Approval of Resolution Plan - CLS Industries Private Limited

IN THE NATIONAL COMPANY LAW TRIBUNAL AHMEDABAD DIVISION BENCH COURT - 1 ITEM No.145 IA/605 (AHM)2021 in CP(IB) 607 of 2019 Order under Section 30 IBC IN THE MATTER OF: Dharmendra Dhelariya RP of CLS Industries Pvt Ltd ........Applicant V/s State Bank of India & Ors ........Respondents Order delivered on ..03/08/2022 Coram: Madan B. Gosavi, Hon’ble Member(J) Kaushalendra Kumar Singh, Hon’ble Member(T)

PRESENT: For the Applicant : For the Respondent : ORDER

The case is fixed for pronouncement of order. The order is pronounced in the open court, vide separate sheet.

KAUSHALENDRA KUMAR SINGH MADAN B GOSAVI MEMBER (TECHNICAL) MEMBER (JUDICIAL)

IA/605(AHM)2021 IN CP (IB) 607 of 2019

BEFORE THE ADJUDICATING AUTHORITY NATIONAL COMPANY LAW TRIBUNAL AHMEDABAD BENCH COURT-1

IA/605(AHM)/2021 IN CP (IB) 607 of 2019

IA/605(AHM)/2021 (An application under Section 30(6) of the Insolvency and Bankruptcy Code, 2016) CA. Dharmendra Dhelariya, Resolution Professional of CLS Industries Private Limited, Having Office at B-605, Titanium Square, Thaltej Cross Road, Thaltej, Ahmedabad – 380 054 .... Applicant Versus 1. State Bank of India (Committee of Creditors) Having an address at: Stressed Assets Management Branch, 2nd Floor, Paramsiddhi Complex, Opp. V.S. Hospital, Near Ellish Bridge, Ahmedabad – 380 006 …. Respondent No.1 2. M/s. Limore MultiComm Private Limited (Resolution Applicant) Having address at: Room No. 4, Plot No. 62, Survey No. 98, Galapadar, Gandhidham …. Respondent No.2 3. Income Tax Department Having address at: Income Tax Officer, Ward – 1 & DDO, Gandhidham Aaykar Bhawan, Plot No. 20/A, Section – 8, B/h DPT A O Building, Gandhidham – Kutch (Gujarat) …. Respondent No.3 2 | P age

IA/605(AHM)2021 IN CP (IB) 607 of 2019

In the matter of: CP (IB) 607 of 2019 (An application under Section 7 of the Insolvency and Bankruptcy Code, 2016)

State Bank of India ….Financial Creditor Versus M/s. CLS Industries Private Limited ….Corporate Debtor

Order delivered on: 03.08. 2022

Coram: Madan B. Gosavi, Member (Judicial) Kaushalendra Kumar Singh, Member (Technical)

Appearance: Mr. Rashesh H Parikh, Advocate for the Applicant.

ORDER

1. The present application is filed by CA Dharmendra Dhelariya the Resolution Professional of M/s CLS Industries Private Limited (“Corporate Debtor”) under Section 30 of the Insolvency and Bankruptcy Code, 2016 (‘IB Code’) read with regulation 39 (4) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Person), Regulations 2016 (hereinafter referred to as “CIRP

