Srei Infrastructure Finance Limited vs Shri Ashish Chhawchharia & Ors

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, Principal Bench, New Delhi Company Appeal (AT) (Ins) No. 591 of 2020 (Under Section 61 of Insolvency & Bankruptcy Code, 2016) (Against the Order dated 29.11.2019 in IA No. 85/CTB/2019 in CP (IB) No.352/KB/2018 passed by the 'Adjudicating Authority', National Company Law Tribunal, Cuttack Bench)

IN THE MATTER OF: SREI Infrastructure Finance Ltd. ....Appellant Having its Registered Office at "Vishwakarma" 86 C, Topsia Road, Kolkotta - 700 046 V

1. Shri Ashish Chhawchharia Resolution Professional of M/s. Odisha Slurry Pipeline Infrastructure Limited (undergoing CIRP) and having his office at Grant Thornton, 10C, Hungerford Street, Kolkotta - 700 017. 2. IDBI Bank Limited Having its registered Office at NPA Management Group, IDBI Tower, 5th Floor, Plot No. C-7, G Block, BandraKuria Complex, Bandra East, Mumbai 400 051 3. Arcelor Mittal IndiathPrivate Limited Uppal Plaza, M-6, 6 Floor, Jasola District Centre, New Delhi 110 025 ....Respondents Present:

For Appellant Mr. Abhijeet Sinha, Ms. Vatsala Rai, Ms. Sayobani Basu, Advocates

1 Comp App (AT) (INS) No. 591 of 2020 For Respondents: Mr. Ramji Srinivasan, Sr. Advocate with Mr. Deep Roy and Mr. Rony O John, Mr. Piyush Swami, Mr. Dhaval Savla, Mr. Arshdeep Singh, Advocates for R1

Mr. Arun Kathpalia, Sr. Advocate with Mr. Suommo Biswas, Ms. Prabh Simran Kaur, Mr. Parth Gokhale, Mr. Siddhant Kant, Advocates for R2 Ms. Shrishti Agnihotri, RP

Mr. Neeraj K Kaul, Sr. Advocate with Mr. Vishal Gehrana, Mr. Ashutosh Shukla, Mr. Sudhir Sharma, Mr. Deepak Joshi, Ms. Ruby Ahuja, Mr. Naman singh Bagga Advocates for R-3.

JUDGMENT

(VIRTUAL MODE)

Company Appeal (AT) (Ins) No. 591 of 2020 Coram: Mr. Justice Jarat Kumar Jain Member (J) Mr. Kanthi Narahari Member (T)

Per: Kanthi Narahari Member (T) The present Appeal is filed against the order dated 02.03.2020 passed in

IA/188/2019 in TP No.41 of 2019 in CP No.352 of 2018 passed by the Adjudicating

Authority (NCLT, Cuttack Bench) whereby the Adjudicating Authority allowed the

approval of Resolution Plan in IA/188/2019 and dismissed CA No.194 of 2019 and

12 of 2020 filed by the Appellant herein. Aggrieved by the dismissal of the

Applications of the Appellant the Appellant filed the present Appeal.

2 Comp App (AT) (INS) No. 591 of 2020 Appellant's Submissions

1. Shri Abhijeet Sinha Learned Counsel appeared for the Appellant

submitted the brief facts.

2. It is submitted that the Appellant challenged the Resolution Plan of

Arcelor Mittal India Pvt. Ltd. (for short AMIPL) on the ground that the Plan is

discrimination in the manner of distribution between the similarly situated secured

creditors and also with respect to unsecured creditors. The Plan approved by the COC

has permitted abatement of the suit filed before the Learned Sealdah Court which is

pending before the Hon'ble High Court at Calcutta in Appeal wherein an order of

status quo is subsisting relating to the transfer and alienation of the pipeline which is

the only asset of the Corporate Debtor. The Plan failed to consider the usage charges

receivable by the Corporate Debtor under the Right to Use Agreement (RTU) from

Arcelor Mittal Nippon Steel India Ltd. (for short AMNSIL) formerly known as Essar

Steel India Ltd. which is owned by the Successful Resolution Applicant herein i.e.

(AMIL). The plan is seeking to discharge the liability of AMNSIL, in respect of the

usage charges by payable by AMNSIL to the Corporate Debtor for the CIRP of

AMNSIL.

3. The Learned Counsel submitted that the Appellant being a Secured

Financial Creditor is being treated differently to other similarly situated Secured

Financial Creditor namely banks.

3 Comp App (AT) (INS) No. 591 of 2020

4. The Learned Counsel further submitted that the Essar Steel India Ltd.

(ESIL) owned a 253 kilometers pipeline for carrying slurry from Paradip to Dibuna

to its Plant. For raising further finance, ESIL had transferred the ownership of the

pipeline under business Transfer Agreement dated 27.02.2015 (BTA) to the

Corporate Debtor and thereafter entered into a Right to Use (RTU) Agreement dated

30th March 2015 for use of the pipeline upon payment of usage charges.

5. The Appellant in its usual course of its business of lending providing

Financial Assistance in form of loan to OSPIL (Corporate Debtor) for a principal

amount of Rs.136.5 Crores by way of loan and Supplementary Agreement dated

28.03.2015 and 30.03.2015 respectively. The CD further required credit facilities and

the Appellant disbursed further credit facility and provided a sum of Rs.290 by way

of Loan agreement and Supplementary Agreement both dated 20.06.2015.

