NCLT approves Resolution Plan for Cengres Tiles Limited

Pradeep Kumar Kabra RP For Cengres Tiles Ltd Vs COC of Cengres Tiles Ltd & Ors (NCLT Ahmedabad)

The National Company Law Tribunal (NCLT), Ahmedabad, in a recent judgment dated March 20, 2023, made a significant decision regarding the insolvency proceedings of M/s Cengres Tiles Limited. The application was filed under Section 30(6) of the Insolvency & Bankruptcy Code, 2016, by Pradeep Kumar Kabra, the Resolution Professional (RP) of Cengres Tiles Limited, seeking approval for the Resolution Plan submitted by Third-eye Tradelink Private Limited in consortium with Turba International LLP, Baluram Lahoti, and Radheshyam Nuwal.

Detailed Analysis

i. Background: The corporate debtor, Cengres Tiles Limited, entered Corporate Insolvency Resolution Process (CIRP) on April 27, 2022. Mr. Navin Kanjwani was initially appointed as the Interim Resolution Professional (IRP). However, the Committee of Creditors (CoC) decided to replace the IRP and appointed Pradeep Kumar Kabra as the RP. This decision was later approved by the Adjudicating Authority.

ii. Resolution Plan: The CoC instructed the RP to invite prospective resolution applicants to submit Expression of Interest (EoI) and Resolution Plans. In response, six resolution plans were received, with Third-eye Tradelink Private Limited’s plan gaining approval with 99.86% votes from the CoC.

iii. Extensions Granted: Due to various factors and discussions in CoC meetings, the Corporate Insolvency Resolution Process (CIRP) period was extended by 120 days. This extension was crucial in allowing time for the resolution plan to be thoroughly examined and approved.

iv. Compliance Check: The RP conducted a comprehensive examination of the Resolution Plan’s compliance with various sections of the Insolvency & Bankruptcy Code, 2016, and relevant regulations. The plan addressed the complexities and operational scale of Cengres Tiles Limited’s business.

v. Payment Terms: The Resolution Plan proposed a payment of Rs. 45,20,00,000 to stakeholders, including secured financial creditors, unsecured financial creditors, operational creditors, workers, employees, statutory dues, and other debts and dues.

vi. Provisions for Implementation: The Resolution Plan outlined provisions for the payment of insolvency resolution process costs, repayment to operational creditors, management of the corporate debtor’s affairs, supervision of the resolution plan’s implementation, and other requirements specified by the regulatory board.

vii. Reliefs and Concessions: The resolution applicant sought certain reliefs and concessions, including the waiver of stamp duty, registration charges, and taxes, among others. The approval of the resolution plan was not conditional on the grant of these reliefs, and the resolution applicant was directed to approach the relevant statutory authorities for such concessions.

viii. Unpaid Liabilities: The NCLT clarified that all unpaid liabilities and claims not filed before the approval of the resolution plan, and those not included in the plan, would be extinguished, in accordance with the Insolvency & Bankruptcy Code.

ix. Effective Implementation: Before approving the resolution plan, the NCLT ensured that it contained provisions for its effective implementation, in line with Section 31 of the Insolvency & Bankruptcy Code.

Conclusion

The National Company Law Tribunal’s approval of the Resolution Plan for Cengres Tiles Limited marks a significant milestone in the corporate insolvency resolution process. This decision ensures the effective implementation of the plan submitted by Third-eye Tradelink Private Limited in consortium with Turba International LLP, Baluram Lahoti, and Radheshyam Nuwal. The judgment emphasizes compliance with legal requirements, the fair treatment of creditors, and the need for resolution applicants to seek appropriate reliefs through statutory authorities. This case demonstrates the importance of a thorough and compliant resolution process in India’s insolvency framework.

FULL TEXT OF THE NCLT JUDGMENT/ORDER

1. This application is filed on 20.03.2023 under Section 30(6) of Insol-vency & Bankruptcy Code, 2016 by Pradeep Kumar Kabra Resolution Professional (RP) of the corporate debtor-M/s Cengres Tiles Limited for approval of the Resolution Plan submitted by Third-eye Tradelink Private Limited (in consortium with Turba International LLP, Baluram Lahoti, Ra-dheshyam Nuwal).

