Ang Industries Ltd vs Shah Brothers Ispat Pvt. Ltd. & Ors

[Arising out of Order dated 16th February, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench in (IB)- 292(ND)2017.]

IN THE MATTER OF:

ANG Industries Ltd. 101-106, Sharda Chamber - IV, Plot No. 423, Local Shopping Complex, Kalkaji, New Delhi - 110019.

Through Ilam Chand Kamboj Resolution Professional. ...Appellant Vs

1. Shah Brothers Ispat Pvt. Ltd. 5/B Trust House, Dr. R. Borges Road, Parel (East), Mumbai - 400012.

Through Keystone Partners B-126, Sarvodaya Enclave, New Delhi - 110017.

2. Ashok Leyland Limited No.1, Sardar Patel Road, Guindy, Chennai - 600032, Tamil Nadu. ....Respondent Present:

For Appellant: Mr. Jayant K. Mehta, Mr. Ishan Madaan and Mr. Rahul Kukreja, Advocates. For Respondent: Ms. Prita Srikumar Iyer and Mr. Nishanth, Advocates for 1st Respondent.

Mr. Rahul Lal Akhriya and Mr. Raj Dev Singh Advocates for 2nd Respondent. -2-

SUDHANSU JYOTI MUKHOPADHAYA, J.

M/s Shah Brothers Ispat Pvt. Ltd. and M/s Ashok Leyland Limited

(both Operational Creditors) filed applications before the Adjudicating

Authority (National Company Law Tribunal), New Delhi Bench to direct the

Resolution Professional to allow them to attend the meeting of Committee of

Creditors. Their grievance was though M/s Shah Brothers Ispat Pvt. Ltd.

owed operational debt of Rs.26,44,17,155/- inclusive of interest and M/s

Ashok Leyland Limited owed an operational debt of Rs.15.50 Crores, and total

of which is more than 10% of the aggregate of the debt but they have not been

given notice to attend the meeting of Committee of Creditors in terms of

Section 24(3)(c) of the Insolvency and Bankruptcy Code, 2016 ('I&B Code' for

short).

2. By impugned order dated 16th February, 2018, the Adjudicating

Authority allowed the application and directed the 'Resolution Professional' to

pass a speaking order on their claim. The Resolution Professional has

challenged the said order in this appeal.

3. The question arises for consideration in this appeal are:

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(i) Whether in terms of Section 24(3)(c) of I&B Code, the

Resolution Professional is required to give notice to

'Operational Creditors' or their representatives to attend the

meeting of Committee of Creditors ?

(ii) What is the intention of the legislature/ Parliament to allow the

'(suspended) Board of Directors' or the 'Partners of the

Corporate Debtor' and the 'Operational Creditors or their

representatives' or the 'Resolution Applicant(s)' to attend the

meeting of the Committee of Creditors, if they have not right to

vote ?

4. For deciding the issue it is necessary to notice the background history

of enactment of Section 24 which relates to invitation to the '(Suspended)

Board of Directors' or their 'Partners' and the 'Operational Creditors or their

Representatives' to attend the meeting of Committee of Creditors.

5. Initially 'Section 24 (3) of the draft Insolvency Bill, 2015' only provided

for notice of the meeting of Committee of Creditors to be issued to

'(Suspended) Board of Directors' and the 'Financial Creditors'. No provision

was made to issue notice the 'Operational Creditors'. Draft provision is quoted

below:

Company Appeal (AT) (Insolvency) No. 109 of 2018 -4-

"24. Meeting of committee of creditors.- (1) The members

of the committee of creditors may meet in person or by such

electronic means as may be specified.

xxx xxx xxx

(3) The resolution professional shall give notice of each meeting

of the committee of creditors to the members of the suspended

board of directors or partners of the corporate debtor as the

case may be:

Provided that any member of such board of directors or partner

as the case may be shall not have any right to vote in a

meeting of the committee of creditors:

Provided further that non-attendance of any director or partner

as the case may be shall not invalidate proceedings of such

meeting."

6. However, the 'Parliamentary Joint Committee' on 'The Insolvency and

Bankruptcy Code, 2015' recommended to amend the Draft Bill for the reasons

as quoted below:

"21. Role of Operational Creditors - Clause 24

Some of the stakeholders in the memorandum/views

furnished before the Committee were of the opinion that

whereas operation creditor has right to make application for

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initiation of corporate insolvency resolution process,

operational creditors like workmen, employees, suppliers have

not been given any representation in the Committee of

Creditors which is pivotal in whole resolution process. In this

regard, one of the stakeholders has suggested that Committee

of Creditors may contain operational creditors as well, with

some thresholds.

In this context, while appreciating that the operational

creditors are important stakeholders in a company, the

Committee took note of the rationale of not including

operational creditors in the committee of creditors as indicated

in notes on Clause 21 appended with the Bill which states as

under:―

"The committee has to be composed of members who

have the capability to assess the commercial

viability of the corporate debtor and who are willing

to modify the terms of the debt contracts in

negotiations between the creditors and the corporate

debtor. Operational creditors are typically not able

to decide on matters relating to commercial viability

of the corporate debtor, nor are they typically willing

to take the risk of restructuring their debts in order

to make the corporate debtor a going concern.

