Tourism Finance Corporation Of India ... vs Rainbow Papers Limited & Ors

Tourism Finance Corporation of India Ltd. ...Appellant

Vs.

Rainbow Papers Ltd. & Ors. ...Respondents

Present: For Appellant: - Mr. Sumant Batra, Ms. Srishti Kapoor, Ms. Priyanka Anand, Mr. Sanjay Bhatt, Mr. N. Ramachandran, Advocates and Ms. Kiran Sharma, C.S

For Respondents: - Mr. M.S Vishnu Sankar, Advocate Mr. David Rao, Advocate for R-2 and Mr. Sriram P. Advocate for R-4. Ms. Shilpi Chowdhary and Mr. Jasdeep Dhillon, Advocates for Resolution Applicant

With

Company Appeal (AT) (Insolvency) No. 364 of 2019

IN THE MATTER OF:

Virag Enterprise ...Appellant

Vs.

Ramchandra D. Chaudhary, RP of Rainbow Papers Ltd. & Anr. ...Respondents

Present: For Appellant: - Mr. Aniruddh Deshmukh, Advocate

For Respondents: - Mr. M.S Vishnu Sankar, Advocate Mr. David Rao, Advocate for R-2 and Mr. Sriram P. Advocate for R-4. Ms. Shilpi Chowdhary and Mr. Jasdeep Dhillon, Advocates 2

With

Company Appeal (AT) (Insolvency) No. 404 of 2019

IN THE MATTER OF:

State Tax Officer (1) ...Appellant

Vs.

Rainbow Papers Limited. ...Respondent

Present: For Appellant: - Ms. Aastha, Mehta, Advocate

For Respondent: - Mr. M.S. Vishnu Sankar, Advocate Mr. David Rao, Advocate for R-2 Ms. Shilpi Chowdhary and Mr. Jasdeep Dhillon, Advocates

With

Company Appeal (AT) (Insolvency) No. 1001 of 2019

IN THE MATTER OF:

Regional Provident Fund Commissioner-I, Ahmedabad ...Appellant

Vs.

Ramchandra D. Choudhary ...Respondent

Present: For Appellant: - Mr. Manish Dhir, Advocate

For Respondent: - Mr. Vishnu Sankar, Advocate Mr. David Rao, Advocate for R-1 and Mr. Sriram P. Advocate for R-3. Ms. Shilpi Chowdhary and Mr. Jasdeep Dhillon, Advocates.

Company Appeal (AT) (Insolvency) Nos. 354, 364, 404 & 1001 of 2019 3

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

In the 'Corporate Insolvency Resolution Process' of 'Rainbow

Papers Limited'- ('Corporate Debtor'), the 'Resolution Professional' filed

application under Section 30(6) r/w Section 31 of the Insolvency and

Bankruptcy Code, 2016 ("I&B Code" for short) seeking approval of the

'Resolution Plan' submitted by 'Kushal Limited'.

2. In the said 'Corporate Insolvency Resolution Process', 'Tourism

Finance Corporation of India Limited' ('Financial Creditor') moved

Interlocutory Application No. 273 of 2018 alleging that the 'Tourism

Finance Corporation of India Limited' (one of the Appellants herein) has

been wrongly categorized as 'Unsecured Financial Creditor'.

3. Another Interlocutory Application No. 337 of 2018 was filed by

'Virag Enterprise', an 'Operational Creditor' (Appellant herein) alleging

wrong distribution and delayed payment shown in the 'Resolution

Plan'.

4. 'Sales Tax Officer (1), Kadi, Dist. Mehsana, Gujarat' (one of the

Appellants) filed petition and prayed for payment of total dues of

Rs.47,35,72,314/- towards Value Added Tax/ Central Sales Tax on the

ground that the said 'Sales Tax Department' is a 'Secured Creditor'.

Company Appeal (AT) (Insolvency) Nos. 354, 364, 404 & 1001 of 2019 4

5. The Adjudicating Authority (National Company Law Tribunal),

Ahmedabad Bench, Ahmedabad, rejected the applications by reasoned

order dated 27th February, 2019 and approved the 'Resolution Plan'.

