Mecamidi Hpp India Pvt. Ltd vs Rishi Ganga Power Corporation Ltd

(Arising out of Order dated 13th November, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Chandigarh Bench, Chandigarh in CA No.477/2018 & 339/2018 in CP(IB) No. 102/Chd/Pb/2017)

IN THE MATTER OF:

Mecamidi HPP India Private Limited ...Appellant

Vs.

Rishi Ganga Power Corporation Limited ...Respondents

Present: For Appellant:- Mr. Nakul Mohta and Mr. Ankur Goel, Advocates.

For Respondents:- Mr. Pulkit Goyal, Mr. M.S. Kalra, Mr. Sandeep Mishra, Mr. Nikhil Jain and Ms. Isha Khurana, Advocates for RP (R2).

Mr. K. Datta, Mr. Prithu Garg, Mr. Abhay Pratap Singh and Ms. Niharica Khanna, Advocates for R-3.

Mr. Rajesh Kr. Gautam and Ms. Khushboo Aggarwal, Advocates for R-4.

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

Pursuant to an application under Section 7 of the Insolvency and

Bankruptcy Code, 2016 ("I&B Code" for short) filed by the 'Punjab

National Bank'- ('Financial Creditor'), the 'Corporate Insolvency

Company Appeal (AT) (Insolvency) No. 773 of 2018 2

Resolution Process' was initiated against 'M/s. Rishi Ganga Power

Corporation Ltd.'- ('Corporate Debtor').

2. In the said 'Resolution Process', the 'Committee of Creditors' after

considering the cases of different 'Resolution Applicants', approved the

'Resolution Plan' of 'M/s. Kundan Care Products Ltd.'. The said plan

having approved by the Adjudicating Authority by order dated 13th

November, 2018, the Appellant- 'Operational Creditor' has challenged

the same.

3. Learned counsel appearing on behalf of the Appellant submitted

that the 'Resolution Plan' is arbitrary and discriminatory and is against

the object of the 'I&B Code'.

4. Further, according to learned counsel for the Appellant, the plan

approved is in violation of Section 30(2) (b) of the 'I&B Code'.

5. The case was earlier taken up on 18th March, 2019, when

following observations made by this Appellate Tribunal:

"18.03.2019 - We have discussed matter with

Appellant ('Sole Operational Creditor'), counsel

for the Appellant, learned counsel for the

'Resolution Professional' and representative of

'Financial Creditors' (there are three Financial

Creditors) about the distribution as shown in the

'Resolution Plan'. Prima Facie, we are of the view

that the plan approved by the 'Committee of

Company Appeal (AT) (Insol.) No. 773 of 2018 3

Creditors' appears to be discriminatory in a

sense that it has allowed 27.83% in favour of the

three 'Financial Creditors' but no amount

allocated in favour of the 'Operational Creditors'.

Parties are given liberty to file its chart

showing distribution between the 'Financial

Creditor' and 'Operational Creditors' in a manner

which is not arbitrary or discriminatory. This

Appellate Tribunal if so required may substitute

the Resolution plan instead of setting aside the

same.

Post this case for 'orders' on 8th April,

2019. The appeal may be disposed of on the

next date. In the meantime, parties may file

reply-affidavit."

6. Learned counsel appearing on behalf of the 'Resolution

Applicant'- ('M/s. Kundan Care Products Ltd.') submitted that the

Appellant has agreed to revise the plan to make it non-discriminatory

and in consonance of provisions of Section 30(2) (b) of the 'I&B Code'. It

is accepted that no amount has been allocated to the 'Operational

Creditor'.

7. Learned counsel appearing on behalf of the 'Punjab National

Bank'- (4th Respondent) submitted that pursuant to the observations of

this Appellate Tribunal, a meeting of erstwhile 'Financial Creditors' was

Company Appeal (AT) (Insol.) No. 773 of 2018 4

held along with erstwhile 'Resolution Professional' and the 'Successful

Resolution Applicant' on 2nd April, 2019 to arrive at a consensus for

payment to Appellant- 'M/s. Mecamidi HPP India Ltd.' so that a Chart

showing distribution between the 'Financial Creditors' and the

'Operational Creditors' in a manner which is not arbitrary or

discriminatory. However, no consensus could be arrived at between the

erstwhile 'Financial Creditors' and the 'Successful Resolution Applicant'

and thereby requested this Appellate Tribunal to pass appropriate

order.

