Berger Becker Coating Pvt Ltd vs Committee Of Creditors Of Asian Colour ...

NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI COMPANY APPEAL (AT) (INSOLVENCY) No. 1058 of 2020 (Arising out of Order dated 19.10.2020, passed by National Company Law Tribunal, New Delhi, Principal Bench, in CA-1393 of 2019 in C.P. No. (IB)- 50(PB)/2018)

IN THE MATTER OF:

Berger Becker Coatings Pvt. Ltd. A Company incorporated under the Companies Act, 1956, R/o. 19 DDA Commercial Complex, Kailash Colony Extension, Zamrudpur, New Delhi - 110048. ...Appellant

Versus

1. Committee of Creditors of Asian Colour Coated Ispat Ltd. Committee constituted under Section 21 of the Insolvency and Bankruptcy Code, 2016. R/o. Accil House, Plot No. 26-P, Sector 33, Gurgaon, Haryana - 122004. ...Respondent No. 1

2. JSW Steel Limited Successful Resolution Applicant JSW Centre Bandra Kurla Complex, Bandra (East) Mumbai MH 400051 Email Id: lancy.varghese@jsw.in ...Respondent No. 2

For Appellant: Ms. Namrata Saraogi, Advocate.

For Respondent No. 1: Mr. Ankur Mittal, Ms. Aishwarya Pandey & Ms. Meera Murali, Advocates for R-1.

For Respondent No. 2: Mr. Biswajit Dubey & Ms. Aishwarya Gupta, Advocates for R-2. -2-

JUDGEMENT

(Per: Shreesha Merla, Member (T))

1. Aggrieved by the Impugned Order dated 19/10/2020 in CA No. 1393

of 2019 in C.P. (IB) No. 50(PB)/2018 passed by the Learned Adjudicating

Authority (National Company Law Tribunal, New Delhi, Principal Bench),

M/s. Berger Becker Coatings Pvt. Ltd.', preferred this Appeal under Section

61(3) of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to

as 'The Code'). By the Impugned Order, the Adjudicating Authority has

allowed the Application filed by the Resolution Professional (RP) under

Section 31 of the Code, seeking approval of the Resolution Plan.

2. It is the case of the Appellant that suitable protection be accorded to

the 'Operational Creditors' keeping in view the ratio laid down by the Hon'ble

Apex Court in 'Committee of Creditors of Essar India Limited' Vs.

'Satish Kumar Gupta & Ors.' (2020) 8 SCC 531, in which the Hon'ble

Apex Court has examined the aspect of payment to 'Operational Creditors'

under a Resolution Plan and observed in paras 44 and 45 that the key

objection of the Code is to ensure that the 'Corporate Debtor' keeps

operating 'as a going concern' during the Insolvency Resolution Process and

must therefore make past and present payments to various 'Operational

Creditors' without which such operation 'as a going concern' would become

impossible. Workmen need to be paid and the interest of all stakeholders are

required to be balanced as the 'Corporate Debtor' itself becomes a

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beneficiary of the Resolution scheme. Learned Counsel for the Appellant also

placed reliance on para 46 of the Judgement which is detailed as hereunder:

"46. This is the reason why Regulation 38(1A) speaks of a resolution plan including a statement as to how it has dealt with the interests of all stakeholders, including operational creditors of the corporate debtor. Regulation 38(1) also states that the amount due to operational creditors under a resolution plan shall be given priority in payment over financial creditors. If nothing is to be paid to operational creditors, the minimum, being liquidation value - which in most cases would amount to nil after secured creditors have been paid - would certainly not balance the interest of all stakeholders or maximise the value of assets of a corporate debtor if it becomes impossible to continue running its business as a going concern. Thus, it is clear that when the Committee of Creditors exercises its commercial wisdom to arrive at a business decision to revive the corporate debtor, it must necessarily take into account these key features of the Code before it arrives at a commercial decision to pay off the dues of financial and operational creditors. There is no doubt whatsoever that the ultimate discretion of what to pay and how much to pay each class or subclass of creditors is with the Committee of Creditors, but, the decision of such Committee must reflect the fact that it has taken into account maximising the value of the assets of the corporate debtor and the fact that it has adequately balanced the interests of all stakeholders including operational creditors. This being the case, judicial review of the Adjudicating Authority that the resolution plan as approved by the Committee of Creditors has met the requirements referred to in Section 30(2) would include judicial review that is mentioned in Section 30(2)(e), as the provisions of the Code are also provisions of law for the time being in force. Thus, while the Adjudicating Authority cannot interfere on merits with the commercial decision taken by the Committee of Creditors, the limited judicial review available is to see that the Committee of Creditors has taken into account the fact that the corporate debtor needs to keep going as a going concern during the insolvency resolution process; that

