Government Of India, Through Office Of ... vs Bhuvan Madan, Resolution Professional ...

[Arising out of Order dated 30.01.2020 passed by the Adjudicating Authority/National Company Law Tribunal, Cuttack Bench, Cuttack in CA (IB) No. 157/CTB/2019, 162/CTB/2019 & 176/CTB/2019 connected with TP No. 42/CTB/2019 arising out of CP (IB) No. 251/KB/2017]

IN THE MATTER OF: Government of India, Through Office of the Deputy Commissioner, GST & Central Excise, Balasore Division, White House Lane, Bhaskarganj-A, Balasore-756001, Odisha ...Appellant

Versus

1. Mr. Bhuvan Madan, Resolution Professional in the matter of Ferro Alloys Corporation Limited, Pricewaterhousecoopers Professional Services LLP, Building No. 10, 17th Floor, Tower-C, DLF Cyber City, Gurugram-122002. ...Respondent No. 1

2. Committee of Creditors of Ferro Alloys Corporation Ltd., Through Authorised Signatory of Rural Electrification Corporation Ltd., Core-4, SCOPE Complex, 7, Lodhi Road, CGO Complex, Pragati Vihar, New Delhi, Delhi-110003. ...Respondent No. 2

3. Sterlite Power Transmission Ltd., 4th Floor, Godrej Millennium, 9 Koregaon Road, Pune, Maharashtra - 411001. ...Respondent No. 3

Present: For Appellant : Mr. Ashutosh Jain, Advocate.

Company Appeal (AT) (Ins) No. 450 of 2020 1 of 13 For Respondents : Ms. Charu Bansal, Ms. Misha & Ms. Prabh Simran Kaur, for R-1. Ms. Varsha Banerjee, for R-2. Mr. Diwakar Maheshwari & Ms. Pratiksha Mishra, for R-3.

(25.08.2022)

Justice Anant Bijay Singh

Preamble:

The Present Appeal is filed by Government of India, through Office of the

Deputy Commissioner, GST & Central Excise, Balasore Division, Odisha being

aggrieved and dissatisfied vide Order date 30.01.2020 passed by the

Adjudicating Authority (National Company Law Tribunal, Cuttack Bench,

Cuttack) in CP (IB) No. 251/KB/2017, whereby, the Adjudicating Authority

had dismissed the application bearing CA (IB) Nos. 157/CTB/2019,

162/CTB/2019 and 176/CTB/2019 connected with TP No. 42/CTB/2019.

Brief Facts:

2. The facts giving rise to this appeal in short is as follows:-

(a) the Corporate Insolvency Resolution Process ("CIRP") was

initiated against the corporate entity M/s Ferro Alloys Corporation

Limited (FACOR) at the instance of 'Rural Electrification Corporation

Limited ("RECL") by way of an application under Section 7 of IBC

against Ferro Alloys Corporation Limited ("FACL")- Corporate Debtor.

(b) While granting the said facility, a Corporate Guarantee agreement

was executed by FACL was in favour of REC and shares were also

Company Appeal (AT) (Ins) No. 450 of 2020 2 of 13 pledged by Corporate Debtor and Corporate Guarantor in favour of

REC.

(c) Later, the Corporate Debtor defaulted in making payment and its

account was classified as Non-Performing Asset (NPA) by the Financial

Creditor and thereafter, the Financial Creditor also invoked the

Corporate Guarantee and called upon FACL to repay the outstanding

amount.

(d) The Application filed by REC against the Corporate Guarantor

under Section 7 of IBC was admitted by Hon'ble NCLT and was

appointed as Interim Resolution Professional ("IRP") who was

subsequently confirmed as the Resolution Professional by Committee

of Creditors ("CoC") erstwhile RP Mr. K.G. Somani was replaced by Mr.

Bhuvan Madan as RP of Corporate Debtor.

(e) Further, in response, the Application submitted its claim to the

RP on 17.10.2019 to the tune of Rs. 348.57 crores which was

acknowledged by the Resolution Profession (Respondent herein) on

26.09.2019 vide his email.

(f) Subsequently, an additional claim was raised on 17.10.2019 of

Rs. 497.94 lakhs which was duly acknowledged by the Respondent.

(g) Further, the case of the Appellant is that the cumulative claim of

the Appellant for the tune of Rs. 353.61 crores. Further, the case of

the Appellant that vide email dated 03.10.2019, the Respondent

admitted the claim of Rs. 238. 56 crores kept Rs. 110 crores under

review. However, while modifying the admitted claim vide his email

Company Appeal (AT) (Ins) No. 450 of 2020 3 of 13 dated 23.10.2019, the Respondent informed that he had kept Rs.