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Similarly, financial creditor who are also operational

creditors will be given representation on the

committee of creditors only to the extent of their

financial debts. Nevertheless, in order to ensure

that the financial creditors do not treat the

operational creditors unfairly, any resolution plan

must ensure that the operational creditors receive an

amount not less than the liquidation value of their

debt (assuming the corporate debtor were to be

liquidated).

All decisions of the Committee shall be taken by a

vote of not less than seventy-five per cent of the

voting share. In the event there are no financial

creditors for a corporate debtor, the composition and

decision-making processes of the corporate debtor

shall be specified by the Insolvency and Bankruptcy

Board. The Committee shall also have the power to

call for information from the resolution professional."

The Committee after due deliberations are of the

view that, if not voting rights, operational creditors at

least should have presence in the committee of creditors

to present their views/concerns on important issues

considered at the meetings so that their views/concerns

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are taken into account by the committee of creditors

while finalizing the resolution plan. The Committee,

therefore, decide to modify clause 24(3) and (4) as given

under:-

Modified Clause 24(3)

"The resolution professional shall give notice of

each meeting of the committee of creditors to-

(a) members of committee of creditors;

(b) members of the suspended Board of Directors or

the partners of the corporate persons, as the case

may be;

(c) operational creditors or their representatives if

the amount of their aggregate dues is not less than

ten per cent of the debt"

Modified Clause 24(4)

"The directors, partners and one representative of

operational creditors as referred to in sub-section (3),

may attend the meetings of committee of creditors, but

shall not have any right to vote in such meetings:

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Provided that the absence of any such director,

partner or representative of operational creditors, as

the case may be, shall not invalidate proceedings of

such meeting"."

7. After deliberations and taking into consideration the Report of the Joint

Committee on 'The Insolvency and Bankruptcy Code, 2015', the Parliament

enacted 'Insolvency and Bankruptcy Code, 2016' and Section 24 now reads

as follows:

"24. Meeting of committee of creditors.- (1) The members of

the committee of creditors may meet in person or by such

electronic means as may be specified.

(2) All meetings of the committee of creditors shall be conducted

by the resolution professional.

(3) The resolution professional shall give notice of each meeting

of the committee of creditors to--

(a) members of Committee of creditors;

(b) members of the suspended Board of Directors or the

partners of the corporate persons, as the case may be;

Company Appeal (AT) (Insolvency) No. 109 of 2018 -9-

(c) operational creditors or their representatives if the

amount of their aggregate dues is not less than ten per

cent of the debt.

(4) The directors, partners and one representative of operational

creditors, as referred to in sub-section (3), may attend the

meetings of committee of creditors, but shall not have any right

to vote in such meetings:

Provided that the absence of any such director, partner or

representative of operational creditors, as the case may be, shall

not invalidate proceedings of such meeting.

(5) Any creditor who is a member of the committee of creditors

may appoint an insolvency professional other than the resolution

professional to represent such creditor in a meeting of the

committee of creditors:

Provided that the fees payable to such insolvency professional

representing any individual creditor will be borne by such

creditor.

(6) Each creditor shall vote in accordance with the voting share

assigned to him based on the financial debts owed to such

creditor.

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(7) The resolution professional shall determine the voting share

to be assigned to each creditor in the manner specified by the

Board.

(8) The meetings of the committee of creditors shall be conducted

in such manner as may be specified."

8. From the report of 'Joint Parliamentary Committee' following fact emerges:-

(a) The committee had been composed of members of creditors

(financial) who have capability to assess the commercial viability

of the 'Corporate Debtor' and who are willing to modify the terms

of debt contract in negotiation between the creditors and the

'Corporate Debtor'. The Committee of Creditors can modify the

terms of debt contract only by negotiation between the creditors

and the 'Corporate Debtor' that means 'Board of Directors'. That

is the reason that the 'Board of Directors' have been also allowed

to attend the meeting though they have no voting right.

(b) 'Operational Creditors' are not able to decide the commercial

viability of the 'Corporate Debtor' nor they can take risk of

restructuring their debt in order to make the 'Corporate Debtor' a

going concern.

However, as the 'Operational Creditors' have right to trigger

Corporate Insolvency Resolution Process (u/s 9) the Committee

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was of the view that their presence is also required to 'present

their views/concerns' on important issues.

(c) According to the 'Joint Parliamentary Committee' the important

issues and the views/concerns as may be raised by those who are

present are required to be taken into account by the Committee

of Creditors while finalizing the resolution plans.

9. Section 30 of I&B Code deals with submission of resolution plan by the

Resolution Professional before the Committee of Creditors and on approval

before the 'Adjudicating Authority'. Section 30(5) reads as follows:-

"30(5) The resolution applicant may attend the meeting of the

committee of creditors in which the resolution plan of the

applicant is considered:

Provided that the resolution applicant shall not have a right to

vote at the meeting of the committee of creditors unless such

resolution applicant is also a financial creditor."