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it needs to maximise the value of its assets; and that the interests of all stakeholders including operational creditors has been taken care of. If the Adjudicating Authority finds, on a given set of facts, that the aforesaid parameters have not been kept in view, it may send a resolution plan back to the Committee of Creditors to re-submit such plan after satisfying the aforesaid parameters. The reasons given by the Committee of Creditors while approving a resolution plan may thus be looked at by the Adjudicating Authority only from this point of view, and once it is satisfied that the Committee of Creditors has paid attention to these key features, it must then pass the resolution plan, other things being equal."

3. Learned Counsel contended that though the commercial wisdom of

the CoC is to be relied upon, however, it is also to be seen whether the

interest of the 'Operational Creditors' is protected. It is their main case that

the Appellant has been given a meagre 4.48% of the total admitted 'Claim'

whereas the direct 'Financial Creditors' a distinct class were paid

Rs.15050Crs./-.

4. The provision made in the Resolution Plan with respect to

stakeholders is detailed as hereunder:

S. Category of Stakeholder Amount Amount Percentage No. Admitted provided (%) (Crs in ₹) (Crs in ₹)

1. Secured Financial Creditors 4864.40 1499.99* 30.84% Unsecured Financial Creditors 1702.60 25** 1.47% Total FCs 6567 1524.99 Operational Creditors (Govt.) 220.26 9.87 4.48% Operational Creditors 0.10 0.10 100% (Employees and workmen) Other Operational Creditors 335.86 15.05 4.48% Total OCs 556.22 25.01 4.50% Total 7,132.22 1,550.00 21.76%

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5. It is the case of the Respondent/CoC of Asian Colour Coated Ispat

Limited that the Resolution Plan is not discriminatory and that all

'Operational Creditors' have been paid on the same pedestal; that payments

to the Appellant and all 'Operational Creditors' have been made in

compliance with Section 30(2) read with Section 53 of the Code. Learned

Counsel placed reliance on 'K Sashidhar' Vs. 'Indian Overseas Bank &

Ors.' (2019) 12 SCC 150, in support of his contention that the commercial

wisdom of the CoC is not justiciable as it does not act in fiduciary capacity

to any group of Creditors by exercising the business decision. The Hon'ble

Supreme Court in 'Ghanashyam Mishra and Sons Private Limited' Vs.

'Edelweiss Asset Reconstruction Company Limited Through the

Director & Ors.', (2021) 166 SCL 237 (SC), dealing with the issue of

commercial wisdom of the CoC and the jurisdiction of the Tribunal to

interfere in the same has observed as follows:-

"151. The position is clarified by the following observations in paragraph 59 of the judgment in the case of K. Sashidhar (supra), which reads thus:

"59. In our view, neither the adjudicating authority (NCLT) nor the appellate authority (NCLAT) has been endowed with the jurisdiction to reverse the commercial wisdom of the dissenting financial creditors and that too on the specious ground that it is only an opinion of the minority financial creditors....."