220.57 crore as admitted as Contingent Claim and Rs. 7.96 crores

under review and rejected Rs. 125.02 crores.

(h) Further the case of the Appellant is that the claims of the

Department was discussed in the 29th CoC meeting held o 30.10.2019,

whereby, the RP has categorized the claims of the Department under

4 different headings :--

i. Amount Admitted,

ii. Admitted Liability as Contingent Claim,

iii. Not Admitted and

iv. Claim under Review.

(i) Further, the case of the Appellant is that on enquiring regarding

the basis of classification of claims, it was stated by the

Respondent-RP that, in cases wherein the Corporate Debtor had

filed an appeal with higher authorities, the same had been

admitted as contingent liability.

(j) On the other hand, on enquiring regarding rejection of claims, it

was stated that the claim has not been admitted in those matters where

there is any difference in the amount claimed vis-à-vis amounts

verifiable from the order copy and interest accrued upto the Insolvency

Commencement Date ("ICD").

(k) Further, case of the Appellant is since the improper classification

of claim was not proper and contrary to law, this office raised its

objection on 04.11.219 and requested the Resolution Professional to

Company Appeal (AT) (Ins) No. 450 of 2020 4 of 13 admit the claims of the Department where the order is in favour of the

department and there is no stay provided by the Court.

(l) Further, case of the Appellant is that the aforesaid objections

were raised in the 30th CoC meeting on 07.11.2019. However, the

assurance of the Respondent- RP to rectify the classification against the

objections made in the meeting were neither reflected in the minutes

nor complied.

Appellant's Submissions:

3. Further, during the course of the arguments Appellant submitted that

the RP has deliberately excluded Departmental Claims under some pretext or

another and has finally admitted the claims as late as on 11.11.2019 by which

date the Resolution Plan was considered.

4. It was further submitted during course of the arguments that there is

a delay in admitting the claims as late as on 11.11.2019-12.11.2019. Perused

the claims of the Department and the same has jeopardized during the CIRP

Process.

5. Consequently, huge statutory dues running to the tune of Rs. 353.61

Crores of the Dept submitted and out of which the belatedly admitted claim

of Rs. 220.58 Crores was never factored in by the Resolution Applicant while

preparing the Resolution Plan.

6. It was submitted that the information memorandum which was

prepared for the potential resolution applicants was materially defective and

Company Appeal (AT) (Ins) No. 450 of 2020 5 of 13 incomplete chiefly owing to such delayed admittance of claims and wrongful

categorization the claims by the RP.

7. Further, case is that Resolution Plan which was approved by the CoC

and approved by the Hon'ble NCLT was not made any allocation for the

admitted claim of the department of Rs. 220.58 crores, owing to the failure of

Resolution Professional in delaying the admittance till preparation of the bids

itself.

8. Learned Counsel for the Appellant further in his Additional Written

Submissions submitted during the course of the arguments while assailing

the Impugned Order submitted that the Resolution Plan completely

extinguishes the statutory dues of the Department in as much as it fails to

make any allocation towards statutory dues owed by the Corporate Debtor

which are in the nature of indirect taxes which have already been passed on

to the buyer.

9. It was further submitted that the Hon'ble NCLT has ignored the ruling

of the Hon'ble Apex Court in the matter of Committee of Creditors of Essar

Steel India Ltd. v. Satish Kumar Gupta, Civil Appeal No. 8766-67/2019

decided on 15.11.2019 wherein it has been held in Para 46 that "the decision

of such Committee must reflect the fact that it has taken into account

maximising the value of the assets of the corporate debtor and the fact that it

has adequately balanced the interests of all stakeholders including operational

creditors".

10. Based on his submissions, it is submitted that the Impugned Order is

to be set aside and the Appeal be allowed.

Company Appeal (AT) (Ins) No. 450 of 2020 6 of 13 Respondent's Submissions:

Learned Counsel for the Respondent No. 1 in his 'Reply Affidavit',

'Written Submissions' and also during the court of arguments submitted as

follows:-

11. The position with respect to consideration and verification of claims as on

the ICD is clear in view of Regulation 13 of the CIR Regulations, which

mandates that the insolvency resolution professional or the resolution

professional, as the case may be, shall verify the claims of the creditors of the

corporate debtor as on insolvency commencement date.

