Consolidated Engineering Company vs Subodh Kumar Agarwal Former Resolution ...

Comp. App. (AT) (Ins.) No. 426 of 2020 & I.A. No. 1702, 2198, 2199 of 2023 (Arising out of the Order dated 07.02.2020 passed by the National Company Law Tribunal, Hyderabad Bench, Hyderabad, in I.A. No. 950 of 2019 in I.A. No. 32 of 2019 in C.P. (IB) No. 248/7/HDB/2017.)

IN THE MATTER OF:

NCC Ltd. Rep. by its Authorised Representative Having its registered office at: NCC House, Madhapur, Hyderabad, Telangana - 500081 Mail - srinivasamurthy.mv@nccltd.in ...Appellant

Versus

1. M/s Golden Jubilee Hotels Pvt. Ltd. Rep. by its Resolution Professional Mr. Subodh Kumar Agarwal IBBI/IPA001/IP-P00087/20017-18/10183 Having its registered office at: Survey No. 64, Beside Shiparamam, Madhapur, Hyderabad, Telangana - 500081. ...Respondent No. 1 Email: cirp.goldenjubilee@gmail.com

2. Committee of Creditors M/s Golden Jubilee Hotels Pvt. Ltd. Survey No. 64, Beside Shiparamam, Madhapur, Hyderabad, Telangana - 500081. Email: Not Available ...Respondent No. 2

3. Telangana State Tourism Corporation Limited Government of Telangana D-Block, 2nd floor, Telangana Secretariat, Hyderabad, Telangana - 500081 Email : secy_trsm@ap.gov.in ...Respondent No. 3

4. Shilparamam Arts, Crafts & Cultural Society Hi Tech City Main Road, Hitec City, Madhapur, Hyderabad, Telangana- 500081. -2- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Email: shilparamamhyd@gmail.com ...Respondent No. 4

5. BREP Asia II Indian Holding Co. II (NQ) Pte. Ltd. 77, Robinson Road #13-00 Robinson 77, Singapore - 068896 Email: vijay.kaundal@srgrlaw.com ...Respondent No. 5

Present For Appellants: Ms. Priya Kumar & Mr. Shivam Goel, Advocates

For Respondents: Dr. Abhishek Manu Singhvi, Sr. Adv. with Mr. Gyanendra Kumar, Mr. Aviral Singhal, Mr. D. Kapila, Adv. for SRA. Mr. Arun Kathpalia, Sr. Advocate with Mr. Pankaj Vivek, Advocate for R-2. PCS, Manoj Kumar Koyalkar, Adv. for R-3. Mr. Swapnil Gupta, Mr. Abhinav Mishra, Mr. Vaibhav Mendirata, Advocates for R-4.

With

Comp. App. (AT) (Ins.) No. 430 of 2020 (Arising out of the Order dated 07.02.2020 passed by the National Company Law Tribunal, Hyderabad Bench, Hyderabad, in I.A. No. 960 of 2019 in I.A. No. 32 of 2019 in C.P. (IB) No. 248/7/HDB/2017.)

IN THE MATTER OF:

Consolidated Engineering Company Through its Partner, Office at K-Block, Chaudhary Building, Connaught Circus, New Delhi - 110001. ...Appellant

Versus -3- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

1. Subodh Kumar Agrawal Former Resolution Professional of Golden Jubilee Hotels Private Limited, 1, Ganesh Chandra Avenue, 3rd Floor, Room No. 301, Kolkata - 700013. ...Respondent No. 1

2. Golden Jubilee Hotels Private Limited Through Successful Resolution Applicant Survey No. 64, Beside Shilpakalavedika,, Shilparamam, Madhapur, Hyderabad, Telangana - 500081. ...Respondent No. 2

3. BREP Asia II Indian Holding Co. II (NQ) Pte. Ltd. 77, Robinson Road #13-00 Robinson 77, Singapore - 068896 ...Respondent No. 3 Email: vijay.kaundal@srgrlaw.com

4. Committee of Creditors Golden Jubilee Hotels Private Limited Survey No. 64, Beside Shilpakalavedika, Shilparamam, Madhapur, Hyderabad - 500081. ...Respondent No. 4

Present For Appellants: Mr. Uddyam Mukherjee & Mr. Swapnil Pattanayak, Adv.

For Respondents: Dr. Abhishek Manu Singhvi, Sr. Adv. with Mr. Gyanendra Kumar, Mr. Aviral Singhal, Mr. D. Kapila, Adv. for SRA Mr. Arun Kathpalia, Sr. Advocate with Mr. Pankaj Vivek, Advocate for R-4 -4- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

With

Comp. App. (AT) (Ins.) No. 432 of 2020 (Arising out of the Order dated 07.02.2020 passed by the National Company Law Tribunal, Hyderabad Bench, Hyderabad, in I.A. No. 961 of 2019 in I.A. No. 32 of 2019 in C.P. (IB) No. 248/7/HDB/2017.)

IN THE MATTER OF:

Infinity Interiors Private Limited Through its Authorized Representative, Head Office at 502, Abhiraj Building, Munosuvrat 8-68, Swastik Society, C.G. Road, Ahmedabad - 380009. ...Appellant

Versus

1. Subodh Kumar Agrawal Former Resolution Professional of Golden Jubilee Hotels Private Limited, 1, Ganesh Chandra Avenue, 3rd Floor, Room No. 301, Kolkata - 700013. ...Respondent No. 1

2. Golden Jubilee Hotels Private Limited Through Successful Resolution Applicant Survey No. 64, Beside Shilpakalavedika,, Shilparamam, Madhapur, Hyderabad, Telangana - 500081. ...Respondent No. 2

3. BREP Asia II Indian Holding Co. II (NQ) Pte. Ltd. 77, Robinson Road #13-00 Robinson 77, Singapore - 068896 ...Respondent No. 3

4. Committee of Creditors Golden Jubilee Hotels Private Limited Survey No. 64, Beside Shilpakalavedika, Shilparamam, Madhapur, Hyderabad - 500081. ...Respondent No. 4 -5- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Present For Appellants: Mr. Uddyam Mukherjee, Mr. Swapnil Pattanayak, Adv.

For Respondents: Mr. Arun Kathpalia, Sr. Advocate with Mr. Pankaj Vivek, Advocate for R-4 Dr. Abhishek Manu Singhvi, Sr. Adv. with Mr. Gyanendra Kumar, Mr. Aviral Singhal, Mr. D. Kapila, Adv. for SRA With

Comp. App. (AT) (Ins.) No. 710 of 2020 (Arising out of the Order dated 07.02.2020 passed by the National Company Law Tribunal, Hyderabad Bench, Hyderabad, in C.A No. 32 of 2019 in C.P. (IB) No. 248/7/HDB/2017.) IN THE MATTER OF:

Ahuja furnishers Pvt. Ltd. Through its Director, Office at Mandir Marg, Behind Gandhi Sadan Housing Complex, New Delhi - 110001. ...Appellant

Versus

1. Subodh Kumar Agrawal Former Resolution Professional of Golden Jubilee Hotels Private Limited, 1, Ganesh Chandra Avenue, 3rd Floor, Room No. 301, Kolkata - 700013. ...Respondent No. 1

2. Golden Jubilee Hotels Private Limited, Through Successful Resolution Applicant Survey No. 64, Beside Shilpakalavedika,, Shilparamam, Madhapur, Hyderabad, Telangana - 500081. ...Respondent No. 2

3. BREP Asia II Indian Holding Co II (NQ) PTE. Ltd. 77, Robinson Road -6- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

#13-00 Robinson 77, Singapore - 068896 Email: vijay.kaundal@srgrlaw.com ...Respondent No. 3

4. Insolvency and Bankruptcy Board of India, 7th Floor, Mayur Bhawan, Shankar Market, Connaught Circus, New Delhi - 110001. ...Respondent No. 4

5. Committee of Creditors Golden Jubilee Hotels Private Limited Survey No. 64, Beside Shilpakalavedika, Shilparamam, Madhapur, Hyderabad - 500081. ...Respondent No. 5

Present For Appellants: Mr. Uddyam Mukherjee, Mr. Swapnil Pattanayak, Adv. For Respondents: Mr. Arun Kathpalia, Sr. Advocate with Mr. Pankaj Vivek, Advocate for R-5 Dr. Abhishek Manu Singhvi, Sr. Adv. with Mr. Gyanendra Kumar, Mr. Aviral Singhal, Mr. D. Kapila, Adv. for SRA

JUDGEMENT

(11.12.2024)

NARESH SALECHA, MEMBER (TECHNICAL)

1. There are six appeals before us arising out of common Impugned Order

dated 07.02.2020 under 61(3) of the Insolvency & Bankruptcy Code, 2016 (in

short 'Code') passed by National Company Law Tribunal, Hyderabad Bench,

Hyderabad (in short 'Adjudicating Authority') in IA No's. 433, 447 and

448/2018 and IA Nos. 32, 61, 950, 960 and 961/2019 in CP (IB) No.

248/7/HDB/2017.

-7-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

2. These six appeals have been filed against a common Impugned Order and

have been tagged together, we shall deal all these six appeals in the following

discussion.

3. At the initial stage, we will take note of the details of appeals mentioned

herein :-

Company Appeal (AT) (Ins.) No. 426 of 2020, Company

Appeal (AT) (Ins.) No. 430 of 2020, Company Appeal (AT)

(Ins.) No. 432 of 2020, Company Appeal (AT) (Ins.) No.

710 of 2020, Company Appeal (AT) (Ins.) No. 438 of 2020

and Company Appeal (AT) (Ins.) No. 336 of 2020.

4. At this stage, we note that there are four Operational Creditors i.e., NCC

in Company Appeal (AT) (Ins.) No. 426 of 2020; Consolidated Engineering

company in Company Appeal (AT) (Ins.) No. 430 of 2020; Infinity Interior

Private Limited in Company Appeal (AT) (Ins.) No. 432 of 2020; and Ahuja

Furniture in Company Appeal (AT) (Ins.) No. 710 of 2020. All these four

appeals have been filed by Operational Creditors who have supplied different

services to the Corporate Debtor.

5. We also note that the issues of all four appeals are by and large same, in

fact three appeals, namely, Company Appeal (AT) (Ins.) No. 430 of 2020, 432

of 2020 & 710 of 2020 have been argued by the same Counsel Mr. Uddyam

Mukherjee, whereas Company Appeal (AT) (Ins.) No. 426 of 2020 has been -8- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

argued by Ms. Priya Kumar. As such we will take into consideration the

issues, pleadings of the Appellants and submissions of the Respondents along

with our analysis herein after.

6. The two other appeals, namely Company Appeal (AT) (Ins.) No. 438 of

2020 has been filed by Laxmi Narayan Sharma, Suspended Director / Promoter

of the Corporate Debtor who has challenged the approval of the Resolution

Plan on entirely different grounds. Similarly, Company Appeal (AT) (Ins.) No.

336 of 2020 has been filed by EIH Limited who filed the appeal on the limited

grounds of relegating him as related party and Promoter of the Corporate

Debtor covered under Section 29A of the Code.

7. Hence, in fitness of things, first four appeals shall be dealt herein after

and a common order will be pronounced. Other two appeals are being dealt in

two different orders.

8. Pleadings are generally identical, in all these four appeals. The Corporate

Debtor has been arrayed the Respondent in all four appeals at different Serial

Nos i.e., Respondent No. 1 in Company Appeal (AT) (Ins.) No. 426 of 2020

and Respondent No. 2 in Company Appeal (AT) (Ins.) No. 430 of 2020, 432 of

2020 & 710 of 2020.

9. Committee of Creditors ('CoC') is the Respondent No. 2 in Company

Appeal (AT) (Ins.) No. 426 of 2020, Respondent No. 4 in Company Appeal -9- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

(AT) (Ins.) No. 430 of 2020 & 432 of 2020 and Respondent No. 5 in Company

Appeal (AT) (Ins.) No. 710 of 2020.

10. BREP Asia II Indian Holding Co II (NQ) PTE. Ltd. i.e., SRA is the

Respondent No. 5 in in Company Appeal (AT) (Ins.) No. 426 of 2020,

Respondent No 3 in in Company Appeal (AT) (Ins.) No. 430 of 2020 and 710

of 2020.

11. Subodh Kumar Agrawal is the IRP and Respondent No. 1 in in Company

Appeal (AT) (Ins.) No. 430 of 2020, 432 of 2020 & 710 of 2020.

12. Counsel for the other Respondents who appeared before us generally

took the same line of pleadings as taken by the Respondents noted above.

Company Appeal (AT) (Ins.) No. 426 of 2020

13. NCC Ltd. is the Appellant herein and the Operational Creditor of M/s

Golden Jubilee Hotels Pvt. Ltd. ('Corporate Debtor') the Respondent No. 1

herein, who submitted the claims of Rs. 51,75,95,253/- as on 14.03.2018 in form

-B subsequent to public notice dated 01.03.2018 after initiation of CIRP of the

Corporate Debtor on an application under Section 7 of the Code.

The Committee of Creditors ('CoC') is the Respondent No. 2 herein.

Telangana State Tourism Corporation Limited ('TSTCL') (earlier known

as Youth Advancement Tourism and Culture Department) ('YATCL') is the

Respondent No. 3 herein.

-10-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Shilparamam Arts, Crafts & Cultural Society ('Society') is the

Respondent No. 4 herein.

BREP Asia II Indian Holding Co. II (NQ) Pte. Ltd. is the Respondent

No. 5 herein who is the Successful Resolution Professional ('SRA') of the

Corporate Debtor.

