Mstc Ltd vs Adhunikmetalliks Ltd & Ors

MSTC Limited ...Appellant

Vs.

Adhunik Metalliks Ltd. & Ors. ...Respondents

Present: For Appellant:- Mr. Pallav Shishodia, Senior Advocate with Mr. Sidharth Bhatnagar, Ms. Pallavi Pratap, Ms. Prachi Pratap, Mr. Sidharth Mohan and Mr. Barnik Ghosh, Advocates.

For Respondents:- Mr. Arun Kathpalia, Senior Advocate with Ms. Roopali Singh, Ms. Sayobani Basu, Mr. V.P Singh, Advocates for R-1 to R-3.

Mr. S.N. Mukherjee, Senior Advocate with Mr. Krishnendu Datta, Advocate for R-4.

Company Appeal (AT) (Insolvency) Nos. 53 & 54 of 2019

(Arising out of Orders dated 12th December, 2018 and 3rd January, 2019 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata in C.P. (IB) No. 373/KB/2017 and CA(IB) Nos. 403, 1069, 1072 & 1138/KB/2018 in C.P. (IB) No. 373/KB/2017)

IN THE MATTER OF:

Liberty House Group Pte. Ltd. ...Appellant

Vs.

State Bank of India & Anr. ...Respondents 2

Present: For Appellant:- Mr. S.N. Mukherjee and Mr. Gopal Mukerjee, Senior Advocates with Mr. Krishnendu Datta, Advocate.

For Respondents:- Mr. Tushar Mehta, Senior Advocate with Ms. Misha, Mr. Vaijayant Paliwal and Ms. Charu Bansal, Advocates for SBI.

Mr. Sidharth Bhatnagar, Ms. Pallavi Pratap and Mr. Barnik Ghosh, Advocates for MSTC.

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

In the 'Corporate Insolvency Resolution Process' initiated against

'M/s. Adhunik Metalliks Ltd.'- ('Corporate Debtor'), the Adjudicating

Authority (National Company Law Tribunal), Kolkata Bench, Kolkata, by

impugned order dated 17th July, 2018 approved the 'Resolution Plan'

under Section 31 (1) of the Insolvency and Bankruptcy Code, 2016 ('I&B

Code" for short) submitted by 'Liberty House Group Pte. Ltd.' ("Liberty

House Group" for short), which was approved by the 'Committee of

Creditors' with 99.94% voting shares.

2. By the same very impugned order, the claim of 'MSTC Limited'-

('Operational Creditor'), a Public Sector Undertaking under the Govt. of

India, to treat the additional expenses incurred by it as Resolution Cost,

and thereby to pay it, has been rejected.

Company Appeal (AT) (Insolvency) Nos. 519 of 2018 and 53 & 54 of 2019 3

3. The fact is that the 'Liberty House Group', whose 'Resolution Plan'

was approved on 17th July, 2018, failed to pay the upfront amount within

57 days from the date of the approval of the 'Resolution plan' in terms of

plan. On such failure, the 'Committee of Creditors' alleging non-

compliance of relevant terms in the 'approved Resolution Plan' filed an

application before the Adjudicating Authority, Kolkata Bench. The

'Liberty House Group' also moved an application seeking directions to

implement the 'Resolution Plan' by the Long Stop Debt as defined in the

'Resolution Plan'. The 'Liberty House Group' also requested to issue ad

interim directions to the 'Committee of Creditors' not to pursue the

application for liquidation.

4. The Adjudicating Authority having heard the parties by impugned

order dated 12th December, 2018 refused to grant interim relief to the

'Liberty House Group' and asked as to why order of liquidation in terms

of sub-section (3) of Section 33 of the 'I&B Code' be not passed.

5. The typographical error was corrected by impugned order dated 3rd

January, 2019, allowing the 'Liberty House Group' to file reply affidavit.

6. The order dated 12th December, 2018 rejecting the prayer of

'Liberty House Group' to grant interim relief read with order dated 3rd

January, 2019 allowing the 'Liberty House Group' to file reply affidavit

have been challenged by 'Liberty Group House'.

Company Appeal (AT) (Insolvency) Nos. 519 of 2018 and 53 & 54 of 2019 4

Case of 'Liberty Group House'

7. Learned counsel appearing on behalf of the 'Liberty House Group'

submitted that the 'Resolution Plan' not only contemplated

corresponding obligations of the parties who were required to take

necessary steps for implementation of the 'Resolution Plan', it also

contemplated certain material assumptions on the basis of which the

Appellant prepared and structured the 'Resolution Plan'.

