Sunil Jain vs Punjab National Bank & Ors

(Arising out of Order dated 13th March, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata in CP(IB) No. 363/KB/2017)

IN THE MATTER OF:

Sunil Jain ...Appellant Vs Punjab National Bank & Ors. ....Respondents

Present: For Appellant: Mr. Rana Mukherjee, Senior Advocate with Mr. Gautam Singh, Advocate.

For Respondents: Mr. Rajesh Kr. Gautam, Ms. Khushboo Aggarwal and Mr. Aakash Sehrawat, Advocates for R-1 (PNB). Mr. Narendra Singh and Mr. Sunney Verma, Advocates for R-2. Mr. Joy Saha, Sr. Advocate with Mr. Avishek Guha, Advocate for RP. Mr. Arun Gupta, Resolution Professional in person. Mr. Arun Kathpalia, Senior Advocate with Mr. Ranjan Kumar Pandey, Advocates. Mr. Sandeep Bisht and Mr. Anuj Tiwari, Advocates for C. P. Ispat. Mr. Harsh Jain, Mr. Puneet Jain and Mr. Arijit Mazumdar, Advocates for IDBI.

With

Contempt Case (AT) No. 10 of 2018 in Company Appeal (AT) (Insolvency) No. 156 of 2018

(Arising out of Order dated 24th April, 2018 passed by this Appellate Tribunal in Company Appeal (AT) (Insolvency) No. 156 of 2018) 2

IN THE MATTER OF:

Sunil Jain ...Applicant Vs Amit Agarwal & Ors. ....Contemnor/ Respondents

Present: For Applicant: Mr. Gautam Singh, Advocate.

For Respondents: Mr. Rajesh Kr. Gautam, Advocate for R-1 (PNB). Mr. Narendra Singh, Advocate for R-2. Mr. Joy Saha, Sr. Advocate with Mr. Avishek Guha, Advocate for RP. Mr. Arun Gupta, Resolution Professional in person. Mr. Arun Kathpalia, Senior Advocate with Mr. Ranjan Kumar Pandey, Mr. Sandeep Bisht and Mr. Anuj Tiwari, Mr. Aditya Dhar, Advocates for C. P. Ispat. Mr. Harsh Jain, Mr. Puneet Jain and Mr. Arijit Mazumdar, Advocates for IDBI.

With

Company Appeal (AT) (Insolvency) No. 180 of 2018

(Arising out of Order dated 13th March, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata in CP(IB) No. 363/KB/2017)

IN THE MATTER OF:

Prakash Chand Jain ...Appellant Vs Punjab National Bank & Ors. ....Respondents

Present: For Appellant: Mr. Rudreshwar Singh and Mr. Vinay Vats, Advocates.

Company Appeal (AT) (Insol.) Nos. 156, 180 & 481 of 2018 Contempt Case (AT) No. 10 of 2018 in Company Appeal (AT) (Insol.) No. 156 of 2018 3

For Respondents: Mr. Rajesh Kr. Gautam and Ms. Khushboo Aggarwal, Advocate for R-1 (PNB). Mr. Joy Saha, Sr. Advocate with Mr. Avishek Guha, Advocate for RP. Mr. Arun Gupta, Resolution Professional in person. Mr. Arun Kathpalia, Senior Advocate with Mr. Ranjan Kumar Pandey, Mr. Sandeep Bisht, Mr. Anuj Tiwari and Mr. Aditya Dhar, Advocates for C. P. Ispat. Mr. Harsh Jain, Mr. Puneet Jain and Mr. Arijit Mazumdar, Advocates for IDBI.

With Company Appeal (AT) (Insolvency) No. 481 of 2018

(Arising out of Order dated 11th July, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata in CP(IB) No. 363/KB/2017, CA (IB) Nos. 272, 583/KB/2018)

IN THE MATTER OF:

M V Projects ...Appellant

Vs

Divya Jyoti Sponge Iron Pvt. Ltd. & Ors. ....Respondents

Present: For Appellant: Mr. Swapnil Gupta and Ms. Ankita Sinha, Advocates.

For Respondents: Mr. Rajesh Kr. Gautam, Advocate for R-1 (PNB). Mr. Joy Saha, Sr. Advocate with Mr. Avishek Guha, Advocate for RP. Mr. Arun Gupta, Resolution Professional in person. Mr. Arun Kathpalia, Senior Advocate with Mr. Ranjan Kumar Pandey, Mr. Sandeep Bisht and Mr. Anuj Tiwari, Advocates for C. P. Ispat.

