Companies ActNCLATRulingsTribunal & Appellate

Case Summary : NCLAT’s order in Standard Chartered Bank vs. Satish Kumar Gupta, R.P. of Essar Steel Ltd. & Ors

Standard Chartered Bank vs. Satish Kumar Gupta, R.P. of Essar Steel Ltd. & Ors

NCLAT modifies impugned order of the Adjudicating Authority and modifies Resolution Plan submitted by ArcelorMittal India Pvt. Ltd to safeguard the rights of the ‘Operational Creditors’ and other ‘Financial Creditors’. NCLAT further holds that ‘Financial Creditors’ cannot be discriminated on the ground of ‘Secured’ or ‘Unsecured Financial Creditors’ for the purpose of distribution of proposed amount amongst stakeholders in the ‘Resolution Plan’ by the ‘Resolution Applicant’.

In the ‘Corporate Insolvency Resolution Process’ initiated against ‘Essar Steel India Limited’- (‘Corporate Debtor’), the ‘Committee of Creditors’ approved the ‘Resolution Plan’ submitted by ‘ArcelorMittal India Pvt. Ltd.’- (‘Successful Resolution Applicant’) which was approved by the Adjudicating Authority (National Company Law Tribunal), Ahmedabad Bench, Ahmedabad, with certain modifications by impugned order dated 8th March, 2019. A number of applications were preferred by the ‘Operational Creditors’ and the ‘Financial Creditors’ which were disposed of by individual impugned orders or the impugned order dated 8th March, 2019. Mr. Prashant Ruia (Promoter), has challenged the order dated 8th March, 2019 on the ground that ‘ArcelorMittal India Pvt. Ltd.’- (‘Successful Resolution Applicant’) is ineligible in terms of Section 29A of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “I&B Code”).

NCLAT observes that before deciding the issues whether distribution of amount amongst the ‘Financial Creditors’, ‘Operational Creditors’ and other stakeholders in the impugned order is discriminatory or not or whether the modification of plan as suggested by the Adjudicating Authority is proper or not, it is desirable to decide the issue as to ‘whether ‘ArcelorMittal India Pvt. Ltd.’ is eligible to file ‘Resolution Plan’ or not as raised by Mr. Prashant Ruia, the promoter of ‘Essar Steel India Limited’ and one of its shareholders. From the submissions of the parties and the records, NCLAT finds that no ground is made out to entertain the appeal preferred by Appellant- Mr. Prashant Ruia or by the Intervenor- ‘Essar Steel Asia Holdings Limited’-shareholder of the ‘Corporate Debtor’.

NCLAT observes the decision of SC in “Arcelormittal India Private Limited v. Satish Kumar Gupta and Ors.─ (2018) SCC OnLine SC 1733” where SC clearly rejected the objections made by ‘Numetal Limited’ with respect to ‘NPAs’ of ‘Gonterman Piepers’, being an issue raised at a belated stage. NCLAT further observes that an issue which has been settled by the Hon’ble Supreme Court i.e., eligibility of ‘ArcelorMittal India Pvt. Ltd.’ as a ‘Resolution Applicant’ for ‘Essar Steel India Limited’, cannot be re-agitated again and again and any such attempt is clearly barred by the principles of res judicata. NCLAT observes that the application by the Appellant- Mr. Prashant Ruia and Intervenor- ‘Essar Steel Asia Holdings Limited’ deserves to be rejected. NCLAT states that the said application suffers from an ex-facie inordinate delay of 6-7 months from the judgment of the Hon’ble Supreme Court and therefore, the present application which is clearly barred by delays and laches has been filed to sabotage the ‘Resolution Process’. NCLAT states that Once the debt payable by the ‘Corporate Debtor’ stands cleared in view of the approval of the plan by making payment in favour of the lenders (‘Financial Creditors’), the effect of ‘Deed of Guarantee’ comes to an end as the debt stands paid. The guarantee having become ineffective in view of payment of debt by way of resolution to the original lenders (‘Financial Creditors’), the question of right of subrogation of the Appellant’s right under Section 140 of the Contract Act and the right to be indemnified under Section 145 of the Contract Act does not arise. NCLAT thus dismisses the appeal preferred by Appellant- Mr. Prashant Ruia or submissions made on behalf of Intervenor- ‘Essar Steel Asia Holdings Limited’ due to lack of merit.