14. It is the case of the Appellant that relying upon this Appellate Tribunal's

order dated 23.10.2019, the Appellant also preferred an I.A. No. 950 of 2019 in

I.A. No. 32 of 2019 in CP (IB) No. 248/7/HDB/2017 opposing the application

of Resolution Professional, inter-alia, seeking approval of the Resolution Plan of

SRA/Respondent No. 5. The Appellant submitted that the Adjudicating

Authority had decided the said application of the Appellant along with other

application objecting to the approval of the Resolution Plan, however, vide the

Impugned Order dated 07.02.2020, the Adjudicating Authority approved the

Resolution Plan as recommended by majority of CoC.

Company Appeal (AT) (Ins.) No. 430 of 2020

15. This appeal has been filed by the Consolidated Engineering Company

through its partner against the Impugned Order dated 07.02.2020 passed in IA.

No. 960 of 2019 and IA. No. 32 of 2019 filed in CP (IB) No. 248/7/HDB/2017.

Subodh Kumar Agrawal, the former Resolution Professional of M/s

Golden Jubilee Hotels Private Limited/ Corporate Debtor is the Respondent

No. 1 herein.

-11-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Golden Jubilee Hotels Private Limited/ Corporate Debtor is the

Respondent No. 2 herein.

BREP Asia II Indian Holding Co. II (NQ) Pte. Ltd. is the Respondent

No. 3 herein who is the Successful Resolution Professional ('SRA') of the

Corporate Debtor.

Committee of Creditor ('CoC') of the Corporate Debtor is the Respondent

No. 4 herein.

16. The Appellant stated that the Appellant is a small enterprise registered

under MSMED Act and had supplied goods and services for designing,

fabrication and installation of building facade and allied works for Trident

(Tower- I) and Oberoi Hotel (Tower-II) of the Corporate Debtor.

17. The Appellant submitted a claim of Rs. 20,02,07,912/- in Form B by

email and on 14 March 2018. The Respondent No. 1 admitted a claim of Rs.

10,52,37,168/- submitted by the Appellant. Post reconciliation a further amount

of Rs. 21,54,575/- was admitted on 8th September 2018 as against the claim of

the Appellant and an amount of Rs. 5,18,56,248/- was admitted as contingent

liability. The Appellant stated that as a huge amount of Rs. 3,84,32,558/- of the

claim of the Appellant was not admitted by the Respondent No.1, the Appellant

filed I.A. No. 264 of 2018 before the Adjudicating Authority, inter alia, praying

for a direction for Respondent No. 1 to admit the entire claim of the Appellant. -12-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Even though the Resolution Plan has been approved, the said application has not

been decided.

Company Appeal (AT) (Ins.) No. 432 of 2020,

18. This appeal has been filed by the Infinity Interiors Private Limited against

the Impugned Order dated 07.02.2020 passed in IA. No. 961 of 2019 and IA.

No. 32 of 2019 filed in CP (IB) No. 248/7/HDB/2017.

Subodh Kumar Agrawal is the Respondent No. 1 herein, who was

Resolution Professional of M/s Golden Jubilee Hotels Private Limited/

Corporate Debtor/ the Respondent No. 2 herein.

BREP Asia II Indian Holding Co. II (NQ) Pte. Ltd. is the Respondent No.

3 herein who is the Successful Resolution Professional ('SRA') of the Corporate

Debtor.

Committee of Creditor ('CoC') of the Corporate Debtor is the Respondent

No. 4 herein.

19. The Appellant stated that he is a registered "Small Enterprise" under the

MSMED Act and is an Operational Creditor of the Corporate Debtor, who was

engaged by the Corporate Debtor for certain interior works and supply of

materials.

20. The Appellant submitted that post CIRP of Corporate Debtor, he filed a

claim of Rs. 4,87,39,050/- with the Respondent No. 1 and subsequently on 20 -13- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

July 2018, the appellant also submitted an additional claim of Rs. 1,85,00,000/-

and after clarifications regarding the claims by the Appellant and discussions

between the parties, the admissible claim of the Appellant was revised to be Rs.

4,40,24,552/-.

Company Appeal (AT) (Ins.) No. 710 of 2020,

21. This appeal has been filed by the Ahuja Furnishers Pvt. Ltd. against the

Impugned Order dated 07.02.2020 passed in I.A. No. 32 of 2019 in CP (IB) No.

248/7/HDB/2017.

Subodh Kumar Agrawal is the Respondent No. 1 herein and former

Resolution Professional of M/s Golden Jubilee Hotels Private Limited/

Corporate Debtor, who is the Respondent No. 2 herein.

BREP Asia II Indian Holding Co. II (NQ) Pte. Ltd. is the Respondent No.

3 herein who is the Successful Resolution Professional ('SRA') of the Corporate

Debtor.

Insolvency and bankruptcy Board of India (in short 'IBBI') is the

Respondent No. 4 herein.

Committee of Creditor ('CoC') of the Corporate Debtor who is the

Respondent No. 5.

22. The Appellant stated that he is a supplier of furniture to the Corporate

Debtor and a registered 'small enterprise' under the MSMED Act. -14-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

23. The Appellant stated that after CIRP of Corporate Debtor, he submitted a

claim of Rs. 29,83,025.69/- in Form B to the Respondent No. 1 on 08.03.2018.

The Respondent No.1 admitted a claim of Rs. 29,08,729/- The same was

communicated to the Appellant by the Respondent No. 1 vide email dated 24th

August 2018 and the Appellant communicated his approval to the Respondent

No. 1 on the same date.

Common Pleading of the Appellants

24. We have already noted the facts of all four cases of Operational Creditor

as discussed above. We note that the Company Appeal (AT) (Ins.) No. 426 of

2020 was represented by Ms. Priya Kumar whereas other three Operational

Creditor in Company Appeal (AT) (Ins.) No. 430, 432 & 710 of 2020 were

commonly represented by Mr. Uddyam Mukherjee.

Both Counsels have argued extensively and supported each other. As

such, the common arguments of all four Appellants are noted in following

discussions.

25. The Appellants stated that they came to know that nil payment has been

provided in respect of his claims in the Resolution Plan and aggrieved by same,

the Appellant (NCC) filed an I.A. No. 9 of 2019 before the Adjudicating

Authority seeking direction that the Resolution Plan as submitted should not be

approved. The Appellants submitted that by a common order dated 27.09.2019

passed by the Adjudicating Authority in I.A. No. 9 of 2019 of the Applicant as -15- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

well as similar applications filed by the Operational Creditors were disposed of

by the Adjudicating Authority holding that the objection raised by the

Operational Creditor including the Appellants herein will be considered at the

stage of consideration of the Resolution Plan which was pending before the

Adjudicating Authority and also held that the Appellant being an Operational

Creditor had no locus to challenge the same.

26. The Appellants stated that the Appeal bearing Company Appeal (AT)

(Insolvency) No. 1112 of 2019 was filed against the said order of the

Adjudicating Authority dated 27.09.2019 by one of the operational Creditor i.e.,

Consolidated Engineering Company and this this Appellate Tribunal vide order

dated 23.10.2019 directed the Adjudicating Authority to consider whether the

Operational Creditor has been given the same treatment as the Financial

Creditor under the Resolution plan and also gave further direction that if found

to be discriminatory, it will be upon the Adjudicating Authority to pass the

appropriate order as per the decision of the Hon'ble Supreme Court of India in

the matter of Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors. in Writ

Petition (Civil) No. 99 of 2018.

27. The Appellants submitted that they filed the applications before the

Adjudicating Authority objecting to the Resolution Plan dated 17.12.2018 on

the ground that the plan as approved by the CoC and discriminates between

similarly situated operational creditors in so far as YATCL and Society were -16- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

being paid exorbitant amounts while the claim of the Appellants were allotted

'Nil amounts'. YATCL and the Society are collectively referred to as 'Special

Operational Creditor' or 'GoT' in the Resolution Plan. The Appellants pleaded

that such special category is beyond the scheme of the Code which does not

mention of such categorization. The Appellants submitted that their objections

were rejected by the Adjudicating Authority through the Impugned Order. It is

the case of the Appellants that the Adjudicating Authority reliance on

Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta

& Ors. [(2020) 8 SCC 531] for a sub-class is misplaced since that was in the

context of financial creditors being secured and unsecured or dissenting and

concurring financial creditors and not in the case of Operational Creditors like

in the present case and there can be no class or sub-class within the Operational

Creditor.

28. The Appellants submitted that while approving the Resolution Plan, the

CoC was expected to exercise its commercial wisdom in overall perceptive

taking care of all stakeholders and it was expected that the Adjudicating

Authority would examine whether in fact the commercial wisdom was exercised

correctly or not. The Appellants stated that the Adjudicating Authority

completely ignored this aspect.

29. The Appellants summarised main grounds for challenge to the Resolution

Plan i.e., discrimination within the same class of creditors, i.e., Operational -17- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Creditors and while exercising the alleged commercial wisdom, the CoC has not

taken into account requirement of all stakeholders especially while distributing

the corpus available with the Corporate Debtor. The Appellants stated that the

Resolution Plan was also not firm as further amounts, other than those provided

in the resolution plan for the Special Operational Creditor, are being negotiated

even now.

30. The Appellants submitted that the role assigned to CoC, due to exclusion

of Operational Creditors from the CoC, cast more duties on CoC to balance the

interest of all stakeholders. The Appellants stated that the preferential treatment

to Special Operational Creditor, does not tantamount to exercise of commercial

wisdom.

31. The Appellants submitted that on 21.12.2018, the Resolution Plan

submitted by the SRA was approved by the CoC with 68.26% votes, despite

being a Conditional Resolution Plan, wherein all payments under the Resolution

Plan were subject to completion of the condition precedent. The Appellant

stated that the CoC overlooked the fact that in the 14th CoC meeting the

resolution applicants were requested to remove condition precedents from the

resolution plans and submit revised plans which was overlooked.

32. The Appellants assailed the conduct of the CoC and the Resolution

Professional, who permitted the SRA to acquire the Corporate Debtor for a

meagre amount of Rs. 385 Crores whereas the value of the land and the building -18- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

alone was in excess of Rs. 600 Crores and the Hotel being an operating

business, the enterprise value of the Corporate Debtor should at least be in

excess of Rs. 800 Crores at the stage of filing appeal in the year 2020.

33. The Appellants stated that taking note of conditions of MSMEs in the

economy, the Parliament in its wisdom enacted and inserted Section 240A of the

Code to give special protection to MSMEs in CIRP, but the same was ignored

while approving the Resolution Plan. The Appellants mentioned that the

amounts due and payable to MSMEs are statutorily payable and any Resolution

Plan which does not provide for the same is contrary to law.

34. The Appellants submitted that I.A. No. 960 of 2019 in CP (IB) No.

248/7/HDB/2017 was filed before the Adjudicating Authority on 31.10.2019,

inter alia, praying for declaration that the Resolution Plan was contrary to law

and appropriate modifications be made in the Resolution Plan to ensure payment

of entire claim of the Appellants, among other things. The Appellants stated that

the Adjudicating Authority, vide the Impugned Order, approved the Resolution

Plan without appreciating that the Resolution Plan was contrary to law as it

discriminates amongst similarly situated operational creditors and unlawfully

created & provided a sub-category of 'special operational creditor' provided for

payment of 100% dues of only Special Operational Creditor ignoring the claims

of all the other operational creditors, in violation of provisions of the Code. -19-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

35. The Appellants brought that an award has been pronounced on

25.02.2020 by the Arbitral Tribunal in the pending arbitration proceedings

between the Corporate and YATCL and as per the Corporate Debtor and in

terms of the Award, no payment was required to be made by the Corporate

Debtor to YATCL. On the contrary, the Corporate Debtor was entitled to

recover Rs. 28.88 Crores from YATCL in terms of the Award. It is the case of

the Appellants that the surplus money on account of dismissal of claims of

YATCL in the arbitration proceedings must be distributed among operational

creditors.

36. The Appellants stated that Adjudicating Authority failed to follow the

principles laid down by the Hon'ble Supreme Court of India in Swiss Ribbons

(Supra) wherein it was held that the Regulation further strengthens the rights of

operational creditors by statutorily incorporating the principle of fair and

equitable dealing of operational creditors' rights, together with priority in

payment over Financial Creditors. The Appellants submitted that Adjudicating

Authority failed to appreciate that the Resolution Plan was in violation of

Regulation 38 of the Regulations which provides that no differential treatment

should be done between the Operational Creditors and the Financial Creditors,

who are similarly situated and failed to look after the interests of all

stakeholders including operational creditors.

-20-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

37. The Appellants stated that the SRA has no right on the surplus generated

by the Corporate Debtor during CIRP and such amounts have to be distributed

amongst the stakeholders such as Financial Creditors, Operational Creditors,

etc. but the Adjudicating Authority erroneously approved the Resolution Plan.

38. The Appellants submitted that the Adjudicating Authority has

misconstrued the law laid down by this Appellate Tribunal in Jindal Steel &

Power Ltd. Vs. DCM International Ltd. in Company Appeal (AT) (Insolvency)

No. 288 of 2017, as the facts in present case are completely distinguishable from

Jindal Steel (Supra), where the lessee initiated CIRP against the Corporate

Debtor (lessor) for default in refund of security deposit which is not the case

here.

39. The Appellant submitted that there cannot be any further classification in

the same category of Operational Creditors. The Appellant cited the judgement

of Hon'ble Supreme Court of India in the case of Pratap Technocrats (P) Ltd.

v. Reliance Infratel Ltd. (Monitoring Committee), [(2021) 10 SCC 623]. The

Appellant pleaded that the approved Resolution Plan violates this Ratio and

hence the Resolution Plan and Impugned Order needs to be rejected. The

relevant paragraph of the cited judgement reads as under: -

"32. .....the ambit of the adjudicating authority is to determine whether the amount that is payable to the operational creditors under the resolution plan is consistent -21- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

with the above norms which have been stipulated in clause

(b) of sub-section (2) of Section 30.