From the aforesaid provision it is clear that the Resolution Applicant(s)

have also been allowed to attend the meeting of the Committee of Creditors in

which their resolution plan(s) are considered.

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10. Similar issue fell for consideration before this Appellate Tribunal in

'Rajputana Properties Pvt. Ltd. V/s. Ultra Tech Cement Ltd. & Ors. in

I.A. No. 594 of 2018 in Company Appeal (AT) (Insolvency) No. 188 of

2018'. This Appellate Tribunal by its order dated 15.05.2018 having noticed

the relevant provisions held:-

"8. Prima facie, in absence of any information through any

source while scrutinizing the resolution plan under Section 30(2),

the Resolution Professional cannot hold or decide as to who is

ineligible under Section 29A. Section 30(2) does not confer such

power to the Resolution Professional nor there is any other

provision conferring such power to the Resolution Professional to

scrutinize the eligibility of one or other Resolution Applicant.

9. As per Section 30(2), the Resolution Professional is required

to examine whether resolution plan confirm the provisions as

mentioned therein but he cannot disclose it to any other person

including Resolution Applicant(s), who has submitted the

resolution plan. According to us, the resolution plan submitted

by one or other Resolution Applicant being confidential cannot be

disclosed to any competitor Resolution Applicant nor any opinion

can be taken or objection can be called for from other Resolution

Applicants with regard to one or other resolution plan."

Company Appeal (AT) (Insolvency) No. 109 of 2018 -13-

"11. From Section 24(3) it is clear that the Resolution

Professional is not only required to give notice of the meeting to

'the members of Committee of Creditors' but also to the members

of (suspended) Board of Directors or partners of the corporate

person as the case may be. The 'Operational Creditors' or their

representatives are also to be informed to attend the meeting of

Committee of Creditors, if the amount of the aggregate dues is

not less than ten per cent of the debt. Section 24(4) shows that

the Directors, Partners, Representatives of Operational Creditors

may attend the meeting of Committee of Creditors but have no

right to vote in such meeting. The meeting of the Committee of

Creditors is required to be conducted in such a manner as may

be specified by the Board.

12. As per Section 30(5), the Resolution Applicants can attend

the meeting of Committee of Creditors in which the resolution

plans of the Resolution Applicants are considered.

13. If Section 24 is read with Section 30, it is clear that the

following persons are to take part in the meeting of Committee of

Creditors at the time of approval of one or other resolution plan.

(a) members of Committee of Creditors;

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(b) members of the (suspended) Board of Directors or the

Partners of the corporate persons;

(c) Operational Creditors or their representatives if the

amount of their aggregate dues is not less than ten per

cent of the debt [Clause (a), (b), (c) of Section 24(3)]; and

(d) Resolution Applicant(s) when resolution plan of such

applicant(s) are placed for consideration [Section

30(5)].

14. The members of the 'Committee of Creditors' have voting

right but others who attend the meeting as noticed above

including the Board of Directors, Partners, Operational

Creditor(s) and the Resolution Applicant(s) have no voting right.

15. From the aforesaid provisions the intention of the legislature

is clear that the Committee of Creditors while approving or

rejecting one or other resolution plan should follow such

procedure which is transparent. Those who will watching the

proceeding such as (suspended) Board of Directors or its

Partners; Operational Creditors or its representatives and

Resolution Applicant(s) are not mere spectator but may express

their views to the Committee of Creditors for coming to conclusion

in one or other way.-

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16. For the reason aforesaid we are of the view that the

Committee of Creditors should record reasons (in short) while

approving or rejecting one or other resolution plan.

17. Views, if any, are expressed by the (suspended) Board of

Directors or it's Partners; Operational Creditors or its

representatives and Resolution Applicant(s), are also required to

be taken into consideration by the Committee of Creditors before

approving or rejecting one or other resolution plan. The views so

expressed by any of those who are watching the proceeding

should also be recorded (in short).

18. As the resolution plans are opened and placed before the

Committee of Creditors, as per Section 30(5), the Resolution

Applicant(s) are entitled to be present. At this stage they may

point out whether one or other person (Resolution Applicant) is

ineligible in terms of Section 29A or not. If one or other objection

is overruled, reasons should be recorded by the Committee of

Creditors. After decision of the Committee of Creditors, the

Resolution Professional is required to place the decision before

the Adjudicating Authority under Section 31. The Adjudicating

Authority who is required to take decision as per Section 31 of

the I&B Code, can go through the reasoning to accept or reject

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one or other objection or suggestion and may express its own

opinion/decision."

11. The case of the Appellant being covered by decision in 'Rajputana

Properties Pvt. Ltd.' (Supra), no interference is called for against impugned

order dated 16.02.2018. The Resolution Professional is directed to act in

accordance with the decision of this Appellate Tribunal in 'Rajputana

Properties Pvt. Ltd.' (Supra) as referred above. The appeal stands disposed

of with aforesaid observations. No costs.

[Justice S. J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial)

NEW DELHI

24th May, 2018

Company Appeal (AT) (Insolvency) No. 109 of 2018