6. It is submitted that the majority lenders of ESIL and the Corporate

Debtor (OSPIL) are the same. The Finance for the Corporate Debtor was obtained

primarily on the basis of ownership of the pipeline. It was an obligation of ESIL to

continue to pay the usage charges as the pipeline was being used by ESIL. However,

ESIL had sought to revoke the BTA which had resulted in the Appellant filing a title

suit being T.S.No.177 of 2016 before the Learned City Civil Court Sealdah Kolkota

challenging the purported Deed of Cancellation dated 24.06.2016 and to ensure that

the Slurry Pipe and its benefit stood vested in the Corporate Debtor. The Hon'ble

4 Comp App (AT) (INS) No. 591 of 2020 High Court of Calcutta was pleased to pass an order directing a status quo with

regard to the alienation and transfer in respect of Slurry Pipe.

7. It is pertinent to note that ESIL who is also a shareholder of the

corporate Debtor agreed to grant a loan to the Corporate Debtor aggregating Rs.537

Crores.

8. It is submitted that pursuant to CIRP in respect of CD at the instance of

IDBI Bank Ltd., the Appellant duly filed its form C with the Resolution Professional

by which the Appellant filed its claim of Rs.549,76,10,988/-. Several

communications exchanged between the representatives of the Appellant and the

Respondent Resolution Professional by which the Appellant had duly clarified all the

queries raised by the RP. While so, by e-mail dated 15.07.20109 the RP informed that

the claim of the appellant has been provisionally accepted. By the same email the RP

held that the appellant to be a related party to the Corporate Debtor. It is submitted

that a separate appeal is filed before this Tribunal aggrieved by the decision of the

RP.

9. It is submitted that the distribution under the Resolution Plan is

designated to discrimination against the appellant and other classes of financial

Creditors without any regard for priority among creditors security interest or

proportion of admitted claims. The Learned Counsel referred to the chart showing the

percentage wise allotment made.

5 Comp App (AT) (INS) No. 591 of 2020 Creditors in order Secured Appellant Unsecured Essar Steel of priority and Institutional (Secured) Institutional India Limited security interest Creditors Creditors (Unsecured related party) Recovery as % of 72% 58% 72% 69% admitted claims

10. It is submitted that the appellant a secured Financial Creditor is being

treated differently from similarly situated secured financial creditors and is receiving

lesser than them. However, the Respondents i.e. the RP, COC and AMIPL sought to

be justified by alleging that all financial Creditors are receiving 100% of their

principal claim and that this is allegedly justifiable and is under the shelter of

commercial wisdom.

11. The said justification contentions are incorrect for the reason that in the

present case the claims have been admitted by the RP and once a claim has been

admitted, the COC is constituted on the basis of such claim and this position

continues till the conclusion of the proceedings. No distinction can be made between

principle and interest as per the terms of financial debt as defined under Section 5(8)

of the I&B Code 2016 which makes no such distinction. It is contended that the IBC

does not permit an admitted claim to be relooked or divided on the basis of principle

and interest.

12. It is a settled law that the commercial wisdom of the COC that decides

the amounts to be paid to different classes and sub classes of creditors but the same

6 Comp App (AT) (INS) No. 591 of 2020 shall be in accordance with the Provisions of the Code and Regulations thereunder. It

is equally settled that the decision of the COC cannot be contrary to any law or

illegal. The COC must necessarily take into account the key features of the code and

should conduct themselves in a fair and equitable manner. The commercial wisdom

of COC is different from illegality. The plan has to stand the test of legality and

fairness as would be evident from section 31 of IBC 2016.

13. Further in terms of Clause 3(VIII) of the Plan which is under challenge,

the right of the appellant to proceed against the guarantors would stand extinguished

and the guarantees would stand assigned to the Resolution Applicant which is

impermissible in as much as, the right of the appellant under the Deed of Guarantee

executed by Anshuman Ruia in favor of the Appellant is beyond the scope of the

proceeding. The same is not relatable to the Corporate Debtor.

14. Further the plan provides for abatement of the title suit being TS No.177

of 2016pending before the Learned Sealdah Court. As such clause 3(VI) of the Plan

under challenge which records that the suit pending before the Sealdah Court filed by

the appellant would be abated. It is submitted that the Hon'ble Adjudicating

Authority does not have the jurisdiction to declare abatement of another proceeding

in as much as it seeks to protect the successful resolution applicant and its group

concern from having to make payment of Rs.1800 crores calculated as per the RTU

Agreement till February 2020.

7 Comp App (AT) (INS) No. 591 of 2020

15. It is submitted that the claim of the Appellant was secured by way of

charge against the pipeline, the pipeline being used by ESIL which was also under

CIRP and the present Resolution Applicant for this CD is also the Successful

Resolution Applicant of ESIL. It is submitted that the Appellant has been

discriminated as it has only been paid 58% of its claim admitted by the Resolution

Professional whereas all other Financial Creditors have been paid 72%.

16. The Learned Counsel submitted that while approving the Resolution

Plan vide order dated 02.03.2020, the Hon'ble Adjudicating Authority did not

consider the necessity to maximise the value of the assets of the Corporate Debtor or

balance the interest of the stakeholders. As stated supra, the Appellant despite being a

Secured Financial Creditor has not only being treated differently as compared to

similarly situated secured Financial Creditors but is subjected to hostile

discrimination given that other Secured Financial Creditors have received a higher

proportion of their admitted claims as compared to the Appellant.

17. In view of the aforesaid reasons, the Learned Counsel prayed this Bench

to set aside and quash the Impugned Order dated 2nd March 2020.

1st RESPONDENT'S SUBMISSION

18. The Learned Senior Counsel appeared for the 1st Respondent submitted

the brief facts with respect to the CIRP of the Corporate Debtor.