...... "shall be fair and equitable" to such creditors. Fair and equitable treatment, in other words, is what is fair and equitable between the operational creditors as a class, and not between different classes of creditors."

(Emphasis Supplied)

40. The Appellants conceded that while upholding the preferential treatment

extended to farmers, in the case of Excel Engineering & Ors. v. Vivek

Muralidhar Dabhade [2022 SCC OnLine NCLAT 4461], this Appellate

Tribunal in the passing has stated under paragraph 15 that,

".... This Tribunal is of the considered opinion that there is no embargo for the classification of 'Operational Creditors' into separate/ different classes for deciding the way in which the money is to be distributed to them by the CoCs"

The Appellant submitted that this observation cannot be stated to give rise

to a precedent and an expression of the law.

41. Concluding their pleadings, the Appellants requested this Appellate

Tribunal to set aside the Impugned Order or alternatively direct the CoC to

redistribute amount payment to all Operational Creditors on pro-rata basis

instead of payment being made only to Special Operational Creditor. -22-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Pleadings of the Respondents

42. We note that the Resolution Professional of the Corporate Debtor and

Corporate Debtor, in all four appeals, have been represented by

Mr. Suryanarayan. The CoC has been represented by Mr. Arun Kathpalia. The

SRA has been represented by Dr. Abhishek Manu Singhvi. YATCL has been

represented by Mr. Manoj Kumar Koyalkar and Society was represented by Mr.

Swapnil Gupta.

43. Three main contesting Respondents i.e., Corporate Debtor/ Resolution

Professional, CoC and SRA have pleaded in all four appeals, by and large, with

common approach and common pleadings. Hence, we will take note of same in

the following discussions.

44. Per contra, the Respondents denied all averments of the Appellate

Tribunal and also denied following grounds of challenge to the impugned order

by the appellants: -

(a) There is no category as "Special Operational Creditor" in the code which also does not

contemplate discrimination within the same class of creditors.

(b) While the "Special Operational Creditor" had been given 100% of the claims

which included admitted and disputed claims pending adjudication, all other

operational creditors like the appellant, even though having adjudicated/admitted

claims in their favor have been granted "NIL".

(c)The payment approved in the resolution plan in favor of YATCL is not based on -23- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

liquidation value but on other considerations and though preferential payment is

considered to YATCL, the consideration for the payment of Rs.41.99 Crs. was not

relatable to lease rentals and is speculative and based on probabilities.

(d) Adjudicating Authority failed to consider disproportionate distribution of

amounts and non-compliance of provisions of section 30 of the Code.

(e) The Resolution plan is a conditional resolution plan and is dependent upon

completion of condition precedent. The Resolution plan provides return of the

performances guarantee in full to the respondent no. 3 in the event the CP is not

satisfied without any obligation or liability being incurred by Respondent No.3.

(f) The Resolution plan has not made any provision for infusion of funds for the

purpose incurring the CIRP costs by the SRA.

(g) The Resolution plan purports to incentivize the financial creditors for

providing NIL payment to operational creditors.

Pleadings of the Resolution Professional/ Corporate Debtor

45. The Respondent submitted that the dues of YATCL and Society, being the

lessors of the land, stand on a different footing when compared to other

Operational Creditors. The Respondents emphasised that the hotel of the

Corporate Debtor is built on the land provided on lease by YATCL and the

Society, therefore, the Adjudicating Authority correctly recognized this aspect -24- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

in the Impugned Order i.e., the claims of all the operational creditors can not be

considered similar and consequently they cannot be paid in equal proportion.

46. The Respondent submitted that there is a clear subclass of Operational

Creditors which was envisaged by the SRA and hence the category of Special

Operational Creditor has been created which is legally permissible.

47. The Respondent submitted that the preamble of the Code clearly

establishes that resolution of the Corporate Debtor is the prime objective of the

Code as amplified by the Hon'ble Supreme Court in the matter of Swiss Ribbons

(Supra) and intention of present Resolution Plan is same.

48. The Respondent stated that in K. Shashidhar Vs Indian Overseas Bank

& Ors in Civil appeal No. 10673 of 2018 with 10719 & 10971 of 2018 and SLP

No. 29181 of 2018, held that the commercial wisdom of the CoC has been given

paramount status without any scope for any judicial intervention for ensuring

the resolution of the Corporate Debtor within the timelines prescribed in the

Code. The Respondent stated that neither the Adjudicating Authority nor this

Appellate Tribunal have been given any jurisdiction to reverse the decision

taken in excise of commercial wisdom of the CoC.

49. The Respondent submitted that project related agreements i.e., the lease

agreement and the Development Management Agreements entered by the

Corporate Debtor with Society and the YATCL are the essential agreements of -25- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

the BOT model who as the owner of the land has leased the premises to the

Corporate Debtor.

50. The Respondent submitted that, though agreeing to the contention of the

Appellants that some of them are registered as MSMED units for which certain

benefits and reliefs have been provided under the MSMED Act, the Appellant's

cases do not fall under protective net of provisions of MSMED Act, as the

MSMED act being an act enacted in the year 2006, is subservient to the

provisions of the Code which has a non-obstante clause under section 238 of the

Code.

51. The Respondent submitted that the Hon'ble Supreme Court of India in

Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta

& Ors. (Civil Appeal No. 8766-67 of 2019) held that it is the commercial

wisdom of the requisite majority of the CoC which is to negotiate and accept a

resolution plan, which may involve differential payment to different classes of

creditors. The Respondent further stated that the Section 30 (2)(b) of the Code

deals with the payments of debts of the operational creditors and in explanation

(1) given in the said section, it has been clarified that a distribution in

accordance with provisions of clause (b) of Sub Section (2) of Section 30 shall

be fair and equitable to such creditors. The Respondent elaborated that as long

as the payment and distribution to the creditors under the plan is in compliance

of the Section 30(2)(b) (i) & (ii), the same has to be considered as fair and -26- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

equitable and therefore the allegation of distribution being made to Operations

Creditors being NIL therefore, contravenes the provisions of the Code is not

correct. The Respondent stated that the Resolution Plan submitted by the SRA is

in compliance with the provisions of Section 30(2)(b), as the liquidation value

payable to the Operational Creditors is NIL.

52. The Respondent submitted that in terms of ratio of "Pratap Technocrats

Vs Monitoring committee of Reliance infratel...& Ors" (Civil appeal no.676 of

2021 (2020-10 SCC 623), the Adjudicating Authority or Appellate Tribunal

does not have any residual jurisdiction with respect to modification of the

claims once the resolution plan is approved and commercial wisdom of the CoC

in approving the resolution plan can not be interfered.

53. The Respondent submitted that in the matter of Arbitration between

Golden Jubilee Hotels (p) Ltd and the State of Telangana (YATCL), the award

has been pronounced on 25.02.2020 and monetary claims made by M/s GJHPL

is awarded to the extent of Rs.25.95 Crores which has been challenged by the

YATCL under section 34 of the Arbitration and conciliation act before the City

Civil and Commercial Court- Hyderabad vide COP 39 of 2020.

54. The Respondent elaborated that the approved resolution plan provides for

Rs. 41.99 Crores as the amount of "Society Claim," towards lease and DMA

dues. The Respondent explained that the claims filed by the operational

creditors aggregating to Rs.112.52 Crores out of which Rs.50.07 Crores have -27- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

been admitted which excludes Rs. 41.99 Crores as the Society Claim. The

Respondent submitted that the claims of YATCL and Society as Special

Operational Creditor, have been earmarked as amount of upto society claims

forming part of Upfront Financial Commitment of the approved Resolution

Plan. The Respondent submitted that a conjoint reading of the clauses 8.2.1 of

the approved resolution plan and the "upfront financial commitment" denote that

the SRA would engage in discussion with the special operational creditor to

arrive at a negotiated settlement with respect to the "Upfront Financial

Commitment" as mentioned in the approved resolution plan. The Respondent

stated that the "Upfront Financial Commitment" has been defined in clause no.

1.22. It has been clarified by the SRA that in case the Actual special operational

creditor amount is higher than that of the society claim then the difference

between the Actual Special Operational Creditor Amount and the Society Claim

would be added to Rs. 384 Crores. i.e., "Upfront Financial Commitment".

55. The Respondent stated that in addition, as a part of Corporate Debtor's

contractual obligations, the lease rentals and DMA amounts as specified by

lease agreements, entered by the GJHPL are being paid to YATCL during CIRP

to maintain the Corporate Debtor as a "Going Concern." Against this back

ground, the negotiations are being undertaken by the SRA for arriving at a

positive settlement with Special Operational Creditor (i.e., YATCL and Society)

keeping in view the special status of the project and the overall economic -28- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

viability of the project and potential financial benefits that would accrue to the

Corporate Debtor which would eventually result in value maximization of assets

of the Corporate Debtor.

56. The Respondent submitted that the alleged contention that the Resolution

plan purports to incentivize the financial creditors is frivolous and the

liquidation value is far less than the total amount of admitted claims of the

financial creditors and hence as per the provisions the code the amounts which

are purported to be distributed would be as per the water fall mechanism under

section 53 of the Code and resultantly the value available to the operational

creditors is NIL.

57. The Respondent empathetically submitted that the CoC can approve the

Resolution Plan which provide different amounts to different creditors as per

their collective commercial wisdom. The Respondent referred to the judgments

of this Appellate Tribunal in submissions of this pleadings and relied to Excel

Engineering & Ors vs Mr. Vivek Murlidhar Dabhade and Resolution

Professional of New Phaltan Sugar Works Ltd. in Comp. Apps. (AT) (Ins.)

No. 85-86 of 2020, where this Appellate Tribunal held that "....Different class of

creditors can be treated differently and the contention that all the operational

creditors shall be treated on equal footing is not tenable". The Respondent

stated that Resolution Plan is not discriminatory and is not in violation of

Section 30(2) of the Code and further Section 53 of the Code categorically -29- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

provides different priorities of payments for Employees, Statutory Dues and

other Operational Creditors. The Respondent elaborated that suitable

classification would depend upon the facts and circumstances of each case and

the nature of the industry and the Modus Operandi of the functioning of the

Corporate Debtor.

58. The Respondent also cited this Appellate Tribunal's order in the case of

Sai Balaji Facility vs CA Ramchandra Dallaram Choudhary, RP for Adico

Forge Pvt. Ltd. & Ors.- Company Appeal (AT) (Ins) No. 1642 of 2024, where it

was held that Operational Creditors as the law stands now are denied any

payment when the amount payable to them in the event of Liquidation is NIL

and this Appellate Tribunal in this case did not find any error in the Order of the

Adjudicating Authority, approving the Resolution Plan.

59. The Respondent cited to the case of this Appellate Tribunal in the matter

of Paramvir Singh Tiwana & Ors V Puma Realtors thru R Pawan Kumar

Garg, and Ors (NCLAT Principal Bench New Delhi- Company Appeal (INS)

No. 554 of 2021) [(2022) SCC online NCLAT 1605], where it was held that :-

"In approval of Business plan, the COC takes a business decision based on ground realities by majority which binds all the stakeholders including the dissenting creditors..."In the instant case cited, the GMADA being the owner of the land and a secured creditor have not filed their claim in the CIRP. However, keeping in view, the nature of business -30- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

(real estate) and ground realities the COC has taken a commercial decision"

(Emphasis Supplied)

60. The Respondent negated that pleadings of the Appellant regarding

conditional Resolution Plan keeping in view "Condition Precedent" as well as

Arbitrations amount discussed earlier. In this connection, the Respondent cited

judgment of this Appellate Tribunal in the case of Santosh Wasantrao Walokar

Versus Vijay Kumar V. Iyer and Another passed in Company Appeal (AT)

(Insolvency) No. 871-872 of 2019 [(2020) SCC OnLine NCLAT 128] , where the

following was held :-

"30. The issues raised in the present Appeal is accordingly answered below:-...

(ii)...The Adjudicating Authority and Appellate Authority has to go by various propositions of law stated above accordingly to which they have to go by the commercial wisdom of the committee of creditors while approving the Resolution Plan. The given Resolution Plan is conditional but since according to the express directions given by Supreme Court in the various stated above. The Adjudicating Authority per se will have to go the Commercial wisdom of Committee of Creditors."

(Emphasis Supplied)

61. Concluding, his arguments, the Respondent requested to dismiss all four

appeals with costs.

-31-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Pleadings of SRA

62. The SRA gave the background of the case and highlighted the important

provisions of the Resolution Plan He summarized and brought out the key

clauses of the Resolution Plan which reads as under -

Cl. 1.1(a) and (b): As per the approved resolution plan admitted claims of

financial creditors are Rs. 949.83 Crores, admitted claims of operational

creditors amount to Rs. 50.07 Crores, which excludes the claims of YATCL and

Society of Rs. 41.99 Crores. The SRA has earmarked Rs. 41.99 Crores

("Society Claim") to be paid to the GoT/ Special Operational Creditor.

Cl. 1.1 r/w Cl. 1.2.3(c) r/w Cl. 8.2.2:Liquidation value of the Corporate Debtor

is 'Nil'. Hence, no payment has been proposed to Operational Creditors and the

Other Creditors

Cl. 8.2.1 @ Pg. 21 r/w the Definition of Actual Special Operational Creditor

Amount in Schedule 1: The amount to be actually paid to the GoT/ Special

Operational Creditor is termed as "Actual Special Operational Creditor

Amount", which is the final negotiated amount payable to GoT pursuant to

negotiations between the SRA and GoT

[ Note: The SRA is negotiating with the GoT because (i) after making a claim of

Rs. 41.99 Crores, the GoT sent a letter dated 14.09.2018 to the Corporate

Debtor claiming Rs. 76.13 Crores, and (ii) there is an Arbitral Award dated

25.02.2020 ("YATC Arbitral Award") for an amount of Rs. 25.95 Crores in -32- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

favour of the Corporate Debtor and the GoT, has challenged the same and the

monies have not been paid to the Corporate Debtor until now. By way of

negotiations, the SRA is inter alia aiming to arrive at a final Actual Special

Operational Creditor Amount to be paid to GoT in settlement of all past, present

and future claims of GoT vis-à-vis the Corporate Debtor.]

