In the matter of NIBULA PRINT AND PACK PRIVATE LIMITED

National Company Law Tribunal22 April 2024

CitationCompany Petition No. (IB)-1138(ND)/2018

Ratio decidendi

The rule this decision rests on

A regulation amended by a notification that does not expressly provide for retrospective operation applies only prospectively, and an amendment to Regulation 38(1) of the CIRP Regulations, 2016, notified on 27.11.2019, cannot govern a resolution plan approved by the Committee of Creditors before that date. A press release describing a proposed legislative amendment does not, without more, confer retrospective effect on a subsequently notified amendment to a subordinate regulation, where the release does not refer to the regulation in question. For a dissenting financial creditor, the minimum entitlement under Section 30(2)(b) read with Section 53(1) is to be computed on the basis of the whole of its claim, where the secured creditor relinquishes its security interest, and not on the liquidation value of the security interest alone, because under both enforcement under Section 52 and relinquishment under Section 53(1)(b)(ii) the secured creditor is entitled only to its claim amount, and the value of the assets not subject to any security interest must be taken into account. A resolution plan that offers a dissenting financial creditor less than the amount it is entitled to receive under Section 53(1) in a liquidation of the corporate debtor, as computed in accordance with the preceding principle, is violative of Section 30(2)(b) of the Code and cannot be approved.

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

Judgment

As delivered

NATIONAL COMPANY LAW TRIBUNALNEW DELHI BENCH (COURT-II)IA-1512/2019, IA-1684/2019, IA-1522/2019INCompany Petition No. (IB)-1138(ND)/2018IN THE MATTER OF:R.J. Packwells Pvt. Ltd. … Operational CreditorVersusNibula Print & Pack Pvt. Ltd … Corporate DebtorAND IN THE MATTER OF: IA 1512 of 2019:(Under Section 30(6) of IBC, 2016)Ashok Kriplani, RP,17 /13, Ground Floor,Old Rajinder Nagar,New Delhi - 110060 … ApplicantAND IN THE MATTER OF: IA 1684 of 2019(Rule 11 r/w Rule 31 of NCLT Rules, 2016)HDFC Bank Ltd.Department for Special Operations,5th Floor, AnsalClassique Tower,Rajouri Garden, New Delhi-110027 …ApplicantAND IN THE MATTER OF: IA 1522 of 2019(Section 60(5) of IBC, 2016 r/w Rule 11 of NCLT Rules, 2016)ltenderpal SinghS/o Sh. Ram Singh,R/o H. No. 76A & 78A, Chopra, … ApplicantVersusSh. Ashok Kriplani, RP10/18, FF, Old Rajender Nagar,New Delhi-60 … RespondentOrder Delivered on: 22.04.2024CORAM:SH. ASHOK KUMAR BHARDWAJ, HON’BLE MEMBER (J)SH. L. N. GUPTA, HON’BLE MEMBER (T)

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd

PRESENT: For the RP : RP Mr. Ashok Kriplani For HDFC Bank : Adv. Kunal Tandon, Adv. Richa sandhya and Adv. Bhawana Vijay For Suspended Director : Adv. Rakesh Kumar, Adv. Preeti Kashyap, Adv. Ankit Sharma.

ORDER

The present IA No. 1512 of 2019 has been preferred by Mr. Ashok Kriplani, Resolution Professional of M/s Nibula Print and Pack Private Limited (hereinafter referred to as the ‘Applicant’) under Section 30(6) of IBC, 2016 praying for the following reliefs: “a. an order approving the Resolution plan as submitted under Annexures 13(Colly) and subsequently under Annexure A24(Colly), b. pass any other order as deem fit and proper to this Hon'ble Tribunal.”

2. To put the facts concisely, the underlying main Petition CP (IB)- 776/(ND)/2021 was filed by R. J. Packwells Pvt. Ltd. against the Corporate Debtor namely, Nibula Print & Pack Pvt. Ltd. under Section 9 of IBC, 2016, which was admitted vide Order dated 11.12.2018 of this Adjudicating Authority and the Corporate Insolvency Resolution Process (CIRP) in respect of the Corporate Debtor was initiated. The Corporate Debtor is currently represented through its RP Mr. Ashok Kriplani, the applicant herein.

3. It is stated by the Applicant that in terms of Regulation 6(1) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the Applicant made a Public Announcement in Form-A on 17.12.2018 to invite

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd claims, a copy of which was also uploaded on the website of Insolvency and Bankruptcy Board of India (IBBI).

