Indian Overseas Bank & Ors vs Kamineni Steel & Power India Pvt. Ltd. & ...

(Arising out of Order dated 27th November, 2017 passed by the Adjudicating Authority (National Company Law Tribunal), Hyderabad Bench, Hyderabad in CP (IB) No. 11/10/HDB/2017)

IN THE MATTER OF:

Kamineni Steel & Power India Pvt. Ltd. ...Appellant

Vs.

Indian Bank & Ors. ...Respondents

Present: For Appellant: - Mr. Rajendra Benival, Mr. Srujana Suman Mund and Mr. Kaustubh Shukla, Advocates.

For 4th, 5th & 7th Respondents: - Mr. Kunal Tondon, Advocate

With Company Appeal (AT) (Insolvency) No. 23 of 2018

(Arising out of Order dated 27th November, 2017 passed by the Adjudicating Authority (National Company Law Tribunal), Hyderabad Bench, Hyderabad in CP (IB) No. 11/10/HDB/2017)

IN THE MATTER OF:

United Seamless Tabulaar Pvt. Ltd. ...Appellant

Vs.

Kamineni Steel & Power India Pvt. Ltd. & Ors. ...Respondents

Company Appeal (AT) (Insolvency) Nos. 45, 23, 335 & 15 of 2018 2

Present: For Appellant: - Mr. Aditya Verma, Advocate.

For 1st Respondent:- Mr. Krishna Kumar, Mr. Srujana Suman and Mr. Kaustubh Shukla, Advocates.

For 7th, 8th & 10th Respondents: - Mr. Kunal Tondon, Advocate.

With Company Appeal (AT) (Insolvency) No. 335 of 2017

(Arising out of Order dated 27th November, 2017 passed by the Adjudicating Authority (National Company Law Tribunal), Hyderabad Bench, Hyderabad in CP (IB) No. 11/10/HDB/2017)

IN THE MATTER OF:

Indian Overseas Bank & Ors. ...Appellants

Vs. Kamineni Steel & Power India Pvt. Ltd. & Ors. ...Respondents

Present: For Appellants:- Mr. Kunal Tandon, Advocate.

For 1st Respondent:- Mr. Krishna Kumar, Mr. Srujana Suman, Mr. Sajin V.K. and Mr. B. Vinodh Kanna, Advocates.

For 3rd Respondent: - Mr. P.V. Dinesh and Sindhu T.P., Advocates.

For IRP : - Mr. Kaustubh Shukla, Advocate

Company Appeal (AT) (Insolvency) Nos. 45, 23, 335 & 15 of 2018 3

With Company Appeal (AT) (Insolvency) No. 15 of 2018

(Arising out of Order dated 23rd November, 2017 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai in MA 557, 530, 529 & 590/2017, IA 72/2017 in C.P 01/I&BP/2016)

IN THE MATTER OF:

Mr. Chandu Laxman Chavan ...Appellant

Vs.

Union of India & Ors. ...Respondents

Present: For Appellant: - Dr. U.K. Chaudhary, Senior Advocate assisted by Mr. Shikhil Suri, Mr. Kamaldeep Dayal, Mr. Himanshu Vij and Ms. Vinishma Kaul, Advocates.

For 2nd, 3rd and 20th Respondents: -Mr. Ramji Srinivasan, Senior Advocate assisted by Mr. Animesh Bisht, Mr. Karan Khanna and Mr. Tushar Bhardwaj, Advocates.

For 22nd Respondent:- Ms. Pooja Mahajan and Ms. Mahima Singh, Advocates

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

In these appeals as common question of law is involved, they were

heard together and disposed of by this common judgment.

Company Appeal (AT) (Insolvency) Nos. 45, 23, 335 & 15 of 2018 4

2. An application under section 10 of the Insolvency and Bankruptcy

Code, 2016 ('I&B Code' for short) was filed by 'Kamineni Steel & Power

India Pvt. Ltd.'- ('Corporate Applicant') before the Adjudicating Authority

(National Company Law Tribunal), Hyderabad Bench, Hyderabad, which

was admitted on 10th February, 2017 and the 'Corporate Insolvency

Resolution Process' was initiated.