Table in Cl. 1.2.2: Upfront Financial Commitment to be paid by the SRA to

inter alia GoT/ Special Operational Creditor (Actual Special Operational

Creditor Amount) and Financial Creditors (Upfront FC Amount) is Rs. 384

Crores.

Note: Financial Creditors, who are only entitled to receive sums forming a part

of Rs. 384 Crores as per the Approved Resolution Plan, are taking haircuts of

more than 60% against their admitted claims of INR 949.83 Crores.

6.1 Cl. 8.2.5: If the Actual Special Operational Creditor Amount, after

negotiations with the GoT, is fixed at an amount which is greater than the

Society Claim/ INR 41.99 Crores, the amount in excess of INR 41.99 Crores

will be added to the Upfront Financial Commitment, i.e., the excess amount will

be paid in addition to Rs. 384 Crores.

6.2 Cl. 8.2.5 r/w Definition of Upfront Payment Amount in Schedule 1: If

the Actual Special Operational Creditor Amount, after negotiations with the

GoT, is fixed at an amount which is lesser than the Society Claim of Rs. 41.99

Crores, the SRA will pay the Upfront Payment Amount (which will -33- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

automatically increase proportionate to the money saved from the earmarked

sum of Rs. 41.99 Crore for the GoT). Over and above, the SRA will also pay an

additional Rs. 17 Crores to the Financial Creditors.

6.3 Cl. 1.2.5 along with the Definition of Net Cash in Schedule 1: After

transferring a sum of INR 16 Crores to a new bank account of the Corporate

Debtor to be opened by the SRA and to be used for the Corporate Debtor's

operational expenses, all excess cash remaining in the existing bank accounts of

the Corporate Debtor, will be transferred to the Financial Creditors

Note: In light of the above, there is no possibility of any gains occurring to the

SRA or Corporate Debtor by way of the negotiations with GoT, or the YATCL

Arbitral Award, or even otherwise.

63. The SRA highlighted that differential treatment inter se the same class of

creditors is legal and permissible, like Special Operational Creditor in the

present case. The SRA stated that. Explanation 1 to Section 30(2)(b) of the

Code only mandates that distribution of dues to operational creditors shall be

"fair and equitable". The legislature has consciously used the words "fair" and

"equitable" as opposed to "equal" or "proportionate" as is being claimed by the

Appellants.

64. The SRA submitted that during CIRP, the distribution of dues to

operational creditors can differ and may not be equal or proportionate, as long

as, there is an intelligible differentia behind such unequal treatment which -34- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

renders such treatment to be just, fair and reasonable, depending on the facts and

circumstances of each case. It is the case of the SRA that in the present case, the

SRA, CoC, Resolution Professional as well as the Adjudicating Authority,

agreed that the priority and special treatment to be given to the GoT/ Special

Operational Creditor is fair and equitable in the typical facts and circumstances,

whereby the GoT has a special status qua the Corporate Debtor and performs an

indispensable and important role being lessor of the land on which hotel is

situation.

65. The SRA submitted that the Hon'ble Supreme Court of India and this

Appellate Tribunal have upheld several resolution plans which provide for

differential treatment of creditors belonging to the same class. The SRA cited

the case of Essar Steel (Supra), where an example of electricity dues

(operational debt) was cited to state that a particular set of dues may be paid in

full so that carrying on business of the Corporate Debtor does not become

impossible. The Respondent stated that the Hon'ble Supreme Court of India

consciously stated that such special dispensation, if given to electricity dues,

may result in a consequent reduction of amounts payable to other financial and

operational creditors, which is the commercial wisdom exercised by the CoC

and resolution applicant to decide how CIRP is to take place.

66. The SRA brought to our notice to judgment of this Appellate Tribunal in

case of Excel Engineering (Supra), where it was held that a particular class -35- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

within the class of operational creditors, i.e., farmers, was separated and paid

their dues in full, while other operational creditor was paid only 1%. This

Appellate Tribunal held that classification and priorities of payments would

depend on facts and circumstances and nature of the industry.

67. The SRA stated that yet in other case, this Appellate Tribunal gave

similar ration i.e., in the case of Sabari Realty Private Limited v. Sivana Realty

Private Limited & Ors., Company Appeal (AT) (Insolvency) No. 1162 of 2023,

where it upheld the approval of a resolution plan which created two separate

classes within the same class of creditors/ homebuyers, i.e., (i) affected

homebuyers, and (ii) unaffected homebuyers, on the ground that the

classification was justified in the facts and circumstances and there was no

violation of any provision of law, upholding the commercial wisdom of CoC.

68. The SRA cited the case of in Beacon Trusteeship Ltd v. Jayesh

Sanghrajka & Ors., Company Appeal (AT) (Insolvency) No. 1494 - 1495 of

2022, where this Appellate Tribunal upheld a resolution plan wherein the class

of financial creditors was divided into two sub-classes, i.e., homebuyers/

allottees and other financial creditors. While the homebuyers/ allottees were

given 100% of their dues, the other financial creditors suffered 93% haircuts.

69. The SRA cited that in the present case, the priority and special

dispensation given to GoT/ Special Operational Creditor is "fair and equitable"

because as per the Memorandum of Association of the Corporate Debtor, the -36- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

sole object and business of the Corporate Debtor is to develop and manage the

5-star hotel - Trident, Hyderabad, which is constructed on a land owned by the

GoT and leased to the Corporate Debtor vide the Lease Agreement dated

09.05.2007, continuation of the which is absolutely essential for the continuity

of the business of the Corporate Debtor. Further, the GoT and the Corporate

Debtor have entered into a Development and Management Agreement dated

09.05.2007 which clarifies that the Project is PPP model and on BOT basis. The

Corporate Debtor is a SPV created by a consortium of several private members,

all jointly and severally responsible for development and operation of the

Project.

70. The SRA stated that the GoT is not simply a lessor/ landlord to the

Corporate Debtor, but a 'partner', which enjoys many more rights qua the

Project, as opposed to being simply entitled to lease rentals: The GoT is entitled

to 'Lease Rentals' as consideration for grant of lease. The GoT is entitled to an

'Additional Development Premium' from the Corporate Debtor, which is akin to

a revenue share, and is a minimum amount as specified in Schedule C of the

D&M Agreement or 3% of the gross revenue earned from the Project The

Corporate Debtor has provided bank guarantees to the GoT for due and punctual

performance of its obligations under the Lease Agreement and D&M

Agreement, and is required to furnish fresh bank guarantees upon occurrence of

events of default. GoT is entitled to clear any outstanding amounts of lenders in -37- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

case of default by the Corporate Debtor, terminate the lease, repossess the site

along with the Project. The GoT is not required to change the land use under

any circumstances. The GoT is at liberty to terminate the D&M Agreement at

its absolute discretion even during subsistence of the lease period, and upon

such termination, the GoT will buy-out the Project based on a business valuation

by an independent valuer. At the time of expiry of the Lease Period (which

expires in 2040 as of now) by efflux of time and in the normal course, the site

along with all immoveable assets shall be handed over by the Corporate Debtor

to the GoT in proper condition and without any damages.

71. The SRA submitted that the nature of relationship between the Corporate

Debtor and the GoT is not one where the interaction and dependency is a one-

time event but the engagement is continuous and inevitably requires the highest

degree of trust, mutual confidence, good faith, cooperation, consensus and

collaboration between both parties. The GoT plays an all-pervasive role in the

development, management and operations of the Project during and after the

lease period.

72. The SRA elaborated that "Fair and equitable" treatment means equal

treatment of parties who are similarly placed. The Appellant Operational

Creditors herein are operational creditors, who are certainly not similarly placed

with the GoT/ Special Operational Creditor. The Appellant Operational

Creditors are merely providers of goods and services to the Corporate Debtor -38- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

and do not hold any security interest and the Corporate Debtor is at liberty to

avail the goods and services from the present Appellant Operational Creditors or

any other such providers. Thus, the Appellant Operational Creditors are not

indispensable, unlike the GoT/ Special Operational Creditor, who are lessor of

land on which hotel is situated and Corporate Debtor can't survive without

support of Special Operational Creditor.

73. The SRA reiterated that the categorisation of the GoT as Special

Operational Creditor is based on an intelligible differentia, and is just, fair,

equitable and coherent with the principles of natural justice. The Appellant

Operational Creditors are being paid their liquidation value, i.e., 'Nil' and the

Appellant Operational Creditors do not have any locus standi to claim payments

as a right in the present facts and circumstances.

74. The SRA denied the case-laws relied upon by the Appellants which are

distinguishable and inapplicable to the facts of the case for the following

reasons:

(i) Pratap Technocrats (P) Ltd. v. Reliance Infratel Ltd. (Monitoring

Committee), (2021) 10 SCC 623,

The SRA stated that in this case the Hon'ble Supreme Court merely

reiterated that payments under a resolution plan must be "fair and equitable"

amongst the operational creditors and nowhere the Hon'ble Supreme Court held -39- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

that differential treatment of creditors belonging to the same class/ operational

creditors is ipso facto not "fair and equitable".

(ii) Akashganga Processors Pvt Ltd. v. Shri Ravinda Kumar Goyal & Ors.,

Company Appeal (AT) (Ins) No. 1148/2017, National Company Law Appellate

Tribunal

The SRA clarified that special treatment was sought to be given to tax

authorities and the only reason why this Appellate Tribunal did not permit

special treatment of the aforesaid tax authorities was because the special

treatment had no nexus with the revival of the corporate debtor or to ensure its

survival as a 'going concern'. Hence, there was no intelligible differentia which

could justify the special treatment. The SRA stated that in the present case,

special treatment of the GoT in the Resolution Plan has a direct nexus to the

revival of the Corporate Debtor and to ensure its survival as a 'going concern'.

75. The SRA stated that the Resolution Plan treats the monies received under

the Arbitral Award in a fair manner and there is no possibility of any windfall

gain being caused to the SRA or the Corporate Debtor. The SRA submitted that

the YATCL Arbitral Award of Rs. 25.95 Crores has no impact on the

liquidation value of the Corporate Debtor, which remains Nil. Hence, any

amounts to be received by the Corporate Debtor pursuant to the YATCL

Arbitral Award shall have no impact on distribution of dues to the Appellant -40- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Operational Creditors/ operational creditors as per the provisions of Section

30(2)(b) or Section 53 of the Code.

76. The SRA further elaborated that any monies gained by the Corporate

Debtor, or saved by the SRA, as a result of the YATCL Arbitral Award and/ or

negotiations with the GoT/ Special Operational Creditor, will be added to the

kitty of the Financial Creditors. This provision was instrumental to obtain the

approval of the CoC for the Approved Resolution Plan in its commercial

wisdom. In any case, the Appellant Operational Creditors cannot claim a right

to the amount as the same is reserved for the benefit of the Financial Creditors.

77. The SRA stated that the condition precedent in the Approved Resolution

Plan do not violate the Code. The sole condition precedent to the

implementation to the Approved Resolution Plan is obtaining GoT's consent for

change of control and restructuring of the Corporate Debtor. The Condition

Precedent has been inserted because the Corporate Debtor has specific

obligations to maintain a minimum shareholding of the original promoters of the

Corporate Debtor under the Development and Management Agreement dated

09.05.2007 which provides that the Lead Developer shall maintain a minimum

equity holding of at least 26% and stake never being less than any other member

and unless explicitly agreed by the GoT, the combined shareholding of all

original members shall not be less than 68%. The SRA clarified that

Development & Management Agreement is co-terminus with the Lease -41- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Agreement, which means that, if prior consent of the GoT is not received for

change in shareholding of the Corporate Debtor, the Development &

Management Agreement and Lease Agreement can be terminated by the GoT,

which would be a death knell for the Corporate Debtor.

The SRA submitted that in light of the pre-existing contractual

arrangements between the GoT and the Corporate Debtor, the Condition

Precedent is absolutely essential for the business of the Corporate Debtor and

implementation of the Approved Resolution Plan, which is legally permissible.

78. The SRA cited this Appellate Tribunal in Jet Aircraft Maintenance

Engineers Welfare Association v. Ashish Chhawchharia Resolution

Professional of Jet Airways (India) Ltd. & Ors., Company Appeal

(AT)(Insolvency) No. 752 of 2021, where this Appellate Tribunal upheld the

validity of condition precedent necessary for the implementation of the

resolution plan. The aforesaid judgment of this Appellate Tribunal has been

upheld by the Hon'ble Supreme Court of India vide Order dated 30.01.2023

passed in Civil Appeal No. 407/ 2023.

79. The SRA stated that this Appellate Tribunal in AJR Infra and Tolling

Ltd. v. Sutanu Sinha, Company Appeal (AT) (Insolvency) No. 920 of 2022

stipulated the ratio regarding the validity of condition precedent which is

necessary for implementation of the resolution plan itself, this Appellate

Tribunal also distinguished the Hon'ble Supreme Court's judgment in Ebix -42- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Singapore Private Limited v. Committee of Creditors of Educomp Solutions

Limited & Anr., [(2021) 14 S.C.R. 321] on the grounds that Ebix (Supra) was

not concerned with a situation where the conditions precedent were critical for

the implementation of the resolution plan itself.

80. The SRA submitted that the provisions of the MSMED Act do not

override the provisions of the IBC as under the Code, there exist no preferential

rights in the favour of operational creditors who are registered MSMEs under

the MSMED Act, 2006.