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Regulations”) for approval of the Resolution Plan of M/s. Limore MultiComm Private Limited. 2. The averments made by the Applicant are summarized as under:- (i) The Corporate Debtor was admitted into the Corporate Insolvency Resolution Process (“CIRP”) vide order dated 02.09.2020 passed by this Adjudicating Authority, and CA. Dharmendra Dhelariya was appointed as an Interim Resolution Professional (“IRP”), the Applicant herein. The Applicant had constituted the Committee of Creditors (“CoC”) on 22.09.2020 which comprised a sole member, namely, the State Bank of India in accordance with the provisions of Section 18(c) and Section 21 of the IB Code. (ii) The 1st CoC meeting was held on 28.09.2020 wherein it was resolved to appoint the IRP-CA. Dharmendra Dhelariya as a Resolution Professional. The 2nd CoC meeting was held on 03.11.2020 and the CoC resolved to appoint Registered Valuer for the Valuation of Land and Buildings, Plant and Machinery, and Securities and Financial Assets. The CoC also resolved to publish Form-G for submission of the Expression of Interest (“EoI”) by the prospective resolution applicants. Thereafter, the Applicant published form –G on 05.11.2020 and the last date for submission of EoI was 20.11.2020. (iii) Thereafter, CoC in its 3rd and 4th meetings dated 21.11.2021 and 11.01.2021 also resolved to publish form- G. The Applicant published form G on 24.11.2020 and 4 | P age

IA/605(AHM)2021 IN CP (IB) 607 of 2019

12.01.202 respectively and the last date for submission of EoI was 17.01.2021. One prospective resolution applicant – M/s Limore MultiComm Private Limited submitted its EoI after the last date of submission of EoI i.e. 17.01.2021 which was discussed in the 5th CoC meeting dated 25.01.2021 and the CoC decided to accept the EoI submitted by the said Prospective Resolution Applicant. The CoC in its 6th meeting dated 01.02.2021 further resolved to publish the EoI once again thereafter, the applicant published form –G on 02.02.2021, and the last date for submission of EoI was on 05.02.2021. (iv) The 7th CoC meeting was held on 24.02.2021 wherein the CoC discussed the resolution plans submitted by the two Prospective Resolution Applicants viz. M/s. Limore MultiComm Private Limited and M/s. G G Herbals Private Limited. The CoC further resolved to extend the period of CIRP by 90 days beyond 180 days as 180 days was to be expired on 01.03.2021. This Adjudicating Authority vide order dated 23.03.2021 allowed the extension of 90 days in IA 203 of 2021. (v) The 9th CoC meeting was held on 06.05.2021 wherein one of the Prospective Resolution Applicants- M/s G G Herbals Private Limited desired to withdraw its resolution plan and asked to refund the EMD as its proposed resolution plan was not in accordance with the expectation of the CoC. The CoC further asked M/s. Limore MultiComm Private Limited (“Resolution Applicant”) to improve its offer of plan value. In the 10th CoC meeting

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IA/605(AHM)2021 IN CP (IB) 607 of 2019 dated 15.05.2021, the revised resolution plan of the Resolution Applicant was discussed and the CoC directed the RP to intimate the Resolution Applicant to improve the offer and payment terms. The CoC further resolved to refund the EMD submitted by M/s G G Herbals Pvt. Ltd. (vi) The CoC in its 11th meeting dated 28.05.2021 resolved the exclusion of a lockdown period of 45 days from the CIRP in view of regulation 40C of CIRP regulations as 270 days were to be expired on 30.05.2021. This Adjudicating Authority vide order dated 06.07.2021 excluded the period of CIRP by 45 days in IA 420 of 2021. (vii) The Resolution Applicant submitted its affidavit under Section 29A of the IB code stating that it is not ineligible to submit a Resolution Plan. The CoC in the 12th meeting dated 12.07.2021 discussed the resolution plan submitted by the Resolution Applicant and approved the resolution plan of the Resolution Applicant through e-voting on 26.07.2021 with 100% votes (sole CoC member). The applicant also filed Form-H a compliance certificate with the Application under regulation 39(4) of CIRP regulations. (viii) The approved resolution plan is in accordance with the mandatory provisions of the IB Code. As per Section 30(4) of the IB Code, the resolution plan is required to be approved by the CoC with 66% voting shares, however, the present resolution plan has been approved with 100% votes. (ix) All vendors/professionals appointed by the Applicant have no conflict of interest and they are independent of the 6 | P age