With regards the other appeals, NCLAT observes that in case of ‘Oil and Natural Gas Corporation Limited’ though the ‘Resolution Professional’ allowed the principal amount but no interest was allowed. In similar case of ‘Indian Oil Corporation Limited’, the Adjudicating Authority allowed the interest and ordered to accept the total claim. NCLAT is of the view that the total claim amount of ‘Indian Oil Corporation Limited’, having been accepted by the Adjudicating Authority, the ‘Oil and Natural Gas Corporation Limited’ is also entitled to its total claim of Rs. 7,46,81,468/- thereby, interest payable to the Appellant to be included towards dues of the ‘Operational Creditors’.

In the appeal preferred by Principal Secretary, Government of Gujarat, Energy & Petrochemicals Department alongwith the Collector of Electricity Duty, challenging the impugned order, NCLAT finds that the ‘Resolution Professional’ or the Adjudicating Authority has not considered the claim of the Appellants on merit. NCLAT further finds that the matter reached finality during the pendency of the approval of the plan when Curative Petition filed by the ‘Corporate Debtor’ through the ‘Resolution Professional’ was dismissed by the Hon’ble Supreme Court. NCLAT finds that the Review Petition and the Curative Petition was filed by the ‘Corporate Debtor’ when it was being run by the ‘Resolution Professional’, therefore, he had the knowledge of the same. Thuds, NCLAT finds that the ‘Resolution Professional’ and the Adjudicating Authority should have accepted the total claim of the Appellant of Rs. 861.19 Crores. NCLAT further finds that ‘Resolution Professional’ on behalf of the ‘Corporate Debtor’ having moved before the Hon’ble Supreme Court even during the pendency of the resolution process and having lost, it was the duty of the ‘Resolution Professional’ to bring the facts to the notice of the Adjudicating Authority for accepting the claim. NCLAT thus allows inclusion of its claim of Rs. 861.19 Crores.

In the appeal preferred by ‘National Thermal Power Corporation Ltd.’ (‘NTPC Ltd.’), NCLAT allows their total claim of Rs. 10,45,00,264/-, which includes interest. In the appeal of ‘L&T Infrastructure Finance Company Limited’, NCLAT states that the Adjudicating Authority rightly held that ‘L&T Infrastructure Finance Company Limited’ cannot be classified as a ‘Financial Creditor’, there being no ‘financial debt’ payable by the ‘Corporate Debtor’ (‘Essar Steel India Limited’). The record show that the cheques were issued by the ‘Corporate Debtor’ due to its payment obligation towards ‘Bhander Power Limited’ and not issued with a view to secure any payment obligation of principal borrower- (‘EPGL’). Thus, NCLAT dismissed the appeal. In the appeal preferred by Gail (India) Ltd., NCLAT finds that the matter is pending adjudication before the Arbitral Tribunal and the Hon’ble High Court and therefore, the Appellant had not filed its claim before the ‘Resolution Professional’ during the ‘Corporate Insolvency Resolution Process’. It has filed such claim after completion of the same, much after the impugned order passed by the Adjudicating Authority on 8th March, 2019. Thus, NCLAT states that no relief can be granted. In the other appeal filed by ‘Gail (India) Ltd.’ in respect of claim amount arising out of ‘Gail Sale Agreement’ (‘GSA’), executed between the Appellant’s Ahmedabad Zonal Office and the ‘Corporate Debtor’. NCLAT observes that the claim amount of contract year 2017 made on 26th October, 2018 relates to ‘Corporate Insolvency Resolution Process’ and it has not been taken care of by the ‘Resolution Professional’ while collating the claim. NCLAT states that with respect to claim as was made on 26th October, 2018 as it was filed during the ‘Corporate Insolvency Resolution Process’, NCLAT will not deliberate on the issue and leave it open to the Appellant to move before appropriate forum.