19. It is submitted that the Adjudicating Authority (NCLT, Cuttack Bench)

8 Comp App (AT) (INS) No. 591 of 2020 vide its order dated 14.05.2019 directed that the CIRP of the Corporate Debtor be

commenced and appointed this Respondent as IRP of the Corporate Debtor. It is

submitted that pursuant to issuance of EOI two Resolution Plans one from AMI and

other from Thriveni Earth Movers Pvt. Ltd. were received. However, the COC

approved the plan of the AMIPL with 100% of the voting share of the COC and after

approval of the Plan by the COC this respondent made an application before the

Learned Adjudicating Authority for its approval. By the order dated 2 nd March 2020

the Plan has been approved by the Hon'ble Adjudicating Authority. It is submitted

that the entire CIRP of the Corporate Debtor was conducted in accordance with the

provisions of the Code.

20. It is submitted that the Appellant is a related party Financial Creditor of

the Corporate Debtor and the same has been upheld by the Hon'ble Adjudicating

Authority (NCLT, Cuttack) vide order dated 29.11.2019. the appellant was not

allowed to participate in the meetings of COC or vote on matters placed for vote at

the COC.

21. The Learned Senior Counsel submitted that the Resolution Plan has been

unanimously approved by the Members of COC by vote of 100% after applying their

commercial wisdom. It is submitted that the commercial wisdom of the COC is of

paramount status and is non-justiciable. The Learned Counsel referred to the

Judgment of the Hon'ble Supreme Court in the matter of K Sasidhar v Indian

9 Comp App (AT) (INS) No. 591 of 2020 Overseas Bank at Para 33.

22. The Learned Senior Counsel also referred to the Judgment of Hon'ble

Supreme Court in Swiss Ribbons Pvt. Ltd. and Ors v Union of India and Ors.

reported in 2019 SCC online SC 73 at Para 44. The Learned Counsel also referred to

the Judgment of this Tribunal in Standard Chartered Bank v Satish Kumar Gupta RP

of Essar Steel Ltd. and Ors (2019) SCC Online NCLAT 388 as follows:

"The I&B Code provides for corporate insolvency resolution process for reorganization of corporate debtors. It separates commercial aspects from Judicial Aspects and empowers and facilitates the committee of Creditors to take commercial decisions in a corporate insolvency resolution process. The commercial decisions of the committee of creditors are not ordinarily open to any analysis, evaluation or judicial review by the Adjudicating Authority or the Appellate Authority and hence not justiciable."

23. It is to be seen that whether the Resolution Plan is feasible, viable and

maximizes the value of the Corporate Debtor is commercial in nature and is to be

made by the Committee of Creditors by applying their Commercial wisdom and such

decision is non-justiciable. In this regard, the Learned Counsel refer to Section 31(1)

of the I&B Code, 2016.

24. It is submitted that the Resolution Plan does not discriminate amongst

the Creditors of the Corporate Debtor and the distribution methodology is not in

violation of applicable law. In the Plan a summary of its total financial proposal has

10 Comp App (AT) (INS) No. 591 of 2020 been made in Section III (A) (.1) in a Tabular Format. According to the particulars of

the tabular column it shows that the appellant's debt to be permanently settled,

discharged and extinguished in full and reduced to nil by payment of

Rs.3,216,000,000.00 (Upfront SIFL Debt Discharge amount being 100% of the

principal amounts verified and admitted by the Resolution Professional).

25. It is submitted that the manner of distribution of Proceeds under the

Resolution Plan lies with the Members of COC and the learned Counsel referred to

the Judgment of the Hon'ble Supreme Court in Committee of Creditors of Essar Steel

India Ltd. V Satish Kumar Gupta RP and ors. (Civil appeal NO.8766-67 of 2019) at

Para 40.

26. With regard to the allegation of the Appellant that the members of the

COC have failed to maximise the value of the assets of the Corporate Debtor and

have failed to take into account the fact that the Corporate Debtor is entitled to

receive an amount of Rs.1800 Crores from Essar Steel India Ltd in the form of right

to use charges. In response the learned Counsel submitted that the members of the

COC being fully aware of the arrangement between the Corporate Debtor and the

ESIL and taken care of all aspects while approving the plan by the COC.

27. With regard to withdrawal of title proceedings pursuant to approval of

the resolution Plan it is submitted that it is not in contravention of any law. It is

submitted that the provisions under the resolution plan indicates that the proceedings

11 Comp App (AT) (INS) No. 591 of 2020 initiated by the appellant in relation to title of pipeline assets of the corporate debtor

being TS No.177 of 2016 filed before the Civil Judge, will need to be withdrawn and

it is not in violation of provisions of the Code or any other applicable law. The

relevant excerpt from Resolution Plan is as under:

"Without prejudice to the generality of the above, with effect from the Effective Date, the Title Proceedings shall stand withdrawn. The outcome of the Title Proceedings shall not prejudice implementation of the Resolution Plan. On and from the Effective Date, the locus, standing and right of stakeholders to pursue the Title Proceedings automatically abate and discharged and the Title Proceedings stand infructuous. As a matter of procedural requirement, such stakeholders, following the Effective Date, in the CIRP of the Corporate Debtor shall ensure withdrawal of the Title Proceedings and cooperate with the Resolution Applicant and the Corporate Debtor in any such withdrawal."

28. It is further submitted that the right to proceed against guarantors may be

extinguished under a Resolution Plan if the same is approved by the Committee of

Creditors. Relying upon the decisions of the NCLT Benches it is submitted that no

judicial precedents suggest that the Committee of Creditors are prohibited to

extinguish the right to proceed against the Guarantors.

