In the matter of Balaji Paper & Newsprint Private Limited

National Company Law Tribunal10 April 2024

CitationI.A. (IB) No. 471-KB-2024 in C.P. (IB) No. 1540-KB-2019

Ratio decidendi

The rule this decision rests on

The valuation of a corporate debtor adopted in a resolution plan cannot be reopened at the instance of an operational creditor once the plan has been approved, where the valuer applied an internationally accepted standard and a basis exists for selecting it; such a valuation is the professional judgment of the valuer, and the Committee of Creditors' acceptance of it, being an exercise of commercial wisdom, is not open to judicial review. An allegation that assets were transferred by personal or corporate guarantors after the commencement of the CIRP cannot ground the recall of an approved resolution plan or the declaration of the insolvency process as void where the applicant produces no evidence of such transfers; a bare allegation is not sufficient to sustain the relief sought. Where personal guarantees and corporate guarantees furnished for the corporate debtor's loans have not been invoked, it is the duty of the financial creditors and the resolution professional to invoke them under Sections 94 and 95 of the Insolvency and Bankruptcy Code, 2016, so as to maximise the wealth of the corporate debtor; the Tribunal may direct that such applications be filed within a fixed period under Section 60(5) read with Rule 11 of the NCLT Rules. Recoveries from avoidance (PUFE) applications may, in the Tribunal's direction under Section 60(5) of the Code, be allocated to operational creditors treated as a separate class in proportion to the debt owed to them, where the repayment under the plan does not fully satisfy the financial creditors' balance debt.

Written by Miss Lucy from the judgment below, not taken from a headnote.