81. The SRA submitted that this Appellate Tribunal has not been vested any

jurisdiction to modify the Approved Resolution Plan and direct redistribution of

"payable amount to other Operational Creditor from amount payable to the

GoT/ Special Operational Creditor as this is impermissible in law. The Hon'ble

Supreme Court of India has held in SREI Multiple Asset Investment Trust

Vision India Fund v. Deccan Chronicle Marketeers & Ors., Civil Appeal No.

1706 of 2023 (Order dated 17.03.2023), that once a resolution plan is approved

by the CoC, the Adjudicating Authority or this Appellate Tribunal have no

authority to modify or alter the Resolution Plan.

82. Concluding his arguments, the SRA requested this Appellate Tribunal to

dismiss all these appeals with exemplary costs.

-43-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Pleading of CoC

83. The CoC submitted that the Impugned Order dated 07.02.2020 is lawful

and in accordance with the principles laid down by the Hon'ble Supreme Court

& as per code, therefore cannot be looked into.

84. The CoC submitted that decision of the Resolution Plan are non-

justiciable as the commercial wisdom of the CoC is supreme. The CoC stated

that the Resolution Plan received the requisite approval vote, complied with all

legal requirements and therefore there is no scope for any judicial interference

with commercial wisdom of CoC in view of Apex Court judgments in several

cases as cited by the counsel for SRA.

85. The CoC elaborated that full payment to Special Operational Creditors, is

not prejudicial to any stakeholder including or the other Operational Creditors.

The Special Operational Creditors provided land for the Hotel of corporate

debtor on lease, therefore in order to keep the Corporate Debtor as going

concern it was important to secure the land. The CoC stated that in absence of

such leased land, there would be nothing left with Corporate Debtor, so

differential treatment to State/YATCL & Society cannot be faulted with.

86. The CoC strongly defended the Discrimination within same class of

Operational Creditors. The CoC stated that the issue of discrimination within the

same class of Operational Creditors is settled law, as the Hon'ble Supreme -44- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Court has held in Essar Steel v. Satish Kumar Gupta (supra) that differential

treatment is permissible, if Operational Creditors are paid at least their

liquidation value. In this case, since the liquidation value payable to Operational

Creditors is NIL, the appellants have not suffered any loss or prejudice from the

payment made to the Government of Telangana/YATCL & Society.

87. The CoC negated the pleadings of the Appellants that the Resolution plan

is not firm due to potential variations in payment amounts to GoT/YATCL &

Society. The CoC stated that the flexibility of variations ensures the Resolution

Plan's viability despite ongoing arbitration-related negotiations. As the

Resolution Plan's includes provisions for full payment of society dues, there is

no risk to its implementation, and GoT/YATCL & Society will have no grounds

to withhold cooperation once fully compensated.

88. The CoC clarified the issue regarding availability of additional funds on

account of award in arbitration proceedings and stated that the claim of

additional funds from the arbitration award is unfounded, as the award is under

challenge under Section 34 of the Arbitration & Conciliation Act. Furthermore,

the corporate debtor's claims are smaller than those of GoT/YATCL, making it

unlikely for any significant funds to accrue to the corporate debtor from this

source.

89. The CoC denied the allegations of the Appellant that the SRA has

terminated the Resolution Plan. The Respondent clarified that the termination of -45- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

the Resolution Plan by the SRA occurred over a year after its approval.

However, the Bank of Baroda has filed IA No. 509/2021 before the

Adjudicating Authority for the implementation of the approved plan, which is

still pending. The withdrawal has not been approved by the Adjudicating

Authority, and the SRA has requested more time for implementation due to

ongoing negotiations with YATC/GoT. The Adjudicating Authority has granted

adjournments and extensions for implementation starting from December 22.

90. The CoC defended that long delay in implementation and stated that the

delay in implementing the Resolution Plan was due to litigation and the same

cannot be used as a basis to allow an appeal against the plan. The CoC stated

that the approval of the plan should be assessed based on the facts available at

the time of the impugned order.

91. The CoC requested this Appellate Tribunal to dismiss all these appeals.

Findings

92. The following issues emerges in above four appeals which are as under :-

93. Issue (I) Whether separate class of creditors can be created under the

broad category of Operational Creditors especially "special operational

creditor".

Issue (II) Whether, differential treatment inter-se the same class of creditors is

permissible.

-46-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Issue (III) Whether this Appellate Tribunal can exercise jurisdiction and direct

redistribution without any change in Resolution Plan and not infringing upon

commercial wisdom of CoC.

Issue (IV) Whether the condition precedent in the approved Resolution Plan

violated Code and Regulations.

Issue (V) Whether the provisions of MSMED give protection to MSME status

Operational Creditors in CIRP proceedings under the Code and Regulations.

Issue (VI) Whether Arbitral Award which came in favour of the Corporate

Debtor post CIRP will have impact in the present case.

94. Issue (I) Whether separate class of creditors can be created under

the broad category of Operational Creditors especially "special operational

creditor".

Issue (II) Whether, differential treatment inter-se the same class of

creditors is permissible.

Issue (III) Whether this Appellate Tribunal can exercise jurisdiction and

direct redistribution without any change in Resolution Plan and not

infringing upon commercial wisdom of CoC.

i. The crux of the matter in these appeals relates to differential treatment

given to various categories of Operational Creditors.

ii. We have noted from the pleadings that different Operational Creditors in

the present case have given different services or supplies to the Corporate -47- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Debtors like supplying material, construction of facade, providing

furniture, providing interior decorations or even the land which has been

given on lease by YATCL and the Society on two different plots owned

by these government entities.

iii. It is the case of the Appellants that the Resolution Plan has categorized a

sub-class within the class of Operational Creditors giving special and

preferential treatment to YATCL and Society (Special Operational

Creditor). We note that the 100% of claims of both the entities have been

provided for payment in the approved Resolution Plan and they have been

classified as "special Operational Creditors"; in contrast to other

Operational Creditors who have been clubbed together (other than Special

Operational Creditors) and given NIL payment in the Resolution Plan.

iv. It is an undisputed fact that the claims of the all the Operational Creditors

were collated by the Resolution Professional after submission by

respective Operational Creditors in Form B. After legal battles before the

Adjudicating Authority and this Appellate Tribunal, the Resolution

Professional admitted the various claims of the Operational Creditors and

put up to the CoC. We note that the SRA dealt the claims of all creditors

i.e., Financial Creditor, Operational Creditor, Special Operational

Creditor, employees, workmen, etc., in the Resolution Plan. -48-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

v. At this stage, we would like to take into account details provided in the

Resolution Plan giving the details of status of claims, financial

commitments, admitted claims and proposed payment, etc. The relevant

portion of the Resolution Plan as submitted by SRA dated 17.12.2018

reads as under :-

-49-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020 -50- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020 -51- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

vi. From above, it is noted that the total admitted claims of the Financial

Creditors is Rs. 949.83 Crores.

vii. Similarly, the claims filed by the Operational Creditors aggregated to Rs.

112.52 Crores, out of which the claim of Rs. 50.07 Cores have been

admitted. It is significant to note that such admitted claim of Operational

Creditors excluded claims of Rs. 42 Crores (Approx.) of Special

Operational Creditors and further the Special Operational Creditor vide

letter dated 14.09.2018 has claimed amount of Rs. 76 Crores (Approx.).

viii. Similarly, other creditors have filed claims of Rs. 10.19 Crores and

Rs. 5.94 Crores has been admitted. Three employees have filed claims of

Rs. 6.46 Crores, out of which Rs. 3.44 Crores (Approx.) has been

admitted.

ix. We also note from the Resolution Plan furnished by the SRA that total

financial commitment providing amount for various categories was

Rs. 584.02 Crores which included' the claims of special Operational

Creditors.

x. It will be relevant to note that from the above quoted tables (information)

note No. 1 reads as under :-

xi. "The Actual Special Operational Creditor Amount is higher than the

Society claim, then the difference between the Actual Special Operational

Creditor Amount and the Society Claim will be added to -52- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Rs. 384 Crores and shall be deemed to be the restated Upfront Financial

Commitment.

xii. The Appellants empathetically argued before us that such extra ordinary

treatment of Operational Creditors classifying into special Operational

Creditors is illegal and perverse as the same is not envisaged in the Code

or the Regulations.

xiii. It would be worthwhile to take into account the relevant definitions as

provided in the Code, having effect in the present appeal lik Section 3(6),

3(10), 5(7), 5(8), 5(20) and 5(21) of the Code, which are reproduced as

under :-

"3. In this Code, unless the context otherwise requires, -- (6) "claim" means-- (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured"

Section 3(10) -

"(10) "creditor" means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree holder"

Section 5(7) -

"5. In this Part, unless the context otherwise requires, -- (7) "financial creditor" means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to" -53-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Section 5(8) -

"(8) "financial debt" means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes...

"(20) "operational creditor" means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred"

Section 5(21) -

"(21) "operational debt" means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority"

(Emphasis Supplied)

xiv. We note that claim is the basic ingredient of the debt which is due and

payable by the Corporate Debtor to such class of Creditors. While

considering resolution of the Corporate Debtor, the claims are dealt in

accordance with the approved Resolution Plan under Section 31 of the

Code failing which they are dealt under Section 53 of the Code during

liquidation of the Corporate Debtor.

xv. Broadly the creditors can be classified into two categories, namely, the

Financial Creditor and the Operational Creditor. The Financial Creditor

by nature provides financial facilities. The claims of such Financial

Creditors are dealt in Resolution Plan and the Financial Creditor

constitute the CoC. As against this, the Operational Creditor are the

Creditors who have provided goods and services to the Corporate Debtor

whose claims are also dealt in the Resolution Plan but Operational -54- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Creditor are not made members of the CoC except in accordance with the

Code.

xvi. Generally, speaking Financial Creditor allocate maximum amount

possible to themselves since they are in CoC and being in CoC it is for

them to consider the approval of Resolution Plan or otherwise and only

on recommendation of CoC, the Resolution Professional files suitable IAs

before the Adjudicating Authority for approval of the Resolution Plan.

xvii. In the present case, YATCL and Society claims will also fall in the

definition of Operational Creditor like other Operational Creditors who

supplied various services, noted earlier.

xviii. For amount to be categorised as operational debt, it should satisfy the

definition of Section 3 (6) of the Code i.e., "claim" and such claims

should satisfy the definition of debt as referred to under Section 3(11) of

the Code and again it should satisfy the definition of Operational Debt as

contained in Section 5(21) of the Code. We note that no word like

"special Operational Creditor" has been defined under Section 3 or 5 of

the Code or anywhere else or even in the regulations.

xix. The claims payable by the Corporate Debtor who is the Central

Government or State Government or other local authority to whom

operational debt is owed are categorised as Operational Creditor as per

Section 5(20) of the Code. Thus, the Government, for such claims, in this -55- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

sense, would be an Operational Creditor. Such dues will also include the

dues like electricity services and will be treated as operational debt.

xx. The role of the CoC has been defined under Section 21 of the Code which

in fact, is supposed to be in charge during CIRP process and continues the

role during the approval of the Resolution Plan by the Adjudicating

Authority unless taken over the Corporate Debtor by the SRA. In fact,

even during implementation of the Plan by the SRA, the hat of the CoC

changes and take shape of the monitoring committee. The role of the CoC

is very important in bringing up the Corporate Debtor on his feet by

finding suitable resolution of the Corporate Debtor. The CoC is supposed

to exercise its commercial wisdom judiciously keeping in the object of the

Code and the provisions of the Code. The CoC assess viability and the

feasibility of the Resolution Plan and take decision on the Resolution of

all prevailing liabilities, both of Financial Creditor and Operational

Creditor as well as other liabilities as per Resolution Plan under

consideration of CoC. There is no doubt that the approval, rejection or

modification of Resolution Plan submitted by Prospective Resolution

Applicant is the commercial decision of the CoC taken as business

decision.

xxi. The Resolution Plan can be approved by the CoC only if 66% or more of

the votes of the voting shares of Financial Creditor approves the same -56- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

else the Resolution Plan stand rejected. We note that in the present case,

Resolution Plan was approved by this requisite majority and was

approved by 68.25%.

xxii. We note that in catena of judgment passed by the Hon'ble Supreme Court

of India as well as this Appellate Tribunal, it has been held, loud and

clear, without any ambiguity whatsoever, that commercial wisdom of the

CoC is paramount and cannot be interfere by the Adjudicating Authority

or by this Appellate Tribunal. Following are some of such cases :-

a. K. Shashidhar vs. Indian Overseas Bank & Ors. (2019) 12 SCC

150

b. Embassy Property Developments (P) Ltd. v. State of Karnataka,

(2020) 13 SCC 308

c. Greater Noida v. Prabhjit Singh Soni, (2024) 6 SCC 767

d. E.S. Krishnamurthy v. Bharath Hi-Tecch Builders (P) Ltd.,

(2022) 3 SCC 161

e. Tata Consultancy Services Limited v. Vishal Ghisulal Jain, 2020

SCC OnLine SC 1254

f. Ebix Singapore (P) Ltd. v. Educomp Solutions Ltd. (CoC), (2022)

2 SCC 401 : 2021 SCC OnLine SC 707

g. Pratap Technocrats (P) Ltd. v. Monitoring Committee of Reliance

Infratel Limited, 2021 SCC OnLine SC 661 -57- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

h. Kalpraj Dharamshi v. Kotak Investment Advisors Ltd., (2021) 10

SCC 401

i. Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, (2021) 7 SCC 209;

2021 SCC OnLine SC 194

j. Essar Steel India Ltd. Committee of Creditors v. Satish Kumar

Gupta, (2020) 8 SCC 531

k. Maharashtra Seamless Ltd. v. Padmanabhan Venkatesh, (2020)

11 SCC 467

l. Phoenix ARC (P) Ltd. v. Spade Financial Services Ltd., (2021) 3

SCC 475

xxiii. We will now take into consideration the latest judgment of the Hon'ble

Supreme Court of India passed in State Bank Of India & Ors Vs. The

Consortium Of Mr. Murari Lal Jalan And Mr. Florian Fritsch & Anr

in Civil Appeal Nos. 5023-5024 OF 2024 (Jet Airways case) and the

relevant portion on commercial wisdom of CoC reads as under :-

"Para 169- A Resolution Plan evolves through these players referred to above. However, it is the "commercial wisdom of the CoC" that assumes a position of superiority and becomes binding on all the stakeholders. The NCLT, which is the adjudicating authority and who has to approve the Resolution Plan under Section 31 of the IBC, 2016 also cannot trespass into the commercial wisdom exercised by the CoC. This decision to restrict the scope of interference on the commercial wisdom of the CoC was conscious and possibly taken bearing in mind the time delays that may arise out of a subsequent adjudication of the resolution -58- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

plans approved by the CoC. Therefore, the commercial wisdom of the CoC has achieved paramount status, immune from any judicial intervention, to ensure the completion of the respective processes under the IBC, 2016 within the timelines prescribed therein.