29. It is submitted that the payment proposed to Essar Steel India Ltd.

(ESIL) under the resolution plan is not in violation of code or any other law. It is

reiterated that the appellant and the other financial creditors are receiving 100% of

12 Comp App (AT) (INS) No. 591 of 2020 the total principle amount owed to them by the Corporate Debtor and the proposal

has been accepted and unanimously approved by the members of the COC by

applying their commercial wisdom and no provision of law has been violated on

account of the same.

30. In view of the aforesaid reasons, the Learned Counsel also relied upon

the decisions which will be dealt in later part of the Judgment.

2nd RESPONDENT'S SUBMISSION

31. Shri Arun Kathpalia, Learned Senior Counsel appearing for the 2nd

Respondent submitted brief facts in support of his case. It is submitted that the

Hon'ble Adjudicating Authority approved the Resolution Plan under Section 31 of

the I&B Code, 2016 on 30th November 2019 in respect of AMIPL. Upon

consideration and evaluation of the plans submitted by the prospective resolution

applicants, the resolution plan submitted by AMIPL came to be approved by 100%

positive vote of Committee of Creditors at its 8 th Meeting held on 06th December,

2019. Further the plan provided for 100% of the verified and admitted principle

amount due to each financial creditor of the corporate debtor as admitted by the

resolution professional including the secured and unsecured institutional financial

creditors, the appellant Essar Steel India Ltd. and Paradip steel Co. Ltd. (PSCL).

32. It is submitted that the approved plan has provided for equal treatment of

all admitted financial debts including those of a sub servant nature and those payable

13 Comp App (AT) (INS) No. 591 of 2020 to related parties of the corporate debtor as in the case of present appeal. The

appellant received a payment approximately Rs.321,60,00,000 in full and final

settlement of the purported amounts due to it from the Corporate Debtor.

33. The Learned Senior Counsel submitted that the appeal is a mala fide

attempt by an erstwhile related party of the Corporate Debtor to frustrate the CIR

process. It is also stated that he learned Adjudicating Authority vide its order dated

29.11.2019 had upheld the decision of the Resolution Professional to classify the

appellant as a related party of the corporate debtor in terms of Section 25(5) of the

Code by virtue of its relationship with the Corporate Debtor through its wholly

owned subsidiary i.e. SAIML, which in turn acts as the settlor, contributory and

investment manager of one SMAIT-IGOF which holds 69.81% shareholding in the

Corporate Debtor.

34. With regard to the Commercial wisdom of the Committee of Creditors,

the Learned Counsel relied upon the Judgment of the Hon'ble Supreme Court dated

15.11.2019 in the matter of Committee of Creditors of Essar Steel India Ltd. v Satish

Kumar Gupta & Ors. 2019(16) SCALE, 319 at Para 38 and 40. Further the Learned

Counsel referred to the same judgment on the point that the scope of Judicial Review

over the commercial wisdom of the Committee of Creditors is limited as held at Para

42.

35. Relying upon the above Judgment the Learned Senior Counsel submitted

14 Comp App (AT) (INS) No. 591 of 2020 that the commercial wisdom of the Committee of Creditors cannot be interfered with

for the reason that the CIR process which has been successfully concluded in

accordance with the Provisions of the Code.

36. With regard to pending RTU charges due to the Corporate Debtor from

ESIL is purely an afterthought for the reason that the RTU charges had remained due

and pending from ESIL to the Corporate Debtor for a substantial period of time prior

to the commencement of CIR process. It is pertinent to note that during such period

the affairs of the Corporate Debtor were being conducted by SAIML which is a

wholly owned subsidiary of appellant in its capacity as the Settlor, Investment

Manager and contributory of SMAIT which in turn was the majority shareholder of

the Corporate Debtor. Notwithstanding the same, the appellant failed to take any

steps during the said period to ensure that appropriate efforts were made to secure the

recovery of charges due to the Corporate Debtor.

37. With regard to order of the Hon'ble High Court of Calcutta dated

11.02.2020 it is submitted that the same has no bearing on either the title of the Slurry

Pipeline or the validity of the approved Resolution Plan. It is submitted that the

Hon'ble High Court has not passed any orders with regard to either title of the Slurry

Pipeline Asset or the right of the Corporate Debtor to receive RTU charges from

ESIL. Accordingly, the order dated 11.02.2020 does not in any manner substantiate

any of the purported averments made by the Appellant either before the learned

15 Comp App (AT) (INS) No. 591 of 2020 Adjudicating Authority or this Tribunal. It is also submitted that the said order has no

bearing on the legality and validity of the approved Resolution Plan.

38. The Learned Senior Counsel further submitted that the appellant has

filed the civil suit bearing TS No. 177 of 2016 before the Learned Civil Judge Senior

Divisional Sealdah in its purported capacity as the lender to the Corporate Debtor. By

virtue of the implementation of the approved resolution plan on 8th July 2020 and the

receipt of full and final settlement of Rs.321,60,00,000/- by the Appellant the

purported debt due from the Corporate Debtor to the Appellant stand extinguished in

full.

39. It is submitted that the Committee of Creditors in due exercise of its

Commercial wisdom approved the Resolution Plan. It is trite that while security

interest is a relevant factor while determining the distribution of proceeds, it is in no

manner a mandatory requirement to be accounted for. The Committee of Creditors in

its commercial wisdom can agree to and formulate any other distribution mechanism

as may be feasible and relevant to the facts of each case. In this regard the learned

Senior Counsel relied upon the Judgment of the Hon'ble Supreme Court in the matter

of Committee of Creditors of Essar Steel India Ltd. v Satish Kumar Gupta & Ors.

Para 46 and 83.