8. It was submitted that the 'Liberty House Group' made best efforts

to perform its part of the obligations for implementation of 'Resolution

Plan' and is continuing to do so, however, the implementation of the

'Resolution Plan' suffered road block due to multiple factors which were

beyond the control of the Appellant.

9. According to 'Liberty House Group', the claim of 'MSTC Limited' as

shown in Clause 6.8.2 of the 'Resolution Plan' is a critical assumption

based on which the offer of upfront payment has been made. The

'Committee of Creditors' and the Adjudicating Authority approved such

plan dated 17th July, 2018.

10. Clause 6.8.2 of the 'Resolution Plan' reads as follows:

"6.8.2 the Liquidation Value payable to MSTC is NIL.

Based on Information provided, MSTC has been paid

the entire dues that were incurred during the CIRP

period in full. Further, based on the information

Company Appeal (AT) (Insolvency) Nos. 519 of 2018 and 53 & 54 of 2019 5

provided, we understand that INR 56.72 crores was

paid during the CIRP period to MSTC in order to

ensure continued supply of goods (which was

necessary to continue the going concern nature of the

business of the corporate debtor), which payments

have been approved by the CoC. In the

circumstances, since the Operational Creditors under

the Code are entitled to Liquidation Value and in this

case the Liquidation Value payable to the Operational

Creditors is NIL, MSTC as an Operational Creditor will

be paid NIL."

11. Therefore, according to 'Liberty House Group', the 'MSTC Limited'

is entitled to receive no further amount as suggested in the 'Resolution

Plan' and approved by the 'Committee of Creditors' and the Adjudicating

Authority.

12. Further, according to 'Liberty House Group', in terms of Clause

4.2.1 of Part II of the 'Resolution Plan', the implementation of the

'Resolution Plan' is subject to receipt of requisite approval from the

Competition Commission of India ("CCI" for short), if so required.

Therefore, the 'effective date' of implementation of the 'Resolution Plan'

should be the date of receipt of 'CCI's approval, if required. It was

submitted that at the time of submission of the 'Resolution Plan', the

Appellant- 'Liberty House Group' had no knowledge of assessing

requirement of 'CCI's approval, which is dependent on financial position

Company Appeal (AT) (Insolvency) Nos. 519 of 2018 and 53 & 54 of 2019 6

of the previous year. The Appellant was under the bona fide assumption

that 'CCI's approval would be required for its 'Resolution Plan', as a de-

minimus exemption was not available. The Appellant had anticipated that

the 'CCI' approval would be received within a month-and-a-half of the

approval of the 'Resolution Plan' and, therefore, the Appellant indicated

57 days' timeline to commence which should be from the date of 'CCI's

approval, and not from the date of approval of the 'Resolution Plan'.

13. It is accepted that the assessment of 'CCI' approval with regard to

the 'Corporate Debtor' was finalized on 4th September, 2018 at the time

of pre-filing consultation with regard to the other entity namely-- 'Amtek

Auto Limited' on 4th September, 2018, the 'CCI' has inquired about the

status of 'Corporate Debtor'. Thereafter, the Appellant kept receiving

correspondences from the 'CCI' till as late as 10th December, 2018

seeking clarifications regarding the 'Corporate Debtor'.

14. It was submitted that the 'Resolution Plan' contemplated various

regulatory approvals and consultation with the stock exchange and other

Governmental department like the Reserve Bank of India and the 'CCI'

etc., the Appellant was under the bona fide assumption that the timeline

given is only an 'indicative timeline' for payment of upfront amounts as

set out in the 'Resolution Plan'.

15. Having heard learned counsel for the parties, we find that the

submissions as made on behalf of the Appellant- 'Liberty House Group'

is an afterthought as the Appellant being 'Resolution Applicant' was

Company Appeal (AT) (Insolvency) Nos. 519 of 2018 and 53 & 54 of 2019 7

knowing that the 'Resolution Plan' is to fulfil all the requirements in terms

of Section 30 (2) of the 'I&B Code'. Section 30 (2) (f) mandates that the

'Resolution Plan' should not be against any of the provisions of the

existing law.

16. Whether the 'Resolution Plan' is against Section 6(1) of the

Competition Act, 2002 can be decided only by the 'CCI'. Pursuant to the

'Resolution Plan' as the 'Liberty House Group' will acquire 'Adhunik

Metalliks Ltd.' - ('Corporate Debtor') being 'Successful Resolution

Applicant' is required to intimate the 'CCI' in terms of Section 6(2) of the

Competition Act, 2002. Therefore, the submission made on behalf of the

'Liberty House Group' that the 'effective date' of plan is date of approval

by 'CCI' cannot be accepted. The prayer is rejected.