Judgment

As delivered

IN THE NATIONAL COMPANY LAW TRIBUNALDIVISION BENCH, COURT NO. IIKOLKATAI.A. (IB) No. 471/KB/2024InC.P. (IB) No. 1540/KB/2019An application under Rule 11 of The National Company LawTribunal Rules, 2016,IN THE MATTER OF:Jai Kishore Gupta... Applicant/Operational Creditor.Versus1. Balaji Paper and NewsprintPrivate Limited2. Mrs. RachnaJhunjhunwala, ResolutionProfessional of Balaji Paperand Newsprint PrivateLimited... Resolution Professional/Respondent.Date of Pronouncement: 10.04.2024CORAM:SMT. BIDISHA BANERJEE, HON’BLE MEMBER (JUDICIAL)SHRI D. ARVIND, HON’BLE MEMBER (TECHNICAL)Appearances:For Operational Creditor: Mr. Shiv Shankar Banerjee, Adv.Ms. Arijita Ghosh, Adv.For Respondent No. 2: Mr. Pranay Agarwal, Adv.Ms. Sweta Mazumdar, Adv.DIVISION BENCH, COURT NO. IIKOLKATAI.A. (IB) No. 471/KB/2024InC.P. (IB) No. 1540/KB/2019ORDERPer: D. Arvind, Member (Technical)1. The Court is congregated through a blended mode.2. The Learned Counsels were heard at length.3. This application has been filed by one Jai Kishore Guptaproprietor of M/s. Lalta Prasad Shaw & Co. for recalling of anOrder dated 12.01.2024 wherein the National Company LawTribunal approved the Resolution Plan presented before it inI.A./1842/KB/2023 in C.P. No. 1540/KB/2019 relating toResolution Plan of the Corporate Debtor Balaji Paper and NewsPrint Private Limited. The Applicant has sought for followingreliefs:a. To pass an Order recalling the order dated 12thJanuary, 2024 passed by this Hon'ble NCLT.b. To pass an Order declaring the entire CIRP void.c. To pass an Order directing a new CoC to beconstituted.d. To pass an Order allowing the petitioners to obtain acertified copy of the Resolution Plan and minutes ofall CoC meetings held.e. To pass an Order directing the Learned Registrar toprepare report and thereafter, a further order bepassed directing a central investigation agencySerious Fraud Investigation Office (SFIO) or any othercentral agency to investigate into the matter.DIVISION BENCH, COURT NO. IIKOLKATAI.A. (IB) No. 471/KB/2024InC.P. (IB) No. 1540/KB/2019f. To pass any other order/orders, that The Hon'bleTribunal may deem fit and proper in the interest ofjustice and equity.4. Facts of the Case:4.1. Balaji Paper and News Print Private Limited(hereinafter referred to as CorporateDebtor/CD/Respondent. The Respondent was engagedin manufacturing and supplying of craft paper,printing paper etc.4.2. The Applicant herein is an Operational Creditorinvolved in selling wastepaper to various othersincluding the Corporate Debtor.4.3. The Corporate Debtor after purchasing tons of wastepapers from the Applicant herein failed to clearinvoices worth Rs. 9,65,35,795/- (Nine Crore Sixty-Five Lakh Thirty-Five Thousand and Seven HundredNinety-Five Only).4.4. The Applicant in his capacity as a partner in EasternAgencies (also an Operational Creditor whose claim isof Rs. 1,75,49,488/- has also been admitted by theResolution Professional) a partnership firm where theApplicant and his Family Members are the partnersand together has an admitted claim of Rs.DIVISION BENCH, COURT NO. IIKOLKATAI.A. (IB) No. 471/KB/2024InC.P. (IB) No. 1540/KB/201911,36,85,243/- as admitted by the erstwhileResolution Professional.4.5. The Resolution Plan was approved with 100% votingshare in favour of the plan. The Resolution Planprovided payment of Rs. 10 Lakhs only against anadmitted combined claim of Rs. 11,36,85,243/- of theapplicant as well as other operational debts totalling toRs. 43,84,80,083/-. Thus, only 0.23% of the admittedclaim of the Operational Creditor has been provided inthe plan as against provision of 88.35% of the claimsof the secured financial creditors, which according tothe applicant is not only arbitrary but also mala fidewith an intention to deprive reasonable and legitimateallocation to the Operational Creditor and hence theapplicant is seeking reliefs claimed in para 3 of thisOrder.5. Applicant’s submissions:5.1. Learned Counsel for the Applicant submits that theRespondent No. 2 has deliberately under-valued theassets of the Corporate Debtor just to defraud theclaims of the Operational Creditor in collusion withCommittee of Creditors, who comprised of only twofinancial creditors (Banks).DIVISION BENCH, COURT NO. IIKOLKATAI.A. (IB) No. 471/KB/2024InC.P. (IB) No. 1540/KB/20195.2. The Learned Counsel further submits that theCorporate Debtor has availed term loan from AllahabadBank and for the same Personal Guarantees were givenby one Anil Kumar Agarwal, one Meeki Agarwal, oneManish Kumar Agarwal and one Ritu Agarwal. Inaddition to above, Corporate Guarantees were alsogiven by Nila Tie-up Pvt. Ltd., Sarathi Suppliers Pvt.Ltd., Mahadev Suppliers Pvt. Ltd, which are corporateguarantees.5.3. Ld. Counsel submits that the ResolutionProfessional/CoC has neither invoked aforesaidPersonal Guarantees and Corporate Guarantees givenagainst loan taken by the Corporate Debtor norincluded it in information memorandum.5.4. It is his submission that by including the personalguarantees and corporate guarantees the assets of theCorporate Debtor could have been maximized and theinterest of the Operational Creditor could have beenreasonably covered.5.5. The Ld. Counsel further submits that the CorporateDebtor and Personal Guarantors have also transferredthe assets and properties of their family membersimmediately after the admission of Insolvency PetitionNo.1540/KB/2019, of the Corporate Debtor.DIVISION BENCH, COURT NO. IIKOLKATAI.A. (IB) No. 471/KB/2024InC.P. (IB) No. 1540/KB/20195.6. The CoC, which comprised of only two banks did notprotest against such illegal sale/transfers made byguarantors. It is, thus, submitted that the Committeeof Creditors and the Resolution Professional have failedand/or neglected to exercise the commercial wisdom,and as a result of their collusion, the applicant is leftwith a paltry sum.6. We would note that during the course of argument, both theparties appeared, however, the Respondents have not filed anyReply Affidavit till date. We have duly considered the writtenand oral submissions of the applicant and oral submissions ofthe Respondents and the documents available to us.7. Analysis and Findings:7.1. In this application three challenges have beenmade to the approved resolution plan which are asunder: - (i) The Corporate Debtor has been undervalueddeliberately to allocate less value for OperationalCreditors.