2. The averments made by the applicant/ resolution professional in the present application and as argued by the learned counsel are summarized as under:

(i) The corporate debtor was admitted in Corporate Insolvency Resolution Process (CIRP) on 27.04.2022. Mr. Navin Kanjwani was appointed as Interim Resolution Professional (IRP). On 30.04.2022 the IRP made a public announcement of the CIRP of the corporate debtor thereby calling upon its creditors to submit their claim with requisite proof. The Committee of Creditors (CoC) was constituted with the following financial creditors having voting percentages based on their debt value as follows:

The CoC resolved to replace the IRP and to appoint Pradeep Kumar Kabra as RP. The same was approved by this Adjudicating Authority.

(ii) The CoC instructed the RP to publish Form G calling upon the prospective resolution applicants to submit the EoI/Resolution Plans for the corpo-rate debtor.

(iii)The RP published Form-G on 11.07.2022 in widely circulated English as well as local language newspapers. In response thereto, he received 6 resolution plans from the following:

(iv) Meantime, CIRP period of 180 days were about to get over on 24.10.2022, the RP, with the approval from the CoC requested this Adjudi-cating Authority to extend CIRP period by 90 days and accordingly, CIRP period was extended by this Adjudicating Authority vide its order dated 22.11.2022. In addition to the above, this Adjudicating Authority on the request of the RP further extended the CIRP period by 30 days vide its order dated 07.02.2023.

(v) The CoC discussed the proposal, which was received in the form of Resolution Plans, in various meetings of the CoC. In the 11t^h CoC meeting held on 24.01.2023, the resolution plans were discussed and put to vote. The resolution plan from Thirdeye Tradelink Private Limited (in consortium with Turba International LLP, Baluram Lahoti, Radheshyam Nuwal) was approved by the CoC with 99.86% votes.

(vi) Subsequently, the 13^th CoC meeting was held on 10.03.2023, wherein it was agreed to pay the VAT department a sum of Rs.3.02 crores as against their admitted claim of Rs.5,19,62,696/-.

(vii) The resolution applicant- Thirdeye Tradelink Private Limited (in consortium with Turba International LLP, Baluram Lahoti, Radheshyam Nuwal) has proposed to infuse a sum of Rs.45,20,00,000/-. The details of the proposed payment to the stake-holders are as follows:

(viii) The RP has examined the resolution plan and the compliances required. For ready reference, the compliances examined by the RP are reproduced hereunder:

3. We heard the learned counsel for the RP and on perusal of records it is noted that the CoC approved the resolution plan of Thirdeye Tradelink Private Limited (in consorti-um with Turba International LLP, Baluram Lahoti, Radheshyam Nuwal) with 99.86% votes and it is not necessary for us to go into details of the commercial aspect of the plan. We proceed to examine the plan in view of sections 30(2) and 31 of the IBC r.w. Regulation 38 of the IBBI (CIRP of the Corpo-rate Debtor Regulation, 2016). The RP has placed on record the compliance certificate in Form-H. It shows that the fair value of the assets of the corporate debtor is Rs. 68,53,65,639/- whereas, the liquidation value is Rs.49,88,25,122/-. The successful resolution applicant has proposed a payment of Rs.45,20,00,000/- in the resolution plan.

4. In order to obtain the approval of the Adjudicating Authority the resolution plan should adhere to the following requirements as per Section 30(2) of the Code r.w. CIRP Regulation 38:

(i) It should provide for the payment of insolvency resolution process costs in priority to the repayment of other debts of the corporate debtor.

[Section 30(2)(a)]

(ii) The repayment of the debts of operational creditors should not be less than the amount to be paid to such creditors in the event of liquidation of the corporate debtor under section 53 of the Code, or the amount that would have been paid to the said creditors if the amount to be distributed under the resolution plan had been distributed in accordance of section 53(1) of the Code.

Moreover, the payment to the operational creditor is to be made in priority over the financial creditor;

Further the repayment of the debts of dissenting financial creditors should not be less than the amount that would have been paid to such creditors in the event of liquidation of the corporate debtor under section 53 of the Code and the payment to the said dissenting financial creditor is to be made in priority to the consenting financial creditors.

[Section 30(2)(b) read with CIRP Regulation 38(1)(a) & 38(1)(b)];

(iii) Provides for the management of the affairs of the corporate debtor after approval of the resolution plan.

[Section 30(2)(c) read with CIRP Regulation 38(2)(b)];

(iv) The implementation and supervision of the resolution plan. [Section 30(2)(d) read with CIRP Regulation 38(2)(c)];

(v) It does not contravene any of the provisions of the law for the time being in force.

[Section 30(2)(e)];

(vi) It conforms to such other requirements as may be specified by the Board.