3. The 'Committee of Creditors' held different meetings and two

Valuer's reports were circulated by video recording the liquidated value

of the assets of the Company. The Valuer's report was that the Company

was not meeting the debt due to the 'Secured Creditors' and hence

'Operational Creditors' would not have a chance to recover any of their

dues. It was resolved by the 'Committee of Creditors' on 12th May, 2017

to consider SBI Capital Markets Ltd. presentation and to take view in

principle about the 'Resolution Plan' proposed by the 'Corporate Debtor'.

4. Subsequently, the 4th Meeting of the 'Committee of Creditors' was

held on 27th June, 2017 and it resolved that fresh infusion of funds of

Rs. 150 Crores as projected is not acceptable.

5. In the 5th Meeting of the 'Committee of Creditors' held on 20th July,

2017, it was resolved to request 'SBI Capital Markets Ltd.' to prepare final

TEV Report accordingly showing the revised sustainable debt year wise

Company Appeal (AT) (Insolvency) Nos. 45, 23, 335 & 15 of 2018 5

and to reduce zero interest debt period from 17 years. The 'Corporate

Debtor' proposed to raise working capital of Rs. 100 Crore as advances

from suppliers against sales so as to ease working capital liquidity.

6. In the 6th Meeting of the 'Committee of Creditors' held on 24th

August, 2017, an expression of interest submitted by the 'Committee of

Creditors' was noticed and 'SBI Capital Markets Ltd.' was requested to

submit its final report.

7. The members of the 'Committee of Creditors' in its 7th Meeting held

on 26th September, 2017 comprising of 87.69% of voting power have

expressed that revised 'Resolution Plan' submitted by the 'Corporate

Debtor' is under circulation and that 'Corporate Debtor' shall improve the

offer to enable to consider the 'Resolution Plan'. The lending bankers of

the Committee indicated that the sustainable portion should be improved

to 40% of the total debt.

'JMF ARC Limited' holding 12.31% voting power had stated that

they are not in favour of 'Resolution Plan' submitted by the 'Corporate

Debtor' and they might reconsider only if the 'Corporate Debtor' improves

the levels of the sustainable debt.

Company Appeal (AT) (Insolvency) Nos. 45, 23, 335 & 15 of 2018 6

The 'Corporate Debtor' was given one week's time. The 'Corporate

Debtor' in its turn sent a detailed mail to lenders on 29th September, 2017

explaining the entire position and with a request to give their valuable

inputs and suggestions with clarity on the above subject to which request

has been made for, so as to enable them to submit a detailed reply/

revised 'Resolution Plan'.

8. In the 8th Meeting of the 'Committee of Creditors' held on 16th

October, 2017, it was agreed that the 'Resolution Plan' submitted by the

'Corporate Debtor' should also be providing for the monitoring and

supervision of the 'Resolution Plan' by the present 'Resolution

Professional', in case approved by the 'Committee of Creditors' in

compliance with Section 30(2) of the 'I&B Code' and Regulation 38 of the

IBBI (Insolvency Resolution Process for Corporate persons) Regulations,

2016.

'Indian Bank' having 22.33% of voting power had sent an email that

'Resolution Plan' was rejected by the sanctioning authorities.

'JMR ARC Limited' having a 12.39% of voting had in the meeting

held on 26th September, 2017 rejected the 'Resolution Plan'. However,

both 'Indian Bank' and 'JMF ARC' Limited having an aggregate voting

percentage of 34.72% had expressed that they would reconsider

Company Appeal (AT) (Insolvency) Nos. 45, 23, 335 & 15 of 2018 7

'Resolution Plan' if portion of the sustainable debt is increased either by

way of expanding capacity utilization or by more equity infusion.

