Ashutosh Koul & 814 Ors. Employees Of ... vs Dbs Bank Ltd. & Ors

(Arising out of Order dated 31st July, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai in MA Nos. 491/2018, 341/2018, 515/2018, 410/2018, 91/2018, IA Nos. 35/2018 & 30/2018 in CP (IB) 1137 (MB) 2017)

IN THE MATTER OF:

Mr. Sharad Sanghi ...Appellant

Vs.

Ms. Vandana Garg & Ors. ...Respondents

Present: For Appellant:- Mr. Arun Kathpalia, Senior Advocate with Mr. Sameer Rohatgi and Mr. Akshit Pradhan, Advocates.

For Respondents:- Mr. Sumesh Dhawan, Ms. Vatsala Kak, Ms. Geetika Sharma, Ms. Tannya Barawap, Ms. Shivani Sinha, Ms. Ashly Cherin, Ms. Vrinda Sagar, Advocates for R- 1 (RP).

Mr. Bishwajit Dubey, Ms. Surabhi Khattar, Mr. Prafull Goyal, Mr. Aditya Marwah, Mr. Shatrajit Banerji, Advocates for R-5 (SBI).

Mr. Nithin Saravanan, Ms. Priyadarshini and Ms. Arunima Singh, Advocates for IndusInd Bank.

Mr. Rajiv Mehra, Sr. Advocate with Mr. Shubhabrato Chakraborti, Mr. Ashish Mukhi, Mr. Dhruv Malik, Mr. Kamlendra Singh, Advocates for DBS Bank.

Mr. Ashok KV Jain, Ms. Priyanka Das, Mr. Amit Kasva, Advocates for Allahabad Bank.

Mr. Manu Sheshadri, Mr. Arjun Syal, Mr. Shreyam Das, Mr. Samasth Chowdhary and Ms. Tanvi, Advocates for Industrial Securities. 2

Company Appeal (AT) (Insolvency) No. 464 of 2018

(Arising out of Order dated 31st July, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai in MA Nos. 491/2018, 341/2018, 515/2018, 410/2018, 91/2018, IA Nos. 35/2018 & 30/2018 in CP (IB) 1137 (MB) 2017)

IN THE MATTER OF:

Ashutosh Koul and 814 Other Employees of Jyoti Structures Limited ...Appellant

Vs.

DBS Bank Limited & Ors. ...Respondents

Present: For Appellant:- Mr. Ashim Sood, Ms. Payal Chandra, Mr. Aditya Kumar, Mr. Rhythm Buara, Advocates.

For Respondents:- Mr. Sumesh Dhawan, Ms. Vatsala Kak, Ms. Geetika Sharma, Ms. Tannya Barawap, Ms. Shivani Sinha, Ms. Ashly Cherin, Ms. Vrinda Sagar, Advocates for RP.

Mr. Bishwajit Dubey, Ms. Surabhi Khattar, Mr. Prafull Goyal, Mr. Aditya Marwah, Mr. Shatrajit Banerji, Advocates for R-5 (SBI).

Mr. Nithin Saravanan, Ms. Priyadarshini and Ms. Arunima Singh, Advocates for IndusInd Bank.

Mr. Rajiv Mehra, Sr. Advocate with Mr. Shubhabrato Chakraborti, Mr. Ashish Mukhi, Mr. Dhruv Malik, Mr. Kamlendra Singh, Advocates for DBS Bank.

Mr. Ashok KV Jain, Ms. Priyanka Das, Mr. Amit Kasva, Advocates for Allahabad Bank.

Mr. Manu Sheshadri, Mr. Arjun Syal, Mr. Shreyam Das, Mr. Samasth Chowdhary and Ms. Tanvi, Advocates for Industrial Securities.

Company Appeal (AT) (Insol.) Nos. 461, 464 & 548 of 2018 3

Company Appeal (AT) (Insolvency) No. 548 of 2018

(Arising out of Order dated 31st July, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai in MA Nos. 491/2018, 341/2018, 515/2018, 410/2018, 91/2018, IA Nos. 35/2018 & 30/2018 in CP (IB) 1137 (MB) 2017)

IN THE MATTER OF:

Apollo Jyoti LLC and Ors. ...Appellants

Vs.

Jyoti Structures Ltd. Through Its Resolution Professional, Ms. Vandana Garg & Ors. ...Respondents

Present: For Appellant:- Ms. Misha, Mr. Dhruv Dewan, Ms. Charu, Mr. Shantanu Chaturvedi, Mr. Siddhant Kant, Mr. Akshit Pradhan, Advocates.

