Yogeshwar Garg & Ors vs Mandeep Gujral & Anr

[Arising out of order dated 23.08.2023 passed by the Adjudicating Authority, National Company Law Tribunal, Chandigarh Bench, Chandigarh in IA No. 659/2023 in CP (IB) No.218/Chd/Chd/2018.]

IN THE MATTER OF:

Yogeshwar Garg Proprietor KYK Promoters, Office No. A-57, Anoop Nagar, Pankha Road, Uttam Nagar, New Delhi - 110 059 ...Appellant No.1

Suresh Kumar Proprietor Shree Vinayak Traders, Office No. Plot No.94E, G/F Floor Vikas Nagar, Uttam Nagar, New Delhi - 110 005 ...Appellant No.2

Usha Garg Proprietor KYK Buildcon, Office No.A-57, Anoop Nagar, Pankha Road, Uttam Nagar, New Delhi - 110 059 ...Appellant No.3

Versus

Mandeep Gujral Resolution Professional Jaycon Infrastructure Ltd. Office at 3073, Sector-46C, Chandigarh - 160047 ...Respondent No.1

Company Appeal (AT) (Ins.) No. 1481 of 2023 & IA No. 5312 of 2023 1 Rishabh Jain Director Maya Enterprises Ltd. IX/3378, Dharampura, Gandhi Nagar, New Delhi - 110 031 ...Respondent No.2

Present:

Appellants: Ms. Shubhangda Singh, Mr. Vipul Talwar, Mr. Ankit Chaudhary, Advocates

Respondents: Mr. Abhishek Anand, Advocate

JUDGMENT

[Per: Barun Mitra, Member (Technical)]

The present appeal filed under Section 61 of Insolvency and Bankruptcy

Code, 2016 ("IBC" in short) by the Appellant arises out of the Order dated

23.08.2023 (hereinafter referred to as "Impugned Order") passed by the

Adjudicating Authority (National Company Law Tribunal, Chandigarh Bench,

Chandigarh) in IA No. 659/2023 in CP (IB) No.218/Chd/Chd/2018. By the

impugned order, the Adjudicating Authority has allowed IA No. 659 of 2023

and disposed of the main company petition by approving the resolution plan

in respect of M/s Jaycon Infrastructure Ltd-Corporate Debtor. Aggrieved by

the impugned order, the present appeal has been filed by the Appellants-

Operational Creditors with regard to treatment of their claims as being

inconsistent with the objectives of the IBC.

Company Appeal (AT) (Ins.) No. 1481 of 2023 & IA No. 5312 of 2023 2

2. Coming to the factual matrix, M/s Jaycon Infrastructure Ltd-Corporate

Debtor was admitted into Corporate Insolvency Resolution Process ("CIRP" in

short) on 07.10.2019 following which Interim Resolution Professional was

appointed. Public announcement of CIRP was made inviting claims. The three

Appellants herein who were Operational Creditors of the Corporate Debtor

submitted their respective claims within time to the Respondent

No.1/Resolution Professional ("RP" in short). Pursuant to receiving and

collating the claims of the creditors, the RP constituted the Committee of

Creditors ("CoC" in short). The CoC comprised of the State Bank of India as

sole secured Financial Creditor with a vote share of 90.12% and three other

unsecured Financial Creditors having an aggregate vote share of 9.88%.

Following publication of Form G, only one resolution plan had been received

from Respondent No.2/Successful Resolution Applicant ("SRA" in short)

which was duly approved by the CoC. The resolution plan was approved by

the Adjudicating Authority vide impugned order on 23.08.2023.

3. The Learned Counsel for the Appellant making her submissions stated

that though the claims lodged by the Appellants were admitted in full by the

RP, they have been paid nil under the resolution plan. It has been submitted

that the Appellants have been discriminated under the resolution plan since

they have been subjected to 100% hair cut on their admitted claims whereas

the Financial Creditors have been paid 16.5% of their admitted claims. The

provisions of the IBC have been mis-construed by the Adjudicating Authority

in holding that the only value payable to the Operational Creditors under a

resolution plan is nil if the liquidation value payable to the Operational

Creditors is nil. It has been contended that from bare reading of the provisions

as enshrined under Section 30(2) read with Section 53 of the IBC along with

Company Appeal (AT) (Ins.) No. 1481 of 2023 & IA No. 5312 of 2023 3 the Regulation 38 of the Insolvency and Bankruptcy Board of India

