Resolution Plan of Sintex Industries Limited (Corporate Debtor) was approved by Committee of Creditors (CoC) members on 19.03.2022 and the same has been submitted for approval before Hon’ble National Company Law Tribunal (NCLT), Ahmedabad for approval on 23.03.2022.
Resolution Plan approved by CoC members of Corporate Debtor was unconditional and on “as is where is basis.”
However, in the last hearing held on 22nd December, 2022 before Hon’ble NCLT, Ahmedabad, Successful Resolution Applicant i.e. Reliance Industries Limited has put prior condition before Hon’ble NCLT, Ahmedabad bench that once 202.89 acres land situated at Lunsapur is transferred in the name of the Corporate Debtor through duly stamped and registered sale deed then only they are ready to proceed with approval of Resolution Plan. Accordingly, Successful Resolution Applicant has put conditionality in the Resolution Plan after same is approved by CoC members of Corporate Debtor.
Provisions of Section 30 read with Section 31 of Insolvency and Bankruptcy Code (IBC) 2016 does not permit approval of such conditional Resolution Plan.
Hon’ble NCLT Ahmedabad Bench recently in IA 843/2021 rejected the Resolution Plan of Anil Mega Food Park Pvt. Ltd. vide order dated 06th July, 2022 with following remarks;
“The proviso to section 31(1) does not permit us to approve such conditional Resolution Plan. Hence, we reject the Resolution Plan submitted along with IA/843(AHM)2021.”
In view of the conditionality imposed by Successful Resolution Applicant i.e. Reliance Industries Limited specifically after same is approved by CoC members, the Resolution Plan submitted by them is liable for rejection as per the provisions of IBC.
Further, Hon’ble NCLT Ahmedabad during the hearing held on 22nd December, 2022 has requested following information from the Learned senior counsel of IRP of Corporate Debtor
1. What is Liquidation value of Corporate Debtor
2. What is Resolution Plan amount submitted by Successful Resolution Applicant
3. Whether value of Resolution Plan amount is higher than Liquidation value of Corporate Debtor
Learned senior counsel of IRP has provided following replies
1. Liquidation value of Corporate Debtor is Rs. 3632.81 crores
2. Resolution Plan amount submitted by Successful Resolution Applicant is Rs. 3651.32 crores including Cash & Cash Equivalent of approx. Rs. 450.47 crores generated during CIRP period and Equity Shares to be issued to lenders Rs. 171.43 crores.
3. Resolution Plan amount i.e. Rs. 3651.32 crores is higher than Liquidation Value i.e. Rs. 3632.81 crores.
Thereupon, Hon’ble NCLT Members raised question that Liquidation value of Rs. 3632.81 crores for Corporate Debtor is calculated at the time of commencement of CIRP period. Therefore, Cash & Cash Equivalent of Rs. 450.47 crores generated during CIRP period shall require to be added in Liquidation Value calculated at the time of commencement of CIRP and accordingly ideally Liquidation value of Corporate Debtor is Rs. 4083.28 crores (Rs. 3632.81 crores + Rs. 450.47 crores) which is higher than amount offered in the Resolution Plan i.e. Rs. 3651.32 crores.
Otherwise in other scenario, if we exclude Cash & Cash Equivalents portion from both i.e. Resolution Plan amount as well as from Liquidation Value than Liquidation Value is Rs. 3632.81 crores and Resolution Plan amount is Rs. 3200.85 crores.
In both the scenario Resolution Plan amount is less than Liquidation Value of Corporate Debtor.
| Sr. No. | Details | Liquidation Value in crores | Resolution Plan amount in crores | Difference in crores (Liquidation Value – Resolution Plan amount) |
| 1. | Scenario No. 1 (Cash & Cash Equivalents of Rs. 450.47 crores to be included in both i.e. Liquidation Value and Resolution Plan Amount) | Rs. 4083.28 crores | Rs. 3,651.32 crores | Rs. 431.96 crores |
| 2. | Scenario No. 2 (Cash & Cash Equivalents of Rs. 450.47 crores to be excluded in both i.e. Liquidation Value and Resolution Plan Amount) | Rs. 3632.81 crores | Rs. 3200.85 crores | Rs. 431.96 crores |
As seen from above table Resolution Plan amount is less than Liquidation Value of Corporate Debtor in Scenario No. 1 and Scenario No. 2.
Hon’ble NCLT Members also raised further question that what is exit terms of Equity Shares of Rs. 171.43 crores to be issued to Lenders of Corporate Debtor. If same is after three to five years then NPV of Rs. 171.43 crores is required to be calculated.
Accordingly, as per discussion done during hearing held on 22nd December, 2022 before Hon’ble NCLT, Ahmedabad, following is outcome;
1. Resolution Plan of Sintex Industries Limited is conditional. Successful Resolution Applicant has put conditionality regarding land after the Resolution Plan is approved by CoC members which is not allowed as per the provisions of IBC. Therefore, Resolution Plan is liable for rejection.
2. Resolution Plan amount of Sintex Industries Limited approved by CoC members is less than Liquidation Value of Sintex Industries Limited.
Thanking you
IBBI Update Team
Author Bio
Good attempt to explain Liquidation value but based on incomplete information