For Respondents:- Mr. Sumesh Dhawan, Ms. Vatsala Kak, Ms. Geetika Sharma, Ms. Tannya Barawap, Ms. Shivani Sinha, Ms. Ashly Cherin, Ms. Vrinda Sagar, Mr. Raunak Singh, Advocates for RP.

Mr. Bishwajit Dubey, Ms. Surabhi Khattar, Mr. Prafull Goyal, Mr. Aditya Marwah, Mr. Shatrajit Banerji, Advocates for R-5 (SBI).

Mr. Nithin Saravanan, Ms. Priyadarshini and Ms. Arunima Singh, Advocates for IndusInd Bank.

Mr. Rajiv Mehra, Sr. Advocate with Mr. Shubhabrato Chakraborti, Mr. Ashish Mukhi, Mr. Dhruv Malik, Mr. Kamlendra Singh, Advocates for DBS Bank.

Mr. Ashok KV Jain, Ms. Priyanka Das, Mr. Amit Kasva, Advocates for Allahabad Bank.

Mr. Manu Sheshadri, Mr. Arjun Syal, Mr. Shreyam Das, Mr. Samasth Chowdhary and Ms. Tanvi, Advocates for Industrial Securities.

Company Appeal (AT) (Insol.) Nos. 461, 464 & 548 of 2018 4

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

In all these appeals as common impugned order dated 31st July,

2018 is under challenge and common question of law is involved, they

were heard together and disposed of by this common judgment.

2. The 'Corporate Insolvency Resolution Process' was initiated against

'Jyoti Structures Ltd.'- ('Corporate Debtor') on 12th July, 2017. The

Appellant- 'Mr. Sharad Sanghi' filed 'Resolution Plan' along with others.

After negotiation with the 'Committee of Creditors', the 'Resolution Plan'

was improved by the Appellant. E-voting of the 'Committee of Creditors'

was held between 26th March, 2018 and 27th March, 2018 during which

members with 62.66% voting shares voted in favour of the 'Resolution

Plan'; members with 23.12% voting shares voted against the 'Resolution

Plan' and members with 14.21% remained abstained. On 27th March,

2018, after taking into consideration the result, the 'IDBI Trusteeship

Services' having 0.42% voting shares and Ms. Hema Shah having 0.04%

voting shares, who earlier voted against, changed their opinion and

conveyed favourable vote on the same date i.e. on 27th March, 2018.

3. The 'Indian Bank' having voting shares of 6.31% which had

abstained from voting previously, sent a letter to the 'Resolution

Professional' approving the 'Final Resolution Plan'. The 'Standard

Chartered Bank' having 3.31% voting shares changed its dissent on 2nd

Company Appeal (AT) (Insol.) Nos. 461, 464 & 548 of 2018 5

April, 2018 and assented in favour of the 'Resolution Plan'. The 'Bank of

India' having 9.11% voting shares changed its dissent on 6th April, 2018

and assented in favour of the 'Resolution Plan'. Thus, in fact, the voting

which started on 26th March, 2018 continued upto 6th April, 2018.

Finally, the 'Committee of Creditors' with 81.31% of the voting shares

approved the 'Resolution Plan' on 6th April, 2018.

4. The 'Resolution Professional' submitted the approved 'Resolution

Plan' of Mr. Sharad Sanghi before the Adjudicating Authority (National

Company Law Tribunal), Mumbai Bench, Mumbai, and also requested to

exclude certain period. However, the Adjudicating Authority by impugned

order dated 31st July, 2018 rejected the prayer and ordered for

liquidation, though it noticed that the total votes in favour of the

'Resolution Plan' stood at 81.31% after including the votes of 'Standard

Chartered Bank', 'Mr. Konnongo' and 'Bank of India'.

5. The aforesaid rejection was made mainly on two grounds. One of

the grounds is that total period of 270 days had lapsed by the time last

voting took place on 2nd April, 2018. Secondly, as on 26th and 27th March,

2018, the voting percentage was 62.66% which is less than 75%. Prayer

for exclusion of the period has not been discussed.

6. The Adjudicating Authority while passing the impugned order also

noticed the viability and the feasibility of the 'Resolution Plan' and

observed as follows:

Company Appeal (AT) (Insol.) Nos. 461, 464 & 548 of 2018 6

"38. So far, many companies have come into

initiation of this insolvency process, but we have

hardly come across any company where asset

value is more than liability, except a company

that is known to everybody that is the case of

Binani Cements. Most of the resolution plans are

also with haircuts of 75%, 80%, hardly any

money coming back through resolution plans,

those plans are flagged with time-limes of 5

years, 10 years, in this case for 15 years for

payment. This is the ground situation in respect

to the resolution plans coming before us.