(Insolvency Resolution Process for Corporate Persons) Regulation, 2016

(hereinafter referred to as the "Regulations"), no such implication can be

drawn that in case the Liquidation Value of the assets of the Corporate Debtor

qua Operational Creditors turns out to be nil, the same shall be held to be a

reasonable ground for providing 100% haircut to the claims of the Operational

Creditors under any Resolution Plan. This discriminatory treatment of no

consideration of their admitted claims goes against the primary objective of

the IBC to balance the interest of all stakeholders. It was further contended

that it is questionable on the part of the Adjudicating Authority to adopt

prioritization of debt qua Corporate Debtor under different categories under

Section 53 of the IBC while considering the resolution plan since this was

distinct and different stage from the stage of liquidation. It is also the case of

the Appellants that Regulation 38(1)(A) of the Regulations have not been

given due consideration under the resolution plan since the SRA has not

provided any reasonable basis to show how the interests of all stakeholders

have been balanced while quantifying the amount agreed to be paid to the

various stakeholders. Advancing their arguments further it was submitted

that the Financial Creditors cannot be paid proportionately higher than the

Operational Creditors or be paid before them. Submissions have been further

pressed that the claims of the Appellants stand extinguished which is violative

of Section 30(2)(e) of the IBC. The Learned Counsel for the Appellant while

admitting that the commercial wisdom of the CoC is not to be interfered with,

however, argued that the commercial wisdom of the CoC cannot be over

expanded to brush aside a significant shortcoming in the decision making of

the CoC in approving the present Resolution Plan.

Company Appeal (AT) (Ins.) No. 1481 of 2023 & IA No. 5312 of 2023 4

4. Refuting the above submissions, the Learned Counsel for the

Respondent No.1 submitted that the present appeal is not maintainable since

it is well settled that under the statutory scheme of IBC and the Regulations

framed thereunder, the approval of the resolution plan lies solely within the

domain of the CoC in the exercise of its commercial wisdom which cannot be

transposed by the wisdom of the Adjudicating Authority. It was emphatically

asserted that the legislative intent of according primacy to the commercial

wisdom of the CoC has been reaffirmed by a catena of judgments of the

Hon'ble Supreme Court as in Committee of Creditors of Essar Steel India

Limited v. Satish Kumar Gupta & Ors., K. Sashidhar v. Indian Overseas

Bank & Ors., and Kalpraj Dharamshi & Anr v. Kotak Investment

Advisors Ltd & Anr. The other limb of argument articulated by the Learned

Counsel for the Respondent No.1 was that the question with respect to

payments to Operational Creditors under the resolution plan as per IBC is no

longer res-integra as decided by this Tribunal in Dharmindra Constructions

Pvt. Ltd. & Anr. v. Rajendra Kumar Jain in CA (AT) (Ins.) No. 1477 of

2022 ("Dharmindra" in short) wherein it has been held that the Operational

Creditors are entitled for minimum of the liquidation value. It was submitted

that the liquidation value of the Corporate Debtor is Rs.11.53 crore whereas

the admitted claim of the secured Financial Creditor is Rs. 70.24 crore. Thus,

in the present case, the amount payable under the resolution plan not being

enough to even cover the dues of the secured Financial Creditors, the

impugned order cannot be perceived to be one which can be said to suffer

from any material irregularity for having provided nil payment to the

Appellants since in terms of the valuation report they were not entitled to any

payment in the event of liquidation of the Corporate Debtor.

Company Appeal (AT) (Ins.) No. 1481 of 2023 & IA No. 5312 of 2023 5

5. We have duly considered the arguments advanced by the Learned

Counsel for the parties and perused the records carefully.

6. The short point for our consideration is whether, in the facts of the

present case, the Appellants were entitled to any proceeds under the

resolution plan at a time when the liquidation value payable to them as

Operational Creditors is nil.