8. The distribution of amount amongst the 'Financial Creditors' and

the 'Operational Creditor' as shown in the 'Resolution Plan' of 3rd

Respondent- ('M/s. Kundan Care Products Ltd.') is as under:

Sl. Category of Name Amount Amount Amount Percentage No. stake holder claimed admitted by provided of amount (In Cr.) Resolution under the allowed in Professional Resolution the (In Cr.) Plan (In Resolution Cr.) Plan (In Cr.) 1 Financial Punjab National 98.76 98.76 27.48 27.83 Creditor Bank 2 Financial Orient Bank of 59.51 59.51 16.56 27.83 Creditor Commerce

3 Financial Kotak Mahindra 1.37 1.37 0.38 27.83 Creditor Bank

4 Operational Mecamidi HPP 4.71 4.71 0 0 Creditor India Pvt. Ltd.

5 Undisclosed/ N.A. 0 0 0.50 NA Contingent Operational Creditor

9. In "Binani Industries Limited Vs. Bank of Baroda & Anr. -

Company Appeal (AT) (Insolvency) No. 82 of 2018 etc.", this

Appellate Tribunal by its judgment dated 14th November, 2018 held

Company Appeal (AT) (Insol.) No. 773 of 2018 5

that the 'I&B Code' or the Regulations framed by the Insolvency and

Bankruptcy Board of India do not prescribe differential treatment

between the similarly situated 'Operational Creditors' or the 'Financial

Creditors' on one or other grounds.

10. In "Swiss Ribbon Pvt. Ltd. & Anr. v. Union of India & Ors.─

2019 SCC OnLine SC 73)", the Hon'ble Supreme Court while looking

into the discrimination as had been made out by the 'Financial Creditor'

observed and held:

"70. Quite apart from this, the United Nations

Commission on International Trade Law, in its

Legislative Guide on Insolvency Law ["UNCITRAL

Guidelines"] recognizes the importance of ensuring

equitable treatment to similarly placed creditors and

states as follows:

"Ensuring equitable treatment of

similarly situated creditors

7. The objective of equitable treatment is

based on the notion that, in collective

proceedings, creditors with similar legal

rights should be treated fairly, receiving

a distribution on their claim in

accordance with their relative ranking

and interests. This key objective recognizes

that all creditors do not need to be Company Appeal (AT) (Insol.) No. 773 of 2018 6

treated identically, but in a manner

that reflects the different bargains they

have struck with the debtor. This is less

relevant as a defining factor where there is

no specific debt contract with the debtor,

such as in the case of damage claimants (e.g

for environmental damage) and tax

authorities. Even though the principle of

equitable treatment may be modified by

social policy on priorities and give way to the

prerogatives pertaining to holders of claims

or interests that arise, for example, by

operation of law, it retains its significance by

12 UNCITRAL Legislative Guide on

Insolvency Law ensuring that the priority

accorded to the claims of a similar class

affects all members of the class in the same

manner. The policy of equitable treatment

permeates many aspects of an insolvency

law, including the application of the stay or

suspension, provisions to set aside acts and

transactions and recapture value for the

insolvency estate, classification of claims,

voting procedures in reorganization and

distribution mechanisms. An insolvency law

Company Appeal (AT) (Insol.) No. 773 of 2018 7

should address problems of fraud and

favouritism that may arise in cases of

financial distress by providing, for example,

that acts and transactions detrimental to

equitable treatment of creditors can be

avoided."

71. The NCLAT has, while looking into viability

and feasibility of resolution plans that are

approved by the committee of creditors, always

gone into whether operational creditors are

given roughly the same treatment as financial

creditors, and if they are not, such plans are either

rejected or modified so that the operational creditors'

rights are safeguarded. It may be seen that a

resolution plan cannot pass muster under

Section 30(2)(b) read with Section 31 unless a

minimum payment is made to operational

creditors, being not less than liquidation value.