In the appeals preferred by Hill View Hire Purchase Pvt. Ltd. and D.R. Patnaik, NCLAT dismisses the appeals due to lack of evidence in support of the claims. Further in the appeal of M/s. Karur Vysya Bank Ltd., NCLAT dismisses the appeal as the claim of the Appellant was not lodged before the ‘Resolution Professional’. In the appeal filed by ‘Standard Chartered Bank’, the impugned order has been challenged, so far it relates to distribution of amount in favour of the Appellant and it was discriminated having not equated with other ‘Financial Creditors’. NCLAT observes that the Appellant has been provided with 1.74% of the claim amount on the ground that “it has no charge on project assets of the ‘Corporate Debtor’. NCLAT states that so far as the claim relating to Rs. 70.34 Crores, the Appellant- ‘Standard Chartered Bank’ has been allowed 4.08% of the claim amount as ‘Unsecured Financial Creditor’. The ‘Committee of Creditors’ of ‘Essar Steel India Limited’ has challenged part of the impugned order with their limited grievance being that while approving the ‘Resolution Plan’, the Adjudicating Authority has proceeded to make some suggestions and observations and rendered advice which is not only without jurisdiction but also ultra vires to the ‘I&B Code’ and in contradiction of its own findings.

NCLAT observes that the questions arising in the present appeal is whether the ‘Committee of Creditors’ can delegate its power to a ‘Sub Committee’ or ‘Core Committee’ for negotiation with the ‘Resolution Applicant’ for revision of plan? And whether the ‘Sub Committee’ or the ‘Committee of Creditors’ are empowered to distribute the amount amongst the ‘Financial Creditors’ and the ‘Operational Creditors’ and other Creditors. NCLAT examines section 30 of the I& B Code and Regulation 38 of the ‘Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016’ and observes that ‘Resolution Plan’ must include a statement as to how it has dealt with the interests of all stakeholders, including ‘Financial Creditors’ and the ‘Operational Creditors’, of the ‘Corporate Debtor’. Therefore, NCLAT holds that the distribution of amount to the ‘Operational Creditors’, ‘Financial Creditors’ and other stakeholders are to be made by the ‘Resolution Applicant’ and required to be reflected in the ‘Resolution Plan’. NCLAT concluded that the ‘Committee of Creditors’ have not been empowered to decide the manner in which the distribution is to be made between one or other creditors. NCLAT holds that the ‘Committee of Creditors’ has no role to play in the matter of distribution of amount amongst the Creditors including the ‘Financial Creditors’ or the ‘Operational Creditors’. The ‘Committee of Creditors’ is only required to notice the viability, feasibility of the ‘Resolution Plan’, apart from other requirements as specified by the Board and ineligibility of the ‘Resolution Applicant’ in terms of Section 29A. NCLAT further holds that the ‘Committee of Creditors’ do not enjoy any authority to delegate to itself the role of the ‘Resolution Applicant’ including the manner of distribution of amount amongst the stakeholders, which is exclusively within the domain of the ‘Resolution Applicant’ and thereafter before the Adjudicating Authority, if found discriminatory. NCLAT states that the ‘Committee of Creditors’ cannot delegate its power to a ‘Sub Committee’ or ‘Core Committee’ for negotiating with the ‘Resolution Applicant(s)’.

NCLAT observes that the suggestion of ‘Resolution Applicant’ to distribute the financial package offered by it only to the ‘Secured Financial Creditors’, denying the right of ‘Operational Creditors’ and other stakeholders, is also against the provisions of Section 30 (2) and Regulation 38 (1A), and thereby cannot be upheld. NCLAT further observes that the ‘Resolution Plan’ originally cleared by the ‘Resolution Professional’ presumed to be in consonance of Section 30(2) of the ‘I&B Code’. However, after negotiation with sub-committee, the plan was so modified which violates the provisions of Section 30(2) of the ‘I&B Code’ and Regulation 38 (1A). NCLAT is not inclined to reject the ‘Resolution Plan’, as it appears that ‘ArcelorMittal India Pvt. Ltd.’ delegated the power because of suggestion of ‘Sub Committee’ as apparent, which is not permissible under the law.