152. This Court in Committee of Creditors of Essar Steel India Limited through Authorised Signatory (supra) after reproducing certain paragraphs in K. Sashidhar (supra) observed thus:

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"Thus, it is clear that the limited judicial review available, which can in no circumstance trespass upon a business decision of the majority of the Committee of Creditors, has to be within the four corners of Section 30(2) of the Code, insofar as the Adjudicating Authority is concerned, and Section 32 read with Section 61(3) of the Code, insofar as the Appellate Tribunal is concerned, the parameters of such review having been clearly laid down in K. Sashidhar.

153. It can thus be seen, that this Court has clarified, that the limited judicial review, which is available, can in no circumstance trespass upon a business decision arrived at by the majority of CoC.

154. In the case of Maharashtra Seamless Limited (supra), NCLT had approved the plan of appellant therein with regard to CIRP of United Seamless Tubulaar (P) Ltd. In appeal, NCLAT directed, that the appellant therein should increase upfront payment to Rs.597.54 crore to the "financial creditors", "operational creditors" and other creditors by paying an additional amount of Rs. 120.54 crore. NCLAT further directed, that in the event the "resolution applicant" failed to undertake the payment of additional amount of Rs.120.54 crore in addition to Rs. 477 crore and deposit the said amount in escrow account within 30 days, the order of approval of the 'resolution plan' was to be treated to be set aside. While allowing the appeal and setting aside the directions of NCLAT, this Court observed thus:

"30. 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

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satisfied that the requirement of subsection (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 Essar Steel [Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta, (2020) 8 SCC 531], 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."

155. This Court observed, that 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. This Court clearly held, that the appellate authority ought not to have interfered with the order of the adjudicating authority by directing the successful resolution applicant to enhance their fund inflow upfront.

156. It would thus be clear, that the legislative scheme, as interpreted by various decisions of this Court, is unambiguous. The commercial wisdom of CoC is not to be interfered with, excepting the limited scope as provided under Sections 30 and 31 of the I&B Code."

(Emphasis Supplied)

6. It is seen from the record that the total payments received by the

'Financial Creditors' under the Resolution Plan is 23.22% of the admitted

'Claims' and the direct 'Financial Creditors' has been paid 29.50% of their

admitted debt. In the light of the fact that the average liquidation value has

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been assessed at Rs.619.15Crs./- and the liquidation value of the 'Claim' of

the Appellant is 'NIL', this Tribunal is of the view that the amount

distributed and the Resolution Plan is in accordance with the Order of

priority in sub-Section (1) of Section 53 as the Plan had provided for the

payment of debts of the 'Operational Creditor' in such a manner which is

not less than the amount to be paid to such Creditors in the event of

liquidation of the 'Corporate Debtor' under Section 53.

7. This Tribunal has a very limited jurisdiction to interfere except if there

is any substantial evidence to establish that there was any material

irregularity or if there was anything contrary to the law time being in force.

The review is to be seen within the four corners of Section 30(2) of the Code

only.

8. Moreover, it is seen from the record that the Adjudicating Authority

has approved the Resolution Plan way back on 10/07/2019 and the

Resolution Plan has also been implemented and we do not wish at this

belated stage to set the clock back, apart from holding that the Appellant

cannot seek mandamus for directing the CoC to revisit its commercial

wisdom at such a belated stage.

9. Learned Counsel on behalf of JSW Steel Coated Products Limited, the

Successful Resolution Applicant for the erstwhile 'Corporate Debtor' drew

our attention to the fact that this Tribunal dismissed an Appeal preferred

against the same Impugned Order by another Successful Resolution

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Applicant in Company Appeal (AT) (Insolvency) No. 1079 of 2020 dated

15/03/2021 which has attained finality.

10. For all the aforegoing reasons, this Appeal is dismissed. No Order as

to costs.

11. The Registry is directed to upload the Judgement on the website of

this Tribunal and send a copy of this Judgement to the Learned

Adjudicating Authority (National Company Law Tribunal, New Delhi,

Principal Bench) forthwith.

[Justice Anant Bijay Singh] Member (Judicial)

[Ms Shreesha Merla] Member (Technical) New Delhi 04th April, 2022

himanshu

Company Appeal (AT) (Insolvency) No. 1058 of 2020