6. The 'Resolution Plan' approved by impugned order dated 27th

February, 2019 suggests part payment of 'Provident Fund'. The

'Regional Provident Fund Commissioner-I, Ahmedabad, challenged the

same alleging the plan to the extent of 'Provident Fund', is violative of

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

Case of Appellant- 'Tourism Finance Corporation of India Limited'

7. The case of the Appellant is that the 'Corporate Debtor'

approached it for obtaining financial assistance for its business which

was sanctioned by the Appellant with credit facility by way of corporate

loan of Rs.30 Crores for meeting its capital requirements for expansion

of paper manufacturing capacity. The said corporate loan had been

secured by way of pledge of equity shares of 'Rainbow Papers Limited'

and corporate guarantee of 'Orient Newsprint Limited'. Subsequent to

availing the loan, the principal borrower and the guarantor committed

persistent defaults in making payment of overdue principal amount

and interest and the Appellant issued notices upon them on 4th April,

2016 and 15th April, 2016 calling upon them to make payment of

Rs.21,20,71,823/- as on 1st April, 2016 which rose to

Rs.22,48,28,156/- as on 30th September, 2017.

Company Appeal (AT) (Insolvency) Nos. 354, 364, 404 & 1001 of 2019 5

8. It was submitted that in the 'Resolution Plan' dated 26th May,

2018 submitted by 'Kushal Limited', the claim of the Appellant was

categorized as 'Secured Financial Creditor'. During the course of

meeting of the 'Committee of Creditors' held on 4th June, 2018, it was

casually informed by the 'Resolution Professional' that the claim of the

Appellant is proposed to be categorized as 'Unsecured Financial

Creditor'. Despite several protests and objections raised by the

Appellant, the Addendum dated 5th June, 2018 to the 'Resolution Plan'

replaced the Appellant from the category of 'Secured Financial Creditor'

to 'Unsecured Financial Creditor'.

9. According to the Appellant, the Appellant was entitled to receive

38.27% of admitted claim with 19.14% amount as cash and the

balance in the form of 5.22% debentures and 13.92% shares of the

'Corporate Debtor' to be paid over 18 months; as 'Unsecured Financial

Creditor' was being offered 35% of admitted claim with only 10% in

cash to be paid in 5 installments starting at the end of 3rd year and

25% as share warrants thus causing grave loss and prejudice to the

Appellant also discriminating among the same class of 'Secured

Financial Creditors'.

10. It was submitted that the action of the 'Resolution Plan' and the

'Committee of Creditors' which convened its meeting on 4th June, 2018

is against the provision of Section 30(4) of the 'I&B Code'.

Company Appeal (AT) (Insolvency) Nos. 354, 364, 404 & 1001 of 2019 6

11. It was further submitted that the 'Resolution Professional' can

only collate the claim but it has no jurisdiction to decide or adjudicate

upon the nature and status of claim or debt.

12. The 'Resolution Professional' has raised preliminary objections

about the maintainability of the appeal preferred by 'Tourism Finance

Corporation of India Limited'.

13. It was submitted by the 'Resolution Professional' that the

Interlocutory Application Nos. 273 & 224 of 2018 were preferred by the

Appellant after the completion of the period of 'Corporate Insolvency

Resolution Process' prescribed under the 'I&B Code' and order dated

12th September, 2017 r/w order dated 19th March, 2018 passed by the

Adjudicating Authority.

14. It was contended that the 'Resolution Professional' had not

changed the status of the Appellant from 'Secured Creditor' to

'Unsecured Creditor' or 'Unsecured Creditor' to 'Secured Creditor'.

During the course of the meetings of the 'Committee of Creditors', the

issue of classification of the Appellant as 'Secured Creditor' was

discussed and the 'Committee of Creditors' had directed the 'Resolution

Professional' to take necessary steps to ascertain the same. The

'Resolution Professional' addressed an e-mail dated 30th May, 2018

requesting the Appellant to substantiate its claim whether the same

Company Appeal (AT) (Insolvency) Nos. 354, 364, 404 & 1001 of 2019 7

falls under the category of 'Secured Creditor', and if so, the security

involved. The Appellant's response dated 30th May, 2018, failed to

substantiate its claim as 'Secured Creditor' as contemplated under the

'I&B Code'.

