Nadig Associates vs Bcil Red Earth Developers India Pvt. ...

25.11.2019 Having heard learned counsel for the appellant we find that

there is no delay in preferring the appeal.

I.A. No. 3858 of 2019 stands disposed of.

The Appellant (Operational Creditor) has preferred this appeal against

order dated 9th August, 2019 passed by the Adjudicating Authority (National

Company Law Tribunal), Bengaluru Bench approving the 'resolution plan'

submitted by 'Citrus Ventures Private Limited' in the 'corporate insolvency

resolution process' of 'M/s. BCIL Red Earth Developers India Pvt. Ltd.' Learned

counsel appearing on behalf of the Appellant submits that the 'resolution plan' 2

is against the provisions of Regulation 38(1A) of the Insolvency and Bankruptcy

Board of India (Insolvency Resolution Process for Corporate Persons)

Regulations, 2016 and in terms of priority in payment it should have been given

to the 'Operational Creditor'. It is also submitted that the 'liquidation value' as

determined is rupees zero in the 'resolution plan' and it is stated that if any

amount is payable to the 'secured financial creditors' and 'unsecured financial

creditors' etc., the Adjudicating Authority noticed the 'resolution plan' which is

required under Section 30(1), relevant of which is as follows:

5. The Resolution Plan includes a statement under

Regulation 38(1A) of the CIRP Regulations as to how

it has dealt with the interest of all stakeholders in

compliance with the Code and Regulations made

there under:

The amount provided for the stakeholders under the

Resolution Plan is an under:

(Amount in Rs. Lakh)

S Category of Amount Amount Admitted Amount Amount provided l Stakeholder Claimed Provided under to the Amount . the Plan # Claimed % N o . 1 Corporate - - 150 100% Insolvency (Note Resolution 1) Process (CIRP) Expenses 2 Secured Financial Creditors

Company Appeal (AT) (Insolvency) No. 1339 of 2019 & I.A. No. 3858 of 2019 3

PMS Clients of Reliance 11,602 11,602 4,181 (Note 1, Nippon Life Asset 2, 3 and 6) 29% Management Ltd Reliance India Realty 3,051 3,051 Opportunities LLP

3 Unsecured Financial Creditors

Home Buyers (Excluding Home Buyers Handed over units of Phase 5,175 3,337 will get their 2, Phase 1 and BCIL homes Yelahanka Projects LLP) constructed and registered in their name (Note 4) Home Buyers-Handed over 145 - Common units of Phase 2 facilities will be Home Buyers - Handed 169 - made available

Over units of Phase 1

Home Buyers-BCIL 2,201 1,985 200 9% Yelahanka Projects LLP (Note 5)

4 Operational Creditors 169 82 - 0% (Note 2)

Government 527 501 - 0% (Note 2)

Workmen - - - N.A

Employees 138 134 - 0% (Note 6)

------

6 Other Debts and Dues 1,580 154 - 0%

Total 24,756 20,846 4,531 plus Home buyers will get their homes constructed and registered in their name and common facilities will be made available

Company Appeal (AT) (Insolvency) No. 1339 of 2019 & I.A. No. 3858 of 2019 4

*if there are sub-categories in a category, please add rows

for each sub-category.

#Amount provided over time under the Resolution Plan and

includes estimated value of non-cash components. It is not

NPV.

Notes:1) Net surplus shall be first available towards payment

of CIRP Expenses. The resolution plan has considered CIRP

expenses of Rs. 1.5 Crore. Any change in CIRP expenses will

be adjusted from claims of other creditors on proportionate

basis. The same shall be paid within 9 months from the date

of takeover of the Company.

2) Any available net surplus from the project after payment of

CIRP fees, employees dues and RA fees shall be then utilized

towards repayment to the Secured Financial Creditor upto

Rs. 43 Crore. Remaining balance if any shall be shared

between the Secured Financial Creditor and operational

Creditor (including any statutory dues) in the ratio of 80:20

to be payable at the completion of the project.