Para 170- The position that the "commercial wisdom" of the CoC is non-justiciable and only a limited judicial review is available in this regard is well-settled through several decisions of this Court. This Court in the case of K Shashidhar v. Indian Overseas Bank and Ors. reported in (2019) 12 SCC 150, held that: "

"52. As aforesaid, upon receipt of a "rejected" resolution plan the adjudicating authority (NCLT) is not expected to do anything more; but is obligated to initiate liquidation process under Section 33(1) of the I&B Code. The legislature has not endowed the adjudicating authority (NCLT) with the jurisdiction or authority to analyse or evaluate the commercial decision of CoC much less to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors. From the legislative history and the background in which the I&B Code has been enacted, it is noticed that a completely new approach has been adopted for speeding up the recovery of the debt due from the defaulting companies. In the new approach, there is a calm period followed by a swift resolution process to be completed within 270 days (outer limit) failing which, initiation of liquidation process has been made inevitable and mandatory. In the earlier regime, the corporate debtor could indefinitely continue to enjoy the protection given under Section 22 of the Sick Industrial Companies Act, 1985 or under other such enactments which has now been forsaken. Besides, the commercial wisdom of CoC has been given paramount status without any judicial intervention, for ensuring completion of the stated processes within the timelines prescribed by the I&B Code. There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and -59- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject-matter expressed by them after due deliberations in CoC meetings through voting, as per voting shares, is a collective business decision. The legislature, consciously, has not provided any ground to challenge the "commercial wisdom" of the individual financial creditors or their collective decision before the adjudicating authority. That is made non-

justiciable."

Para 171- Thus, there is no doubt that the commercial wisdom of the CoC cannot be subjected to judicial review. However, in order to foster a much more effective and time- bound decision making by the members of the CoC, in the interests of maximization of value of the assets of the Corporate Debtor, certain selfregulating guidelines were issued by the IBBI on 06.08.2024 with immediate effect...

Para 172- The aforesaid guidelines may go a long way in streamlining the functions of the CoC. Adding to the aforesaid guidelines, we suggest that the CoC exercise their commercial wisdom and approve/reject the Resolution Plans placed before them exhibiting fairness and with good reasons. Such a reasoned decision making on their part will only serve to further enable the other key players like the Adjudicating Authorities to understand the rationale behind their decision and to uphold the correctness of the same. Furthermore, it is also suggested that the Central Government or the IBBI explore the possibilities of better enforcement of the standards and practices enumerated in the guidelines through an independent mechanism under the auspices of an oversight committee instead of making them self-regulatory. This will enable the guidelines to achieve some level of practical and operational relevance and also -60- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

prevent any significant lapse in decision making on the part of the CoC."

(Emphasis Supplied)

xxiv. This recent judgment leaves no doubt about reinforced faith in

commercial wisdom of CoC and little scope of any judicial intervention.

xxv. From all these judgments, we note that the role of the Adjudicating

Authority is to ensure that the Resolution Plan complies with the

requirements of the Code especially under Section 30(2) of the Code.

xxvi. We observe that the CoC is also required to act fairly and in the

transparent manner and without any arbitrariness at any stage on their

part. However, the CoC has no role in deciding the position of the

creditor either as financial or Operational Creditor and such decision in

true sense cannot be treated as commercial wisdom. Whether the claims

of the Creditors will fall within the definition of Financial Creditor or the

Operational Creditor would be strictly in terms and ingredients provided

in the Code i.e., Financial Creditor as per Section 5(7)of the Code and

Operational Creditor as defined under Section 5(20) of the Code.

xxvii. We note that it is a job of the IRP/RP to collate the claims after which the

CoC is formed under Section 18 of the Code and if any person aggrieved

can make a case before the Adjudicating Authority.

-61-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

xxviii. This Appellate Tribunal has dealt with this issue in the case of Rajnish

Jain (Supra) and relevant paras reads as under :-

42. Therefore we are of the considered opinion that the Committee of Creditors was not empowered to adjudicate the issue that has cropped up in the present case, i.e. M/s BVN Traders' is a 'Financial' or 'Operational' Creditor.

Such adjudication is beyond the scope of consideration of the Committee of Creditors.

(Emphasis Supplied) xxix. From above it is clear that the categorisation from one class of creditors

cannot be done without competent authority approval. We consciously

note that the above judgement was specifically w.r.t., change from

Financial Creditor to the Operational Creditor and not inter-se sub-class

between same class like in present case.

xxx. In the present case various claims including by the Financial Creditor and

the Operational Creditor were submitted. In the Resolution Plan, the

SRA, classified the claims of the Operational Creditor into further two

categories i.e., Operational Creditor and Special Operational Creditor.

The same was examined, approval and recommended by the CoC and

finally approved by the Adjudicating Authority. We have already noted

these details earlier and will not repeat now.

xxxi. Still the issue remains whether the CoC or for that matters the

Adjudicating Authority could have approved sub-category within same -62- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

class of Operational Creditor. The Code specifically and consciously

stipulated provisions only for the Financial Creditor and the Operational

Creditor. The Code also recognises secured and unsecured creditors, but

we do not find any mention of Special Operational Creditor in the Code.

xxxii. It seems that the parliament never intended to do further bifurcation

within same category of Creditors i.e., Financial Creditor and Operational

Creditor, otherwise, sub-clause in Section 7 or Section 9 of the Code

would have been provided or at least covered under explanation to the

same. Even the definition contained under Section 3 and 5 also do not

havesuch sub-classification of creditors within same set of creditors.

xxxiii. In terms of judgment of Swiss Ribbons Private Limited (Supra), it has

been held that only Financial Creditor's to be member of the CoC and

Operational Creditor's are only entitled to have limited say in CoC. This

has been done perhaps, due to reason that Financial Creditor's are

involved in money lending and are best equipped to assess the feasibility

and viability of the business of the Corporate Debtor and they can

exercise the judicious decision while considering, the Resolution Plan i.e.,

to accept or otherwise. On the other hand, the Operational Creditor's who

provide goods and services have limited role only for recovering their

outstanding amount which are not paid by the Corporate Debtor . -63-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

xxxiv. It is very important to understand that the Resolution Plan cannot be

approved by the Adjudicating Authority under Section 30 (2) (b) r/w

Section 31 of the Code unless a minimum payment is made to the

Operational Creditor which cannot be less than as per Section 53 i.e.,

related to liquidation value. We need to understand that this, however,

cannot be construed that the claims of the Financial Creditor's and the

Operational Creditor are to be satisfied in pro-rata or in the same manner

as provided in the Resolution Plan under Section 31 of the Code. This

Appellate Tribunal in earlier case of Central Bank of India Vs

Resolution Professional Of the Sirpur Paper Mills Ltd. & Ors. in

Company Appeal (AT) (Insolvency) No. 526 of 2018 has clarified that as

long as two or more Financial Creditor's or two or more financial and

operational Creditors are not similarly situated then there is no

discrimination between them under a Resolution Plan.

xxxv. Section 30(2) (b) of the Code deals with the submission of the Resolution

Plan and how the same could be examined by Resolution Professional,

which reads as under :-

"30. Submission of resolution plan. -

...

(2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan -

-64-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

[(b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than-

(i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under section 53; or

(ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53, whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of section 53 in the event of a liquidation of the corporate debtor. Explanation 1. -- For removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors....."

(Emphasis Supplied) xxxvi. This makes it clear that the amount provided in the Resolution Plan to

Operational Creditor cannot be less than liquidation value of Corporate

Debtor w.r.t. amount payable to Operational Creditor. Explanation I

makes it clear that a distribution in accordance with the provision of this

clause shall be fair and equitable to such creditors. -65-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

xxxvii. While the Code does not categorize any operational creditors as "special,"

it does recognize different classes of operational creditors based on their

claims. For instance, operational debts can include dues related to the

supply of goods and services, employment-related obligations, and

statutory dues payable to government authorities. However, all

operational creditors are treated under the same legal framework without

special distinctions within their category.

xxxviii. We will refer to our own earlier decision taken in the case of Gail India

Ltd. (Supra) where this Appellate Tribunal observed that although a plea

has been raised that the Appellant (in that case) who was discriminated as

an Operational creditor and that the Equality Concept was not adhered to

by the Adjudicating Authority while approving the Resolution Plan

(especially in the teeth of the Resolution Plan 100% payment to the

Operational Creditors with claim upto Rs. 3 Lakhs were admitted), this

Appellate Tribunal, consciously held that the Operational Creditors were

paid as per Section 30(2) (b) of the Code r/w with Regulation 38 of the

CIRP Regulations and therefore the Operational Creditors were entitled to

receive only such money that are payable to them as per Section 53 of

Code. The relevant portion of this judgement reads as under :-

"Para 67- Although, according to the 1st Respondent, 'Operational Creditors were entitled to 'Nil' payment as per Section 32 of the Code, the fact of the matter is that the -66- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

'Resolution Applicants' in their commercial wisdom had provided for the full payment of Rs.4.83 crores in respect of 'Approved Resolution Plan' for 'Operational Creditors' with admitted claims of a sum of rupees upto Rs.3 Lakhs only.

Para 68- The plea of 2nd and 3rd Respondent is that the 'Resolution Applicant' based on 'Good Faith' a sum of Rs.4.83 crores was allotted in respect of payment of dues relating to debt of 'Operational Creditors' post admitted claims were upto Rs.3 Lakhs and this allocation had culminated in the debts of Operational Creditors numbering 357 were fulfilled in entirety. Added further, the said allotment of the aforesaid sum in respect of the operational debt of the Corporate Debtor was made Bona fide by the 'Committee of Creditors' exercising their 'Commercial Wisdom' Para 69- According to the Learned Counsel for the 4th Respondent, the 'Distribution of amounts' in respect of a Resolution Plan comes within the ambit of the Committee of Creditors while exercising their 'commercial wisdom' and in short, the proceeding under the I&B Code, 2016(being summary in character) is not to be resorted to as an 'Debt Enforcement Procedure'. Also that, the Appellant's claim(s) pertain to the same being arising out of the Corporate Debtor's purported obligations to pay for goods, and obviously, the disputes are of contractual in nature. Para 71- As far as the present case is concerned, although on behalf of the 'Appellant' a plea is raised that the 'Appellant' was discriminated as an 'Operational creditor' and that the 'Equality Concept' was not adhered to by the 'Adjudicating Authority' while approving the 'Resolution Plan' (especially in the teeth of the 'Resolution Plan' 100% payment to the 'Operational Creditors' with claim upto Rs. 3 Lakhs were admitted), this Tribunal, is of the considered opinion that the 'Operational Creditors' were paid as per -67- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Section 30(2) (b) of the I&B Code, 2016, and coupled with Regulation 38 of the 'CIRP Regulations' the 'Operational Creditors' are entitled to receive only such money that are payable to them as per Section 53 of Code.

Para 72- In reality, there is no embargo for the classification of Operational creditor(s) into separate/different classes for deciding the way in which the money is to be distributed to them by the 'Committee of Creditors' because of the fact, undoubtedly, they do have the subjective final discretion of 'Collective Commercial Wisdom' in relation to (1) The amount to be paid (2) The quantum of money to be paid, to a certain category or the incidental category of creditors, of course, nicely balancing the interests of the 'Stakeholders' and the 'Operational Creditors', as the case may be. Suffice it for this Tribunal to pertinently make a significant mention that it cannot be lost sight of that the 'Appellant's' claim is not relatable to the supply of goods or services so as to keep the 'Corporate Debtor' as a 'Going Concern'. It is to be remembered that the ''Appellant' had commenced 'Arbitration proceedings' in regard to its claim emanating from the 'Gas Sale Agreement'. In fact, the 'Appellant's' claim pertains to supposed obligation to pay for goods, even where, these were not made use of as "take or pay obligation'. Looking at from any angle, the impugned order dated 08.03.2019 passed by the Adjudicating Authority (National Company Law Tribunal), Ahmedabad Bench in dismissing the I.A. 41/2019 in IA 259/2018 (filed by the Applicant for Appellant) in CP (IB)48/2017 does not suffer from any material irregularity or patent illegality in the eye of Law. Resultantly the instant 'Appeal' sans merits."

(Emphasis Supplied) xxxix. Thus, this Appellate Tribunal held that in reality, there is no embargo for

the classification of Operational creditor(s) into separate classes for -68- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

deciding the way in which the money is to be distributed to them by the

CoC because CoC has the subjective and final discretion of Collective

Commercial Wisdom in relation to the amount to be paid as well as the

quantum of money to be paid. This Appellate Tribunal mentioned that it

cannot be lost sight of that the Appellant's claim is not relatable to the

supply of goods or services so as to keep the Corporate Debtor as a Going

Concern.

xl. We find one contrarian view taken by this Appellate Tribunal, as cited by

the Appellants in support of their claim. In this direction, we refer to our

earlier decision in the case of Akashganga Processors (Supra), where

this Appellate Tribunal has directed the Successful Resolution Applicant

to allocate funds to Operational Creditors in the Resolution Plan, who

were left unpaid while other Operational Creditors were proposed to be

paid. The relevant part of the said judgment reads as under :-

"However, when the Successful Resolution Applicant was making payment to other two Operation Creditors, there cannot be any discrimination between payment of one class of Creditors."