Company Appeal (AT) (Insol.) Nos. 156, 180 & 481 of 2018 Contempt Case (AT) No. 10 of 2018 in Company Appeal (AT) (Insol.) No. 156 of 2018 4

Mr. Harsh Jain, Mr. Puneet Jain and Mr. Arijit Mazumdar, Advocates for IDBI.

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

All these appeals arise out of two different orders dated 13th March,

2018 and 11th July, 2018 passed by the Adjudicating Authority (National

Company Law Tribunal), Kolkata Bench, Kolkata, passed in common

proceeding, and as such they were heard together and are being disposed

of by this common judgment.

2. The Contempt application arises out of one of our order dated 24th

April, 2018 which is alleged to have been violated by the Contemnors.

3. In the 'Corporate Insolvency Resolution Process' against 'Divya

Jyoti Sponge Iron Private Limited'- ('Corporate Debtor'), the Adjudicating

Authority by impugned order dated 13th March, 2018, approved the

'Resolution Plan' submitted by 'CP Ispat Private Limited'- ('Successful

Resolution Applicant'). The same is under challenge by the Appellants-

Mr. Sunil Jain and Mr. Prakash Chand Jain, two of the Shareholders/

Promoters.

Company Appeal (AT) (Insol.) Nos. 156, 180 & 481 of 2018 Contempt Case (AT) No. 10 of 2018 in Company Appeal (AT) (Insol.) No. 156 of 2018 5

4. 'M/s. MV Projects'- Appellant, in the other appeal one of the

'Operational Creditor', is aggrieved against the order dated 11th July,

2018 passed by the Adjudicating Authority in CA (IB) No. 583/KB/2018

in CP(IB) No. 363/KB/2017, whereby the Adjudicating Authority held

that the 'Resolution Plan' having approved, the application filed by the

'Operational Creditor' is not maintainable.

Company Appeal (AT) (Insol.) No. 156 of 2018

5. Learned counsel for the Appellant- Mr. Sunil Jain submitted that

the 'Interim Resolution Professional' has acted in violation of Section 21

of the 'I&B Code' and there were serious allegations against him. The

'Interim Resolution Professional' did not even consider nor paid the cost

of basic essential services which were provided for keeping the 'Corporate

Debtor' as a going concern. On contrary, the amounts are due to different

'Operational Creditor' for the goods supplied and services rendered to the

'Corporate Debtor' during the 'Insolvency Resolution Process'.

6. It was further submitted that Appellant- Mr. Sunil Jain, being a

Promoter/Shareholder requested the members of the 'Committee of

Creditors' to inform him the amount of overdues so that he can pay the

same to Banks to avoid his ineligibility under Section 29A (c) of the 'I&B

Code'. However, the members of the 'Committee of Creditors' did not take

any action on such request.

Company Appeal (AT) (Insol.) Nos. 156, 180 & 481 of 2018 Contempt Case (AT) No. 10 of 2018 in Company Appeal (AT) (Insol.) No. 156 of 2018 6

7. It was further submitted that the 'Resolution Plan' so approved is

not in accordance with law as the right of the shareholders extinguished

in violation of Sections 56 & 57 of the Companies Act, 2013.

8. From the record, we find that Mr. Sunil Jain also filed a 'Resolution

Plan', being a Promoter, but the same was rejected, he being ineligible

under Section 29A (c) of the 'I&B Code'.

9. Learned counsel appearing on behalf of the 'Resolution

Professional', while highlighted the aforesaid facts, submitted that during

the meeting of the 'Committee of Creditors' when 'Committee of Creditors'

discussed the eligibility of Mr. Sunil Jain, being a Promoter and Director

of the 'Corporate Debtor' he was informed that the full amount claimed

by the 'Financial Creditors' in terms of the 'I&B Code', as per claims filed

with the 'Interim Resolution Professional', was the amount overdue and

Mr. Sunil Jain was required to pay the same in order to become eligible

and to submit a 'Resolution Plan'. During the meeting of the 'Committee

of Creditors', Mr. Sunil Jain informed that he would not be able to pay

the full claim amount to the 'Financial Creditors', as required in terms of

Section 29A (c) of the 'I&B Code'. In this background, the 'Resolution

Plan' has not been considered.