40. It is submitted that the Appellant misrepresented and concealed the facts

in the purported table setout at paragraph VII(T) of the Appeal wherefrom it is shown

16 Comp App (AT) (INS) No. 591 of 2020 that the Appellant receiving a recovery of only 58% of its total admitted debt, while a

higher recovery is being made available to other stakeholders. It is submitted that the

Appellant has conveniently chosen not to set out the details of principal and interest

components of its total admitted debt. It is submitted that the interest component of

the total admitted debt of the Appellant is proportionately higher in comparison to the

interest component of the institutional Financial Creditors, notwithstanding the fact

that the debt facilities of the institutional Financial Creditors and the purported debt

facilities of the Appellant were all extended to the Corporate Debtor within the same

time period of approximately 6 months.

41. It is submitted that each Financial Creditors of the CD receiving a

different percentage of recovery on their total admitted debt ranging from 52% to

85% on account of different in disparity of interest Component of the Creditors.

42. In view of the aforesaid submissions, the Learned Senior Counsel

submitted that the appeal is devoid of merits and liable to be rejected.

3rd RESPONDENT'S SUBMISSIONS:

43. The Learned Senior Counsel appearing for the 3rd Respondent submitted

that the Appeal is a hopeless attempt to scuttle the Resolution Process of OSPIL and

the Appellant has been attempting to do from the inception of initiation of CIRP.

44. With regard to discrimination of the Resolution Plan as it offers different

recoveries to similarly situated Creditors, the Learned Counsel submitted that all the

17 Comp App (AT) (INS) No. 591 of 2020 Financial Creditors have received equal treatment and the Financial Creditors are

being paid 100% of their principal amount as admitted by the RP and the said

criterion has been endorsed by the COC in its Commercial Wisdom by a vote of

100%.

45. It is submitted that there is no statutory mandate to consider interest

rates while deciding distribution of proceeds under Section 30(2). The said provision

provides that the distribution shall be fair and equitable and there is no statutory

mandate either to provide for numerically equal amounts or to account for the interest

component of financial debts. It is submitted that in the present case admittedly no

Financial Creditor whether secured or unsecured has been permitted to recover the

interest component and therefore there arises no question of discrimination treatment.

The Resolution applicant paid Rs.321.6 crores despite initial objection from some

COC Members that as a related party it should get nothing and despite pending

appeal before this Tribunal which challenges the status of appellant as a financial

Creditor of Corporate Debtor. Further, Regulation 37 of the IBBI (Insolvency

Resolution Process for the Corporate persons) Regulations, 2016 (CIRP Regulations)

clearly envisages that measures such as alteration of interest rates or other terms of

loan may be envisaged as a part of the Resolution Plan. It is submitted that when it

comes to a settlement of financial dues in order to examine the fairness of a proposal,

a distinction can be made between the principal sum and interest.

18 Comp App (AT) (INS) No. 591 of 2020

46. It is submitted that any difference in recovery is solely attributable to the

exorbitant interest rates charged by the Appellant as compared to other Secured

Financial Creditors. The Learned Adjudicating Authority has rightly noted that this

difference arose since the other Financial Creditors were constrained by RBI

guidelines to charge reasonable interest rates whereas the Appellant was not. Further

the Hon'ble Adjudicating Authority has rightly held that the Appellant cannot seek

benefit of the exorbitant interest rates charged, especially when the Corporate Debtor

was already under severe financial distress and that permitting such recoveries would

defeat the spirit of the I&B Code. It is stated that there was no dismantry treatment

since none of the Financial Creditors recovered interest.

47. With regard to the Commercial Wisdom of the COC it is submitted that

the same cannot be interfered with for the reason that the COC has been given

paramount status without any judicial intervention as laid down by the Hon'ble

Supreme Court in Essar Steel Judgment and K Sashidhar v Indian Overseas bank and

Others (2019) SCC online SC 257. Further, Section 30(2) of the I&B Code, 2016

clearly provides the minimum amount payable to the particular creditor (financial or

operational)

48. It is submitted that with regard to recovery of the alleged RTU charges,

the RTU Agreement was cancelled by a Cancellation Deed dated 24.06.2016 which

came into effect on 30th June 2016 to which the Corporate Debtor was a party. As a

19 Comp App (AT) (INS) No. 591 of 2020 result, the dues under the Cancellation Deed stood discharged i.e. no RTU charges

were recoverable. The cancellation relates back to 2016 much prior to the resolution

process of the Corporate Debtor.

49. It is submitted that it is no longer res integra following the Judgment in

the Essar Steel that a Resolution Applicant starts running the business of the

Corporate Debtor on a fresh slate. The Hon'ble Supreme Court held that a successful

resolution applicant cannot suddenly be faced with undecided claims after the

resolution plan submitted by him has been accepted as this would amount to hydra

head popping up. Therefore, all pending litigations must necessarily come to an end

in terms of the settlement as contemplated under the Resolution Plan.

50. It is submitted that the Resolution Plan contemplates discharge of debt

of Appellant followed by Assignment of Personnel Guarantees. As stated supra, the

COC has decided that all the guarantees shall be assigned to the successful

Resolution Applicant and the debt of the relevant creditors shall be extinguished upon

payment in terms of the Resolution Plan

51. In view of the afore stated submissions the Learned Senior Counsel

prayed this Bench to dismiss the Appeal.

APPRAISAL/ANALYSIS

52. Heard the Learned Counsel and Senior Counsel for the respective parties

at length, perused pleadings, documents and citations relied upon by them. After

20 Comp App (AT) (INS) No. 591 of 2020 analyzing the pleadings, the issue that felt for consideration whether the Appellant

has made out any prima facie case in its favor or not.