4. Learned counsel for the Dissenting Financial Creditor i.e. Respondent No.3 has opposed the submission of the learned counsel for the Appellant as well as learned counsel for the Resolution Professional and submits that there cannot be any discrimination between payment to Operational Creditors interse, which is a well settled law. -69- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

It is submitted that the Respondent No.3 was not given any notice of 7th CoC meeting, which is also reason given by the Adjudicating Authority for rejecting the plan.

6...... where it was held that there can be differential payment in payment of debts of Financial Creditors and Operational Creditors, however, there can be no difference in interse payment within a class of creditors...

7. Present is a case where admittedly the claims of two Operational Creditors - State Tax, Government of Gujrat and Central Excise, Government of India were filed as has been admitted by the learned counsel for the Resolution Professional. It was open for the Resolution Applicant not to allocate any amount to any of the Operational Creditor since under Section 53 no entitlement was there in accordance with the total amount available for distribution. However, when the Successful Resolution Applicant was making payment to other two Operation Creditors, there cannot be any discrimination between payment of one class of Creditors.

10. In the facts of the present case, we are of the view that ends of justice be served in disposing of this appeal in directing that the amount of Rs.32,78,102/- be distributed to all the four Operational Creditors so as to save the plan from being invalidated. We, thus, are of the view that the Adjudicating Authority having found that there is discrimination in payment of Operational Creditors could have directed for compliance of provision of the Code by distribution of Rs.32,78,102/- without affecting the other -70- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

terms and conditions of the plan. By this modification the plan shall be able to sail and implemented, which is approved by CoC with 99.84% vote share. The plan need to be implemented with modification as directed above.

12. In view of the aforesaid, we modify the order of the Adjudicating Authority by approving Resolution Plan, the application filed by the Resolution Professional being I.A. No. 680 of 2022 is allowed subject to modification that amount of Rs.32,78,102/- shall be distributed on prorata basis between all Operational Creditors. No costs.

(Emphasis Supplied) xli. To understand the ratio of the above case, we note that the Corporate

Debtor was admitted into CIRP and the State Tax (Government of Gujrat)

and Central Excise (Government of India), being Operational Creditors of

the Corporate Debtor, submitted their claims before the Resolution

Professional. There were statutory dues of Gujarat Industrial

Development Corporation and Surat Municipal Corporation in the

capacity of Operational Creditors as well. The Resolution Plan was

submitted by the SRA, which was approved by the CoC with 99.84%

voting share. The Resolution Plan proposed to pay Rs.32,78,102/- to

Gujarat Industrial Development Corporation and Surat Municipal

Corporation. However, no sums were allocated for State Tax

(Government of Gujrat) and Central Excise (Government of India). The

Resolution Professional filed an application under Section 30(6) of the -71- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Code before Adjudicating Authority, seeking approval of the Resolution

Plan. The Adjudicating Authority refused to approve the plan on the

premise that it violates Section 30(2)(e) and 30(2)(f) of the Code.

However, this Appellate Tribunal placed reliance on the Supreme Court

judgment in Committee of Creditors (Supra), where it was held that there

can be differential payment in payment of debts of Financial Creditors

and Operational Creditors, however, there can be no difference in inter

se payment within a class of creditors. It was opined that the Resolution

Applicant was at liberty to not allocate any amount to any of the

Operational Creditor in view of Section 53 of the Code. "However, when

the Successful Resolution Applicant was making payment to other two

Operation Creditors, there cannot be any discrimination between

payment of one class of Creditors." This Appellate Tribunal directed

distribution of Rs.32,78,102/- to all the four Operational Creditors on pro

rata basis, in order to save the plan from being invalidated.

xlii. We have already observed that as per Clause 30 (2) (b) of the Code, the

Resolution Plan must provide for payment of debt of Operational

Creditors in such a manner as may be specified by IBBI and the same

shall not be less than the amount to be paid to the Operational Creditors in

the event of liquidation of the Corporate Debtor under Section 53 of the

Code. It tantamount that in case the liquidation value of the Corporate -72- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Debtor in terms of Section 53 of the Code payable to the Operation

Creditor is nil then nothing is required to be paid to such Operational

Creditors.

xliii. We note that in the present case, the liquidation value payable to the

Operational Creditor was nil, hence no payment became payable in the

Resolution Plan as per the Code.

xliv. We have noted the contradictory stand taken by all parties on issue of

Commercial Wisdom of CoC as well regarding distribution of corpus

among all Operational Creditor including Special Operational Creditor.

In this regard, we will again refer to the case of Essar Steel India

(Supra), where the Supreme Court of India noted the importance of the

majority decision of the Committee of Creditors as stated in S. 31(1) of

the Code to further observe that:

"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 -73- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

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 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."

(Emphasis Supplied) xlv. The ratio from above judgement is very clear that all aspect of the

Resolution Plan, taken by majority of CoC Members, is commercial

wisdom which includes distribution of funds to all creditors and the

manner (including quantum of such distribution) of such distribution

without any judicial intervention.

xlvi. We will examine the issue of discriminatory payments among the

Operational Creditor including Special Operational Creditor from another

perspective. It is undisputed fact that liquidation value payable to the

Operational Creditor including Special Operational Creditor is nil.

According, there could have been two Scenarios :-

-74-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

xlvii. As per Scenario I - the SRA would have proposed nil payment to all

Operational Creditor including YATCL and Society (Special Operational

Creditor) and the entire money proposed in the Resolution Plan would

have been paid to Financial Creditors and others in accordance with the

Code and Regulations.

xlviii. The Second Scenario - envisaged that SRA proposed payment to lessors

of the land i.e., YATCL and Society (Special Operational Creditor) with

a view to ensure viability and feasibility of the Resolution Plan and

sustainability of the Corporate Debtor from long term perspective. In this

second scenario, SRA proposed the same amount as total Resolution Plan

amount which the SRA would have paid even in Scenario I. However, the

SRA proposed payment to Special Operational Creditor by reducing

payment proposed to the Financial Creditors. This approach i.e., Scenario

II was envisaged in the Resolution Plan and put up to the CoC. The CoC

considered the same and recommended for approval and which was

finally approved by the Adjudicating Authority vide Impugned Order.

xlix. It is significant to note that by this action, the CoC consciously decided to

take more hair cut and take reduction in the amount payable to Financial

Creditors with a view for revival of the Corporate Debtor which is one of

the primary objection of the Code.

-75-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

l. We reiterate that legally speaking based on the liquidation value, none of

the Operational Creditors would be entitled for any payment and only

after reduction from amount payable to Financial Creditors, it could have

been possible to make payment to Special Operational Creditor.

li. We do not find any illegality in this approach. Clear rational and

business logic exists for taking this approach. In any case, this is not

violation of Section 30(2) of the Code.

lii. We consciously note that CoC's commercial wisdom is based on their

business decision acumen in approving or rejecting a resolution plan is

after evaluation of the resolution plan based on its feasibility. It is

appropriate that the CoC is fully informed about the viability of the

Corporate Debtor, therefore, such commercial wisdom of the CoC with

requisite voting majority is non-justiciable and the discretion on

Adjudicating Authority is restricted to scrutiny of resolution plan as

approved by CoC and this enquiry postulated under S. 31 of the Code is

limited to matters covered under S. 30(2) of the Code when the resolution

plan does not confirm the stated conditions.

liii. We ourselves held in catena of our earlier judgment that approval of the

resolution plan is exclusively in the domain of the commercial wisdom of

the CoC. The scope of judicial review is contained under Section 31 for

approval of the Resolution Plan by the Adjudicating Authority and in -76- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

S.32 read with S.61 as regards the scope of in S.31 as regards appeal

against the order of approval. We reiterated that the powers of the

Adjudicating Authority dealing with the resolution plan do not extend to

examining the correctness or otherwise of the commercial wisdom

exercised by the CoC. The limited judicial review available to

Adjudicating Authority lies within the four corners of S. 30(2) of the

Code, to examine that the resolution plan does not contravene any of the

provisions of law for the time being in force and it is conform its to

regulations. We further reiterated that there is very limited scope of

judicial review provided for an appeal against an order approving a

resolution plan, namely, if the plan is in contravention of the provisions of

any law for the time being in force; or the debts owed to the operational

creditors have not been provided for as per provisions of the Code or the

resolution plan does not comply with any other criteria specified by the

IBBI.

liv. There is no scope for the Adjudicating Authority or this Appellate

Authority to proceed on any equitable assumptions and presumptions to

assess the resolution plan on the basis of quantitative analysis. Similarly,

Code and Regulations do not visualise any road map which is left to the

collective commercial wisdom of the CoC. We understand that the power

of judicial review in Section 31 of the Code is not akin to the power of a -77- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

supervision jurisdiction to deal with the merits of the decision of any

lower judicial authority. The jurisdiction to decide as to what ought to be

the terms of the resolution plan is vested on the CoC alone, who has to

take such a decision in its commercial wisdom, while keeping in view the

applicable provisions and the specified parameters.

lv. Therefore, grievances of Operational Creditors may be genuine from their

perspective as they are not as big as Financial Creditors/ Bank/ ARC and

have limited financial strength. We appreciate their concern that Nil

payment to them in approved Resolution Plan will be great detrimental to

their own survival and in turn may lead them towards insolvency or even

liquidation.

lvi. This led us for some introspection as to how generally Operational

Creditors are dealt with vis-à-vis Financial Creditor. As per Report of

IBBI as on 31.12.2023, following picture emerges :-

amount in Rs. crore Data As on 31/12/2023 Admitted claims of FCs 9,00,730.8 Realisable Amount by FCs 3,13,461.5 Admitted claims of OCs 97,729.5 Realisable Amount by OCs 10,363.3 Liquidation Value 1,92,731.5 Realisable by FCs as % of 34.80% claims Realisable by OCs as % of 10.57% claims Realisable by FCs as % of LV 162.64% Realisable by OCs as % of LV 5.36% -78- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

lvii. Thus, we note that as on 31.12.2023 the total admitted claims of Financial

Creditors, were Rs. 9,00,730.8 Crores whereas total admitted claims of

Operational Creditors were Rs. 97,729.5 Crores. The Financial Creditors,

could realise Rs. 3,13,461.5 Crores i.e., 34.80% of their admitted claims

on the other hand, Operational Creditors could realise only Rs. 10,363.3

Crores i.e., 10.57% of their admitted claims and 5.36% of liquidation

value.

lviii. This tantamount that Financial Creditors are taking haircut of Rs. 65.20%

and Operational Creditor are given huge haircut of 89.43% or almost

90%.

lix. However, revisiting of commercial wisdom of the CoC or judging over

just and equitable distribution by CoC will eventually take us in the

domain of Equity. We wonder, if such equity jurisdiction is vested with

the Adjudicating Authority or even with this Appellate Tribunal.

lx. We note that the Adjudication Authority is within its jurisdiction in

approving a resolution plan which is in conformity with Code but there is

no equity-based jurisdiction with the Adjudicating Authority, under the

provisions of the Code. The function of the Adjudicating Authority under

Section 31 of the Code is to determine whether the resolution plan "as

approved by the committee of creditors" under Section 30(4) of the Code

"meets the requirements" under Section 30(2) of the Code. If the -79- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Adjudicating Authority is satisfied that the resolution plan, as approved,

meets requirements under Section 30(2) of the Code, the Adjudicating

Authority is required to approve the resolution plan, binding on the

corporate debtor and all stakeholders. We note that the jurisdiction of this

Appellate Authority under Section 61 (3) of the Code, while considering

an appeal against an order approving a resolution plan under Section 31,

is similarly structured on specific grounds. Thus, neither the Adjudicating

Authority nor this Appellate Tribunal can enter into the commercial

wisdom underlying the approval granted by the CoC to the Resolution

Plan on the basis of doctrine of Equity.

lxi. We do not find any provision in the Code or in the Regulations which

gives equity based jurisdiction for Adjudicating Authority or this

Appellate Tribunal, directly or indirectly, fully or even remotely. After

all, we are dealing in summary trial which hardly has such equity based

concept and rather we find the CIRP to be rules and regulations driven

process. Thus, despite we may have empathy and sympathy to such

Operational Creditors, we do not find any jurisdiction vested with us to

enter into such domain of commercial wisdom which is exclusive domain

of the CoC.

lxii. We also note that this Appellate Tribunal in case of Pani Logistics

Through its sole proprietor, Kiran M. Jain Vs. Vikas G. Jain & Ors.

-80- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

passed in Company Appeal (AT) (Insolvency) No. 205 of 2023 held that

once payment to Operational Creditors was not less than the liquidation

value, the Resolution Plan can not be questioned only on the ground that

Plan value earmarked for them is less or no amount has been provided as

long as it met the condition of the Code.

lxiii. We have already noted that Essar Steel (Supra) clearly stipulates that

there can be different treatments to creditors in given circumstances and

in such circumstances, the approved Resolution Plan cannot be faulted

with.

lxiv. We will again refer to our earlier decision in Excel Engineering (Supra) ,

where 100% payments to one category of Operational Creditor (farmers)

was made by the CoC but the other Operational Creditors (the Appellants

therein) were paid only 1% of claim in the approved Resolution Plan, but

the same was held to be legal and in conformity to Section 30(2) of the

Code. We consciously observe that present case is also similar where one

claim of operational Creditor i.e., Special Operational Creditor/ GoT have

been paid in full where as other Operational Creditors have been given

nil. In view of Excel Engineering (Supra) , the present Impugned Order

cannot be treated as wrong and illegal.

lxv. The relevant portion of this Appellate Tribunal judgment passed in the

matter of Excel Engineering (Supra) is reproduced as under :-

-81- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

"12. It is the main argument of the Learned Counsel for the Appellant (an operation creditor) that the Farmers were given 100% of the dues whereas the Appellant has given only 1% of the dues and therefore the Resolution Plan is discriminatory and is in violation of Section 30(2) of the Code.

