Binani Industries Limited Vs Bank of Baroda & Anr. (NCLAT, Delhi)
In exercise of powers conferred by Section 31 of the ‘I&B Code’ read with order of remand by the Hon’ble Supreme Court, we have gone through the records, revised ‘Resolution Plan’ submitted by ‘Ultratech Cement Limited, gist of which noticed earlier and being satisfied that the ‘Resolution Plan’ approved by the ‘Committee of Creditors’ under sub-section (4) of Section 30 in its 17th meeting held on 28th May, 2018 meets the requirements as referred to in sub-section (2) of Section 30, we approve the revised ‘Resolution Plan’ submitted by ‘Ultratech Cement Limited’ which shall be binding on the ‘Corporate Debtor’ and its employees, members, Creditors, guarantors and other stakeholders involved in the ‘Resolution Plan’.
In the result, the Company Appeal (AT) (Insolvency) Nos. 123 & 188 of 2018 preferred by ‘Rajputana Properties Private Limited’ and Company Appeal (AT) (Insolvency) Nos. 82 & 216 of 2018 preferred by ‘Binani Industries Limited’ are dismissed. The Company Appeal (AT) (Insolvency) No. 234 of 2018 preferred by Mr. Vijay Kumar Iyer, ‘Resolution Professional’ is allowed. The observations made against Mr. Vijay Kumar Iyer is set aside. Records of Company Petition (IB) No. 359/KB/2017 is remitted to the Adjudicating Authority for constitution of monitoring committee and implementation of revised approved plan submitted by ‘Ultratech Cement Limited’ in accordance with law.
FULL TEXT OF THE ORDER OF NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI
As all these appeals arise out of the order(s) passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata, in ‘Corporate Insolvency Resolution Process’ initiated against ‘Binani Cement Limited’- (‘Corporate Debtor’), they were heard together and are disposed of by this common judgment.
2. In the ‘Corporate Insolvency Resolution Process’ against ‘Binani Cement Limited’- (‘Corporate Debtor’), at the stage of ‘Resolution Process’ different prayers and objections were made/raised by the Appellants and others, which were taken up together by the Adjudicating Authority, and disposed of by different order(s) as detailed below.
3. The ‘Binani Cement Limited’, a flagship subsidiary of the Appellant-‘Binani Industries Limited’ representing the ‘Braj Binani Group’, has preferred Company Appeal (AT) (Insolvency) No. 82 of 2018 against the order dated 28thFebruary, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata, whereby CA(IB)No. 175/KB/2018 has been referred back to the ‘Resolution Professional’ to consider in accordance with the rules and regulations of the ‘I&B Code’.
4. The grievance of the Appellant is that the Adjudicating Authority should have passed positive direction and should have allowed the Appellant- ‘Binani Industries Limited’ to interact with and/or meet the bidders/ ‘Resolution Applicants’, ‘Financial Creditors’ and other stakeholders of the ‘Corporate Debtor’ from time to time.
5. ‘Binani Industries Limited’ has also preferred another Company Appeal (AT) (Insolvency) No. 216 of 2018 against common order dated 2nd May, 2018, whereby the Adjudicating Authority refused to accept the proposal of ‘Binani Industries Limited’ for repayment of the dues of the ‘Financial Creditors’ and close the ‘Corporate Insolvency Resolution Process’, in absence of any jurisdiction.
6. ‘Rajputana Properties Private Limited’ has preferred Company Appeal (AT) (Insolvency) No. 123 of 2018 against the order dated 27thMarch, 2018 passed by the Adjudicating Authority, whereby liberty was granted to the ‘Committee of Creditors’ to consider the settlement plan proposed by the ‘Binani Industries Limited’.
7. Another Company Appeal (AT) (Insolvency) No. 188 of 2018 has been preferred by ‘Rajputana Properties Private Limited’ against the order dated 2nd May, 2018, whereby the CA (IB) No. 246/KB/2018 filed by the ‘Resolution Applicant’ for approval of the plan of the ‘Rajputana Properties Private Limited’ has not been accepted for the reasons mentioned in the said order.
8. Vijay Kumar Iyer, who is the ‘Resolution Professional’ has preferred Company Appeal (AT) (Insolvency) No. 234 of 2018 against the order dated 2ndMay, 2018 in so far it relates to adverse observations made by the Adjudicating Authority against the said ‘Resolution Professional’.
9. In the aforesaid background, all the appeals were heard together for disposal.
10. For deciding the issue, it is necessary to discuss all the relevant facts, as detailed below.
11. Mr. Vijay Kumar Iyer- ‘Resolution Professional’ filed an application under Sections 30 and 31 of the Insolvency and Bankruptcy Code, 2016 (‘I&B Code’ for short) read with Regulation 39 of the ‘Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate persons) Regulations, 2016’ for approval of the ‘Resolution Plan’ for ‘Binani Cement Limited’. It was informed that the application is within time and the ‘Committee of Creditors’ by majority vote approved the ‘Resolution Plan’ submitted by ‘Rajputana Properties Private Limited’.
