Pacific World Shipping Pte Ltd vs Dadi Impex Pvt Ltd

[Arising out of Order dated 22.05.2019 passed by National Company Law Tribunal, Mumbai Bench in MA 1090/2019 in CP No. 1562/I&BC/MB/MAH/2017]

IN THE MATTER OF: Before NCLT Before NCLAT

Pacific World Shipping .... Appellant PTE Ltd. Raffles House, #22-01 Chelvron House, Singapore

Versus

Dadi Impex Pvt. Ltd. Respondent/ Respondent No. 1 Through Corporate Debtor Mr. Anandprakash Choudhari And Mrs. Manju Choudhari 614, Laxami Industrial Estate, Off Link Road, Andheri (W), Mumbai- 400053

AND

State Bank of India ... Respondent No. 2 Through, Branch Manager 1st Floor Lekhraj Bhavan, Sakivihar Road, Andheri East, Mumbai- 400072

AND

Mr. Dhiren S Shah ... Respondent No. 3 Resolution Professional of Respondent No.1 B-102, Bhagirathi Niwas, Near Natraj Studio, Sri M V Road Andheri- East, Mumbai- 400069 2

For Appellant: Mr. Ankur Kashyap, Mr. Rudreshwar Singh, Mr. Kaushik Poddar and Mr. Rohit, Advocates

For Respondents: Mr. Raghav Shankar, Ms. Arshiya Sharda and Ms. Ekta Bhasin, Advocates for Respondent No. 1. Mr. Aakarshan Sahay, Mr. Nakul Sachdeva and Mr. Damandeep, Advocates for Respondent No. 2. Mr. Nitesh Jain, Advocate for Respondent No. 3/RP

JUDGEMENT

(28th February, 2020) A.I.S. Cheema, J. :

1. One Percula Shipping and Trading INC - Original Operational

Creditor filed application under Section 9 of Insolvency and Bankruptcy

Code 2016 (IBC in short) before the Adjudicating Authority (NCLT Mumbai)

which was admitted in CP No. 1562/I&BC/MB/MAH/2017. The Corporate

Insolvency Resolution Process (CIRP in short) was initiated against

Respondent No. 1 - Corporate Debtor -DADI Impex Pvt. Ltd. The said

process culminated into Resolution Plan being submitted and accepted by

the COC. The Resolution Plan was jointly submitted by Anand Prakash

Choudhari and Mrs. Manju Choudhari - Successful Resolution Applicants

(SRA in short) who were also the Promoters of the Corporate Debtor. They

filed the plan as the Corporate Debtor is said to be MSME.

2. The Appellant is one of the Operational Creditors who had filed

Form B on 05.06.2018 to the then RP Martin Golla (RP No. 1).

Subsequently it appears that Insolvency & Bankruptcy Board of India

(IBBI) cancelled the registration of said RP and after orders were passed by

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Adjudicating Authority on 15.11.2018, the RP was got substituted by

Dhiren S Shah (R-3) (hereafter referred as RP).

3. The present appeal has been filed as the Resolution Plan

approved by COC with requisite majority was submitted by the RP to

Adjudicating Authority and it came to be accepted by the Adjudicating

Authority vide Impugned Order dated 22.05.2019. The order was passed in

MA No. 1090/2019 filed by the RP in the Company Petition. The Resolution

Plan has been accepted by the Adjudicating Authority with some

modifications. This Appeal is against the said Resolution Plan.

The main grievance of the Appellant is that the Operational Creditors

have been given only token 2% of their claims admitted while the Financial

Creditors are given 100% of their claims.

4. The Appellant claims and it is argued that the Appellant is a

Ship Operating Company engaged in business of providing Freight Services

to Global Clients. The vessels of the Appellant were hired by the Corporate

Debtor thrice in 2017 and dispute arose regarding unpaid demurrage and

freight to the tune of Rs. 9,22,53,131.72/- paise. When the application

under Section 9 was admitted, Appellant filed claim in Form B on

05.06.2018. Appellant claims that the RP No. 1 did not give notice of

Committee of Creditors' (COC) meeting to the Appellant of the 1st and 2nd

meeting but allowed the Appellant to attend in third COC meeting. The

Appellant was not allowed to attend 4th and 5th COC meetings and

Appellant had protested and subsequently, the Appellant was allowed to

participate in meetings.

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5. It is stated that the Resolution Plan was proposed by existing

Promoters in the 14th COC meeting proposing only 2% to be given to the

Operation Creditors irrespective of the quantum of their claims. According

to the Appellant, the representative of Appellant with other Operational

Creditors objected to the 2% token sum being given to Operational

Creditors in the 15th and 16th COC meetings. In spite of the objections of

the Operational Creditors, COC approved the Resolution Plan in the 17th

COC meeting dated 11.03.2019.