10. Learned counsel appearing on behalf of the 'Interim Resolution

Professional' also submitted that the 'Corporate Debtor' is a closely held

Private Limited Company and as such the entire shareholding of the

Company Appeal (AT) (Insol.) Nos. 156, 180 & 481 of 2018 Contempt Case (AT) No. 10 of 2018 in Company Appeal (AT) (Insol.) No. 156 of 2018 7

'Corporate Debtor' is distributed amongst the members of the Jain family

and/or their associates. The shareholders of the 'Corporate Debtor' and

their relationship with Mr. Sunil Jain are as follows:

Name of shareholder Percentage of Relationship with Shri shareholding Sunil Jain Gouri Shankar Jain 0.02% Father Anil Jain 7.46% Brother Gouri Shankar Jain (HUF) 43.44% Father is Karta Renu Jain 10.74% Relative Rashmi Jain 7.09% Brother's wife Sweta Jain 3.87% Relative Parasnath Crushers Pvt. 8.28% Family controlled Ltd. enterprise

11. It was further submitted by learned counsel for the 'Resolution

Professional' that as on the date of admission, the 'Corporate Debtor' had

only three Directors, one being Mr. Sunil Jain and the others Mr. Gouri

Shankar Jain and Mr. Anil Jain.

12. In view of the stand taken by the 'Resolution Professional' and not

disputed by the Appellant, we hold that the 'Committee of Creditors'

rightly rejected the 'Resolution Plan' submitted by Appellant- Mr. Sunil

Jain, he being ineligible in terms of Section 29A (c).

We have noticed that though time was allowed to Mr. Sunil Jain to

pay the NPA amount of the 'Corporate Debtor' in terms of Clause (c) of

Section 29A but he expressed his inability to pay the same.

13. So far as right of Shareholders are concerned, from the record we

find that shareholders claim have been taken into consideration by

Company Appeal (AT) (Insol.) Nos. 156, 180 & 481 of 2018 Contempt Case (AT) No. 10 of 2018 in Company Appeal (AT) (Insol.) No. 156 of 2018 8

'Successful Resolution Applicant' in the 'Resolution Plan' submitted by

him. In view of proposal of taking over the shares of the Promoters as

approved by the Adjudicating Authority, it is not required to comply with

the provisions of Sections 56 & 57 of the Companies Act, 2013 being a

formality which can be completed even after the approval of the

'Resolution Plan', at the stage of implementation of the plan. We find no

merit in the appeal preferred by Mr. Sunil Jain.

Company Appeal (AT) (Insol.) No. 180 of 2018

14. From the record, it appears that Appellant- 'Mr. Prakash Chand'

Jain also submitted a 'Resolution Plan' on 12th February, 2018. However,

it was not entertained and thereby rejected by the 'Committee of

Creditors', having filed after cutoff date i.e. on 2nd February, 2018.

15. Learned counsel appearing on behalf of the 'Resolution

Professional' submitted that the Appellant- 'Mr. Prakash Chand' is acting

in concert with erstwhile Management and, therefore, he was ineligible in

terms of Section 29A of the 'I&B Code'.

16. It is further submitted that the 'Resolution Plan' approved by the

'Committee of Creditors' is far superior in terms of maximization of value

of assets of the 'Corporate Debtor'. Against the upfront payment of Rs.

34.25 Crores to secured 'Financial Creditor', the Appellant- 'Mr. Prakash

Company Appeal (AT) (Insol.) Nos. 156, 180 & 481 of 2018 Contempt Case (AT) No. 10 of 2018 in Company Appeal (AT) (Insol.) No. 156 of 2018 9

Chand' proposed a payment of Rs.35.62 Crores over a period of 30

months, and he is not in a position to infuse any amount in the company

within the period of implementation.

17. It was submitted that the Information Memorandum was not

obtained by Appellant- 'Mr. Prakash Chand' from the 'Resolution

Professional', inspite of it, he applied knowing details of the Information

Memorandum, including the liabilities and assets of the 'Corporate

Debtor', which makes it clear that he acted in concert with the other

Applicant, who is related party of the erstwhile management of the

'Corporate Debtor'.