(ii) To personal and corporate guarantees given to bankers (“FC”) have not been invoked resulting in lesser maximisation of wealth of the Corporate Debtor which DIVISION BENCH, COURT NO. II KOLKATA I.A. (IB) No. 471/KB/2024 In C.P. (IB) No. 1540/KB/2019 led to highly disproportionate allotment of a plan value of the Operational Creditors.

(iii) The Personal Guarantors’ and the Corporate Debtors’ have transferred their assets to others immediately after the commencement of CIRP against which no action has been taken by the Resolution Professional / Financial Creditors’ resulting in grave injustice to Operational Creditor allocation in terms of funds.

The applicant has alleged collusion between Financial Creditors, Corporate Debtors, Suspended Board and Resolution Professional in order to allocate only 0.23% of the admitted claim of the Operational Creditors’, whereas the Financial Creditors through CoC allotted to themselves nearly 89% of the plan value.

7.2. Valuation: - (i) The valuation of the Corporate Debtor cannot be challenged at this stage by anyone when the resolution plan has already been approved by us.

(ii) It is settled law that as long as the valuer so appointed, has applied an internationally accepted standard and has basis for applying a particular standard over another, then, the same is a “professional” judgment of DIVISION BENCH, COURT NO. II KOLKATA I.A. (IB) No. 471/KB/2024 In C.P. (IB) No. 1540/KB/2019 such a valuer and the CoC, in its “commercial wisdom” may agree or disagree with such a valuation. Such decision of the CoC cannot be challenged. This position of law is noted by the Hon’ble NCLAT in Mandip Singh (Suspended Director, Satnam Agri Products Ltd. v. Mahesh Bansal, Liquidator of Satnam Agri Products Ltd. reported at (2022) ibclaw.in 511 NCLAT, wherein the Appellate Authority held that it is settled position of law that question of valuation carried out by two independent Registered Valuers duly registered with IBBI cannot be challenged by the Appellants as the same being a question of fact is normally not interfered by Courts.

(iii) If the CoC disagree, it would direct for fresh valuation. Where the CoC agrees, the decision of the CoC in this regard is final and there is no scope for judicial review.

(iv) We have also noted that the applicant has not provided any basis for challenge to the valuation. In view of above, we reject this allegation as legally and factually not tenable.

7.3. Personal Guarantees and Corporate Guarantees: - (i) We find that as on date no application has been preferred by Financial Creditors under Section 94 and 95 of Insolvency and Bankruptcy Code for initiation

DIVISION BENCH, COURT NO. II KOLKATA I.A. (IB) No. 471/KB/2024 In C.P. (IB) No. 1540/KB/2019 Corporate Insolvency Resolution Process (hereafter referred to as “CIRP”) against the Corporate Debtor.

(ii) We are of the view that it is the duty of the Financial Creditors and the Resolution Professional, to invoke personal guarantees as well as corporate guarantees furnished for the loans and advances taken by the Corporate Debtor for the purpose of maximisation of wealth of the Corporate Debtor.

(iii) In this case the Financial Creditors have taken 89 per cent of the plan value by allocating only 0.23 per cent to the Operational Creditors. The admitted claim of the Operational Creditors is Rs. 43,84,80,083/- whereas they have been paid a paltry sum of Rs. 10 lakhs.

(iv) If personal guarantees given by the suspended board and corporate guarantees given by the corporates had been invoked and applications under Sections 94 and 95 of IB, Code are pursued to initiate corporate insolvency resolution process of such guarantors that would have resulted in maximisation of wealth of the corporate debtor, which is one of the key objectives of IB, Code. Such an act would have led to more money available for distribution. In such of an event, the balance of interest of all stakeholders including the DIVISION BENCH, COURT NO. II KOLKATA I.A. (IB) No. 471/KB/2024 In C.P. (IB) No. 1540/KB/2019 Operational Creditors in this case could have been achieved.