The following banks in all having aggregate of 65.28% of voting

power had informed that they do not have mandate to produce from their

sanctioning authorities to approve the 'Resolution Plan' submitted.

Sl. No. Name of Bank % of voting

1 Indian Overseas Bank 15.15

2 Andhra Bank 12.81

3 Central Bank of India 11.82

4 Oriental Bank of 10.94

Commerce

5 Allahabad Bank 8.20

6 Bank of Maharashtra 6.36

Total 65.28

The 'Corporate Debtor' was asked to submit a fresh 'OTS' proposal

through email to all the bankers. The 'Corporate Debtor' on 18th October,

2017 sent a mail submitting the following 'OTS' Scheme proposal

suggesting Rs. 525.00 Crores towards One Time Settlement. Time was

sought for to pay the amount in different instalments from 31st March,

2018 to 31st December, 2019 as follows:

Company Appeal (AT) (Insolvency) Nos. 45, 23, 335 & 15 of 2018 8

"

Sl No. Particulars Details

1 One Time Settlement Rs. 525.00 Crores (OTS) proposal for the All banks put together

2 1st Instalment for the 10% of the OTS amount OTS proposal to be by 31st March, 2018 paid

3 Balance payment of FY-2018- 20% of the OTS proposal to be 19-H1- OTS done in the following 30.09.2018 amount manner FY-2018- 20% of 19-H2- OTS 31.03.2019 amount

FY-2019- 25% of 20-H1- OTS 30.09.2019 amount

FY-2019- 25% of 20-H2 By OTS 31.12.2019 amount

4 Repayment period ** Structured Repayment period to be provided as proposed above for payment of the OTS amount without interest.

5 Remarks The above structured repayment of the OTS

Company Appeal (AT) (Insolvency) Nos. 45, 23, 335 & 15 of 2018 9

instalments could be accelerated/ preponed in the event of early availability of Strategic Investor/ stake sale than projected.

However, the company shall try its best for the earliest closure of OTS scheme.

"

The aforesaid 'OTS' offer was without prejudice to their right to deal

the Company cases in various legal forums viz., NCLT, DRT etc.

9. Later the 'Corporate Debtor' after the JLF meeting with the Bankers

on 26th October, 2017 and as communicated by the Bank submitted

another 'OTS' proposal as follows:

"Amount in OTS - Rs. 600 Cr.

ii) Payment terms -

a. 5% - 45 days from the date of the NCLT Order

b. 10% - by 31st March 2018

c. 85% - payable in three half-yearly instalments

(25% - Sept' 18 / 30% - March' 19 / 30% - Sept'

Company Appeal (AT) (Insolvency) Nos. 45, 23, 335 & 15 of 2018 10

19) with grace period for the last payment by 1

month (till Oct'19), if necessitated.

d. Interest Rate - Lead bank 1 year MCLR +2%

(10.35%). Simple interest to be charged on the

outstanding amount from 1/4/2018 on reducing

balance basis" and requested to place the above

OTS proposal before this Tribunal for obtaining

necessary confirmation and approvals from the

COC of lenders."

e. After receiving the mail, the RP sent mails to the

members of the CoC informing the Resolution

Plan to be considered on 27-10-2017 when the

9th CoC meeting was convened with the

permission from the members for a shorter notice

u/s Regulation 19(2) of the IBBI (Insolvency

Resolution Process for Corporate Persons)

Regulations, 2016."

10. The 'Resolution Plan' presented by the 'Resolution Professional'

based on the e-mail sent, as quoted above was considered in the 9th

'Committee of Creditors' meeting held on 27th October, 2017 and was

approved by the members of the 'Committee of Creditors' having 55.73%

voting power as follows:

Company Appeal (AT) (Insolvency) Nos. 45, 23, 335 & 15 of 2018 11

S. No. Name of the Bank % of Voting Power 1 Indian Bank 22.33 2 JM Financial Asset 12.39 Reconstruction Co.

Ltd.