53. Now we deal with the issue.

54. The bone of contention of the Appellant is that the plan of OSPIL-

Corporate Debtor is discriminates in the matter of distribution of money between

similarly placed Financial Creditors, negates personal guarantee of promoter

provided to the Appellant, permits abatement of the title suit being TES No.177 of

2016 filed by the Appellant and pending before the Sealdah Court, Kolkota. Further

the Appellant contended that the plan fails to consider the user charges that were due

and payable by the Essar Steel India Ltd. (ESIL) to the Corporate Debtor under the

Right to use Agreement. The Appellant filed an application before the Adjudicating

Authority and the Grounds made therein that the appellant is one of the largest

financial creditor of the corporate debtor with an admitted claim of Rs.549.76 crores

and the appellant is a secured Financial Creditor to the Corporate Debtor and stated

that the Plan as approved by the COC has failed to maximize the value of the assets

of the Corporate Debtor. The Respondents filed reply to the said application. The

Application has been adjudicated by the Learned Adjudicating Authority and the

Learned Adjudicating Authority by the order dated 2nd March 2019 while approving

the Resolution Plan submitted by the Resolution Professional rejected the

applications filed by the Appellant. As stated supra, the Appellant challenged the

21 Comp App (AT) (INS) No. 591 of 2020 Resolution Plan of the successful resolution application i.e. AMIL on the aforesaid

reasons. The Adjudicating Authority at para 13 of the order dated 02.03.2020

observed as under:

13" The resolution plan submitted by M/s. Arcelor Mittal India Pvt. Ltd. the Resolution application approved by 100% of voting in the 8 th COC Meeting held on 0612.2019 is APPROVED as per section 31 (1) of the Insolvency and Bankruptcy Code, 2016. Accordingly, the same shall be binding on the Corporate Debtor, its employees, members, creditors, including the Central Government, any state Governments or any local authority, guarantors and other stakeholders. Accordingly, CA 188 allowed."

PROVISIONS OF LAW:

55. Since the issue revolves around the Resolution Plan we refer to the

applicable Provisions of Law. Section 30 of the I&B Code, 2016 empowers for

submission of resolution plan. Sub Section 1 of Section 30 reads as under:

"(a) Resolution Applicant may submit a Resolution Plan along with an affidavit stating that the is eligible under Section 29-A to the Resolution Professional prepared on the basis of the information memorandum. Sub section 2 states that the Resolution Professional examined each resolution plan received by him to confirm that each Resolution Plan provides for the payment of Insolvency Resolution Process clause in a manner prescribed by the Board in priority to the payment of other debts of the Corporate Debtor

(b) provides for the payment of debts of Operational Creditor in such manner as may be specified by the Board. Further Sub Section 3 empowers the Plan to

22 Comp App (AT) (INS) No. 591 of 2020 be submitted to the Committee of Creditors by the Resolution Professional.

Sub Section 4 of Section 30 reads as under:

"The Committee of Creditors may approve a Resolution Plan by vote of not less than 66% of voting share of the Financial Creditors after considering its feasibility and viability the manner of distribution proposed, which may take in to account the order of priority amongst creditors as laid down in sub section 1 of section 53 including the priority and value of the security interest of a secured creditor and such other requirements as may be specified by the Board."

(Emphasis supplied)

56. As per the above Provisions of law, it is clear that the Committee of

Creditors may approve the Resolution plan by a vote of not less than 66%. In the

present case, it is an admitted fact as per the order of the Adjudicating Authority that

the Resolution Plan submitted by M/s. Arcelor Mittal India Pvt. Ltd. (AMIPL) the

Resolution Applicant was approved by 100% of voting in the 8 th COC meetings held

on 06.12.2019.

57. The I&B Code, 2016 provides for approval of Resolution Plan under

Section 31. Sub section 1 of Section 31 reads as under:

"if the Adjudicating Authority is satisfied that the Resolution Plan as approved by the Committee of Creditors under Sub Section 4 of Section 30 meets the requirements as referred to in Sub Section 2 of Section 30, it shall by Order approve the Resolution Plan which shall be binding on the Corporate Debtor

23 Comp App (AT) (INS) No. 591 of 2020 and its employees, members, creditors, including the Central Government any State Government or any Local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed guarantors and other stakeholders involved in the Resolution Plan. The proviso to above Sub section 1 states that 'provided that the Adjudicating authority shall, before passing of an order for approval of Resolution Plan under this Sub Section, satisfy that the Resolution Plan has Provisions for its effective implementation."

58. From the above Provision of Law, it is unequivocal that the

Adjudicating Authority if satisfied, that the plan complaint all Provisions of Law may

approve the Resolution Plan. As stated supra, the Resolution Plan was approved by

the Adjudicating Authority and as per the above Provisions the Plan shall binding on

the Corporate Debtor and its employees, members and creditors. Therefore, the Law

specifically gives the powers under this statue that once the Resolution Plan is

approved by the Committee of Creditors under Sub Section 4 of Section 30 the same

is in accordance with law. The Adjudicating Authority may approve the Resolution

Plan and the same is binding on Creditors, etc. It is to state that the I & B Code, 2016

is a special Legislation and has overriding effect of other laws as per Section 238 of

the Code.

59. Now, we will consider the grievances of the Appellant. The Learned

Counsel for the Appellant contended that the Plan is not fair and equitable and does

24 Comp App (AT) (INS) No. 591 of 2020 not ensure maximization of the value of the assets of the Corporate Debtor for the

reason that the Right to Use charges in respect of the slurry pipeline asset are to be

payable by Essar steel India Ltd. to the Corporate Debtor, however, the Committee of

Creditors took the stand that RTU charges that were otherwise outstanding under the

RTU Agreement are not payable by ESIL in the Corporate Insolvency Resolution

Process of ESIL, while acknowledging and accepting that such charges are payable.