6. It is the argument of the learned Counsel for the Appellant that

although in view of Judgment in the matter of of "Committee of Creditors

of Essar Steel India Limited Vs. Satish Kumar Gupta & Ors." [Civil

Appeal No. 8766-67 of 2019] in the Judgement dated 15th November, 2019,

passed by the Hon'ble Supreme Court of India this Tribunal has limited

judicial review available, it is permissible to consider if in the Resolution

Plan interest of all stakeholders including the Operational Creditors has

been taken care of, or not. According to the learned Counsel if the

Resolution Plan is seen it is designed to only write down the debts of

Operational Creditors in a discriminatory fashion. There is no basis of the

justification for almost writing off the debts of Operational Creditors. The

Corporate Debtor claims to be top salt exporter across the globe and the

Operational debts of the shipping companies are being arbitrarily reduced.

It is stated that the Resolution Plan is more restructuring of the loans than

a Resolution Plan. The Financial Creditors are purported to be paid 100%

of their dues by restructuring of their loans and giving them additional

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securities. The SRA - Promoters are not infusing funds to pay the Financial

Creditors. Although claims were received from only two Financial Creditors

State Bank of India and Capital First Limited the plan proposed to pay the

other Financial Creditor also. The claim of the Appellant of Rs. 9.23/-

Crores and another Operational Creditor - Percula Shipping and Trading

INC Rs. 7/- Crores and Clipper Bilk A/S Rs. 9.21/- Crores are much

higher than the claim of Financial Creditor Capital First Limited. In spite of

this the dues of Operational Creditors have been arbitrarily written down to

2%. The reduction was opposed, however, COC approved the Resolution

Plan. Appellant claims that Rs. 66/- Lakhs being paid to the Operational

Creditors is the only fund being infused by the SRA. According to the

Appellant the plan is contrary to the distribution scheme under Section 53

of IBC and there are no reasons for the uneven distribution. The Appellant

is also suspecting the liquidation value.

7. At the time of arguments, the learned Counsel for the

Appellant relied on Judgment in the matter of "Vijay Kumar Jain Vs.

Standard Chartered Banks and Ors." 2019 SCC Online SC 103 and

referred to Para 11 of the Judgment to submit that the Hon'ble Supreme

Court has held that interalia even the Operational Creditor attending the

COC meeting is entitle to copy of the Resolution Plan being discussed. It is

claimed that copy of Resolution Plan was not provided to the Operational

Creditor and thus the RP violated the requirements under the IBC and its

regulations.

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8. The learned Counsel for the Respondent No. 1 through the SRA

has filed Affidavit in Reply to the Appeal (Diary No. 14289) and learned

Counsel for the Respondent No. 1 has countered the argument of learned

Counsel for the Appellant pointing out copies of the various Minutes of

Meeting filed with the Affidavit to demonstrate that the representative of the

Appellant was attending meetings. Reference is specifically made to 14th

meeting dated 26.02.2019, 15th meeting dated 01.03.2019, 16th meeting

dated 05.03.2019 and 17th meeting dated 11.03.2019 (Pages 11 to 20 of

Diary No. 14289) and it is argued that in all these meetings when the

Resolution Plan was taken up, the record shows that copies of the

Resolution Plan were provided to the representative of the Appellant. The

learned Counsel argued that the notings of these meetings show that over

long hours the discussions took place and the COC got certain

modifications done in the plan. In these meetings the representative of the

Operational Creditors had raised objections that the amount being paid to

the Operational Creditor of 2% was not acceptable to them. The learned

Counsel submitted that the COC looked into various aspects including the

fact that the Corporate Debtor is MSME and accepted the Resolution Plan.

According to him it is a business decision of the COC and no interference is

called for.

9. The Respondent No. 2 - State Bank of India has filed Affidavit

in Reply (Diary No. 14588). It is lead Bank of the COC. The learned Counsel

for the Respondent No. 2 has submitted that the Resolution Plan approved

is compliant with the provisions of IBC 2016. It is argued that the

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Resolution Plan was approved and order of Adjudicating Authority dated

22.05.2019 was passed before the Amendments in Section 30 (2) (b) and

Section 30 (4) were notified on 16.08.2019. Alternatively, it is argued that

even if the said Amendment was to be considered, it would not make

difference as according to the State Bank:-

"A plain reading of amended S. 30(2)(b) would

demonstrate that the amount to be paid to the

Operational Creditors has to be higher of either the

amount to be paid to such Operational Creditors under

Section 53 of the Code in the event of liquidation of the

Corporate Debtor ["Situation 1"] or the amount under

the Resolution plan when distributed in accordance with

the order of priority in sub-section (1) of Section 53

["Situation 2']. In the instant case under Situation 1,

the amount payable to the Operational Creditors is NIL

and in Situation 2, the amount payable to the

Operational Creditors is also NIL. Nonetheless, as far as

the debt owed to the Operational Creditors are

concerned, the Resolution Plan as approved, proposes a

payment of 2% of their claim and the remaining amounts

in addition to 2% of their claim to be paid from the

existing business of the Corporate Debtor."