39. In this cae, the admitted claim against this

company is Rs. 7,010.55 crores, liquidation is

Rs. 1,112.52crores. we have not come across

anywhere as to what the fair value of this

company is. The resolution plan given in this

case will result into 43% haircut to the creditors

of the company. Out of Rs.3,965.06crores, value

of the resolution plan amount, only Rs.50crores

will come as up-front payment, Rs.75crores will

come in one year, remaining will come to the

Company Appeal (AT) (Insol.) Nos. 461, 464 & 548 of 2018 7

creditors in as staggered payments in a period

of 15 years from the effective date.

40. We don't want to get into as to whether

such a plan is reasonable or not, because to test

the reasonableness, viability, feasibility, the

CoC has given the authority to take a decision

with the power conferred upon them. We cannot

transgress into the jurisdiction of CoC, unless

process id devoid of the set procedures, fairness

and transparency."

7. Learned counsel appearing on behalf of the Appellants submitted

that application under Section 7 was admitted on 4th July, 2017 and

order was signed and uploaded on 12th July, 2017 i.e. after eight days

whereinafter the 'Interim Resolution Professional' had taken charge.

8. Referring to the decision of this Appellate Tribunal in "Quinn

Logistics India Pvt. Ltd. vs. Mack Soft Tech Pvt. Ltd.─ SCC OnLine

NCLAT 243", learned counsel for the Appellants submitted that the

aforesaid period of eight days if excluded, then it will be clear that the

approved 'Resolution Plan' was approved and submitted within 270 days

which comes to 8th April, 2018.

9. Regulation 26 of the 'Insolvency and Bankruptcy Board of India

(Insolvency Resolution Process for Corporate Persons) Regulations, 2016'

Company Appeal (AT) (Insol.) Nos. 461, 464 & 548 of 2018 8

deals with voting through electronic means. Clause (2) of the Regulation

26 as it then was, is as follows:

"26. Voting through electronic means.─

xxx xxx xxx

(2) Once a vote on a resolution is cast by a member

of the committee, such member shall not be allowed

to change it subsequently."

In view of the aforesaid Regulation 26(2), the Adjudicating

Authority refused to accept the change of voting as made by some of the

members of the 'Committee of Creditors'.

10. Under sub-section (3) of Section 30, the 'Resolution Professional' is

required to present to the 'Committee of Creditors' for its approval such

'Resolution Plans' which confirm the conditions referred to in sub-section

(2). It is the 'Committee of Creditors' which fix the date of voting and may

approve the 'Resolution Plan' by vote of not less than 75% (now it is 66%)

of voting shares of the 'Financial Creditors', after considering its viability

and feasibility and such other requirements as may be specified by the

Board.

11. As per sub-section (5) of Section 30, the 'Resolution Applicant' is

required to attend the meeting of the 'Committee of Creditors' in which

the 'Resolution Plan' of the Applicant is considered.

Company Appeal (AT) (Insol.) Nos. 461, 464 & 548 of 2018 9

12. From the aforesaid provisions, it is clear that the 'Committee of

Creditors' is required to notice the 'Resolution Plan' to find out its viability

and feasibility apart from the financial matrix and in appropriate cases

may ask the 'Resolution Applicant' to improve the plan. The date of

approval for 'Resolution Plan' is fixed by the 'Committee of Creditors'.

They may fix the date of voting and in appropriate case they may extend

the period of voting. There is no provision that once a voting is made,

after the final result, if it comes to the conclusion finally in absence of

approval of the plan, the 'Corporate Debtor' may be ordered for

liquidation. It is always open to the 'Committee of Creditors' to change

their opinion.

13. Whether a member who has already opined, after final decision,

can change its opinion or not? It is the matter which can be decided by

the 'Committee of Creditors', which may extend the period and allow to

have fresh voting. Regulation 26(2) being directory cannot override the

power of the 'Committee of Creditors', which is the final decision making

authority in accepting or rejecting a 'Resolution Plan'. The Insolvency and

Bankruptcy Board of India also noticed that Regulation 26(2) is not

workable and will amount to interference with the power of the

'Committee of Creditors' as vested under the Insolvency and Bankruptcy

Code, 2016 and therefore, the Insolvency and Bankruptcy Board of India

deleted Regulation 26(2) w.e.f. 4th July, 2018. If it would not have been

Company Appeal (AT) (Insol.) Nos. 461, 464 & 548 of 2018 10

deleted, one could have argued that Regulation 26(2) is arbitrary as it

does not allow the 'Committee of Creditors' to form its final opinion.