18. However, we are not deciding the aforesaid issue. In the present

case, as we find that the 'Committee of Creditors' found that the

'Resolution Plan' submitted by the 'Successful Resolution Applicant' is

superior than the 'Resolution Plan' as submitted by the Appellant- 'Mr.

Prakash Chand' while evaluating the suitability, feasibility and

commercial viability of the 'Corporate Debtor', we find no ground to

interfere with the impugned order.

Company Appeal (AT) (Insol.) No. 481 of 2018

19. Learned counsel for the Appellant- 'M/s. MV Projects' submitted

that it is a sole proprietorship concern, which is a 'supplier of coal' for

the business of the 'Divya Jyoti Sponge Iron Pvt. Ltd.'- ('Corporate

Company Appeal (AT) (Insol.) Nos. 156, 180 & 481 of 2018 Contempt Case (AT) No. 10 of 2018 in Company Appeal (AT) (Insol.) No. 156 of 2018 10

Debtor'). The supply of coal has been made to the 'Corporate Debtor' even

after the initiation of the 'Corporate Insolvency Resolution Process' on

23rd August 2017 i.e. during the 'Insolvency Resolution Process' to keep

the company as a going concern. The 'Resolution Professional' placed

orders with the Appellant even after initiation of the 'Corporate Insolvency

Resolution Process'. An amount of Rs. 26,68,298/- remained outstanding

which is due and payable to the Appellant.

20. The 'Resolution Professional' has not filed any reply denying the

claim aforesaid. As per the provisions of the 'I&B Code' and the

Regulations framed, the 'Insolvency Resolution Cost' is payable in priority

to other costs both in the case of success of Resolution and in the case of

liquidation without any haircuts. The Adjudicating Authority by

impugned order dated 11th July, 2018 has not addressed the aforesaid

issue on the ground that the 'Resolution Plan' has already been approved.

21. Section 5(13) defines 'insolvency resolution process costs' and

reads as follows:

"5. Definition─ (13) "insolvency resolution

process costs" means--

(a) the amount of any interim finance and the

costs incurred in raising such finance;

(b) the fees payable to any person acting as

a resolution professional;

Company Appeal (AT) (Insol.) Nos. 156, 180 & 481 of 2018 Contempt Case (AT) No. 10 of 2018 in Company Appeal (AT) (Insol.) No. 156 of 2018 11

(c) any costs incurred by the resolution

professional in running the business of

the corporate debtor as a going concern;

(d) any costs incurred at the expense of the

Government to facilitate the insolvency

resolution process; and

(e) any other costs as may be specified by

the Board;"

22. Section 14 defines 'Moratorium' and sub-section (2) of Section 14

reads as follows:

14. Moratorium.--(1) Subject to provisions of sub-

sections (2) and (3), on the insolvency

commencement date, the Adjudicating Authority

shall by order declare moratorium for prohibiting all

of the following, namely:--

(a) the institution of suits or continuation of

pending suits or proceedings against the

corporate debtor including execution of any

judgment, decree or order in any court of law,

tribunal, arbitration panel or other authority;

(b) transferring, encumbering, alienating or

disposing of by the corporate debtor any of its

Company Appeal (AT) (Insol.) Nos. 156, 180 & 481 of 2018 Contempt Case (AT) No. 10 of 2018 in Company Appeal (AT) (Insol.) No. 156 of 2018 12

assets or any legal right or beneficial interest

therein;

(c) any action to foreclose, recover or enforce any

security interest created by the corporate debtor

in respect of its property including any action

under the Securitisation and Reconstruction of

Financial Assets and Enforcement of Security

Interest Act, 2002 (54 of 2002);

(d) the recovery of any property by an owner or

lessor where such property is occupied by or in

the possession of the corporate debtor.

(2) The supply of essential goods or services to the

corporate debtor as may be specified shall not be

terminated or suspended or interrupted during

moratorium period......."