Case of 'MSTC Limited'

17. The Appellant - 'MSTC Limited' was doing business with the

'Adhunik Metaliks Ltd.'- ('Corporate Debtor') of facilitating the

transactions of import and export of iron ore, coke, coal, etc. Before the

Adjudicating Authority, the Appellant - 'MSTC Limited' contended that it

had incurred expenses of Rs. 343.43 Crores for facilitating the

procurement of raw materials during the 'Corporate Insolvency

Resolution Process' period to keep the Company as a going concern. Out

of such amount only Rs. 244.12 Crores has been paid. The rest of the

raw materials lying stored in the Company as on the date is of Rs.99.31

Company Appeal (AT) (Insolvency) Nos. 519 of 2018 and 53 & 54 of 2019 8

Crores which were procured subsequent to Commencement Date (date of

admission).

18. It was further contended that the Appellant - 'MSTC Limited' had

incurred additional expenses of Rs. 14.33 Crores and thereby the said

Appellant made a claim of total sum of Rs. 113.64 Crores towards the

'Resolution Process Costs' and not towards claim as an 'Operational

Creditor'.

19. The 'Resolution Professional' disputed the claim and taken plea

that 'MSTC Limited' is a facilitator and not a vendor or owner of raw

materials, 'MSTC Limited' procure such materials from different vendors

and supplies to the buyers. In the present case, 'MSTC Limited' made

available iron ore, coke etc., which are the key inputs in the production

process of steel industry ('Corporate Debtor'). As per facility

arrangement, the Appellant - 'MSTC Limited' pays the vendor directly

against the supply of raw material to the 'Corporate Debtor'. So when

every raw material is lifted from the possession of the 'MSTC Limited', the

'Corporate Debtor' is required to pay the amount only in respect of the

materials lifted from the possession of the 'MSTC Limited'.

20. It was submitted that 'MSTC Limited' as 'Operational Creditor' had

submitted its claim for an amount of Rs. 172.15 Crores along with proof

of claim on 9th January, 2018. The 'Resolution Professional' collated the

claim and admitted a sum of Rs. 165.09 Crores payable as on the

Company Appeal (AT) (Insolvency) Nos. 519 of 2018 and 53 & 54 of 2019 9

'Insolvency Commencement Date'. The 'Corporate Debtor' was availing

raw material procurement facility from 'MSTC Limited' from abroad.

21. Further, according to the 'Resolution Professional' a sum of Rs.

165.09 Crores as on the 'Insolvency Commencement Date' less an

amount of Rs. 18.5 Crores was disbursed to 'MSTC Limited', after which

their pending claim stood at Rs. 146.59 Crores. In order to ensure

continued supply of goods (raw materials) through 'MSTC Limited' an

advance amount of Rs.56.72 Crores out of the admitted claim of Rs.

146.59 Crores was made. Thereafter, amount as due was Rs. 108.36

Crores.

22. It was further submitted that 'MSTC Limited' is demanding to treat

their outstanding claims of Rs. 108.36 Crores which relates to supply

made prior to the 'Insolvency Commencement Date'. It was submitted

that the aforesaid amount of Rs. 108.36 Crores cannot be treated as

'Resolution Process Cost'.

23. According to Appellant - 'MSTC Limited', whatever payment made

by the 'Resolution Professional' has been appropriated towards the old

dues. According to learned counsel, such appropriation can be made

even during the moratorium period.

24. Having heard learned counsel for the parties, we find that the

Adjudicating Authority rightly held that Section 14 of the 'I&B Code' will

override any other provisions contrary to the same. Any amount due to

the 'Operational Creditor' prior to the date of 'Corporate Insolvency

Company Appeal (AT) (Insolvency) Nos. 519 of 2018 and 53 & 54 of 2019 10

Resolution Process' (Admission) cannot be appropriated during the

moratorium period.

25. In view of the aforesaid findings, we hold that no case has been

made out by the 'MSTC Limited' to treat any amount as a 'Resolution

Cost'.

26. Having rejected the prayer, as made by both the Appellants, to give

one opportunity for the purpose of compliance of this order and

implementation of the plan, we allow the Appellant- 'Liberty House

Group' another 30 days to make upfront payment in terms of the

'Resolution Plan'. On failure, it will be open to the Adjudicating Authority,

Kolkata Bench to pass appropriate order in accordance with law.

27. Both the appeals stand disposed of with aforesaid observations and

directions. No cost.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice Bansi Lal Bhat) Member(Judicial)

NEW DELHI 15th March, 2019 /AR/

Company Appeal (AT) (Insolvency) Nos. 519 of 2018 and 53 & 54 of 2019