3) Notwithstanding contrary to anything the RA shall Endeavour

to service debt repayment to the extent of Rs. 43 Crores to the

Secured Financial Creditor. Further, for any sale above the

stipulated base price of Rs. 5,750 per square feet as disclosed

Company Appeal (AT) (Insolvency) No. 1339 of 2019 & I.A. No. 3858 of 2019 5

in the business plan, the incremental price above the

stipulated base price as per the business plan will be shared

between the Secured Financial Creditor and the Resolution

Applicant in the ratio of 80:20.

4) RA shall endeavor that all sold villas are handed over to the

customers without any encumbrances and lien. RA requests

Secured Financial Creditor to issue unconditional NOCs to all

sold units without any additional cost subject to clause

3.1.12 and 3.1.25a of the resolution plan.

5) Against the payment to BCIL Yelahanka, the RA proposes a

one-time payment of Rs. 2 Crores which will be paid at the

completion of the project.

6) Employee dues shall be adjusted from the realization of the

Secured Financial Creditor basis mutual discussion and

conclusion as per clause 3.1.25b of the resolution plan.

6. The interest of existing shareholders have been altered by the

Resolution Plan as under:

As per clause 3.1.8 of the Resolution Plan submitted by

Citrus Ventures Private Limited states that the resolution

applicant will acquire all 100% shares of the Corporate

Debtor, upon approval of the Resolution Plan. As a part of

the Resolution Process, takeover of the Company is

proposed to be achieved in compliance with the authorities'

Company Appeal (AT) (Insolvency) No. 1339 of 2019 & I.A. No. 3858 of 2019 6

orders including transfer of promoters share. Since, there is

no terminal value in the Company beyond the Resolution

proposed the shares will be transferred at a token value."

Referring to clause 2 of the aforesaid suggestion in the resolution plan, it

is submitted that the proposal to pay only in a proportion of the surplus after

clearing the dues payable to the 'Interim Resolution Professional' and employees

etc. and another remaining balance, if any, be shared between the 'secured

financial creditor' and the 'operational creditor' in the ratio of 80:20 for payment

of completion of the project is against the law.

Reliance has been placed on the decision of the Hon'ble Supreme Court

in 'Committee of Creditors of Essar Steel India Limited vs. Satish Kumar

Gupta & Ors.' in 'Writ Petition (Civil) No. 8766-67 of 2019' (2019 SCC OnLine

SC 1478) decided on 15.11.2019 wherein the Hon'ble Supreme Court

observed as follows:

74. The very next paragraph, however, states as

follows:

"29. However further question remains whether the

Court has jurisdiction like an appellate

authority to minutely scrutinise the scheme and

to arrive at an independent conclusion whether

the scheme should be permitted to go through

or not when the majority of the creditors or

Company Appeal (AT) (Insolvency) No. 1339 of 2019 & I.A. No. 3858 of 2019 7

members or their respective classes have

approved the scheme as required by Section

391 sub-section (2). On this aspect the nature

of compromise or arrangement between the

company and the creditors and members has to

be kept in view. It is the commercial wisdom of

the parties to the scheme who have taken an

informed decision about the usefulness and

propriety of the scheme by supporting it by the

requisite majority vote that has to be kept in

view by the Court. The Court certainly would

not act as a court of appeal and sit in judgment

over the informed view of the parties concerned

to the compromise as the same would be in the

realm of corporate and commercial wisdom of

the parties concerned. The Court has neither

the expertise nor the jurisdiction to delve deep

into the commercial wisdom exercised by the

creditors and members of the company who

have ratified the Scheme by the requisite

majority. Consequently the Company Court's

jurisdiction to that extent is peripheral and

supervisory and not appellate. The Court acts

Company Appeal (AT) (Insolvency) No. 1339 of 2019 & I.A. No. 3858 of 2019 8

like an umpire in a game of cricket who has to

see that both the teams play their game

according to the rules and do not overstep the

limits. But subject to that how best the game is

to be played is left to the players and not to the

umpire."

