Shall’ while construing Section 31(1) of the Code. The facts of ‘State Tax Officer (1) (Supra), is distinguishable in the sense that dues therein pertain to Statutory Dues and the state being a ‘Secured Creditor’ under the GVAT Act, should be paid its dues. It was observed that the definition of the Secured Creditor in the Code does not exclude any Government or Governmental Authorities. The issue in the instant Company Appeal (AT) (Insolvency) No. 554/2021 is not related to ‘Statutory Dues’ or ‘Security Interest’ moreover we have observed that if there is any differential treatment in the ‘Operational Creditors’ dues (100% paid to GMADA/ a Secured Creditor) is solely based on the commercial decision of the CoC and any differential treatment between the class of Creditors, based on the nature of business involved, cannot be construed as ‘material irregularity’.
# 19. It was brought to our notice by the Learned Counsel Mr. Bilal Ali that this Tribunal has dealt with belated claims of Homebuyers in ‘Puneet Kaur’ Vs. ‘K.V. Developers Pvt. Ltd. & Anr.’17, wherein the belated claims of the Homebuyers was directed to be added in the addendum. However, in that case the Resolution Plan was not approved by the Adjudicating Authority. In the instant case, the Resolution Plan is already implemented.
# 20. Keeping in view the peculiar facts of the instant case that the Resolution Plan was approved by the CoC way back in 2019 and the Adjudicating Authority has approved the Plan on 01.06.2021 after a period of two years and the Plan has already been implemented, we do not see it a fit case to set the clock back, specifically keeping in view the ratio of the Hon’ble Supreme Court in the aforenoted Judgements. It is hoped that the IBBI & the Government may take effective steps to make necessary amendments/frame Regulations to protect the class of ‘Financial Creditors’/Homebuyers from imposition of any haircuts, and likewise take essential measures to safeguard the interest of ‘Operational Creditors’ in the ‘Structure of the Resolution Plans’.
# 21. For all the foregoing reasons, these Appeals are dismissed accordingly. No order as to costs.
# 22. Pending IAs, if any, are closed.
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