12. As noticed, number of objections were filed by the Respondents including, ‘Binani Industries Limited’, a group company of ‘Binani Cement Limited’- (‘Corporate Debtor’), ‘Ultratech Cement Limited’ and others.
13. The Adjudicating Authority noticed that the ‘Committee of Creditors’ after extensive negotiation and consultation with the ‘Rajputana Properties Private Limited’ voted in the meeting held on 14thMarch, 2018 with 99.43% and approved the plan submitted by the ‘Rajputana Properties Private Limited’. However, 10.53% of the ‘Committee of Creditors’ who were forced to vote in favour of the ‘Resolution Plan’ recorded a protest note(s) alleging that they had not been dealt with equitably when compared with other ‘Financial Creditors’ who were corporate guarantee beneficiaries of the ‘Corporate Debtor’.
14. The Adjudicating Authority also noticed that the ‘Resolution Plan’ submitted by the ‘Ultratech Cement Limited’, including revised offer submitted on 8thMarch, 2018 was not properly considered by the ‘Committee of Creditors’ for wrong reasons.
15. The Adjudicating Authority held that the ‘Resolution Plan’ submitted by ‘Rajputana Properties Private Limited’ was discriminatory and contrary to the scheme of the ‘I&B Code’. Thereby, while rejecting the ‘Resolution Plan’ submitted by ‘Rajputana Properties Private Limited’ as discriminatory, directed the ‘Committee of Creditors’ to consider the other ‘Resolution Plans’, including the ‘Resolution Plans’ submitted by ‘Ultratech Cement Limited’.
16. Arun Kathpalia, learned Senior Counsel appearing on behalf of ‘Rajputana Properties Private Limited’ while assailed the decision of the Adjudicating Authority relating to rejection of the ‘Resolution Plan’ as was approved by the ‘Committee of Creditors’, Mr. Gopal Subramanium, learned Senior Counsel appearing on behalf of ‘Rajputana Properties Private Limited’ challenged the part of the order whereby the ‘Resolution Plan’ of ‘Ultratech Cement Limited’ was ordered to be considered. The ‘Binani Industries Limited’ has also challenged the ‘Resolution Plan’ on other grounds.
17. To decide the issue, it will be desirable to notice the object of the ‘I&B Code’, object of ‘Resolution’ and what is expected from the ‘Committee of Creditors’, as summarized below: –
1. The objective of the ‘I&B Code’
As evident from the long title of the ‘I&B Code’, it is for reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons to promote entrepreneurship, availability of credit, and balance the interests of all stakeholders. The recent Ordinance explicitly aims to promote resolution over liquidation.
2. The objective of the ‘I&B Code’ is Resolution.
The Purpose of Resolution is for maximisation of value of assets of the ‘Corporate Debtor’ and thereby for all creditors. It is not maximisation of value for a ‘stakeholder’ or ‘a set of stakeholders’ such as Creditors and to promote entrepreneurship, availability of credit and balance the interests. The first order objective is “resolution”. The second order objective is “maximisation of value of assets of the ‘Corporate Debtor” and the third order objective is “promoting entrepreneurship, availability of credit and balancing the interests”. This order of objective is sacrosanct.
In the matter of “Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta and Ors.”, the Hon’ble Supreme Court observed that “the ‘Corporate Debtor’ consists of several employees and workmen whose daily bread is dependent on the outcome of the CIRP. If there is a resolution applicant who can continue to run the corporate debtor as a going concern, every effort must be made to try and see that this is made possible”.
3. ‘Financial Creditors’ as members of the ‘Committee of Creditors’ and their Role.
a. The Bankruptcy Law Reforms Committee (BLRC), which conceptualised the ‘I&B Code’, reasoned as under:
i. Under Para 5.3.1, sub-para 4, the BLRC provided rationale for ‘Financial Creditors’ as under:
“4. Creation of the creditors committee …
The Committee deliberated on who should be on the creditors committee, given the power of the creditors committee to ultimately keep the entity as a going concern or liquidate it. The Committee reasoned that members of the creditors committee have to be creditors both with the capability to assess viability, as well as to be willing to modify terms of existing liabilities in negotiations. Typically, ‘Operational Creditors’ are neither able to decide on matters regarding the insolvency of the entity, nor willing to take the risk of postponing payments for better future prospects for the entity. The Committee concluded that for the process to be rapid and efficient, the ‘I&B Code’ will provide that the creditors committee should be restricted to only the ‘Financial Creditors’.
ii. In Para 3.4.2 dealing with ‘Principles driving design’, the principle IV reads as under:
“IV. The ‘I&B Code’ will ensure a collective process.