75. In Mihir Mafatlal (supra), the Court was dealing

with schemes of amalgamation under Section

391 of the Companies Act, 1956. Under Section

392 of the said Act, the High Court is vested with

a supervisory jurisdiction, which includes the

power to give directions and make modifications

in such schemes, as it may consider necessary,

for the proper working of the said Schemes. This

power in Section 392 is conspicuous by its

absence when it comes to the Adjudicating

Authority under the Code, whose jurisdiction is

circumscribed by Section 30(2). It is the

Committee of Creditors, under Section 30(4) read

with Regulation 39(3), that is vested with the

power to approve resolution plans and make

modifications therein as the Committee deems

fit. It is this vital difference between the

Company Appeal (AT) (Insolvency) No. 1339 of 2019 & I.A. No. 3858 of 2019 9

jurisdiction of the High Court under Section 392

of the Companies Act, 1956 and the jurisdiction

of the Adjudicating Authority under the Code

that must be kept in mind when the Adjudicating

Authority is to decide on whether a resolution

plan passes muster under the Code. When this

distinction is kept in mind, it is clear that there

is no residual jurisdiction not to approve a

resolution plan on the ground that it is unfair or

unjust to a class of creditors, so long as the

interest of each class has been looked into and

taken care of. It is important to note that even

under Sections 391 and 392 of the Companies

Act, 1956, ultimately it is the commercial

wisdom of the parties to the scheme, reflected in

the 75% majority vote, which then binds all

shareholders and creditors. Even under

Sections 391 and 392, the High Court cannot act

as a court of appeal and sit in judgment over

such commercial wisdom.

The constitution of a sub-committee by the

Committee of Creditors

Company Appeal (AT) (Insolvency) No. 1339 of 2019 & I.A. No. 3858 of 2019 10

76. A large part of Shri Sibal's submission was centered

around the fact that the Committee of Creditors

delegated its functions to a subcommittee, which

delegation is impermissible. As a result of this

delegation, the sub-committee secretly made

negotiations with ArcelorMittal, which secret

negotiations then produced a wholly inequitable result

in that Standard Chartered Bank, though a financial

creditor, was only paid 1.74% of its admitted claim of

INR 3487 crores as opposed to other financial creditors

who were paid 74.8% of what was claimed by them.

From the record we find that the 'corporate insolvency resolution process'

related to a developer who has to deliver the premises to the allottees and the

'resolution applicant' has taken care of the allottees relating to which the

appellant has no grievance. The appellant claims to be an 'Operational Creditor'

having provided architect services. Admittedly, as the liquidation value of the

claim amount of the Appellant is zero, it is stated that in terms of Section 53

read with Section 30(4), the 'Operational Creditor' can only get the amount after

payment of any amount to the secured financial creditor, unsecured financial

creditors particularly the allottees. If any amount is required for investment, for

construction and for completion of the project, then it is to be seen that the

'corporate insolvency resolution process' in a case of developer/infrastructure

Company Appeal (AT) (Insolvency) No. 1339 of 2019 & I.A. No. 3858 of 2019 11

project proceeds in the right direction of achieving the object of securing the

interests of allottees and the exercise undertaken is result-oriented. Other

'Operational Creditors' can only be provided, if any, amount remains after giving

it to the secured and unsecured financial creditor and allottees etc.

We are of the view that the decision as taken by the Hon'ble Supreme

Court in 'Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors. - Writ

Petition (Civil) No. 99 of 2018' by its judgment dated 25th January, 2019 and

'Committee of Creditors of Essar Steel Limited' (Supra) has taken care of

insofar as it relates to Appellant (Architect of the project), hence no

interference is called for. The appeal is dismissed.

[Justice S.J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial)

[Justice Venugopal M.] Member (Judicial)

/ns/sk

Company Appeal (AT) (Insolvency) No. 1339 of 2019 & I.A. No. 3858 of 2019