15. The question as to whether the 'Tourism Finance Corporation of

India Limited' is a 'Secured Creditor' or 'Unsecured Creditor' is a

question of fact normally determined by the 'Resolution Professional' or

the 'Committee of Creditors' or in appropriate cases it has also been

discussed by the 'Committee of Creditors'.

16. The Adjudicating Authority (National Company Law Tribunal) or

this Appellate Tribunal (National Company Law Appellate Tribunal) has

no jurisdiction to decide the same in an appeal preferred under Section

61(3) of the 'I&B Code', which can be preferred for the grounds

mentioned therein:

"61. Appeals and Appellate Authority.─ (3) An

appeal against an order approving a resolution plan

under section 31 may be filed on the following

grounds, namely:--

(i) the approved resolution plan is in

contravention of the provisions of any law for

the time being in force;

Company Appeal (AT) (Insolvency) Nos. 354, 364, 404 & 1001 of 2019 8

(ii) there has been material irregularity in

exercise of the powers by the resolution

professional during the corporate insolvency

resolution period;

(iii) the debts owed to operational creditors of

the corporate debtor have not been provided

for in the resolution plan in the manner

specified by the Board;

(iv) the insolvency resolution process costs

have not been provided for repayment in

priority to all other debts; or

(v) the resolution plan does not comply with

any other criteria specified by the Board."

17. As the case of the Appellant- 'Tourism Finance Corporation of

India Limited' was not covered by any of the grounds mentioned in

Section 61(3) and this Appellate Tribunal cannot decide the question of

fact relating to whether it is a 'Secured Creditor' or 'Unsecured

Creditor', we are not inclined to interfere with the impugned order

dated 27th February, 2019.

The appeal is dismissed.

Company Appeal (AT) (Insolvency) Nos. 354, 364, 404 & 1001 of 2019 9

Case of Appellant- 'Virag Enterprise'

18. The case of the Appellant- 'Virag Enterprise' is that the proof of

the claim for Rs.41,01,098/- was provided to the 'Resolution

Professional' along with the Affidavit dated 29th September, 2017 with

all the relevant documents. The total amount of the claim included

interest as on the Insolvency Commencement Date. However, the

'Resolution Professional' reduced the claim to Rs.29,38,689/- without

giving any explanation.

19. It was submitted that as per the 'Resolution Plan', the Appellant-

'Operational Creditor' will get cash payment of the 10% of the total

outstanding amount in five equal installments from the 3rd to 7th year

after the effective date.

20. It was stated by the Appellant- 'Virag Enterprise' that apart from

10% of the outstanding amount, the 'Resolution Plan' provides for

issue of share warrant with an option to purchase the shares by paying

75% of the offer price within the next 18 months at their sole

discretion. The initial subscription towards share warrant, which is

25%, is a credit given by the 'Resolution Applicant' to the Appellant.

However, this provision is not compulsive and the Appellant-

'Operational Creditor' is not compelled to take the shares.

Company Appeal (AT) (Insolvency) Nos. 354, 364, 404 & 1001 of 2019 10

21. It was submitted that by this arrangement, the 'Operational

Creditor' will lose 65% of the amount, if the Appellant subscribed the

shares.

22. Learned counsel for the Appellant submits that the 'Resolution

Plan' is against Section 30(2) of the 'I&B Code' as the amount has not

been paid within 30 days.

23. Though the aforesaid allegations have been made but the

'Resolution Applicant'- 'Kushal Limited' has not been impleaded as

party, therefore, intervention application preferred by the 'Resolution

Applicant' to dismiss the appeal being not maintainable.

24. In the present case, as we find that the 'Committee of Creditors'

has made the distribution in terms of Section 30(4), this Appellate

Tribunal has no jurisdiction to question the distribution so made.

25. Admittedly, the Appellant- 'Virag Enterprise' has been provided

the amount more than the liquidation value, therefore, it cannot allege

that the plan is violative of Section 30(2)(b) of the 'I&B Code'. If the

Appellant does not accept the amount within the time frame, as

proposed, in such case, it will not be entitled to receive any amount as

the Appellant is not a 'Secured Creditor', it may not receive 10%.