9. The law must ensure that all key stakeholders will participate to collectively assess viability. The law must ensure that all creditors who have the capability and the willingness to restructure their liabilities must be part of the negotiation process. The liabilities of all creditors who are not part of the negotiation process must also be met in any negotiated solution.”
b. The ‘I&B Code’ aims at promoting availability of credit. Credit comes from the ‘Financial Creditors’ and the ‘Operational Creditors’. Either creditor is not enough for business. Both kinds of credits need to be on a level playing field. ‘Operational Creditors’ need to provide goods and services. If they are not treated well or discriminated, they will not provide goods and services on credit. The objective of promoting availability of credit will be defeated.
c. The ‘I&B Code’ is for reorganisation and insolvency resolution of corporate persons, ….for maximisation of value of assets of such persons to…. balance interests of all stakeholders. It is possible to balance interests of all stakeholders if the resolution maximises the value of assets of the ‘Corporate Debtor’. One cannot balance interest of all stakeholders, if resolution maximises the value for a or a set of stakeholder such as ‘Financial Creditors’. One or a set of stakeholders cannot benefit unduly stakeholder at the cost of another.
d. The ‘I&B Code’ prohibits any action to foreclose, recover or enforce any security interest during resolution period and thereby prevents a creditor from maximising his interests.
e. It follows from the above:
i. The liabilities of all creditors who are not part of ‘Committee of Creditors’ must also be met in the resolution.
ii. The ‘Financial Creditors can modify the terms of existing liabilities, while other creditors cannot take risk of postponing payment for better future prospectus. That is, ‘Financial Creditors’ can take haircut and can take their dues in future, while ‘Operational Creditors’ need to be paid immediately.
iii. A creditor cannot maximise his own interests in view of moratorium.’
iv. If one type of credit is given preferential treatment, the other type of credit will disappear from market. This will be against the objective of promoting availability of credit.
v. The ‘I&B Code’ aims to balance the interests of all stakeholders and does not maximise value for ‘Financial Creditors’.
vi. Therefore, the dues of creditors of ‘Operational Creditors’ must get at least similar treatment as compared to the due of ‘Financial Creditors’.
3. ‘Resolution Plan’
The ‘I&B Code’ defines ‘Resolution Plan’ as a plan for insolvency resolution of the ‘Corporate Debtor’ as a going concern. It does not spell out the shape, colour and texture of ‘Resolution Plan’, which is left to imagination of stakeholders. Read with long title of the ‘I&B Code’, functionally, the ‘Resolution Plan’ must resolve insolvency (rescue a failing, but viable business); should maximise the value of assets of the ‘Corporate Debtor’, and should promote entrepreneurship, availability of credit, and balance the interests of all the stakeholders.
It is not a sale. No one is selling or buying the ‘Corporate Debtor’ through a ‘Resolution Plan’. It is resolution of the ‘Corporate Debtor’ as a going concern. One does not need a ‘Resolution Plan’ for selling the ‘Corporate Debtor’. If it were a sale, one can put it on a trading platform. Whosoever pays the highest price would get it. There is no need for voting or application of mind for approving a ‘Resolution Plan’, as it will be sold at the highest price. One would not need ‘Corporate Insolvency Resolution Process’, ‘Interim Resolution Professional’, ‘Resolution Professional’, interim finance, calm period, essential services, Committee of Creditors or ‘Resolution Applicant’ and detailed, regulated process for the purpose of sale. It is possible that under a ‘Resolution Plan’, certain rights in the ‘Corporate Debtor’, or assets and liabilities of the ‘Corporate Debtor’ are exchanged, but that is incidental.
It is not an auction. Depending on the facts and circumstances of the ‘Corporate Debtor’, ‘Resolution Applicant’ may propose a ‘Resolution Plan’ that entails change of management, technology, product portfolio or marketing strategy; acquisition or disposal of assets, undertaking or business; modification of capital structure or leverage; infusion of additional resources in cash or kind over time; etc. Each plan has a different likelihood of turnaround depending on credibility and track record of ‘Resolution Applicant’ and feasibility and viability of a ‘Resolution Plan’ are not amenable to bidding or auction. It requires application of mind by the ‘Financial Creditors’ who understand the business well.
It is not recovery: Recovery is an individual effort by a creditor to recover its dues through a process that has debtor and creditor on opposite sides. When creditors recover their dues – one after another or simultaneously- from the available assets of the firm, nothing may be left in due course. Thus, while recovery bleeds the ‘Corporate Debtor’ to death, resolution endeavors to keep the ‘Corporate Debtor’ alive. In fact, the ‘I&B Code’ prohibits and discourages recovery in several ways.
It is not liquidation: Liquidation brings the life of a corporate to an end. It destroys organisational capital and renders resources idle till reallocation to alternate uses. Further, it is inequitable as it considers the claims of a set of stakeholders only if there is any surplus after satisfying the claims of a prior set of stakeholders fully. The ‘I&B Code’, therefore, does not allow liquidation of a ‘Corporate Debtor’ directly. It allows liquidation only on failure of ‘Corporate Insolvency Resolution Process’. It rather facilitates and encourages resolution in several ways.
‘Resolution Plan’ submitted by ‘Rajputana Properties Private Limited’
18. To decide the question whether the ‘Resolution Plan’ submitted by ‘Rajputana Properties Private Limited’ is discriminatory and against the provisions of the ‘I&B Code’, it is desirable to notice the financial terms of the ‘Resolution Plan’ of the ‘Rajputana Properties Private Limited’ gist of which has been produced by Mr. Arun Kathpalia, learned Senior Counsel and is as follows:
“FINANCIAL TERMS OF RESOLUTION PLAN OF RPPL