Further, on 05.10.2018, Regulation 38 has been

amended. Prior to the amendment, Regulation 38

read as follows:

"38. Mandatory contents of the

resolution plan.--

Company Appeal (AT) (Insol.) No. 773 of 2018 8

(1) A resolution plan shall identify specific

sources of funds that will be used to pay

the--

(a) insolvency resolution process costs

and provide that the [insolvency

resolution process costs, to the extent

unpaid, will be paid] in priority to any

other creditor;

(b) liquidation value due to operational

creditors and provide for such

payment in priority to any financial

creditor which shall in any event be

made before the expiry of thirty days

after the approval of a resolution plan

by the Adjudicating Authority; and

(c) liquidation value due to dissenting

financial creditors and provide that

such payment is made before any

recoveries are made by the financial

creditors who voted in favour of the

resolution plan."

Post amendment, Regulation 38 reads as follows:

"38. Mandatory contents of the

resolution plan.--

Company Appeal (AT) (Insol.) No. 773 of 2018 9

(1) The amount due to the operational

creditors under a resolution plan shall

be given priority in payment over

financial creditors.

(1-A) A resolution plan shall include a

statement as to how it has dealt with

the interests of all stakeholders,

including financial creditors and

operational creditors, of the corporate

debtor."

11. Learned counsel appearing on behalf of the 3rd Respondent

('Successful Resolution Applicant') has brought on record a revised

distribution chart and submitted that keeping in consideration the

Liquidation value of the Company at Rs. 15.39 Crores, as per which the

Appellant- 'Operational Creditor' is entitled to minimum Rs.0.44 Crores.

The proposed redistribution of amount amongst Creditors is as follows:

As per Original plan As per Revised Plan As per Liquidation Name of Creditor Claim Amount Provided Ratio Amount Provided Ratio Amount PNB 98.76 27.48 27.83% 26.70 27.04% 9.25 OBC 59.51 16.56 27.83% 16.08 27.02% 5.57 Kotak 1.37 0.38 27.83% 0.37 27.01% 0.12 Operational 4.71 1.27 26.96% 0.44 Creditor (Mecamidi) 164.35 44.42 44.42 15.39 All values in crore (INR)

Company Appeal (AT) (Insol.) No. 773 of 2018 10

12. Admittedly, as per the original distribution, the 'Operational

Creditor' has been paid 'Nil' which is much less than the Liquidation

value to which the Appellant is entitled. In such case, we hold that the

approved plan is in contravention of Section 30(2) (b) of the 'I&B Code'.

13. Further, the distribution as made between the 'Financial Creditor'

and the 'Operational Creditor' i.e. 27.83% in favour of the 'Financial

Creditor' and 'Nil' amount in favour of the 'Operational Creditor', is also

arbitrary and discriminatory.

14. As per the decision of this Appellate Tribunal in "Binani

Industries Limited Vs. Bank of Baroda & Anr" (Supra) and the

Hon'ble Supreme Court in "Swiss Ribbon Pvt. Ltd. & Anr. v. Union of

India & Ors." (Supra), the 'Operational Creditors' are to be given

roughly the same treatment as the 'Financial Creditors'. Such treatment

having not been made instead of rejecting the plan, we modify the plan

as proposed by 'Resolution Applicant' which also pass the test of

Section 30 (2) (b).

15. For the reasons aforesaid, while we allow the 'Resolution

Applicant' to modify and substitute the 'Resolution Plan' and the re-

distribution be made in a manner as proposed by 3rd Respondent

('Resolution Applicant'), as follows:

As per Original plan As per Revised Plan Name of Creditor Claim Amount Provided Ratio Amount Provided Ratio Amount PNB 98.76 27.48 27.83% 26.70 27.04% OBC 59.51 16.56 27.83% 16.08 27.02% Kotak 1.37 0.38 27.83% 0.37 27.01% Operational 4.71 1.27 26.96%

Company Appeal (AT) (Insol.) No. 773 of 2018 11

Creditor (Mecamidi) 164.35 44.42 44.42

All values in crore (INR)

16. The impugned order dated 13th November, 2018 passed by the

Adjudicating Authority and the 'Resolution Plan' both stand modified to

the extent above. The 'Resolution Professional' and the 'Committee of

Creditors' and other stakeholders will act in terms with the modified

plan.

The appeal is allowed with aforesaid observations and directions.

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

order as to costs.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice A.I.S. Cheema) Member(Judicial)

(Kanthi Narahari) Member(Technical)

NEW DELHI 23rd April, 2019 AR

Company Appeal (AT) (Insol.) No. 773 of 2018