12. Thus, claim of the Appellant to the tune of Rs. 27,80,96,126/-towards

interest for the period after the ICD till the date of filing their claim i.e. 18

September 2019 is not verifiable in terms of the clear provisions of the Code

and is bound to be rejected.

13. Further, it is not a case where the entire claim of interest of the

Appellant has been rejected, rather it is only the interest portion which

accrued after the ICD which has been rejected. Therefore, portions of the

amounts claimed which were not even payable as on the ICD were rightly

rejected by the Resolution Professional.

14. Respectfully, immediately upon receiving the claim from the Appellant

on 18 September 2019, the Resolution Professional immediately

acknowledged the same on 26 September 2019. It is pertinent to highlight

that the Appellant itself was significantly delayed in filing its claim, having

filed the claim for the first time more than 2 years after the ICD. Thereafter,

the Resolution Professional initiated the process of claim verification, however

Company Appeal (AT) (Ins) No. 450 of 2020 7 of 13 since the claim of the Appellant was based upon various show cause notices,

demand notices and orders issued over a period of time, it was a time

consuming process to collate the said information and verify the amount

claimed by the Appellant from the records of the Corporate Debtor.

15. Accordingly, the Resolution Professional based on the preliminary

assessment admitted an amount of Rs. 238.56 Crores on 3 October 2019 and

kept the remaining amount of Rs. 110 crores under review and it was duly

disclosed on the website of the Corporate Debtor. It is pertinent to mention

that the GST Authority on 17 October 2019 filed an additional claim of

Rs. 4.97 Crores which was also immediately acknowledged by the Resolution

Professional.

16. Thereafter, upon further verification, the Resolution Professional on

23 October 2019 admitted an amount of Rs. 220.57 Crores as contingent

claim, rejected claim of Rs. 125.02 Crores and kept the remaining of Rs. 7.96

Crores under verification. Finally, on 12 November 2019, an amount of

Rs. 220.57 Crores was admitted and Rs. 133.04 Crores was rejected by the

Resolution Professional which has been duly reflected in Form H submitted

along with the application for approval of the resolution plan.

17. It is therefore evident that Respondent No. 1 was constantly working

on the verification process of the claim filed by the Appellant and was in

regular touch with the Appellant seeking more information or clarification on

the information submitted along with the claim form, and also clarifying the

methodology adopted by him while verifying the claim of the Appellant.

Company Appeal (AT) (Ins) No. 450 of 2020 8 of 13

18. Further, it is highlighted that the status of such claim verification was

regularly updated and uploaded on the website of the Corporate Debtor and

also on the Virtual Data Room ("VDR"), duly accessible to the Resolution

Applicants. It is also imperative to note that the Appellant's representative

was invited to the last three meetings of the COC (being 29", 30", 31 meeting

held on 30 October 2019, 6 November 2019 and 11-12 November 2019), in

its capacity of the largest operational creditor in accordance with the

requirement under Section 24(3)(c) of the Code, wherein substantial

discussion on the resolution plans including the plan of SPTL as approved by

COC took place.

19. Moreover, the Appellant's representative was also provided access to

the resolution plans for their review prior to the discussions in the meeting

until the final approval of the SPTL's resolution plan and thus they had ample

opportunity to raise objections regarding treatment of their claims under the

resolution plan. However, without having done so, the Appellant approached

the Adjudicating Authority by filing an application under Section 60(5) which

has been rightly rejected by way of the Impugned Order.

20. It is submitted that in line with the provisions of the Code read with the

Regulation 36 of the CIR Regulations (as it then existed), the information

memorandum is to be provided to the members of the COC within two weeks

of the appointment of the Resolution Professional and to each prospective

resolution applicant latest by the date of invitation of resolution plan under

clause (h) of sub-section (2) of Section 25 of the Code. Accordingly, Mr. K G

Company Appeal (AT) (Ins) No. 450 of 2020 9 of 13 Somani, the Erstwhile Resolution Professional of the Corporate Debtor,

prepared the information memorandum.

21. Thereafter, when the Respondent No. 1 was appointed vide Order dated

8 July 2019, initially only 30 days' time period i.e. till 7 August 2019 was

provided by the NCLT to conduct the CIR Process, for which neither was the

Respondent No. 1 was required to nor had sufficient time to prepare a fresh

information memorandum and relied upon the one prepared by Mr. Somani.

However, the Respondent No. 1 proactively invited fresh clams and updated

the list of creditors accordingly.