26. The 'Resolution Plan' is not binding to accept the equity share. If

the 'Unsecured Financial Creditors' exercise the option to convert

Company Appeal (AT) (Insolvency) Nos. 354, 364, 404 & 1001 of 2019 11

Share Warrants into equity shares, only in such case, they are required

to pay the balance subscription as mentioned in the plan which is the

three times of the initial subscription amount out of the total amount

of Share Warrants.

27. As the aforesaid issue is the question of commercial wisdom of

the 'Committee of Creditors', this Appellate Tribunal cannot sit in an

appeal over such decision of the 'Committee of Creditors' which

approved the plan with more than 77.79% of the voting shares looking

into the viability, feasibility and other factors prescribed by the

Insolvency and Bankruptcy Board of India.

28. For the reasons aforesaid, we are not inclined to interfere with

the impugned order dated 27th February, 2019. The appeal is

dismissed.

Case of the Appellant- 'State Tax Officer- (1)'

29. The case of the Appellant- 'Sales Tax Officer- (1)', Kadi, Dist.

Mehsana, Gujarat is that the demand of Rs.47,35,72,314/- towards

Value Added Tax/ Central Sales Tax due from the 'Corporate Debtor'

by Demand Notice in Form 305 under the 'Gujarat Value Added Tax,

2003, and Demand Notice in Form 8(B) under the Central Sales Tax

Act, 1956 for the years 2012-13 to 2015-16 and as per return filed by

Company Appeal (AT) (Insolvency) Nos. 354, 364, 404 & 1001 of 2019 12

the Dealer, the 'Corporate Debtor' for the period 1st March, 2016 to 30th

June, 2016.

30. After Demand Notice, the matter was challenged and remained

pending before the Gujarat Value Added Tax Tribunal at Ahmedabad.

In the meantime, by order dated 12th September, 2017, the

Adjudicating Authority declared Moratorium under Section 13(1) (a)

and Section 14 of the 'I&B Code' since it has the overriding effect. The

Adjudicating Authority while admitted the appeals but no order of pre-

deposit and subsequently it remanded the matter to the First Appellate

Authority.

31. It was submitted that the Appellant vide letter dated 22nd

October, 2018 approached the 'Resolution Professional' of the

'Corporate Debtor' asking to confirm the amount of claim accepted by

the 'Resolution Professional'. The 'Resolution Professional' in reply to

his letter dated 22nd October, 2018 has informed the Appellant as

under:

"Applicant's claim has been shown under the

head "Proposal for Contingent liabilities of the

Corporate Debtor' and all the above contingent

liabilities which may or may not have been

confirmed in the past, during or before the CIRP or

even may be confirmed in the time to come are

Company Appeal (AT) (Insolvency) Nos. 354, 364, 404 & 1001 of 2019 13

proposed to waived off fully. Even any other

known or unknown (whether recorded or not

recorded in books) are proposed to be waived of

fully."

32. It was further submitted that the Appellant- 'Sales Tax Officer-

(1)' is a 'Secured Creditor' in terms of Section 48 of the 'Gujarat Value

Added Tax, 2003' which creates first charge over the property of the

dealer and can be termed as 'Secured Creditor', having security

interest by way of a statutory first charge over the property in question.

33. Reliance has also been placed on definition of 'Secured Creditor'

as defined under Section 3(30) and 'Security Interest' as defined under

Section 3(31) of the 'I&B Code'.

34. The Adjudicating Authority noticed that the Appellant

approached the 'Resolution Professional' on 22nd October, 2018

whereas the 'Resolution Plan' dated 26th May, 2018 along with

Addendum dated 5th June, 2018 was approved by the 'Committee of

Creditors' with voting majority of 72.79 per cent in favour of the

'Resolution Plan'. Thus, the claim was made by the Appellant at a

much belated stage not only before the 'Resolution Professional' but

also before the Adjudicating Authority.

Company Appeal (AT) (Insolvency) Nos. 354, 364, 404 & 1001 of 2019 14

35. We find that the Appellant has not filed claim within time. It

approached the 'Resolution Professional' at belated stage after approval

of the 'Resolution Plan' by the Adjudicating Authority.

36. Learned counsel for the 'Resolution Professional' submitted that

the claim of the Appellant- 'State Tax Officer- (1)' comes within the

meaning of 'Operational Debt' as defined under Section 5(21). The

claim of the Appellant also does not fall within the meaning of 'Secured

Creditor' as defined under Section 3(30) read with Section 3(31) of the

'I&B Code'.