4. It is submitted that RP thereafter constituted the Committee of Creditors (CoC) comprising of the following Financial Creditors:

5. The Applicant has further submitted that the ‘Form-G’ was published on 02.04.2019 to invite Expressions of Interest (EOI) from the potential Resolution Applicants. As per the information placed on record, in terms of the last Form- G dated 23.1.2023, last date of submission of Resolution Plan was 01.06.2019.

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd

6. It is stated by the Applicant that it had received plans from 03 PRAs which were rejected by the CoC vide its voting held on 16.08.2019 for the 12th CoC Meeting. The details of the rejected Resolution plans read thus:

7. Thereafter, as sated by the Applicant, RP filed an application dated 23.08.2019 before this Adjudicating Authority seeking liquidation of the Corporate Debtor. It is further submitted by the Applicant that the PRAs resisted the abovesaid application with their entire might as the PRAs being the OCs anticipated to get nothing, if the liquidation order was passed by this Adjudicating Authority. Subsequently, vide its order dated 30.09.2019, on representation of the PRAs, this Tribunal directed all the Resolution Applicants to file reply and directed the RP to place before CoC any amended plan received. Copy of the order of this Tribunal dated 30.09.2019 reads thus:

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd

8. Thereafter, as submitted by the Applicant, all the PRAs formed a consortium, namely, Vinay Goel & Consortium of Members and submitted a fresh Resolution plan on 25.10.2019, which was approved in the 15th meeting of COC with 77.91 % voting share. The copy of minutes and voting sheet, as placed on record, reads thus:

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd xxx xxx xxx xxx

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd

9. The details of the CIR process, fair value and liquidation value of the CD, the distribution of the resolution plan value amongst the stakeholders, and compliances are given in the “Compliance Certificate” filed by the RP in Form ‘H’, which is reproduced below for an immediate reference:

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd

10. As per the Form ‘H’ (ibid) filed by the Applicant, the Fair Market Value of the Corporate Debtor is Rs.10.315 Crore and the Liquidation Value of the Corporate Debtor is Rs. 8.03 Crore. The total amount provided for distribution to various stakeholders under the CoC - approved Resolution Plan is Rs. 9.42 Crore.

11. The Applicant/RP has filed the Affidavit of all the Consortium members stating that they are not barred under Section 29A of IBC, 2016 to submit the Resolution Plan. One of such Affidavits filed by one Mr.Vinay Goel reads thus:

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd

12. The Applicant/RP has also filed on record, the proof of the Performance Bank Guarantee (PBG) issued by HDFC Bank in favour of the SRA. The said PBG can be claimed till December 2024 and reads thus:

xxx xxx xxx xxx

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd

13. As regards the sources of funds of SRA, the Applicant has stated the following on Page 226 of the Application:

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd

14. As regards the Implementation Schedule, the Applicant has provided the same at Page 219 of the Application, which reads thus:

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd

15. For supervision of implementation of the plan / constitution of Monitoring Committee, the following is stated under the Resolution Plan:

16. On perusal of the plan, it is noticed that the SRA has not sought any relief and concession under the plan.

IA-1684 of 2019

17. However, before proceeding ahead in the matter, we would like to deal with the objections to the approval of Resolution Plan raised by Dissenting Financial Creditor HDFC Bank by filing IA-1684 of 2019. The HDFC Bank has saliently espoused the following:

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd

17.1 The Resolution Plan is defective in terms of Section 30 (2) (b) of IBC, as per which the dissenting Financial Creditor shall be paid in priority. It is contended by the HDFC Bank that as per Section 30(2)(b) of the Code, the dissenting Financial Creditor, the Applicant herein, must be paid a minimum of Rs. 1.61 Crore as against the amount of Rs. 58.30 Lakhs being paid under the Resolution Plan. The Insolvency and Bankruptcy Board of India vide notification no. IBBI/2019- 20/GN/REG052 dated 27.11.2019 amended the principal Regulation 38(1) of CIRP Regulations, 2016, whereby the priority of payment amongst creditors has changed. As per the original regulation 38(1), only the Operational Creditor was given priority in payment over Financial Creditors. However, after the amendment, both Operational Creditors and the Dissenting Financial Creditor must be paid in priority over the Financial Creditors, who voted in favour of the plan. Thus, as per the amendment, the Applicant, being a dissenting financial creditor, is entitled to be paid in priority. The HDFC bank has further argued that the Resolution Plan has not attained finality yet, therefore, the provisions of the amended Regulation 38(1) will have a retrospective effect on it and this is in accordance with the press release dated 17.07.2019 of the IBBI.