13. It is seen from the record that the 'Corporate Debtor' is a Sugar Industry and the Farmers are an integral part of the Sugar Industry. We find force in the contention of the Learned Sr. Counsel for the Respondent that more than 4500 Farmers and their families are dependent on the 'Corporate Debtor' factory for their survival and the Plan would not be implementable without making payments to the Farmers as the dues have been pending for the last two years. The Minutes of the CoC Meeting shows that even the 'Secured Financial Creditors' accepted that 100% payment should be made to the Farmers who are the backbone of the Sugar Industry. Section 53 of the Code categorically provides different priorities of payments for Employees, Statutory Dues and other 'Operational Creditors'. Such a classification would depend upon the facts and circumstances and the nature of the industry, and the Modus Operandi of the functioning of the 'Corporate Debtor'....

(Emphasis Supplied) lxvi. The relevant portion of this Appellate Tribunal judgment passed in the

matter of Sivana Realty Private Limited (Supra) is reproduced as under:-

"24. ...Allottees have been classified in two groups - 'Affected' and 'Unaffected', as noted above, and we have -82- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

found the classification justified in the treatment of claims. Learned counsel for the Appellant has failed to point out any violation of any provision of law by aforesaid classification of 'Affected' and 'Unaffected' homebuyers. We, thus, are of the view that the Resolution Plan does not violate any provision of law. ...

27. We, thus, are of the view that commercial wisdom of the Committee of Creditors, which has approved the Resolution Plan under which different treatment has been given to 'Affected Homebuyers' and 'Unaffected Homebuyers', cannot be faulted. We, thus, are of the view that there are no grounds made out to challenge the approval of the Resolution Plan. Further, the Adjudicating Authority has also rightly rejected the objections filed by the Appellant by I.A. No. 933 of 2022."

(Emphasis Supplied) lxvii. In view of above detailed discussion, we find that commercial wisdom

of CoC has been upheld to be supreme, again and again, in catena of

judgment of the Hon'ble Supreme Court of India and this Appellate

Tribunal which we already noted earlier.

lxviii. We have also seen the few cases of this Appellate Tribunal and the

Hon'ble Supreme Court of India like Essar Steel (Supra), Excel

Engineering (Supra), Sivana Realty Private Limited (Supra), where

differential treatments have been accorded to different creditors even in

the same category and they have been held to be legal and valid and -83- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

found to be inconformity to Section 30(2) of the Code. Thus, we do not

find any illegality in the Impugned Order approving the Resolution Plan

having discriminatory treatment to Special Operational Creditors.

lxix. In fitness of things, it will be worthwhile to clarify that there is no such

category like of Special Operational Creditor as stipulated in the Code or

the Regulations, however, we have noted during pleadings that the

nomenclature of Special Operational Creditor was perhaps used for sake

of convenience to club the claims of the YATCL and Society who were

the lessor of the land on which the hotel was situated, otherwise YATCL

and Society were also treated as Operational Creditors, but paid in full in

commercial wisdom of CoC.

lxx. Be that as it may, although the term Special Operational Creditor is not

found in Code or in the Regulations, the fact remains is that it is for the

SRA to allocate the funds proposed to be distributed amongst the

Creditors based on his overall business Plan and strategy for revival of

the Corporate Debtor and to ensure viability and feasibility of such

Resolution Plan. Similarly, exercise of the commercial wisdom by CoC

is undertaken to look into various parameters including viability and

feasibility of the Resolution Plan and once satisfied, as long as the

Operational Creditor are provided atleast the liquidation value w.r.t. their

claims, such Resolution Plan can be approved as done in present case. -84-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

lxxi. We cannot find any fault in such approach. In fine, issue No. I, II & III

goes in favour of the Respondents.

lxxii. At this stage, we will like to examine concerns of the Operational

Creditors. We note that the Operational Creditors have little say in the

resolution of the Corporate Debtor since they are not part of the CoC. At

the same time, they are prone to maximum haircut and which may

adversely affected their own survival. Legally speaking, in terms of

waterfall management under Section 53 of the Code, the Operational

Creditors are entitled to claim payments as per liquidation value of the

Corporate Debtor or actual proposed payment whichever is more. In

most of the cases, for Operational Creditors, liquidation value is nil as

CIRP cost, dues towards Secured Creditors, employees, workman, other

Financial Creditor takes precedent over Operational Creditor. The

Operational Creditor will have a chance only, if any, residual amount

remains available as per liquidation value of the Corporate Debtor.

However, if the waterfall mechanism as provided under Section 53 of the

Code is tweaked, in the sense that instead of straight waterfall

mechanism approach, the calibrated waterfall mechanism could be

considered, then these may be some chances for the Operational

Creditors to get some payments. Their tweaking can be done in several

ways. One of the way could be, distribution of corpus available in -85- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Resolution Plan to Operational Creditors in some pre determined

percentage of the payments propose to be paid to Financial Creditors in

the Resolution Plan. This will ensure that Operational Creditors will get

some minimum amount due to insolvency of Corporate Debtor in

relation to amount payable to the Financial Creditor in the Resolution

Plan. This amount may be much lower in comparison to amount being

paid to the Financial Creditors due to obvious and valid reasons. We feel

that even this small amount will help such Operational Creditors,

specially the smaller Operational Creditors, to tide over the financial

crises which happens due to CIRP of the Corporate Debtor. We

consciously note that such approach would require legal provision by

way of suitable amendments in the Regulations and Code. We request

the IBBI to look into this aspect if found feasible after due examination.

We would like to make it clear that this only a suggestion for

consideration of IBBI and by no way it should be considered as

recommendation or directives.

95. Issue (IV) Whether the condition precedents in the approved

Resolution Plan violated Code and Regulations.

i. It is the case of the Appellants that the Resolution Plan submitted contains

the clause regarding condition precedent. The Appellants submitted that

during the 14th CoC Meeting held on 24, 25 and 28.09.2018, they -86- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

requested that the Resolution Plan should be clear and unambiguous and

there should not be any condition precedent.

ii. The Appellants pleaded that agreeing to conditional Resolution Plan, the

payments under Resolution Plan were to be made by the SRA subject to

completion of condition precedent, which is not in accordance with the

Code and the Regulations.

iii. At this stage, it will be important to understand what is a nature of

condition precedent made in the Resolution Plan.

iv. The condition precedent has been defined in Schedule -I of the Resolution

Plan i.e., "condition precedent shall have the meaning escribed to such

term in Clause 6.1"

-87-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

v. From above, it is noted that the condition precedent referred to receipt of

written consent of YATCL and society (GoT) for change of control and

restructuring of Corporate Debtor. Clause 6.1 also mentioned that on the

receipt, the approval of Resolution Plan by the Adjudicating Authority,

the SRA shall take steps as set out in Schedule II of the Resolution Plan

and shall undertake all efforts to procure the satisfaction of condition

precedent within a period of one year of approval of Resolution Plan by

the Adjudicating Authority.

vi. It is the case of the Respondents that development and management

agreement is co-terminus with lease agreement which tantamount that

without prior consent of GoT, the shareholding of the Corporate Debtor

cannot be changed and therefore it would be absolutely essential to have

such condition precedent.

vii. We note that this Appellate Tribunal in the case of Jet Aircraft

Maintainance Engineers Welfare Association Vs. Ashish

Chhawchharia Resolution Professional of Jet Airways (India) Ltd. &

Ors. in Company Appeal (AT) (Ins.) No. 752 of 2021, held that where it

has been stipulated that the condition precedent in the Resolution Plan, is

necessary for implementation of Resolution Plan, then such condition

precedent would be valid. This judgment was challenged before the

Hon'ble Supreme Court of India which upheld the same vide order dated -88- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

30.01.2023 passed in Civil Appeal No. 407 of 2023. The relevant

portion of this Appellate Tribunal above quoted judgment reads as under:-

"109. When we look into the relevant clauses of the plan which has also been captured by the Resolution Applicant in Form H. Para 7.6.1 refers to condition precedents i.e. obligation of the Resolution Applicant to recommence operations as an aviation company subject to fulfillment of conditions after the approval date mentioned therein. Para 7.6.2 deals with fulfilment of condition precedents and Para 7.6.4 deals with automatic withdrawal. In view of the judgment of Hon'ble Supreme Court in "Ebix Singapore"

(Supra), as noted above, after approval by the CoC, the clause for automatic withdrawal becomes redundant and Resolution Applicant has no jurisdiction to withdraw from the Resolution Plan. The condition precedents as mentioned in Para 7.6.1 are basically condition precedents required for aviation business which are must for any company carrying on aviation business. Enumeration of condition precedent is only for purposes of noticing obligations of the Resolution Applicant to recommence the operations as an aviation company after obtaining necessary approvals. Such condition precedent cannot be said to be any hindrance in the approval of the plan by the Adjudicating Authority. We, thus, do not find any substance in the submission of the Appellant that the resolution plan ought to have rejected in view of the condition precedent contained in the resolution plan. The Resolution Applicant has also completed all necessary condition precedents to the -89- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

satisfaction of the Monitoring Committee. We, thus, are of the view that the judgment of Hon'ble Supreme Court in "Ebix Singapore" does not help the Appellant to support his contention that the Resolution Plan is liable to be rejected due to condition precedents."

(Emphasis Supplied)

viii. We have already observed that the transfer of ownership in favour of the

new management was dependent on the consent of the YATCL and

Society and therefore, the same was treated as condition precedent. This

seems to be quite logical and cannot be faulted upon. Thus, the

arguments of the Appellant in this regard are not convincing and stand

rejected.

96. Issue (V) Whether the provisions of MSMED give protection to

MSME status Operational Creditors in CIRP proceedings under the Code

and Regulations.

i. We have noted from pleadings that pursuant to the Report of the

Insolvency Law Committee dated 26.03.2018, significant changes were

made to the Code in the interests of MSMEs, being Section 54-A (pre-

packaged insolvency for MSMEs) and Section 240 A (exemption from

Section 29-A) and all the these changes were concerned with protecting

the interests of MSMEs only in their capacity as a corporate debtor, and

not as creditors. To the contrary, the ILC Report consciously made the -90- Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

decision to not suggest any changes to accord any special status to

MSMEs in their capacity as operational creditors. The relevant part of the

report is reads as under :-

"Regarding the second issue, it was unanimously agreed that important operational creditors which include the important MSMEs usually get paid above the liquidation value, due to their indispensability in the operations of the corporate debtor undergoing CIRP. Therefore, at this juncture, it may not be prudent to re-consider the minimum amount guaranteed to operational creditors, as also discussed in paragraph 18 above."

(Emphasis Supplied) ii. We note that the legislative intent is clear that MSMEs creditors have no

special rights over other creditors. In any event, provisions of the Code

have an overriding effect in terms of Section 238 of the Code, which is a

'non-obstante clause' over the MSMED Act, 2006, since the Code is a

subsequent legislation, which was promulgated in 2016, i.e., after

promulgation of the MSMED Act, 2006.

iii. Although, few protections have been given under the MSMED Act to the

MSME, however, the same are not, ipso-facto, would not be applicable to

the CIRP process. Only protection made available under the Code to such

MSME units find place in Section 54 A and Section 240 A of the Code

and this section do not give any protection to the Appellant herein w.r.t.,

their claims.

-91-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

iv. As such, the pleadings of the Appellants on the basis of being MSME/

Operational Creditors is not found convincing.

97. Issue (VI) Whether Arbitral Award which came in favour of the

Corporate Debtor post CIRP will have impact in the present case.

i. We observe that the Adjudicating Authority had no jurisdiction to impose

such conditions with regard to amounts as may be recoverable by the

corporate debtor in future. Any amount receivable by the corporate

debtor, being an asset of the company, would continue to remain with the

Corporate Debtor upon implementation of the resolution plan. After

approval of the plan in terms of S.31 of the Code, it becomes binding on

all the stakeholders, including the creditors and no party could claim any

right against the corporate debtor including the right to set off. In fact, the

Resolution Plan provides specifically for the debt payable to stakeholders

including creditors and therefore no stakeholders including the creditors

can claim any dues from the likely Arbitration Award.

ii. In any case, as per Resolution Plan, the benefit or otherwise arising out of

arbitration cases would go in favour of the Corporate Debtor and

therefore, the Appellants have no claims for such proceeds.

iii. This Appellate Tribunal cannot enter into arena of the Arbitration Award

and the impact thereof, which has already captured into the Resolution

Plan.

-92-

Comp. App. (AT) (Ins.) No. 426, 430, 432 &710 of 2020

Conclusion

98. In view of all above detailed discussions of four appeals, we do not find

any merit in the pleadings of the Appellants. We also do not find any illegality

in the Impugned Order dated 07.02.2020. Thus, all appeals i.e., Company

Appeal (AT) (Ins.) No. 426 of 2020, Company Appeal (AT) (Ins.) No. 430 of

2020, Company Appeal (AT) (Ins.) No. 432 of 2020 and Company Appeal (AT)

(Ins.) No. 710 of 2020 fail and stand rejected. No costs. IA, if any, are closed.

99. The Chairman IBBI is requested to examine the suggestion contained in

para lxxii of Issue No. III at page no. 84 & 85 of this judgment. The Registry is

directed to send a copy of this judgment to Chairman IBBI.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

Sim