We have gone through the pleadings. The issue with regard to Right to Use charges,

is concerned, to unfold the issue, we refer the RTU Agreement dated 30th March

2015. Prior to the RTU Agreement there is a Business Transfer Agreement (BTA)

dated 27.02.2015 entered between Essar Steel India Ltd. and OSPIL Corporate

Debtor. The Right to Use Agreement entered between OSPIL Corporate Debtor and

Essar Steel India Ltd. wherein clause 4 envisages payment of usage charges. The

contention of the Appellant that the Resolution Applicant failed to administer

payment of the outstanding RTU charges owed to the Corporate Debtor under the

said Agreement and contended that the Resolution Applicant acted in a prejudicial

manner. It is an admitted fact after entering into a Business Transfer Agreement dated

27.02.2015, the Business Transfer Agreement was cancelled vide Deed of

Cancellation executed on 24.06.2016 came into effect on 30.06.2016. Pursuant to the

Business Transfer Agreement the business of Slurry Pipeline of ESIL has to be

transferred to the Corporate Debtor, however, in view of Cancellation of Business

25 Comp App (AT) (INS) No. 591 of 2020 Transfer Agreement the Appellant challenged the said Cancellation of Agreement

dated 27.02.2015 before the Civil Court. Hence, the matter is sub judice.

60. It is an admitted fact that the ESIL was also under Insolvency and the

Appellant has not filed any claim in respect of the RTU charges with the Resolution

Professional of ESIL. It is also an admitted fact that the CIR process of Corporate

Debtor that is OSPIL commenced on 14.052019 that is after the completion of CIR

Process of ESIL on 8th March, 2019. Accordingly, it was submitted that there was no

occasion for the RP of CD to file a claim in respect of the pending RTU charges with

the Resolution Professional of ESIL. As stated supra, the issue is sub judice.

Therefore, this Tribunal is not inclined to go into the aspect.

61. Further, the plan has been approved and dealt with all the aspects. Once

the plan is approved with 100% voting, the same cannot be interfered.

62. Whether any discrimination treatment made in the payment to the

Financial Creditor under the Resolution Plan. As contended by the Learned Counsel

for the Appellant, there is a discrimination with regard to the payment to the

Appellant and other Financial Creditors who are similarly placed. It is an admitted

fact that the Secured Financial Creditors clearly had a superior charge over the

Appellant and it is from the records that the Appellant only had residual charge over

the 253 kilometers pipeline of the Corporate Debtor. Despite the charge by the

Appellant on the pipeline of the Corporate Debtor it is seen that the Appellant was

26 Comp App (AT) (INS) No. 591 of 2020 not discriminated and treated on par with other Financial Creditors. In this regard, a

beneficial reference is drawn to Regulation 37 of IBBI (Insolvency Resolution

Process for Corporate Persons) Regulations, 2016. Regulation 37 was inserted vide

Notification dated 24.01.2019. The Regulation prescribes for the measures for the

Insolvency Resolution of the Corporate Debtor for maximization of value of its assets

including but not limited to the following. Sub Clause (f) and (g) permits the

resolution Applicant for reduction in the amount payable to the Creditors and

extension of maturity date or change in the name interest rate or other terms of a debt

due from the Corporate Debtor. The contention of the Respondent is that the

Appellant charged exorbitant rate of interest, whereas the other Secured Financial

Creditors such as Banks have charged reasonably in accordance with their guidelines.

The Regulations clearly empowers the Resolution Applicant for reduction in the debt

amount and change in the interest. However, we have not come across any

discrimination made to the Appellant with regard to its payment and treatment on par

with the other Secured Creditors. It is also not out of place to mention that as per the

settled norms, if the Successful Resolution Applicant intend to take over the company

of the Corporate Debtor as a going and a going concern there shall be a haircut in the

payment and also in respect of interest. It is also a settled position that One Time

Settlement (OTS) of debt based on payment of the principal amount is not a new

concept. However, from the records, it is seen that the Resolution Applicant i.e.

27 Comp App (AT) (INS) No. 591 of 2020 AMIPL has paid 100% of the Principal admitted claim of each of the Financial

Creditor of Corporate Debtor. The Appellant was made an upfront payment of the

entire principal sum of Rs.321.6 Crores. As stated supra once the resolution plan is

approved it becomes binding on all the stakeholders including the Creditors. Further,

it is a settled position that all the claims prior to the insolvency commencement date

stands extinguished in terms of the payment made under the Resolution Plan.

63. Further the Hon'ble Supreme Court in Committee of Creditors of Essar

Steel India Ltd. v Satish Kumar Gupta RP of Essar Steel and Ors. 2019 (16) SCALE

319 held as under:

"38. This Regulation fleshes out Section 30(4) of the Code making it clear that ultimately it is the Commercial Wisdom of the Committee of Creditors which operates to approve what is deemed by a majority of such Creditors to be the best Resolution Plan, which is finally accepted after negotiation of its terms by such committee with prospective Applicants.

40. What is important is that it is the commercial wisdom of this majority of creditors which is to determine through negotiation with the prospective resolution applicant, as to how and in what manner the Corporate Insolvency resolution process is to take place."

Therefore, the members of COC in their commercial wisdom can act accordingly.

64. Further the Hon'ble Supreme Court took note of the fact that the

Bankruptcy Law Reforms Committee Report of 2015 states "the appropriate

disposition of a defaulting firm is a business decision and only the Creditors should

28 Comp App (AT) (INS) No. 591 of 2020 make it".

65. To buttress the above stand, it is important to note that the commercial

wisdom of the COC is paramount. As stated supra, the plan has been unanimously

approved by the members of COC by a vote of 100% after applying their commercial

wisdom. It is a well settled law that the Wisdom of the COC cannot be questioned

unless and otherwise it is against the principles of applicable laws.