17.2 As per the Resolution Plan, it is evident that the dissenting Financial Creditor, the Applicant herein, is entitled to the liquidation value, in terms of Section 53(1) in the event of liquidation. The gross realizable liquidation value of the Corporate Debtor is estimated to be Rs. 835 lakhs and the value of the Applicant therefrom is stated to be Rs. 35 lakhs in the amended Resolution Plan of 04.11.2019 which is calculated in a baseless manner. The amount

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd admitted by the Resolution Professional is Rs. 1.61 crore and the calculation undertaken by the applicant amounts to a sum of Rs. 1.65 crore. Therefore, any amount lower than Rs. 1.65 crore is inconsistent with Section 30(2) (b) read with Section 53 of the Code. Reliance is placed by the applicant on the judgment passed by the Hon'ble Apex Court in M/s Vistra ITCL (India) Ltd & Ors. versus Mr. Dinkar Venkatasubramanian & Anr., Civil Appeal No. 3606 of 2020.

17.3 The words provided in Section 53(1)(b) are 'debts owed to a secured creditor', which signifies the whole debt of a secured creditor, i.e., the equal proportion of the whole of the debt must be treated as the liquidation value for Section 30(2) (b), and the Applicant must be paid accordingly.

17.4 The RP vide its additional affidavit dated 04.12.2019 has clearly stated that if the distribution is made in terms of section 30(2)(b) and section 53 of the IB Code 2016, then HDFC Bank is entitled to an amount of Rs. 1.61 crore. It is further stated that if the amount of Rs. 1.61 Crore is paid to the HDFC Bank, then other creditors would not agree to approve the resolution plan.

17.5 In the liquidation proceedings, the creditors having security interest has two options - either to realize its security or to relinquish its security interest in the general pool of the assets of the Corporate Debtor. In the event of relinquishment, the priority under Section 53(1)(b) is available to the secured creditor, which will rank it equally to workman's dues and if the secured creditor proceeds to realize the security interest, the priority drops to Section53(1)(e). Considering such a clear and unambiguous position, there is IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd no necessity to read into the provisions of the Code and impute something that is not available.

17.6 Thus, it cannot be stated that if the secured creditor relinquishes its security interest, in that event, the priority of the secured creditor is available only to the extent of its security interest. The only restriction created under the amended IBC is that the dues of the workman shall rank equally with that of the secured creditor. Hence, to restrict the right of the secured creditor to the extent of the security interest would mean reading in to the provisions of Section 53, and what the legislature never intended to do. Reliance is placed on the judgment passed by the Hon'ble NCLAT in Technology Development Board versus Mr. Anil Goel and Ors. CA (AT) (INS) No. 731 of 2020.

17.7 The Applicant was categorized and discriminated between similarly situated secured Financial Creditors, which is illegal, in view of the decision of the Hon'ble Supreme Court dated 15.11.2019 in Committee of Creditors of Essar Steel India Limited, Authorised Signatory v Satish Kumar Gupta & Ors. The Hon'ble Court held that discrimination amongst similarly situated creditors is not permissible. This was affirmed in India Resurgence Arc Private Limited v M/s Amit Metaliks Limited & Anr., wherein the Hon'ble Court relied on the findings of Essar that the concept of equitable treatment of the creditors within the same class. The Court further held that a dissenting financial creditor would be receiving the payment amount as per their entitlement. If they are entitled to some amount in liquidation value in terms of Sections 30 and 53 of the Code read with Regulation 38 of the CIRP Regulations, they would be provided such liquidation value proportionately. IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd

18. The RP filed reply to the aforesaid objections, mainly stating thus:

18.1 The Applicant/objector HDFC Bank has incorrectly alleged that the Resolution Plan submitted by the Vinay Goel & Consortium Members is discriminatory in nature. The categorisation of the Creditors met out in the present case is based on the principle of "intelligible differentia", as laid down in Essar Steel.

18.2 The Applicant has been rightly termed as a secured Financial Creditor only to the extent of the value of the security interests held by it. The objective of the IBC, 2016 has been thereby protected and abided to while formulating the Resolution Plan. The said submission has also been upheld by Essar Steel.

18.3 The next contention raised by the Applicant is with respect to the applicability of amended Regulation 38(1) dated 27.11.2019 introduced vide notification no. IBBI/2019-20/GN/REG052. It is submitted that the said Regulation does not have a retrospective effect, and therefore, it is not applicable to the Resolution Plan that was already approved by the CoC in the 15th CoC meeting held on 08.11.2019.