The learned Counsel for the Bank has then relied on Regulation 37 of

the Insolvency and Bankruptcy Board of India (Insolvency Resolution

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Process for Corporate Process) Regulations 2016 ("Regulations" in short) to

submit that for achieving maximization of values of assets, a Resolution

Plan can provide reduction in the amount payable to the Creditors. It is

claimed that there is no bar to reduce dues payable to Operational

Creditors. Referring to the two Judgments in the matter of "K. Shashidhar

& Indian Overseas Bank & Ors." [Civil Appeal No. 10673 of 2018] and

Judgment in the matter of "Essar Steel" (supra), passed by the Hon'ble

Supreme Court of India it is argued that this Tribunal cannot enter into

commercial wisdom of the COC and disturb the business decision taken by

COC.

10. On being directed the Resolution Professional has by way of

Written Submissions (Diary No. 19070) filed particulars of the valuers and

the valuation they gave regarding the liquidation value of the Corporate

Debtor and it is stated that the average liquidation value of the Corporate

Debtor was Rs. 41.35/- Crores. The RP has stated that claims received

from the Financial Creditors were of Rs. 48,85,18,812/- and claim

admitted were of Rs. 48,48,87,117/-. It is stated that CIRP cost was Rs.

9.36/- Crores and as the liquidation value of the Corporate Debtor Rs.

41.35/- Crores is less than the claims of the Financial Creditors and the

CIRP cost, and liquidation value for Operational Creditors is NIL. It is the

argument of the Respondents that in spite of this, the Resolution Plan

provided for 2% payment of the operational dues and thus it does not call

for interference.

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11. Having heard the parties, we have carefully gone through the

Resolution Plan and the discussion of the same in the Impugned Order.

The argument of the learned Counsel for the Appellant that copies of

Resolution Plan were not provided is not supported by Minutes of the

Meetings referred by SRA which show that copies of the Resolution Plan

were provided to the Operational Creditor. It does not appear that the

Appellant raised any such dispute with the RP when CIRP was pending, or

before the Adjudicating Authority.

12. Coming to the Resolution Plan approved, the first thing which

is required to be kept in view is that the Corporate Debtor is MSME. What

appears is that these Promoters - Anand Prakash Choudhari and Ms.

Manju Choudhari, SRA are the Directors and it appears to be a closely held

company by the family. Impugned Order referred to the Financial Creditors

who had filed claims (Page 7 & 8 of the Impugned Order). The chart relating

to Operational Creditors is at Page 9 of the Impugned Order. The key

propositions of the Resolution Plan (Page 15 of Impugned Order) were

noticed and what appears is that the Resolution Applicants proposed to

reduce the present total limit of Rs. 42.5/- Crores to Rs. 38/- Crores by

requesting the State Bank of India to liquidate the FDRs. Other proposals

are there to pay particular amounts in given months and there are other

proposal as to how the Corporate Debtor would clear the dues of State

Bank of India. The proposals also show how the other Financial Creditor

would be paid. With regard to payment of Operational Creditors, it is stated

(Page 18 of I.O.):-

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"The claimed Operational Creditors will be paid 2% of

the claim admitted as per information provided by the

Resolution Professional and the same will be infused by

the Resolution Applicant. Any amount in addition to 2%

of amount admitted for Operational Creditors, will be

paid from the existing business of the Corporate

Debtor."

After reproducing portion as above of Resolution Plan Page 20 of the

Impugned Order shows reference to the Resolution Plan where utilization of

funds are referred which discloses that the plan value was Rs. 42.64/-

Crores. The term of Resolution Plan is stated to be seven years and three

months and the Resolution Plan went on the assumed calculation of Rs.

30/- Crores as the liquidation value and stated that the liquidation value is

low and does not cover entire dues of secured Creditors and workman and

hence liquidation would not be advisable (Page 24 of the Impugned Order).

Now RP has disclosed the Liquidation Value to be Rs. 42.64/- Crores which

is still less than admitted claims of Financial Creditors & CIRP costs.