66. The Hon'ble Supreme Court in K Sasidhar v Indian Overseas Bank and

Ors. reported in 2019(12) SCC 150 held as under:

"The Commercial wisdom of the COC has been given paramount status without any judicial intervention, for ensuring completion of the stated process within the timelines prescribed by the I&B Code. There is an inter senic assumption that financial creditors are fully informed about the viability of the corporate debtor and the feasibility of the proposed resolution plan. "The legislature conspicuously has not provided any ground to challenge the 'commercial wisdom' of the individual financial creditors or their collective decision before the adjudicating authority that is made non justiciable."

67. Further the Hon'ble Supreme Court in Swiss Ribbons Pvt. Ltd. &

another v Union of India and Ors. reported in 2019 SCC Online SC 73 held as under:

44. "Since the Financial Creditor are in the business of money lending, banks and Financial Institution are best equitable to assess viability and feasibility of the business of the Corporate Debtor. Even, at the time of granting loans, these banks and financial institutions undertake a detailed market study which

29 Comp App (AT) (INS) No. 591 of 2020 includes a 'techno economic valuation report' evaluation of business, financial projection, etc. Since this detailed study has already been undertaken before sanctioning a loan, and since financial creditors have trained employees to assess viability and feasibility they are in a good position to evaluate the contents of a resolution plan."

68. Further this Tribunal in Standard Chartered Bank v Satish Kumar Gupta

RP of Essar Steel Ltd. and Ors. reported in 2019 SCC Online NCLAT 388 held as

under:

"The I&B Code provides for Corporate Insolvency Resolution Process for reorganization of corporate Debtors. It separates commercial aspects from judicial aspects and empowers and facilitates the committee of creditors to take commercial decisions in a corporate insolvency resolution process. The commercial decision of the committee of creditors are not ordinarily open to any analysis, evaluation or judicial review by the adjudicating authority or the appellate authority and hence not justiciable."

69. As stated supra, as per sub section 1 of section 31 of the I&B Code, if

the Adjudicating Authority is satisfied that the Resolution Plan as approved by the

COC under sub section 4 of section 30 meets the requirements, shall be binding on

the Corporate Debtor, its employees, members, creditors, etc.

70. The Hon'ble Supreme Court in the matter of Committee of Creditors of

Essar Steel India Ltd. v Satish Kumar Gupta RP of Essar Steel Ltd and Ors. held as

under:

30

Comp App (AT) (INS) No. 591 of 2020

40. "What is left to the majority decision of the Committee of Creditors is the feasibility and viability of a resolution plan which obviously takes into account all aspects of the plan including the manner of distribution of funds among the various classes of Creditors."

So long as the Provisions of the Code and the Regulations have been met, it is the Commercial Wisdom of the requisite majority of the Committee of Creditors which is to negotiate and accept a resolution plan, which may involve differential payment to different classes of creditors, together with negotiating with a prospective Resolution Applicant for better or different terms which may also involve differences in distribution of amounts between different clauses of creditors."

71. With regard to the extinguishment of liability of the Guarantor the

Learned Counsel for the Appellant submitted that the Appellant is only the Financial

Creditor whose loan to the Corporate Debtor is secured by a personal guarantee from

one Mr. Anshuman Ruia, Promoter of the Corporate Debtor and whereas the

Resolution Plan submitted by the 3rd Respondent herein seeks to protect the Promoter

which is contrary to the spirit of the IBC. Having approved the plan by the

Committee of Creditors by applying its Commercial Wisdom, which extinguishes the

right to proceed against the Guarantors. Since as per the decision of the Hon'ble

Supreme Court the wisdom exercised by COC for the issue of guarantee cannot be

interfered with by the NCLT or NCLAT. As stated supra, the approved Resolution

Plan is not rendered invalid or illegal in any manner and the approved Resolution

31 Comp App (AT) (INS) No. 591 of 2020 Plan does not extinguish the personal guarantee and only assigns the same in favor of

AMIPL on account of AMIPL having fully settled the debt of the Appellant in

relation to the Corporate Debtor and thereby automatically stepping into the shoes of

the Appellant for the said debt.

72. As the law laid down by the Hon'ble Supreme Court with respect to the

Commercial Wisdom of the COC, we do not find any contravention with regard to

the rules and regulations of the I&B Code and we are also of the view that the

Committee of Creditors acted in the interest of all the stakeholders. Therefore, we do

not interfere with the decision of the Committee of Creditors.

CONCLUSION:

73. Having held that the plan approved by the COC by a vote of 100% in its

meeting and approved by the Adjudicating Authority, in toto, we do not find any

infirmity or illegality in the order passed by the Adjudicating Authority approving the

Resolution Plan. Further, we are not inclined to interfere with the rejection of the

applications filed by the Appellant herein before the Adjudicating Authority. The

Adjudicating Authority rejected the applications filed by the Appellant demands no

interference. Accordingly, we uphold the rejections of the applications by the

Adjudicating Authority.

74. The other contentions of the Appellant do not substantiate and lack of

32 Comp App (AT) (INS) No. 591 of 2020 merit to be interfered by this Tribunal. Taking an overall perspective stand, the

appeal is liable to be dismissed. Accordingly, the Appeal stand dismissed. However,

no orders as to cost. Applications if any pending as on today stands disposed of.

[Justice Jarat Kumar Jain] Member (Judicial)

[Mr. Kanthi Narahari] Member (Technical) 18.01.2022 SE

33 Comp App (AT) (INS) No. 591 of 2020