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Corporate Debtor. The relevant documents of the CIRP of the Corporate Debtor were shared after they signed a non-disclosure undertaking. (x) The reliefs and concessions claimed under the resolution plan are summarized as under; a) Gujarat Pollution Control Board and Director of Boiler, Labour & Employment Department shall restore/ renew/ revive all its requisite permission/ license if any, laps before or after commencement of the CIRP. b) All the Claims of Previous Management, Directors, Shareholders, their associates, and family members shall be extinguished on the approval of the resolution by this Adjudicating Authority. c) All business permits required by the Corporate Debtor to conduct its business and which have been canceled/terminated/revoked/suspended or not renewed may be granted/restored/renewed/reinstated without any additional cost. d) On the effective date all the outstanding negotiable instruments issued by the Corporate Debtor or by any person on behalf of the Corporate Debtor including demand promissory notes, post-dated cheques, and letters of credit, shall stand terminated and the Corporate Debtor’s liabilities under such instruments shall stand extinguished. e) All dues under the provisions of the Income Tax Act, 1960 including but not limited to taxes, duty,

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IA/605(AHM)2021 IN CP (IB) 607 of 2019 penalties, interest, fines, cesses, unpaid TDS/TCS, or any other claim of the Income Tax Department whether crystallized or not crystallized shall be extinguished upon the approval of the Resolution Plan by this Adjudicating Authority. It is also stated that all due under the provisions of indirect taxes, whether crystallized, asserted or unasserted, known or unknown including but not limited to the Central Excise Act, 1944, the Finance Act, 1994 (Service Tax), the Customs Act, 1962, Goods and Service Tax Act, 2014 and Gujarat State VAT Act, 2002 shall stand extinguished on the approval of the resolution plan by the Adjudicating Authority. f) On the effective date, the guarantors that have provided the guarantees for the Corporate Debtor shall not be entitled to exercise any subrogation rights in respect of such guarantees. Since the guarantor’s subrogation rights would be unsecured rights, their liquidation value is NIL, hence, the settlement amounts payable to them is NIL. 3. Heard the learned counsel for the Applicant and perused the material on record. It is noted that the Corporate Debtor was admitted in CIRP on 02.09.2020 and CA Dharmendra Dhelariya was appointed as an IRP and the IRP constituted the CoC which was comprised of sole members namely the State Bank of India. The first CoC meeting was convened on 28.09.2020 wherein the IRP was appointed as a Resolution Professional, the Applicant herein. Four EoIs were 8 | P age

IA/605(AHM)2021 IN CP (IB) 607 of 2019 published in Form-G on 05.11.2020, 24.11.2020, 12.01.2020, and 02.02.2021 and the last date for submission of the Resolution Plan was 22.02.2021. In response to the publication of Form-G two Resolution Plans were submitted by the Prospective Resolution Applicants, namely, M/s G G Herbals Private Limited and M/s Limore MultiComm Private Limited. However, M/s G G Herbals Private Limited withdrew its resolution plan. A resolution plan of the Resolution Applicant (M/s. Limore MultiComm Private Limited) was discussed by the CoC in its 12th meeting dated 12.07.2021 and approved through e-voting on 26.07.2021 with 100% votes. The Applicant has filed a compliance certificate in Form-H under Regulation 39(4) of CIRP Regulations. A certificate of M/s C.R Shah & Associates, Chartered Accountants is also annexed with the application stating that the Resolution Applicant is eligible to submit the Resolution Plan. 4. The Resolution Applicant has proposed an amount of Rs. 17.50 lakhs for the CIRP costs. It is also proposed to pay an amount of Rs.3,96,75,000/- against the admitted claim of Rs.23,86,51,063/- to the Sole Financial Creditors and no amount is proposed for the payment to the Operational Creditors including State Tax Department and Income Tax Department. The admitted claim of the Operational Creditors is Rs.8,02,30,926/-. No amount is proposed to be paid to the equity shareholders also as the liquidation value of the equity shareholders is Nil. 5. An amount of Rs.32,50,000/- will be paid as an afront amount within 30 days from the date of approval of the 9 | P age