18.4 Sec. 30(2) of IBC provides that dissenting FC is entitled to Liquidation value of security held by it, and when read with Sec. 30(4), it is clear that the COC has to exercise its commercial wisdom in the matter of distribution, and it has freedom to take decision keeping in view the fact and that the distribution to any FC is not lower than the Liquidation value of security held by the FC. the entitlement of the Dissenting Financial Creditor in the event of liquidation of the CD will result in worse outcome for the Applicant as the expected recovery

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd will be net of proportionate liquidation expenses and costs thereof out of a value of Rs. 20 Lakhs (LV) as opposed to Rs. 58.30 (RV) Lakhs offered in the present Resolution Plan.

19. We have heard the submissions of the Applicant/ objector HDFC Bank which is also a Dissenting Financial Creditor (DFC) and the RP and perused the documents placed on record by both the parties, including their Written Submissions. The HDFC Bank has objected to the Resolution Plan, inter alia, on the ground that the plan is in contradiction to Regulation 38(1) of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, since the Dissenting Financial Creditor is not paid in priority over other creditors. Further, the proposed plan violates Section 30(2)(b), as the dissenting Financial Creditor HDFC Bank has been offered an amount, which is less than the amount to be paid to it in accordance with sub-section (1) of section 53 in the event of a liquidation of the corporate debtor. The plan offers only Rs. 58.3 Lakhs against its claim of Rs. 282.03 Lakhs, whereas the minimum Liquidation value owed to the HDFC Bank is Rs. 1.61 Crore. Per Contra, the RP contended that the priority in payment to the Dissenting Financial Creditor was introduced vide amendment in Regulation 38(1) of (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which came into effect from 28.11.2019, whereas the Resolution Plan was approved by the CoC as back as on 09.11.2019. Hence, this provision cannot be made applicable retrospectively. With respect to entitlement of DFC, it has been contended by the RP that the Liquidation value of Security Interest

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd held by the HDFC Bank is Rs. 20 Lakhs only, against which it has been offered Rs. 58 Lakhs in the plan.

20. In view of the above, we would like to examine the rival contentions raised by both the parties. Before dealing with the issue of minimum entitlement of the HDFC Bank, we would like to dwell upon whether the proposed Resolution Plan violates Regulation 38(1) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. In the wake, we refer to Regulation 38(1), which reads thus:

“38. Mandatory contents of the resolution plan. (1) The amount payable under a resolution plan – (a) to the operational creditors shall be paid in priority over financial creditors; and (b) to the financial creditors, who have a right to vote under sub-section (2) of section 21 and did not vote in favour of the resolution plan, shall be paid in priority over financial creditors who voted in favour of the plan.”

Evidently, vide Regulation 38(1)(b), the Dissenting Financial Creditors are accorded the same priority as Operational Creditors for the amount payable under a Resolution Plan vide Notification No. IBBI/2019-20/GN/REG052, dated 27.11.2019. Now, the issue before us is whether the aforesaid amendment in Regulation was retrospective in nature. To buttress the plea that the Regulation 38(1)(b) is retrospective in nature, the HDFC Bank has relied upon the Press Release dated 17.07.2019 issued by MCA, which reads thus:

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd

21. From a perusal of the press release (ibid), it is observed that it was about the proposed IBC (Amendment) Bill, 2019 and not about any amendment in Regulation 38(1) of (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Further, in this press release, we find no mentioning of priority in payment to be given to a DFC with retrospective effect rather it was about the amount that would have been received by an OC or DFC if the liquidation value of the CD was distributed in accordance with Section 53 of the Code, which eventually got reflected in amendment in Section 30(2)(b) of IBC 2016 seperately.

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd

22. Nonetheless, in the interest of justice, we would like to visit the Notification No.IBBI/2019-20/GN/REG052, dated 27th November, 2019 (given effect from 28.11.2019) to examine whether Regulation 38(1) of (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 was given any retrospective effect. The relevant excerpts of Gazette Notification read thus:

xxx xxx xxx xxx

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd

23. From the perusal of the Notification above, it is observed that there is no mention of the fact that the Amended Regulation was to be given retrospective effect. In the circumstances, we consider it worthwhile to refer to the Judgement of Hon’ble NCLAT in the matter of “Facor Alloys Limited & Anr. Vs. Mr. Bhuvan Madan & Ors.” in Company Appeal (AT) (insolvency) No. 340 of 2020 dated 25th November, 2020.