[Section 30(2)(f)]

Such other requirements of the resolution plan as detailed in IBBI (Resolution Process for Corporate Persons) Regulations, 2016 which are not covered above, are as under:

(a) The resolution plan should include statement as to how it has dealt with the interests of all stakeholders including financial creditors and operational creditors of the corporate debtor.

[CIRP Regulation 38 (1A)]

(b) The resolution plan should include a statement giving details as to whether the resolution applicant or any of its related parties has at any time failed to implement or caused to the failure of implementation of any other resolution plan which was approved by the Adjudicating Authority.

[CIRP Regulation 38 (1B)]

(c) The resolution plan should contain the term of the plan and its implementation schedule.

[CIRP Regulation 38(2)(a)]

(d) The resolution plan should also demonstrate that it addresses the cause of default; is feasible and viable; has provisions for its effective implementation; has provisions for approvals required and timeline for the same. Further that the resolution applicant has the capability to implement the resolution plan.

[CIRP Regulation 38(3)]

5. In view of the above provisions of the Code, the resolution plan submitted before us has been examined as follows:

(i) In the plan, the provision towards CIRP costs is made for Rs.20,00,000/- to be paid within 30 days from the effective date in priority to the repayment of other debts of the corporate debtor. Thereby, section 30(2)(a) has been complied with.

(vii) It is noted that as per the provisions of the code,

a) the operational creditors should not be paid less than the amount payable to such creditors in the event of liquidation of the corporate debtor under section 53 of the Code, or the amount that would have been paid to the said creditors if the resolution plan value had been distributed in accordance of section 53(1) of the Code.

In the present case, the liquidation value is Rs.49,88,25,122/-whereas the total admitted claim of secured financial creditors is Rs.70,71,76,243/-. As such if the said liquidation value was to be considered in the event of liquidation as a total amount to be distributed as per section 53 then the operational creditors would have got nothing. Similarly, we find that the proposed plan value is Rs.45,20,00,000/- and if that was to be distributed in accordance with section 53 then also nothing would have remained for the operational creditors. However, the resolution applicant has proposed to pay Rs.3,00,000/- lacs to the operational creditors.

b) It is also seen from the material on record that one unsecured financial creditor namely Dhani Loans & Services Limited having 0.14% voting share, objected to the approval of the said resolution plan and therefore, it is a dissenting Financial Creditor. However, as per the provisions of the Code, the payment to the dissenting financial creditor should be in priority to other consenting financial creditors and should not be less than the amount that would have been payable as per Section 53 of the Code, 2016, in the event of Liquidation of the Company. In the present case, the liquidation value is Rs.49,88,25,122/- & the CIRP cost is Rs.20 lacs. As such if the liquidation value was to be distributed in accordance with section 53 of the Code then nothing would have been left for the unsecured dissenting financial creditor. However, the resolution applicant has proposed to pay a nominal amount to the dissenting unsecured financial creditor also.

As such the provisions of section 30(2)(b) read with CIRP Regulation 38(1)(a) & 38(1)(b) are complied with.

(ii) The mechanism for management and control of the affairs of the corporate debtor after approval of the resolution plan has been provided in the resolution plan itself whereby the Board of Directors of the resolution applicant will look after the business of the corporate debtor after approval of the resolution plan and pending its implementa-tion. We hold that thereby provisions of Section 30(2)(c) read with CIRP Regulation 38(2)(b) are complied with.

(iii) The resolution plan contains a provision where-in, the implementation of the said plan will be supervised by the Monitoring Agency/ Committee consisting of RP, 2 representatives from secured financial cvreditors and 3 representative of resolu-tion applicant. Thereby, Section 30(2)(d) read with CIRP Regulation 38(2)(c) has been complied with.

(iv) The RP has submitted that the plan does not contravene any provisions of law. We also noted that the plan does not contravene any provisions of the law for the time being in force. Thereby, Section 30(2)(e) has been complied with.

(v) The resolution plan also conforms to other IBBI Regulations as given hereunder:

a) The resolution plan adequately deals with the interests of all stakeholders, including financial creditors and operational creditors of the corporate debtor. Thereby, the plan is in compliance with CIRP Regulation 38 (1A).

b) It is submitted that neither the resolution appli-cant nor any of its related parties have at any time failed to implement or contributed to the failure of implementation of any other resolution plan which was approved by the Adjudicating Authority. Thereby, the plan is in compliance with CIRP Regulation 38 (1B).

c) The term of the Plan and its implementation schedule is as under:

Thereby CIRP Regulation 38(2)(a) has been complied with.

d) The resolution plan addresses the cause of de-fault; is feasible and viable; has provisions for its effective implementation; contains provisions for approvals required and the timeline for the same. Further that the resolution applicant has the capa-bility to implement the resolution plan. Thus CIRP Regulation 38(3) has been complied with.