IA/605(AHM)2021 IN CP (IB) 607 of 2019

Resolution Plan by this Adjudicating Authority and the remaining amount of Rs.3,64,25,000/- will be paid within 5 equal installments of Rs.72.85 Lakh plus interest @ of 10% per annum, but no interest shall be paid for the first 30 days. However, the Resolution Applicant has proposed to make all endeavors to make the full payment within 30 days from the date of approval of the Resolution Plan. The details of the proposed payments are as under; (Amount in Rs. Lakh) S. No. Category Sub-Category Amount Amount Amount Amount of of Stakeholder Claimed Admitte Provided Provide Stakehold d under the to the er* Plan# Amount Claimed (%) (1) (2) (3) (4) (5) (6) (7) 1 Secured (a)Creditors N/A N/A N/A N/A Financial not having a Creditors right to vote under subsection (2) of Section 21 (b) Other than (a) above:

(i) who did not vote in favour of the resolution N/A N/A N/A N/A plan (ii) who voted

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IA/605(AHM)2021 IN CP (IB) 607 of 2019 in favour of 2386.5 2386.5 415.50 17.41% the 1 1 resolution plan Total [(a) 2386. 2386. 415.50 17.41% + (b)] 51 51 2 Unsecur (a) Creditors NIL NIL NIL NIL ed not having a Financia right to vote l under sub- Creditor section (2) of s Section 21 (b) Other than (a) above:

(i) who did not vote in NIL NIL NIL NIL favour of the resolution plan (ii) who voted NIL NIL NIL NIL in favour of the resolution plan Total[(a) + NIL NIL NIL NIL (b)] 3 Operatio (a) Relating N/A N/A N/A N/A nal Party of Creditors Corporate Debtor

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IA/605(AHM)2021 IN CP (IB) 607 of 2019 (b) Other than (a) Above:

(i) Government 800.88 800.88 NIL NIL (ii) Workmen (iii) Employees (iv) Other Operational Creditors 1.43 1.43 NIL NIL (who supplied goods or provided services) Total [(a) 802.31 802.31 NIL NIL + (b)] 4 Other Debts and dues Grand Total 3188.82 3188.82

6. No provisions are made in the Resolution Plan for contingent liabilities including any demand from the Income Tax Department/GST Department/State Commercial Tax

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Department or outcome of any litigation pending before the different forums/ Courts and if any claim arises after the approval of the resolution plan by this Adjudicating Authority that claims shall be extinguished. 7. As per form- H, the Resolution Applicant has proposed an amount of Rs. 43,30,000/- (10% of the offer value) as performance security. The total amount proposed under the Resolution Plan is Rs.414.25 Lakh (Rs. 414.25 lacs as a plan value + Rs. 25 lakhs fresh funds-based working capital) against the total admitted claim of Rs. 31,88,81,989/- (Operational debt and financial debt). The fair value of the Corporate Debtor is Rs. 6,35,44,106/- and the Liquidation value is Rs. 4,13,38,557/-. The proposed amount under the Resolution Plan is more than the liquidation value of the Corporate Debtor which has been approved by the CoC with 100% votes (sole CoC member). 8. The sources of funds for the Resolution Plan as proposed by the Resolution Applicant is by way of infusing equity capital of Rs. 25,00,000/- and Rs. 414.25 Lakh as an unsecured loan to discharge its obligation. The Unsecured loan will be obtained from the directors of the company and friends & relatives and the resolution plan also states the goods financial position of the resolution Applicant and its Directors. The Monitoring Committee proposed under the Resolution Plan consists of one representative of Secured Financial Creditor (sole member of CoC), one representative of the Resolution Applicant, and the Resolution Professional for supervising and the implementation of the Resolution Plan.