23. As per Section 30(2), the 'Resolution Professional' is required to

examine that each of the 'Resolution Plan' confirm the provisions as made

therein. Relevant portion of sub-clause (a) of sub-section (2) of Section 30

reads as follows:

"30. Submission of resolution plan─ (2) The

resolution professional shall examine each

Company Appeal (AT) (Insol.) Nos. 156, 180 & 481 of 2018 Contempt Case (AT) No. 10 of 2018 in Company Appeal (AT) (Insol.) No. 156 of 2018 13

resolution plan received by him to confirm that each

resolution plan--

(a) provides for the payment of insolvency

resolution process costs in a manner

specified by the Board in priority to the

repayment of other debts of the corporate

debtor;"

24. Regulation 31 of the Insolvency and Bankruptcy Board of India

(Insolvency Resolution Process for Corporate Persons) Regulations, 2016

deals with 'Insolvency Resolution Process Costs' and reads as follows:

"31. Insolvency resolution process costs. ─

"Insolvency resolution process costs" under section

5(13) (e) shall mean─

(a) Amounts due to suppliers of essential goods

and services under Regulation 32;

[(aa) fee payable to authorized representative

under sub-regulation (7) of regulation 16A;]

[(ab) out of pocket expenses of authorized

representative for discharge of his functions under

section 25;]

Company Appeal (AT) (Insol.) Nos. 156, 180 & 481 of 2018 Contempt Case (AT) No. 10 of 2018 in Company Appeal (AT) (Insol.) No. 156 of 2018 14

(b) Amounts due to a person whose rights are

prejudicially affected on account of the

moratorium imposed under Section 14(1) (d);

(c) Expenses incurred on or by the interim

resolution professional to the extent ratified

under regulation 33;

(d) Expenses incurred on or by the resolution

professional fixed under regulation 34; and

(e) Other costs directly relating to the corporate

insolvency resolution process and approved by

the committee."

25. In view of the aforesaid provision, if the Appellant has supplied the

goods during the period of the 'Corporate Insolvency Resolution Process'

to keep the company as a going concern, it was the duty of the 'Resolution

Professional' to include such cost towards 'Resolution Process Cost' for

payment in favour of Appellant for non-inclusion of the same, it can be

held that the 'Resolution Plan' in question is in violation of Section 30(2)

(a) of the 'I&B Code'.

26. However, taking into consideration the fact that it is failure on the

part of the 'Resolution Professional' who had not included the same nor

looked into the matter, we do not want to put blame on 'Successful

Resolution Applicant'. However, to uphold the 'Resolution Plan' and to

Company Appeal (AT) (Insol.) Nos. 156, 180 & 481 of 2018 Contempt Case (AT) No. 10 of 2018 in Company Appeal (AT) (Insol.) No. 156 of 2018 15

hold that the plan is in accordance with law, we modify the plan and pass

the following orders:

(i) The Appellant will file application before the 'Corporate

Debtor' through the 'Successful Resolution Applicant'

enclosing the copies of evidence /invoices etc. in support of

supply of goods (coal) during the period of 'Corporate

Insolvency Resolution Process' i.e. during the date of

admission onwards.

(ii) The 'Corporate Debtor' alongwith the 'Interim Resolution

Professional' will verify the same and will pay the total

admitted dues without any cut within 30 days, failing which,

the 'Resolution Plan' may be held to be in violation of Section

30(2) (a) of the 'I&B Code'.

(iii) The 'Corporate Debtor' through the 'Successful Resolution

Applicant' if refuses the claim or part thereof, will

communicate the ground to the Appellant.

(iv) If the refusal is not in accordance with law, it will be open to

the Appellant to file an Interlocutory Application in this

appeal to re-open the issue to decide whether the 'Resolution

Plan' is in violation of Section 30(2) (a) of the 'I&B Code' or

not.

Company Appeal (AT) (Insol.) Nos. 156, 180 & 481 of 2018 Contempt Case (AT) No. 10 of 2018 in Company Appeal (AT) (Insol.) No. 156 of 2018 16

27. In view of the findings above, we dismiss the Company Appeal (AT)

(Insolvency) Nos. 156 and 180 of 2018 and allow the Company Appeal

(AT) (Insolvency) No. 481 of 2018 preferred by Appellant- 'M.V. Projects'

with aforesaid observations and directions.

28. As regards contempt petition is concerned, in view of order

aforesaid and in absence of any deliberate and willful violation, we are

not inclined to initiate any Contempt Proceeding. The Contempt Case (AT)

No. 10 of 2018 is dismissed and is closed.

[Justice S. J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial)

NEW DELHI

24th April, 2019

AR

Company Appeal (AT) (Insol.) Nos. 156, 180 & 481 of 2018 Contempt Case (AT) No. 10 of 2018 in Company Appeal (AT) (Insol.) No. 156 of 2018