“41. It is pertinent to mention that voting on approved Resolution Plan took place on 13th November 2019, on which date only the Operational Creditors were to be paid in priority. The Amendment to Regulation 38(1) of CIRP Regulations mandates priority in payment to dissenting Financial Creditors. This amendment came into effect on 27th November 2019, i.e. post the approval of Resolution Plan by the erstwhile COC of the Corporate Debtor. Therefore, as on the date of approval of the Resolution Plan by the erstwhile COC, the only requirement under the provision of the Code qua the dissenting Financial Creditors was the payment of the minimum liquidation value, which is duly complied in the present Case.

42. It is settled position in Law that provisions in a Statute would operate prospectively unless the retrospective operation is expressly provided for. There being no clarification provided to that effect, the amended Regulation 38 cannot be said to have retrospective application.” (Emphasis placed)

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd

24. Further, in this context, we also consider it worthwhile to refer to another Judgement of Hon’ble NCLAT in the matter of Madhusudan Tantia Vs Amit Choraria, Company Appeal (AT) (Insolvency) No. 557 of 2020 dated 12.10.2020 wherein the following was observed:

“41. At this stage, this Tribunal worth recalls and recollects the decision of Hon’ble Supreme Court ‘Atlas Cycles Industries Ltd.’ V. ‘State of Haryana’ AIR (1977) Supreme Court p.121 wherein it is observed that the word ‘Notification’ is normally employed in the context of conditional legislation e.g. to bring into operation the enabling Act or to grant exemptions from its provisions or to extend its operation to the new persons or objects. It is to be pointed out that just because a ‘Notification’ substitutes something in an earlier notification, the substitution cannot have retrospective operation.”

(Emphasis placed) 25. Since the substitution/addition made in Regulation 38(1) of (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 vide Notification No. IBBI/2019-20/GN/REG052, dated 27th November, 2019 does not expressly specify that it was retrospective in nature, we do not find any merit in this contention raised by the HDFC Bank. The proposed Resolution Plan being approved by CoC on 09.11.2019 i.e., prior to the notification dated 27th November, 2019 (ibid), we are of the considered view that the substituted/amended Regulation is not applicable in the present case and the proposed plan is not violative of Regulation 38(1) of (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd

26. Now, we would like to examine another objection raised by the Applicant/HDFC Bank regarding its entitlement of amount in terms of Section 30(2) of IBC, 2016. As per the HDFC Bank, its minimum entitlement as Dissenting Financial Creditor (DFC) is computed by the RP at Rs. 1.61 Crore, which is based on the amount receivable by it under Section 53(1) of IBC by applying deeming fiction, if CD goes into the Liquidation. Per Contra, as per RP, the Liqudiation value of DFC is Rs. 20 Lakhs only, which is the minimum Liquidation value of the Security Interest held by the HDFC Bank.

27. Normally, this Tribunal is not required to indulge itself in the exercise of computing the quantum of value receivable by a stakeholder, however, here it is a question of examining the methodology adopted by the RP in computing the entitlement of an amount receivable by a Dissenting Financial Creditor.

28. The minimum entitlement of a Dissenting Financial Creditor is mentioned in Section 30(2) of IBC, 2016, which reads thus:

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd

29. Thus, as per Section 30(2)(b) of IBC 2016 (ibid), the amount payable to a Dissenting Financial Creditor is to be paid in accordance with Section 53(1) of IBC 2016 in the event of Liquidation of the Corporate Debtor. Although while calculating this, Liquidation of CD does not happen, however a deeming fiction is created in law that Corporate Debtor is in Liquidation and the amount payable to it is to be calculated in accordance with Section 53(1) of IBC 2016.

30. There might be some challenges in computing the exact amount, as during the Liquidation process, the proceeds from the sale of the liquidation assets are distributed, and such sale is carried down through e-auction or any other mode, however, during CIRP when Section 53(1) is applied as deeming fiction, neither there is any actual Liquidation of CD nor does any sale take place. Rather, the Average Liquidation value computed by the Registered valuers is deemed as the proceeds from the sale of Liquidation of CD.