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9. It is also stated in the Resolution Plan that this Resolution Plan is not in contravention of the provisions of any applicable laws for the time being enforced as per the Section 30(2)(e) of the IB Code and also states that the resolution plan also confirms such other requirements as may be specified by the IBBI from time to time which complies Section 30(2)(f) of the IB Code. 10. The feasibility and viability of the Resolution Plan in compliance with Regulations 38(3)(b) of the CIRP Regulations have also been considered by the CoC. The Resolution Applicant has given an affidavit under Section 29A of the IB Code stating that it is not ineligible to submit a Resolution Plan for the Corporate Debtor. 11. It is noted that an application was filed by the Applicant for releasing an amount of Rs. 2,78,998.51/- lying in the current account with ICICI bank on which a lien has been marked by the Assistance Commissioner State Tax and this Adjudicating Authority vide order dated 27.06.2022 rejected the said application on the ground that the application is not maintainable. It is also noted that an amount of Rs. 4,11,708.28/- is lying in a current account maintained with HDFC Bank as a Fixed Deposit which is liked with the Bank Guarantee (BG) No. 216GT01110550001 and active now. Hence, we are of the considered view that if the aforesaid amount recovered shall be distributed to the stakeholders as per applicable provisions of the IB Code that shall be over and above the plan value.

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12. As far as reliefs and concessions claimed by the Resolution Applicant, the law has been well settled by the Hon'ble Supreme Court in the case of Ghanashyam Mishra and Sons Private Limited Vs. Edelweiss Asset Reconstruction Company Limited and Ors. reported in MANU/SC/0273/2021 in the following words:

(i) “The legislative intent behind this is, to freeze all the claims so that the resolution applicant starts on a clean slate and is not flung with any surprise claims. If that is permitted, the very calculations on the basis of which the resolution applicant submits its plans would go haywire and the plan would be unworkable.

(ii) We have no hesitation to say, that the word "other stakeholders" would squarely cover the Central Government, any State Government, or any local authorities. The legislature, noticing that on account of obvious omission, certain tax authorities were not abiding by the mandate of I&B Code and continuing with the proceedings, has brought out the 2019 amendment so as to cure the said mischief…” 13. In view of the above, we hold that the Resolution Applicant cannot be saddled with any previous claim against the Corporate Debtor prior to initiation of its CIRP. The permits, licenses, leases, or any other statutory right vested in the Corporate Debtor shall remain with the Corporate Debtor and for the continuation of such statutory rights, the 15 | P age

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Resolution Applicant has to approach the concerned statutory authorities under relevant laws. In view of the above, we are of the considered view that the Resolution Plan has complied with the provision of Section 30(2) of the IB Code and Regulations 38 and 39 (1) of CIRP Regulations. Accordingly, we allowed this present application with the following orders:-

I. Application is allowed. II. The resolution plan of M/s. Limore MultiComm Private Limited for Corporate Debtor,i.e., M/s. CLS Industries Private Limited stands allowed as per Section 30(6) of the IBC, 2016. III. The approved ‘Resolution Plan’ shall become effective from the date of passing of this order. A copy of the approved plan is enclosed with this order. IV. The order of moratorium dated 02.09.2020 passed by this Adjudicating Authority under Section 14 of IB Code, 2016 shall cease to have effect from the date of passing of this order. V. The Resolution Professional shall forthwith send a copy of this Order to the participants and the Resolution Applicant(s). VI. The Resolution Professional shall forward all records relating to the conduct of the Corporate Insolvency Resolution Process and Resolution Plan to the Insolvency and Bankruptcy Board of India to be recorded in its database

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VII. Accordingly, IA/605(AHM)/2021 in CP(IB) 607(AHM)/2019 is allowed and stands disposed of in terms of the above directions. VIII. A certified copy of this order, if applied for, is to be issued to all concerned parties upon compliance with all requisite formalities.

KAUSHALENDRA KUMAR SINGH MADAN B GOSAVI MEMBER (TECHNICAL) MEMBER (JUDICIAL)

Swetambary/Ramashish

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