NCLAT relies on the decision of SC in “Swiss Ribbons Pvt. Ltd. & Anr. ─ 2019 SCC OnLine SC 73” where The Hon’ble Supreme Court noticed that the NCLAT, while looking into viability and feasibility of the ‘Resolution Plan’ that are approved by the ‘Committee of Creditors’, always gone into whether ‘Operational Creditors’ are given roughly the same treatment as ‘Financial Creditors’, and if they are not, such plans are either rejected or modified so that the ‘Operational Creditors’ rights are safeguarded. NCLAT states that in the present matter, it has noticed a huge discrimination made by the ‘Committee of Creditors’ in distribution of proposed amount to the ‘Operational Creditors’ qua ‘Financial Creditors’. Majority of the ‘Financial Creditors’ have been allowed 99.19% of their claim amount, whereas ‘NIL’ i.e. 0% in favour of the ‘Operational Creditors’. Such distribution is not only discriminatory but also arbitrary. They have also discriminated amongst themselves on the ground that one ‘Financial Creditor’ is ‘Secured Creditor’ (‘Standard Chartered Bank’) having no charge on project assets of the ‘Corporate Debtor’ and other has no charge on the project of the ‘Corporate Debtor’, though it is accepted that the ‘Standard Chartered Bank’ is also a ‘Secured Financial Creditor’.

NCLAT observes that the decision in “Darshak Enterprise Private Limited v. Chhaparia Industries Pvt. Ltd.─ Company Appeal (AT) (Insol.) No. 327 of 2017” in inapplicable to the present matter. NCLAT observes that the ‘I&B Code’ and Regulations framed thereunder empowers the ‘Resolution Applicant’ to decide the manner in which the distribution is to be made and not to the ‘Committee of Creditors’. Further, NCLAT states that ‘Committee of Creditors’ must not discard a ‘Resolution Plan’ that maximises the value of the assets of the ‘Corporate Debtor’ just because it yields realisations in future for ‘Financial Creditors’ or yields relatively lower realisation for them. NCLAT further holds that that Section 53 of the I&B Code cannot be made applicable for distribution of amount amongst the stakeholders, as proposed by the ‘Resolution Applicant’ in its ‘Resolution Plan’.
NCLAT places reliance on the matter of “Binani Industries Limited vs. Bank of Baroda & Anr.─ Company Appeal (AT) (Insolvency) No. 82 of 2018 etc.” and holds that the ‘Financial Creditors’ cannot be discriminated on the ground of ‘Secured’ or ‘Unsecured Financial Creditors’ for the purpose of distribution of proposed amount amongst stakeholders in the ‘Resolution Plan’ by the ‘Resolution Applicant’. NCLAT observes in the present case that the ‘Standard Chartered Bank’ has been accepted as a ‘Secured Financial Creditor’. However, it has been discriminated by the ‘Committee of Creditors’ on the ground of it having no charge on project assets of the ‘Corporate Debtor’. NCLAT further holds that hold that 100% payment as suggested in the ‘Resolution Plan’ in favour of the workmen and employees, ‘Unsecured Financial Creditor’ whose claim is less than Rs. 1 Crore and the ‘Operational Creditors’ whose admitted claim is less than Rs. 1 Crore are not discriminatory and the other ‘Operational Creditors’ or ‘Financial Creditors’ cannot ask for 100% of their claim on the ground that they should also be provided with same treatment. NCLAT further finds the revised chart placed by the ‘Committee of Creditors’ is also discriminatory, as similar treatment as required under the Law has not been given to the Financial Creditor, Secured Financial Creditor and the Operational Creditors. With regards the ‘Resolution Plan’ submitted by ‘ArcelorMittal India Pvt. Ltd.’, NCLAT modifies the plan to safeguard the rights of the ‘Operational Creditors’ and other ‘Financial Creditors’.

NCLAT further is of the view that the amount of profit if generated during the ‘Corporate Insolvency Resolution Process’, cannot be given to the ‘Successful Resolution Applicant’ as the ‘Successful Resolution Applicant’ has not invested any money during the Corporate Insolvency Resolution Process’. If one or other ‘Financial Creditors’ would have invested money during the ‘Corporate Insolvency Resolution Process’ to keep the ‘Corporate Debtor’ as a going concern, it can claim that it should get the interest out of the profit amount. NCLAT is further of the view where the ‘Successful Resolution Applicant’ does not pay the total dues to the Creditors such as the ‘Financial Creditors’ or the ‘Operational Creditors’ but pays lesser amount than the claim, then in such case, the profit should be distributed amongst all the Creditors including the ‘Financial Creditors’ and the ‘Operational Creditors’. NCLAT says that Operational Creditors and Financial Creditor cannot avail any remedy under Section 60(6) of the ‘I&B Code’.

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