22. Further, as stated above as well in the context of the Appellant, all such

information pertaining to new claims received or updation in the existing

claims received was duly disclosed on the website of the Corporate Debtor and

updated list of creditors was regularly uploaded thereof. The said information

was also consistently uploaded on the VDR as well which was accessible to

both the members of the Committee of Creditors and the prospective

resolution applicants.

23. Thus, it is wrong to allege that the information memorandum was

incomplete due to delay in admittance of claim of the Appellant by Respondent

No. 1.

24. It is contended that the resolution plan of SPTL as approved by the COC

is fully compliant with the mandatory contents contained in Section 30(2) of

the Code. Particularly, in the context of the operational creditors, a resolution

plan is required to comply with Section 30(2)(b) which provides that payments

to operational creditors shall not be less than the amount to be paid to the

Company Appeal (AT) (Ins) No. 450 of 2020 10 of 13 operational creditors in the event of a liquidation than the amount payable to

operational creditors if the resolution plan proceeds were to be distributed in

accordance with the priority under Section 53, whichever is higher. Further,

Regulation 38 of the CIR Regulations require that the amount payable to

operational creditors under the resolution plan shall be given priority over

financial creditors. That apart, the Code deliberately does not stipulate any

condition on payment terms under a resolution plan.

25. In the present case, the liquidation value payable to operational

creditors is NIL as the entire liquidation value would get exhausted towards

payments of CIRP costs, workmen dues and the dues owed to the secured

financial creditors.

26. Further, in light of the existing jurisprudence as settled by the Hon'ble

Supreme Court in the decisions of K Shashidhar v. Indian Overseas Bank,

2019 SCC Online SC 257 and also in Committee of Creditors of Essar Steel

India Limited Through Authorized Signatory v. Satish Kumar Gupta &

Ors., 2019 SCC Online SC 1428, the commercial decision of the COC is

paramount and the same is not to be interfered with by NCLT as has been

rightly done by way of the Impugned Order.

27. Based on these submissions it was submitted that there is no merit in

this Appeal and the Appeal is fit to be dismissed.

Findings:-

28. After hearing Counsel for the Parties and perusing the records and

Written Submissions and Reply Affidavit filed on behalf of the Parties and

from the perusal of the Impugned Order dated 30.01.2020 passed in CA (IB)

Company Appeal (AT) (Ins) No. 450 of 2020 11 of 13 No. 162/CTB/2019 connected with TP No. 42/CTB/2019 arising out of

CP (IB) No. 251/ KB/ 2017 by the Adjudicating Authority (National Company

Law Tribunal, Cuttack Bench), whereby, the Resolution Plan was approved

by the Committee of Creditor and the Tribunal dismissed the Appeal.

29. The Resolution Plan was approved by 95.15 % of voting share in 31st

Committee of Creditors Meeting dated 13.11.2019. Thus, as per the

requirement of Section 30(2)(b) of the Code, the operational creditors of the

Corporate Debtor including the Appellant herein, are entitled to a minimum

payment of their liquidation value which is Nil in the present case, and

therefore the resolution plan of SPTL which proposes NIL payments towards

the claims of operational creditors, cannot be called in question on the ground

that it contravenes provisions of Section 30(2) of the Code.

30. Taking this fact and also Judgment passed by the Hon'ble Supreme

Court in the case of "Ghanashyam Mishra and Sons Private Limited Vs.

Edelweiss Asset Reconstruction Company Limited & Ors." Reported in

MANU/SC/0273/2021, wherein, the Hon'ble Supreme Court of India has

held as under:-

"95. In the result, we answer the questions framed by us as under:

(i) That once a resolution plan is duly approved by the Adjudicating Authority Under Sub-section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval

Company Appeal (AT) (Ins) No. 450 of 2020 12 of 13 of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan;

(ii) 2019 amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which I&B Code has come into effect;

(iii) Consequently all the dues including the statutory dues owed to the Central Government, any State

Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval Under Section 31 could be continued."

31. There is no merit in the instant Appeal, the Appeal is hereby dismissed.

No order as to costs.

32. Registry to upload the Judgment on the website of this Appellate

Tribunal and send the copy of this Judgment to the Ld. Adjudicating Authority

[National Company Law Tribunal, Cuttack Bench], forthwith.

[Justice Anant Bijay Singh] Member (Judicial)

[Ms. Shreesha Merla] Member (Technical) Sim

Company Appeal (AT) (Ins) No. 450 of 2020 13 of 13