31. Under the Liquidation proceedings, a Secured Creditor is vested with two options, Scenario-1: when he has the option to relinquish its Security Interest and take proceeds in terms of Section 53(1)(b)(ii); and Scenario-2: when it can enforce its Security Interest as per the mechanism stipulated under Section 52. The contents of Section 52 and 53 are reproduced below for an immediate reference:

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd

XXX XXX XXX XXX

32. Thus, it is observed that under both the scenarios, one thing is common that the Secured Creditor is entitled to only its claim amount. Even if it enforces its Security Interest under Section 52 and if there is any surplus

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd amount it has received, Secured Creditor is under obligation as per provision under Section 52(7) of IBC, 2016 to return the surplus amount to the Liquidator. In other words, if the value of security interest is higher than the claim amount, a Secured Creditor cannot enrich itself more than its entitlement. Further, in an alternate situation, while enforcing security interest, if it fails to realize its claim amount and any balance amount is left to be received, it is entitled to receive that amount under Section 53(e)(ii) of IBC, 2016.

33. In the context of CIRP, for the purpose of computing value receivable by a Dissenting Financial Creditor, the harmonious reading of Section 52(7) of IBC, 2016 and 53(e)(ii) indicates that value of Security Interest cannot be the criteria, rather it will be the value of claim, as per which the minimum entitlement of a Dissenting Financial Creditor is to be determined. Further, there could be situation where certain assets though considered while computing the Liquidation value of CD, but on which there is no security interest created of any creditor. If value of security interest is the sole criteria of computing the minimum entitlement of a DFC, then they will be deprived of getting benefits from the valuation of such assets no security interest is created.

34. In the instant case, the RP has provided the calculation of minimum entitlement of the HDFC Bank in terms of Section 30(2)(b) of IBC, 2016 if its claim is considered as criterion instead of the value of security interest. The calculation of RP reads thus:

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd

35. From a perusal of the abovesaid calculation placed by the RP, it is observed that in both the scenarios of Section 52 as well as Section 53 of IBC 2016, the minimum entitlement of the Dissenting Financial Creditor i.e., HDFC Bank comes to Rs 1.61 Crore.

36. However, the RP has treated Liquidation value of Security Interest while computing the minimum entitlement of DFC in terms of Section 30(2)(b) read with Section 53(1) of IBC, 2016 at Rs. 20 Lakhs. In our considered view, the RP has made a gross error while adopting this methodology while computing entitlement of DFC in terms of Section 30(2)(b) of IBC, 2016.

37. Since as per his own calculation of RP, the minimum entitlement of DFC as per Section 30(2)(b) read with Section 53(1) of IBC, 2016 (when security interest is relinquished) is Rs. 1.61 Crore, against which SRA in the Resolution Plan has provided Rs. 58 Lakhs only, we are of the considered view that the present Resolution Plan is violative of Section 30(2)(b) of IBC, 2016. Hence, we have no option but to reject the Resolution Plan.

38. Accordingly, IA-1684/2019 stands allowed and IA-1512/2019 stands rejected.

39. Further, in terms of provision under Section 33(b)(i) and the fact that the maximum permissible period of CIRP is over since long back, we have no other option but to order Liquidation of the Corporate Debtor with immediate effect.

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd

40. Further in terms of provisions in Section 34(4)(a) of IBC, 2016, the current Resolution Professional Sh. Ashok Kriplani is replaced with another IP, who shall act and discharge duties as the Liquidator of the Corporate Debtor. Accordingly, from the list of the panel of IBBI, Mr. Shiv Nandan Sharma (having Registration No. IBBI/IPA-001/IP-P00384/2017-18/10641 and e-mail id: sharmasn@gmail.com) is appointed as the Liquidator of the Corporate Debtor, who shall take steps for Liquidation of CD in accordance with the law.

41. The Applicant/RP is directed to hand over the records to Mr. Shiv Nandan Sharma appointed as Liquidator within 3 days from today.

IA-1522/2019

43. The necessary of going into the merits of IA-1522/2019 is obviated in view of the objection raised by the Dissenting Financial Creditor in IA- 1684/2019 having been sustained, IA-1512/2019 being rejected and Liquidation of the Corporate Debtor ordered.

44. In view of the above, the IA-1522/2019 is dismissed, being infructuous.

Sd/- Sd/- (L. N. GUPTA) (ASHOK KUMAR BHARDWAJ) MEMBER (T) MEMBER (J)

IA. No. 1512 of 2019, IA No. 1684 of 2019, IA no. 1522 of 2019 in IB-1138/ND /2018 R.J. Packwells Pvt. Ltd. Vs Nibula Print & Pack Pvt. Ltd

This page reproduces a public judgment and a summary of it. It is research material, not legal advice, and it is no substitute for advice from an advocate on your own facts.

Research this judgment with Miss Lucy

Ask what it holds, what has followed it, and what it means for your matter — in plain English, with the citations.

Try Miss Lucy free