14. A 'Resolution Plan' which may be viable, feasible and of acceptable

financial matrix and which is not against the provision of Section 30(2),

if majority of the members having voting shares approve it but falls short

of the 75% (now 66%) limit as has been prescribed and later on it comes

to the notice of one or other members that because of the failure the

'Corporate Debtor' will be liquidated, it is always open to the members to

change its opinion subsequently with the approval of the rest of the

members of the 'Committee of Creditors' but it should be within 270 days.

15. In view of the aforesaid findings and the facts as emerges, we hold

that the 'Resolution Plan' in question stands approved by the 'Committee

of Creditors' with 81.39% voting shares.

16. In the case of "Quinn Logistics India Pvt. Ltd." (Supra) which

was affirmed by the Hon'ble Supreme Court, this Appellate Tribunal

observed that the period of non-joining of the 'Interim Resolution

Professional' should be excluded for the purpose of counting the total

period of 180 days or 270 days.

17. In the present case, as the application was admitted on 4th July,

2017 and after signature it was uploaded on 12th July, 2017 i.e. eight

days and the 'Interim Resolution Professional' joined much thereafter, we

are of the view that the Adjudicating Authority should have excluded at

Company Appeal (AT) (Insol.) Nos. 461, 464 & 548 of 2018 11

least eight days of period during which the order was passed, signed and

subsequently uploaded. If the aforesaid period of eight days is excluded,

then we find that the 'Resolution Plan' was approved within 270 days

which the Adjudicating Authority has failed to notice.

18. We have not counted the actual period, taking into consideration

the date when the 'Interim Resolution Professional' had joined. The order

of admission having signed and uploaded on 12th July, 2017, after

excluding eight days, we hold that the process was conducted within the

period.

19. 'DBS Bank Ltd.' while opposed the appeal, learned counsel

submitted that its claims of Rs. 53.77 Crores with the 'Corporate Debtor'

has first charge over certain assets of the 'Corporate Debtor'. It is also

submitted that the liquidation value of the assets charged to 'DBS Bank

Ltd.' is more than three times of its exposure. The 'Resolution Plan'

having not recognized the difference between the first charge holder and

the second charge holder but has distinguished between the secured and

unsecured creditor, the Bank has raised grievances against the

'Resolution Plan'.

20. Reliance has been placed on the decision of the Hon'ble Supreme

Court in "ICICI Bank Ltd. vs Sidco Leathers Ltd. & Ors. ─ (2006) 10

SCC 452)", wherein the Hon'ble Supreme Court held that the claim of

first charge holder will prevail over the claims of second charge holder.

Company Appeal (AT) (Insol.) Nos. 461, 464 & 548 of 2018 12

21. Reliance has also been placed on United National Commission on

International Trade Law (UNICITRAL) and Principles for Effective

Insolvency and Creditor/ Debtor Regime, published by World Bank.

22. However, the aforesaid submissions cannot be accepted as at the

'Resolution Process', 'Financial Creditor' claims are decided as per

provision of the 'I&B Code'. All the 'Financial Creditors' are treated to be

similar, if similarly situated.

23. We have noticed that the Adjudicating Authority has made certain

observations with regard to the timeline given by the 'Resolution

Applicant'. Learned counsel appearing on behalf of the 'Resolution

Applicant' submits that the total period of 15 years will be reduced to 12

years.

24. In view of the aforesaid findings and as we have already held that

the 'Resolution Process' took place within 270 days and the 'Committee

of Creditors' had the jurisdiction to change its opinion in favour of the

'Resolution Plan' to make it a success and Regulation 26(2) being

directory which also stands deleted, we set aside the impugned order and

hold that the 'Resolution Plan' being in conformity with Section 30(2)

warranted approval by the Adjudicating Authority.

25. However, we make it clear that to make the 'Resolution Process'

successful, though it is open to the 'Committee of Creditors' to change its

opinion by assenting in favour of one or other plan, we further hold that

Company Appeal (AT) (Insol.) Nos. 461, 464 & 548 of 2018 13

the 'Committee of Creditors' once voted in favour of the 'Resolution Plan'

cannot change its views.

26. In the result, the case is remitted to the Adjudicating Authority,

Mumbai Bench, Mumbai to approve the plan in terms of Section 31 of the

Insolvency and Bankruptcy Code, 2016 with modification i.e. that the

plan is to be implemented within the period of 12 years as offered by the

'Successful Resolution Applicant'. The appropriate order be passed on an

early date preferably within two weeks from the date of the production of

the copy of this order.

All the appeals are allowed with the aforesaid observations and

directions. No cost.

[Justice S.J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member [Judicial]

NEW DELHI 19th March, 2019 AR

Company Appeal (AT) (Insol.) Nos. 461, 464 & 548 of 2018