3 Allahabad Bank 8.20 4 Andhra Bank 12.81 Total 55.73

11. The 'Indian Bank' and the 'Allahabad Bank' by way of mail dated

27th October, 2017 confirmed the plan subject to providing final sanction

after getting sanction from appropriate authorities and the same is

accepted by majority of the lenders.

The 'Indian Overseas Bank' having voting power of 15.15% rejected

the 'Resolution Plan' by way of revised 'OTS'.

12. The in principle approvals by the members of the 'Committee of

Creditors' having voting power of 29.12% expressed that they remain

'OPEN' awaiting the in principle approval from their respective

sanctioning authorities.

S.No. Name of the Bank % of Voting

Power

Company Appeal (AT) (Insolvency) Nos. 45, 23, 335 & 15 of 2018 12

1 Oriental Bank of 10.94 Commerce 2 Central Bank of India 11.82

3 Bank of Maharashtra 6.36

Total 29.12

13. On 30th October, 2017, the 'Oriental Bank of Commerce' having

10.94% voting power sent mail conveying their in principle agreeability

for the 'Resolution Plan' by way of 'OTS' and that their final approval was

subject to similar approvals from the majority of co-lenders. The 'Bank of

Maharashtra' having 6.36% voting power did not send any mail or

communication and remained 'OPEN'. On 30th October, 2017, the

'Central Bank of India' having 11.82% voting power informed by way of

mail that they are not agreeable for the 'Resolution Plan' by way of 'OTS'.

14. The percentage of 'Consenting Lender Banks'/'Financial Creditors'

for approving the 'Resolution Plan' by way of 'OTS' as on 30th October,

2017 was as follows:

S.No. Name of the Bank % of Voting Power

1 Indian Bank 22.33

2 JM Financial Asset 12.39 Reconstruction Company Ltd.

Company Appeal (AT) (Insolvency) Nos. 45, 23, 335 & 15 of 2018 13

3 Allahabad Bank 8.20

4 Andhra Bank 12.81

5 Oriental Bank of 10.94 Commerce

Total 66.67

15. The percentage of 'Dissenting Lender Banks' not approving the

'Resolution Plan' by way of 'OTS' as on 30th October, 2017 was as follows:

S.No. Name of the Bank % of Voting Power

1 Indian Overseas Bank 15.15

2 Central Bank of India 11.82

Total 26.97

16. The percentage of Lender Banks remained 'OPEN' for the approval

of the 'Resolution Plan' by way of 'OTS' as on 30th October, 2017 was as

follows:

S.No. Name of the Bank % of Voting Power

1 Bank of Maharashtra 6.36%

Total 6.36%

Company Appeal (AT) (Insolvency) Nos. 45, 23, 335 & 15 of 2018 14

17. The Adjudicating Authority taking into consideration the aforesaid

facts, approved the 'Resolution Plan'/ 'Revised OTS Scheme' as submitted

by the 'Resolution Professional' vide affidavit dated 3rd November, 2017

and declared that the 'Moratorium' imposed on 10th February, 2017

ceased to have effect from the date of approval and other directions were

given with regard to the 'Resolution Plan'/ 'Revised OTS Scheme'.

18. The aforesaid common order has been challenged by the Appellant

in Company Appeals (AT) (Insolvency) Nos. 23 of 2018, 45 of 2018 & 335

of 2017.

19. In Company Appeal (AT) (Insolvency) No. 15 of 2018, the Appellant

has challenged the order dated 23rd November, 2017 passed by the

Adjudicating Authority, Mumbai Bench, Mumbai. In the said case, the

'Corporate Insolvency Resolution Process' was initiated against

'Innoventive Industries Limited'.