6. The resolution applicant Thirdeye Tradelink Private Limited is a pri-vate limited company incorporated in the year 2010 and is engaged in the business of chemicals, PVC plastics, Commodities. Sources of funds is Rs.37 lakhs by way of promoters contribution to eq-uity share capital and through unsecured loan from friends, relatives, associates and banks. In addi-tion to the above amount the Promoters will contribute more amount by way of unsecured loan to pay CIRP expenses.

7. It is also noted that the resolution applicant has sought certain re-liefs & concessions such as waiver of:

i. Stamp duty, registration charges, levies and taxes on the transactions undertaken to be exempted pursuant to the order of the Adjudicating Authori-ty;

ii. For the liabilities which are neither appearing in the provisional balance sheet nor are mentioned in the claim statement;

iii. The Ministry of Environment Central Pollution Control Board and Pollution Control Board of Gujarat and all other concerned government authori-ties to renew all environmental business permits as required by the corporate debtor or a period of 5 years from the effective date;

iv. From applicability of and payment of tax under section 41(1) and 115JB of the Income Tax Act, 1961;

v. Waiver of all claims of previous management directors, shareholders their associates and family members;

Further, the approval of the resolution plan is not conditional to the grant of reliefs & concessions sought by the resolution applicant.

8. As far as reliefs and concessions claimed by the resolution applicant with respect to the unpaid liabilities after approval of the plan and the claims not filed at all with the RP during the CIRP, the law has been well settled by the Hon’ble Supreme Court in the case of Ghanashyam Mishra and Sons Private Limited Vs. Edelweiss Asset Reconstruction Company Limited and Ors. reported in MANU/SC/0273/2021 in the following words:

86. “…… The legislative intent behind this is, to freeze all the claims so that the resolution applicant starts on a clean slate and is not flung with any surprise claims. If that is permitted, the very calculations on the basis of which the resolution applicant submits its plans, would go haywire and the plan would be unworkable.

87. We have no hesitation to say, that the word “other stakeholders” would squarely cover the Central Government, any State Government or any local authorities. The legislature, noticing that on account of obvious omission, certain tax au-thorities were not abiding by the mandate of I&B Code and continuing with the proceedings, has brought out the 2019 amendment so as to cure the said mischief… ”

9. In view of the above, all unpaid liabilities and claims that are not filed with the RP before the approval of the resolution plan and those which are not included in the said resolution plan would stand extinguished. However, as far as other reliefs and concessions as sought by the resolution applicant, we direct the said successful resolution applicant to approach the concerned statutory authority for those concessions and those authorities will consider the same as per the provisions of law under the relevant Acts.

10. The proviso to section 31 of the Code, 2016, states that before passing any order for approval of the resolution plan, the Adjudicating Authority should also satisfy that the resolution plan has provisions for its effective implementation. We being satisfied, approve the resolution plan submitted by Thirdeye Tradelink Private Limited (in consortium with Turba Inter-national LLP, Baluram Lahoti, Radheshyam Nuwal) for Corporate Debtor i.e., M/s Cengres Tiles Lim-ited and in addition to the above directions, proceed to pass the following order:

(i) Application is allowed.

(ii) The resolution plan of Thirdeye Tradelink Private Limited (in consortium with Turba International LLP, Baluram Lahoti, Radheshyam Nuwal) for Corpo-rate Debtor i.e., M/s Cengres Tiles Limited allowed as per Section 30(6) of the IBC, 2016.

(iii)The approved ‘Resolution Plan’ shall become effective from the date of passing of this order.

(iv) The order of moratorium dated 27.04.2022 passed by this Adjudicating Authority under Section 14 of I&B Code, 2016 shall cease to have effect from the date of passing of this order.

(v) The Resolution Professional shall forthwith send a copy of this Order to the participants and the Resolution Applicant(s).

(vi) The Resolution Professional shall forward all records relating to the conduct of the corporate insolvency resolution process and Resolution Plan to the Insolvency and Bankruptcy Board of India to be recorded in its database.

(vii) Accordingly, IA 371 of 2023 in CP(IB) 39 of 2021 is allowed and stands disposed of in terms of the above directions.

(viii) Urgent certified copy of this order, if applied for, to be issued to all concerned parties upon compliance with all requisite formalities.