7.4. Transfer of assets of Personal Guarantors to others:

(i) Transfer of assets by the personal guarantors and the corporate guarantors immediately, after the commencement of the CIRP, has been alleged. This is without any basis as the applicant has not produced any evidence whatsoever on such alleged transfers made by the Personal Guarantors and Corporate Guarantors immediately after commencement of the CIRP of the Corporate Debtor.

(ii) Therefore, without proper basis and supporting for such alleged illegal transfers, this application on that ground is not maintainable.

(iii) In view of above, we find no reason for recalling the Order dated 12.01.2024 passed by this Tribunal and, consequently, the relief(s) sought in (a) to (e) cannot be granted.

(iv) However, we direct the resolution professional/CoC consisting of Financial Creditors to file an application under Section 94 in respect of corporate guarantees given by the Nila Tie-Up Pvt. Ltd., Sarathi Suppliers Pvt. Ltd., Mahadev Suppliers Pvt. Ltd. and under

DIVISION BENCH, COURT NO. II KOLKATA I.A. (IB) No. 471/KB/2024 In C.P. (IB) No. 1540/KB/2019 Section 95 in respect of personal guarantees were given by one Anil Kumar Agarwal, one Meeki Agarwal, one Manish Kumar Agarwal and one Ritu Agarwal. Said Anil Kumar Agarwal and Ritu Agarwal the suspended directors of the corporate debtor within a period of 30 days from the date of receipt of this Order.

(v) We have also noted that applications and avoidance transactions have been filed, though the resolution plan states that no application for avoidance transactions have been filed till date against the Corporate Debtor, at the time of filing the application for approval of resolution plan.

(vi) However, it is contended in point 4.5 at page 16 of the Resolution Plan as approved by the CoC that the surplus cash and amounts as maybe recovered from the ex-promoters pursuant to the NCLT Orders on the preferential transaction/Avoidance application of the Resolution Professional shall be available to the committee of creditors and any recovery such transaction by the order of the NCLT shall accrue to Financial Creditors in proposition to the amount as proposed in the Resolution Plan. It is further clarified that any application pending on respect of such transaction maybe continued by the Financial Creditors or as may be decided by the Committee of DIVISION BENCH, COURT NO. II KOLKATA I.A. (IB) No. 471/KB/2024 In C.P. (IB) No. 1540/KB/2019 Creditors and any legal expenditure or the associated cost related to PUFF application, shall be borne by the said financial creditors or as may be decided by the CoC.

(vii) In this case, the admitted claim of the Operational Creditor is Rs. 43,84,80,083/- which is nearly 43 per cent of the total debt, out of which only 0.23 per cent has been allocated. The reasons for such a massive haircut, particularly to Operational Creditors would need thorough examination and we would expect RP to examine and filed appropriate avoidance applications, if not filed already, to recover any money transferred illegally for the purpose of maximisation of wealth of the Corporate Debtor. Upon realisation of amount pursuant to PUFE application allocations, of the same maybe done by the CoC. It goes without saying that if the repayment plan to be provided on application under Section 94 & 95 of IBC, 2016 is sufficient to meet the balance 12 % debt of Financial Creditor then the entire recovery from PUFE applications may be allocated to Operational Creditor in proportion to the value of debt owed to them treating Operational Creditors as a “Separate Class” for the purpose of distribution, after deducting cost of such PUFE application incurred. This direction is issued in terms

DIVISION BENCH, COURT NO. II KOLKATA I.A. (IB) No. 471/KB/2024 In C.P. (IB) No. 1540/KB/2019 of Section 60(5) of IBC, 2016 read with Rule 11 of NCLT Rules in the interest of justice.

8. Accordingly, this application is disposed on above terms.

9. The Registry is directed to send e-mail copies of the order forthwith to all the parties and their Ld. Counsel for information and for taking necessary steps.

10. Certified copy of this order may be issued, if applied for, upon compliance of all requisite formalities.

D. Arvind Bidisha Banerjee Member (Technical) Member (Judicial)

This Order is signed on 10th April, 2024.

Ar. [Steno] / Bose, R. K. [LRA]

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