7. At this juncture it may be useful to take note of the relevant findings of

the Adjudicating Authority in the context of the resolution plan under

consideration. In para 21 of the impugned order, we find that the

Adjudicating Authority has taken note of the compliance on the part of the

SRA to Sections 25(2)(h), 29(A), 30(1), 30(2), 30(4), 31(1) of the IBC and to

Regulations 38(1), 38(1A), 38(1B), 38(2), 38(3), 39(2) and 39(4) of the

Regulations. The Adjudicating Authority has also noted in para 20 of the

impugned order the relevant information furnished by the RP with regard to

the amount claimed, amount admitted and the amount proposed to be paid

by the present SRA under their resolution plan. The summary of the financial

proposal/payment under the resolution plan of the SRA has also been

captured at para 23 of the impugned order and in para 33 of the impugned

order it has been noticed that the SRA proposes to make payment of

Rs.1161.09 lakhs to secured Financial Creditors, Rs.21.95 lakhs payment to

workmen and employees and Rs.13.96 lakhs to Operational Creditors (Govt.

dues). The impugned order also notes at para 34 that the resolution plan

meets the requirement of being viable and feasible for the revival of the

Corporate Debtor and that by and large all compliances have been met by the

RP and the SRA for making the plan effective after approval. The Adjudicating

Company Appeal (AT) (Ins.) No. 1481 of 2023 & IA No. 5312 of 2023 6 Authority at para 35 of the impugned order has recorded its satisfaction that

the resolution plan is in accordance with Sections 30 and 31 of the IBC and

compliant of Regulations 38 and 39.

8. In the present matter we are concerned with the claim of the Appellants

who have been classified as Operational Creditors. There is no dispute with

regard to the fact that the liquidation value of the Corporate Debtor is

Rs.11.53 crore as per the valuation reports placed at page 55 of the Appeal

Paper Book ("APB" in short). It is also undisputed that in terms of information

mentioned in Form H, the claim admitted in respect of the secured Financial

Creditor is Rs.70.24 crore as may be seen at page 60 of APB. The resolution

plan envisages amount for other creditors as nil and this category includes

the Appellants which has been assailed by the Appellants for being

discriminatory and violative of Section 30 of the IBC for having failed to

balance the interests of all stakeholders.

9. The contention of the Respondent No.1 is that since the liquidation

value is only Rs. 11.53 crore in the present case and the amount payable

under the resolution plan is insufficient to cover the dues of the secured

Financial Creditor, hence, as per the waterfall mechanism as envisaged under

Section 53 of the IBC, the Appellants herein being Operational Creditors shall

not be entitled to payment of any proceeds. The Respondent No.1 has

therefore contended that the impugned order does not suffer from any

material irregularity. In support of their contention, reference has been made

to the judgment of this Tribunal in Dharmindra (supra).

Company Appeal (AT) (Ins.) No. 1481 of 2023 & IA No. 5312 of 2023 7

10. This brings us to the ratio laid down by this Tribunal in Dharmindra

(supra) which is to the effect:

"10. The judgment of Hon'ble Supreme Court in "Essar Steel India Ltd." has also been noted and relied in the judgment of this Tribunal in "S. Chandriah vs. Sunil Kumar Agarwal" (supra). In paras 22 and 23 the judgment has been dealt with, which are to the following effect:

"22. The Resolution Plan envisages Nil payment to other Creditors. Now we come to the law laid down by the Hon'ble Supreme Court in Essar Steel (supra) in paragraph 72 and 73 of the Judgement following has been laid down:

"72. This is the reason why Regulation 38(1A) speaks of a resolution plan including a statement as to how it has dealt with the interests of all stakeholders, including operational creditors of the corporate debtor. Regulation 38(1) also states that the amount due to operational creditors under a resolution plan shall be given priority in payment over financial creditors. If nothing is to be paid to operational creditors, the minimum, being liquidation value - which in most cases 7420 would amount to nil after secured creditors have been paid - would certainly not balance the interest of all stakeholders or maximise the value of assets of a corporate debtor if it becomes impossible to continue running its business as a going concern. Thus, it is clear that when the Committee of Creditors exercises its commercial wisdom to arrive at a business decision to revive the corporate debtor, it must necessarily take into account these key features of the Code before it arrives at a commercial decision to pay off the dues of financial and operational creditors.