20. The 'Committee of Creditors' in the said 'Resolution Process', in its

meeting voted with 66.57% in favour of the 'Resolution Plan'. It was not

approved with 75% of the voting shares of the 'Committee of Creditors'. A

Miscellaneous Application No. 557 of 2017 was filed by the 'Resolution

Applicant namely-- 'Suyash Outsourcing Pvt. Ltd.' against 'Bank of

India', 'Bank of Baroda', 'UCO Bank', 'Canbank Factors Ltd.', 'IFCI

Company Appeal (AT) (Insolvency) Nos. 45, 23, 335 & 15 of 2018 15

Factors', 'ICICI Bank Ltd.' - ('Financial Creditors') for certain declaration

and to direct 'Resolution Professional' to allow the said Applicant to

submit revised 'Resolution Plan' after reducing the time earlier envisaged

for obtaining shareholders' approval from the period for making cash

payments for fresh vote to place before the 'Committee of Creditors' to

modify 'Resolution Plan' reducing the time earlier granted.

21. The 'Resolution Applicant' on 3rd September, 2017 submitted a

term sheet along with proposed 'Resolution Plan' for Rs. 284.3crores (in

present value terms) @13% discounting rate with a compulsory change

in management of the company to make a cash payment of around Rs.

180 crores within a period of one year subject to all approvals and for

conversion of residual debt (Rs.1191.9 crores) into 'Cumulative

Convertible Optionally Redeemable Preferential Shares' ('CCORPS' for

short), redemption @ 0.01% of which would be guaranteed by the

promoter by way of personal guarantee payable in instalment at the end

of 20 years, the coupons on 'CCORPS' shall be paid annually to the

'Financial Creditor', the payment towards coupon on the proposed

'CCORPS' shall not start before dissenting lenders are settled. Unsecured

lenders having dues of Rs. 41.6 crores will be paid by converting Rs. 36.1

crores due to 'Canbank Factors Ltd.' and 'IFCI Factors Ltd.' shall be

converted into 0.01% 'CCORPS' payable in one instalment at the end of

20 years. The applicant has further stated that the 'Resolution Plan'

Company Appeal (AT) (Insolvency) Nos. 45, 23, 335 & 15 of 2018 16

estimated total recovery of Rs. 284.3 crores as against proposed recovery

of Rs. 135.4 crores through liquidation.

22. The Adjudicating Authority taking into consideration the relevant

provisions and the aforesaid facts observed that the 'Resolution Plan'

having not been approved by not less than 75% of the vote shares of the

'Committee of Creditors' and the 'Corporate Insolvency Resolution

Process' of 270 days being already over by 14th October, 2017, in absence

of any 'Resolution Plan', order to liquidate the 'Corporate Debtor' under

Section 34 of the 'I&B Code' with certain other directions were passed.

23. The Company Appeal (AT) (Insolvency) No. 335 of 2017 preferred

by some of the members of the 'Committee of Creditors', who opposed the

'Resolution Plan'. According to them, the Adjudicating Authority has

wrongly approved the 'Resolution Plan' as it was only approved by 66.3%

voting shares of the 'Committee of Creditors'.

24. The Company Appeal (AT) (Insolvency) No. 23 of 2018 has been filed

by the 'Operational Creditor'. His grievance is that he wanted to be

present in the meeting of the 'Committee of Creditors' but it was not

accepted and no response was given by the 'Resolution Professional'.

Otherwise, he is not objecting to the 'Resolution Plan' which has been

approved by the 'Committee of Creditors' and the Adjudicating Authority.

Company Appeal (AT) (Insolvency) Nos. 45, 23, 335 & 15 of 2018 17

25. Company Appeal (AT) (Insolvency) No. 45 of 2018 is with regard to

same 'Corporate Insolvency Resolution Process' against 'Kamineni Steel

& Power India Pvt. Ltd.' by the approved 'Resolution Applicant' on the

limited ground that the Adjudicating Authority has made certain

observation with regard to liability of Guarantor. According to the

'Resolution Applicant', after approval of the 'Resolution Plan' the right of

the Guarantor vanishes.