37. Section 48 of the 'Gujarat Value Added Tax Act, 2003' is under:

"48. Notwithstanding anything to the contrary

contained in any law for the time being in force,

any amount payable by a dealer or any other

person on account of tax, interest or penalty for

which he is liable to pay to the Government shall

be a first charge on the property of such dealer, or

as the case may be, such person."

38. In view of Statement of Objects and Reasons of the 'I&B Code'

read with Section 53 of the 'I&B Code', the Government cannot claim

first charge over the property of the 'Corporate Debtor'. Section 48

cannot prevail over Section 53. Therefore, the Appellant- 'State Tax

Company Appeal (AT) (Insolvency) Nos. 354, 364, 404 & 1001 of 2019 15

Officer- (1)' do not come within the meaning of 'Secured Creditor' as

defined under Section 3(30) read with Section 3(31) of the 'I&B Code'.

39. Further, as 'Sales Tax Department' filed its claim at belated stage

after the plan had been approved by the 'Committee of Creditors', the

'Resolution Professional' had no jurisdiction to entertain the same and

rightly not entertained.

We find no merit in this appeal preferred by 'State Tax Officer

(1)'. It is accordingly dismissed. No costs.

Case of the Appellant- 'Regional Provident Fund Commissioner-I,

Ahmedabad'

40. According to Appellant- 'Regional Provident Fund Commissioner',

'Successful Resolution Applicant' is supposed to pay the total provident

fund amount, but only a part of the amount has been allowed by the

'Resolution Professional'.

41. It was submitted that the 'Resolution Plan' is against the

provisions of Section 36(4) (iii) of the 'I&B Code' as per which the

'provident fund' and 'gratuity fund' cannot be included as assets of the

'Corporate Debtor'.

42. An Affidavit has been filed by 'Kushal Limited'- ('Successful

Resolution Applicant') stating that the approved 'Resolution Plan' has

duly taken care of all the statutory dues amounting to total Rs.5.09

Company Appeal (AT) (Insolvency) Nos. 354, 364, 404 & 1001 of 2019 16

crore. It was further submitted that the principal amount of 'provident

fund' has been taken into consideration whereas the order of levying of

interest by the 'PF Authority' post 'Corporate Insolvency Resolution

process' is not permissible under the law for the time being in force.

43. Further, according to 'Successful Resolution Applicant', Section

7Q and 14B of the 'Employees Provident Funds and Miscellaneous

Provision Act, 1952' cannot be relied upon as the provision of the 'I&B

Code' has overriding effect on the same in terms of Section 238 of the

'I&B Code'.

44. However, as no provisions of the 'Employees Provident Funds

and Miscellaneous Provision Act, 1952' is in conflict with any of the

provisions of the 'I&B Code' and, on the other hand, in terms of Section

36 (4) (iii), the 'provident fund' and the 'gratuity fund' are not the

assets of the 'Corporate Debtor', there being specific provisions, the

application of Section 238 of the 'I&B Code' does not arise.

45. Therefore, we direct the 'Successful Resolution Applicant'- 2nd

Respondent ('Kushal Limited') to release full provident fund and

interest thereof in terms of the provisions of the 'Employees Provident

Funds and Miscellaneous Provision Act, 1952' immediately, as it does

not include as an asset of the 'Corporate Debtor'. The impugned order

dated 27th February, 2019 approving the 'Resolution Plan' stands

modified to the extent above.

Company Appeal (AT) (Insolvency) Nos. 354, 364, 404 & 1001 of 2019 17

The appeal preferred by 'Regional Provident Fund Commissioner'

is allowed with aforesaid observations and directions. No costs.

46. In the result, Company Appeal (AT) (Insolvency) Nos. 354, 364 &

404 of 2019 are dismissed. Company Appeal (AT) (Insolvency) No. 1001

of 2019 is allowed. No costs.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice Bansi Lal Bhat) Member(Judicial)

(Justice Venugopal M) Member(Judicial)

NEW DELHI 19th December, 2019

AR

Company Appeal (AT) (Insolvency) Nos. 354, 364, 404 & 1001 of 2019