73. There is no doubt whatsoever that the ultimate discretion of what to pay and how much to pay each class or subclass of creditors is with the Committee of Company Appeal (AT) (Ins.) No. 1481 of 2023 & IA No. 5312 of 2023 8 Creditors, but, the decision of such Committee must reflect the fact that it has taken into account maximising the value of the assets of the corporate debtor and the fact that it has adequately balanced the interests of all stakeholders including operational creditors. This being the case, judicial review of the Adjudicating Authority that the resolution plan as approved by the Committee of Creditors has met the requirements referred to in Section 30(2) would include judicial review that is mentioned in Section 30(2)(e), as the provisions of the Code are also provisions of law for the time being in force. Thus, while the Adjudicating Authority cannot interfere on merits with the commercial decision taken by the Committee of Creditors, the limited judicial review available is to see that the Committee of Creditors has taken into account the fact that the corporate debtor needs to keep going as a going concern during the insolvency resolution process; that it needs to maximise the value of its assets; and that the interests of all stakeholders including operational creditors has been taken care of. If the Adjudicating Authority finds, on a given set of facts, that the aforesaid parameters have not been kept in view, it may send a resolution plan back to the Committee of Creditors to resubmit such plan after satisfying the aforesaid parameters. The reasons given by the Committee of Creditors while approving a resolution plan may thus be looked at by the Adjudicating Authority only from this point of view, and once it is satisfied that the Committee of Creditors has paid attention to these key features, it must then pass the resolution plan, other things being equal."

23. The Hon'ble Supreme Court in the above judgement has laid down that judicial review by the Adjudicating Authority

Company Appeal (AT) (Ins.) No. 1481 of 2023 & IA No. 5312 of 2023 9 as well as Appellate Tribunal has to confine as to whether the requirement referred to in Section 30(2) has been met. It was clearly held that the Adjudicating Authority may not interfere with the merits of the commercial decision of the CoC. The limited judicial review available is to see that CoC has taken into account the fact that Corporate Debtor needs to be kept as a going concern, it needs to maximise the value, and interest of all the stakeholders including Operational Creditor have been taken care of. Section 30(2) provides as follows:

"30(2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan-- .......

(b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than-

(i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under section 53; or

(ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53, whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with subsection (1) of section 53 in the event of a liquidation of the corporate debtor.

Explanation 1. -- For removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors. ..............."

Company Appeal (AT) (Ins.) No. 1481 of 2023 & IA No. 5312 of 2023 10

11. We are of the view that as per the law as exist today, the Operational Creditors are only entitled for minimum of the liquidation value and there being no breach of any of the provisions of the Code, we are unable to interfere with the impugned order. With observations as above, Appeal is dismissed.

(Emphasis supplied)

11. From what has been noticed hereinabove as per the law which exists as

of date, we agree with the Respondent No.1 that the question with respect to

payments to Operational Creditors under resolution plan as per the scheme

of the IBC is no longer res-integra. The Appellants as Operational Creditors

are entitled to the minimum entitlement as per Section 30(2)(b) of the IBC.

There is no dispute that liquidation value of the Appellants in the present case

is nil. That being so, we are not in a position to accept the submissions made

by the Appellants that since nil amount has been allocated to them, the plan

cannot be accepted. CoC in its commercial wisdom has decided not to allocate

any amount to the other creditors while following the water fall mechanism

as contained in Section 53 of the IBC. The Appellants have failed to point out

any material irregularity or contravention of any provision of law by the CoC

in approving the plan. That being the case, the Adjudicating Authority with

the limited powers of judicial review available to it, cannot substitute its views

with the commercial wisdom of the CoC in rejecting the resolution plan unless

it is found to be contrary to the express provisions of law or there is sufficient

basis which establishes material irregularity. There can be no fetters on the

commercial wisdom of CoC and the supremacy of commercial wisdom of CoC

has been reaffirmed time and again by the Hon'ble Supreme Court in a catena

of judgements including K. Sashidhar v. Indian Overseas Bank (2019) 12

SCC 150 ; Committee of Creditors of Essar Steel India Limited v. Satish

Company Appeal (AT) (Ins.) No. 1481 of 2023 & IA No. 5312 of 2023 11 Kumar Gupta (2020) 8 SCC 531; Maharashtra Seamless Limited v.

Padmanabhan Venkatesh (2020) 11 SCC 467; Kalpraj Dharamshi v.

Kotak Investment Advisors Limited, (2021) 10 SCC 401 and

Ghanashyam Mishra and Sons Private Limited through the Authorized

Signatory v. Edelweiss Asset Reconstruction Company Limited through

the Director (2021) 9 SCC 657.

12. In view of the foregoing discussions, we are of the view that the

resolution plan which has been approved by the Adjudicating Authority does

not require any interference. We do not find any cogent reasons to interfere

with the impugned order. Not finding any merit in the appeal, the same is

dismissed. No costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

Place: New Delhi Date: 18.12.2023

PKM

Company Appeal (AT) (Ins.) No. 1481 of 2023 & IA No. 5312 of 2023 12