26. Further, according to 'Successful Resolution Applicant' in

'Kamineni Steel & Power India Pvt. Ltd.' if the counting of vote is done on

the basis of actual number of members, it came to 44.8% which should

be accepted.

27. In Company Appeal (AT) (Insolvency) No. 15 of 2018, the

Adjudicating Authority has not accepted the 'Resolution Plan' approved

with 66.57% voting shares of the 'Committee of Creditors' being less than

75%. In this case, the Appellant is the promoter of 'Innoventive Industries

Ltd.'- ('Corporate Debtor') has taken plea that Section 21 (8) if read with

Section 34(4), including the amendment made therein, then Section 21(8)

cannot be held to be mandatory.

Company Appeal (AT) (Insolvency) Nos. 45, 23, 335 & 15 of 2018 18

28. Section 21 relates to 'Committee of Creditors' which normally is

comprising of 'Financial Creditors' of the 'Corporate Debtor' but does not

allow the related party who owes financial debt.

29. As per sub-section (8) of Section 21 (as it then was), all decisions

of the 'Committee of Creditors' required to be taken by a vote of not less

than seventy-five percent of the voting share of the 'Financial Creditors',

which reads as follows:

"21. Committee of Creditors. ─ (8) All decisions

of the committee of creditors shall be taken by a vote

of not less than seventy-five per cent of voting share

of the financial creditors:

Provided that where a corporate debtor does

not have any financial creditors, the committee of

creditors shall be constituted and shall comprise of

such persons to exercise such functions in such

manner as may be specified by the Board".

30. Requirement of minimum seventy-five percent of the voting shares

of the 'Financial Creditors' has been reduced subsequent to the passing

of impugned orders dated 23rd November, 2017 and 27th November, 2017.

From plain reading of Section 21 (8) (as it then was) it is clear that all the

Company Appeal (AT) (Insolvency) Nos. 45, 23, 335 & 15 of 2018 19

decisions of the 'Committee of Creditors' is required to be taken by a vote

of not less than seventy-five percent of the voting shares of the 'Financial

Creditors', including the approval of the 'Resolution Plan'. Sub-section (8)

of Section 21 being mandatory in nature, any plan which has not been

approved by the 'Committee of Creditors' with voting shares of seventy-

five percent, cannot be approved by the Adjudicating Authority as it will

be against the provisions of Section 30(2)(e) of the 'I&B Code' which

stipulates that the 'Resolution Plan' does not contravene any of the

provisions of the law for the time being in force. Less than seventy-five

percent of the voting shares of the 'Committee of Creditors' in the matter

of approval of the 'Resolution Plan' being against the provisions of clause

(e) of sub-section (2) of Section 30, it cannot be approved.

31. In view of the aforesaid reasons, we uphold the decision of the

Adjudicating Authority, Mumbai Bench dated 23rd November, 2017 which

is under challenge in Company Appeal (AT) (Insolvency) No. 15 of 2018

and set aside the impugned order dated 27th November, 2017 passed by

the Adjudicating Authority, Hyderabad Bench, which are under challenge

in Company Appeals (AT) (Insolvency) Nos. 45 of 2018, 23 of 2018 & 335

of 2017.

32. In the result, the Company Appeal (AT) (Insolvency) No. 15 of 2018

is dismissed and Company Appeals (AT) (Insolvency) Nos. 45 of 2018, 23

Company Appeal (AT) (Insolvency) Nos. 45, 23, 335 & 15 of 2018 20

of 2018 & 335 of 2017 are allowed and the case of 'Kamineni Steel &

Power India Pvt. Ltd.' is remitted to the Adjudicating Authority for

initiation of liquidation proceeding in terms of Section 33 read with

Section 34 of the 'I&B Code' who is required to pass order immediately.

However, in the facts and circumstances of the case, there shall be no

order as to cost.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice Bansi Lal Bhat) Member(Judicial)

NEW DELHI

6th September, 2018

/AR/

Company Appeal (AT) (Insolvency) Nos. 45, 23, 335 & 15 of 2018