13. The Adjudicating Authority after referring in details to the

Resolution Plan in Para 7 discussed the fact that liquidation value is less

compared to the proposals made in the Resolution Plan. After recording its

satisfaction with the Resolution Plan, Adjudicating Authority directed:

"a. The approval of the Resolution Plan is subject to

certain qualifications to be read along with the plan

and to be followed in implementation of the plan. The

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first qualification is about the rent of Rs. 80,000/- in

respect of property lent out by Mrs. Manju Choudhari

to the Corporate Debtor used by the Corporate Debtor

for its Corporate Office proposed to be paid to Mrs.

Choudhari; hereby restricted and not to be paid

during the implementation period of the Resolution

Plan. In lieu, a sum of Rs. 25,000/- as a monthly

salary to Mrs. Choudhari for rendering whole time

services for looking after the business of the

Company, is hereby approved so that she can

devotedly work for the welfare of the Company.

b. The next qualification is about Corporate

Insolvency Resolution Process Cost proposed to be

paid at Rs. 9.36 Crores, which appears to be

exorbitant and unfair. The governing body IBBI New

Delhi has in one of its disciplinary order has made a

similar observation that a Resolution Professional is

expected to be reasonable in demanding professional

charges. Considering the nature of the professional

services rendered, it shall be appropriate and

reasonable to approve Rs. 2.00/- Crores as Corporate

Insolvency Resolution Process Cost. The balance

surplus shall be appropriated against the liabilities of

Operational Creditors to be distributed pari-passu. The

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Resolution Applicant had made a provision to settle the

debts Operational Creditors at a unfair rate of 2%

which shall be increased proportionately.

c. The third qualification to be executed while

implementing the Resolution Plan is in respect of

payment of salary/remuneration to the directors. The

proposal is to pay a sum of Rs. 3,00,000/- to Mr. A.P.

Choudhari monthly and nothing to Mrs. Manju

Choudhari. During the period of implementation of this

Resolution Plan of 7 years 3 months, this Bench is of

the view that Mr. Choudhari be paid Rs. 1,50,000/-

and to Mrs. Choudhari Rs. 50,000/- This saving shall

help in day to day running of business as well as

comfortable liquidation of liability."

The Adjudicating Authority referred to Judgment in the matter of "K.

Shashidhar & Overseas Bank & Ors." [Civil Appeal No. 10673/2018] and

accepted the Resolution Plan with modifications as above.

14. It can be seen that the Adjudicating Authority diverted Rs.

7.36/- Crores for the Operational Creditors as it found that the CIRP cost

calculated by the RP was exorbitant and unfair. The Minutes of the

Meetings of the 15th meeting dated 01.03.2019 shows that when the

Resolution Plan was being discussed the Operational Creditors had

objected to the 2% allocation for Operational Creditors and in the

discussion were expecting allocation of 33% of their claim amount and the

Company Appeal (AT) (Ins) No.728 of 2019 13

minutes show that the Resolution Applicants had expressed that it will not

be possible for them to pay such a high amount. Thus, the issue was

discussed in the COC meetings and it appears that the lead Bank, State

Bank of India got modifications made in the Resolution Plan and ultimately

approved the same. It is noticed that the MSME has proposed paying of

100% debts of the Financial Creditors not as upfront. The COC has

accepted some restructuring keeping in view the outstanding debts and the

liquidation value just to keep the Corporate Debtor a going concern. When

the lead Bank has shown concern to accept adjustments to keep the MSME

a going concern, it does not appear appropriate to us to push the same to

liquidation. It would benefit nobody. Reading the Resolution Plan as a

whole and considering the Minutes of the Meetings and the Impugned

Order shows that in facts of the matter, the Resolution Plan as accepted by

COC & approved by Adjudicating Authority should not be disturbed and it

would not be appropriate to interfere in the commercial decision of COC

which discussed the objections of the Appellant and still did not accept the

same and Adjudicating Authority has also approved the same.

We are not interfering with the Impugned Order approving the

Resolution Plan, except using following words for enforcing modification 'b'

referred in paragraph 13 (Supra). We direct that Monitoring Committee will

enforce the modifications made by the Adjudicating Authority & add the

part of money diverted from the head of CIRP costs to the dues payable to

Operational Creditors so as to proportionately increase the 2% payable to

each Operational Creditor against their respective claims admitted & pay

Company Appeal (AT) (Ins) No.728 of 2019 14

on priority in terms of Regulation 38 (1) of the Regulation (Note 5 - Page 46

of Resolution Plan r/w Section 8 at Page 53 - Diary No. 17213.)

For the above reason we do not find any substance in the Appeal.

The Appeal is disposed with directions as above. No orders as to costs.

[Justice A.I.S. Cheema] Member Judicial

[Kanthi Narahari] Member (Technical) HA/MD

Company Appeal (AT) (Ins) No.728 of 2019