Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3395 OF 2020
JAYPEE KENSINGTON BOULEVARD APARTMENTS
WELFARE ASSOCIATION & ORS. ……. APPELLANT(S)
VERSUS
NBCC (INDIA) LTD. & ORS. ……. RESPONDENT(S)
WITH
CIVIL APPEAL No.3396 of 2020, T.C (C) Nos. 234, 235, 236, 237, 238,
239, 240, 241, 242, 243 of 2020, Civil Appeal No. 1056 of 2021 @
SLP(C) No. 5144 of 2021@ Diary No. 18129 of 2020, Civil Appeal No.
1057 of 2021 @ SLP(C) No. 10543 of 2020 and Diary No. 20274 of
2020
JUDGMENT
Dinesh Maheshwari, J.
Introductory
Permission to file special leave petition(s) and leave granted in
respective Petition(s) for Special Leave to Appeal.
2. This batch of civil appeals, special appeals and transfer cases
1
essentially relate to the resolution plan in the corporate insolvency
Signature Not Verified
2 3
resolution process under the Insolvency and Bankruptcy Code, 2016
Digitally signed by
DEEPAK SINGH
Date: 2021.03.24
12:38:36 IST
Reason:
1 Hereinafter, at some places, it has also been referred to as ‘the plan’.
2 ‘CIRP’ for short.
3 Hereinafter also referred to as ‘the Code’ or ‘IBC’.
1
4
concerning the corporate debtor, Jaypee Infratech Limited , whose
activities do impact a large number of persons/entities, including the
5
buyers of flats/apartments in its real estate development projects.
2.1. As shall be noticed hereafter, CIRP in relation to the corporate
debtor JIL has been entangled in various disputes in the past and even
when the resolution plan submitted by the resolution applicant, NBCC
6 7
(India) Limited has been approved by the Committee of Creditors by a
substantial majority of 97.36% of voting share of the financial creditors,
several disputes/objections have come up from various stakeholders and
role players, voicing the concerns of their own, like dissenting financial
creditors, dissatisfied homebuyers, displeased land providing agency,
disillusioned creditor of a wholly-owned subsidiary of the corporate debtor
and disappointed minority shareholders. Apart from all these, the holding
8
company of the corporate debtor, namely, Jaiprakash Associates Limited
and its stakeholders have several questions over the resolution process
in question and are particularly concerned with the sum of INR 750
crores, which was deposited by JAL pursuant to the orders passed by this
Court in the first round of litigation.
3. Looking to a multiload of issues arising from variegated
propositions/objections put forward by different parties, it appears
appropriate to draw a brief outline and sketch of the matter at the outset.
4 Hereinafter also referred to as ‘JIL’.
5 Hereinafter generally referred to as ‘the homebuyers’.
6 Hereinafter also referred to as ‘NBCC’.
7 ‘CoC’ for short.
8 Hereinafter also referred to as ‘JAL’.
2
Brief outline and sketch
4. The cases involved in this batch have got assimilated in this Court
in the following circumstances:
4.1. The corporate insolvency resolution process in relation to the
corporate debtor JIL got initiated on 09.08.2017 when the National
9
Company Law Tribunal , Allahabad Bench admitted the petition filed by
one of the financial creditors, IDBI Bank Limited, under Section 7 of the
10
Code. However, when the Interim Resolution Professional invited claims
in this CIRP, the treatment of homebuyers became an issue contentious,
because they were treated only as ‘other creditors’, not at par with
financial and operational creditors.
4.2. The aforesaid position led to the proceedings in this Court, which
were dealt with in a batch of petitions led by Writ Petition (Civil) No. 744
11
of 2017: Chitra Sharma and Ors. v. Union of India and Ors. wherein,
several orders were passed by this Court from time to time, inter alia , with
directions to JAL, the holding company of JIL, for making deposits in the
Court, particularly looking to the claim of refund being made by some of
the homebuyers. While finally disposing of the matters on 09.08.2018,
this Court took note of several factors, including the nature of projects,
interests of a large number of homebuyers and unanimity amongst all the
concerned that liquidation of the corporate debtor shall not be in the
9 Hereinafter also referred to as ‘the Adjudicating Authority’ or ‘NCLT’. As shall be noticed, the
matter before the Allahabad Bench was later on transferred to the New Delhi Bench of the
Tribunal. These expressions ‘the Tribunal’ or ‘NCLT’ or ‘the Adjudicating Authority’ refer to the
said transferee Bench too, as per the given context.
10 ‘IRP’ for short.
11 Final judgment therein has since been reported as (2018) 18 SCC 575.
3
interest of any stakeholder. This Court also took note of the fact that even
the statutorily extended period for concluding the CIRP was over but,
there had been a relevant supervening event where, by way of an
Amendment Ordinance that came into force on 06.06.2018, the doubts
about the status of homebuyers were removed and they were expressly
recognised as financial creditors. Having regard to the facts and
circumstances, this Court issued a slew of directions for ensuring
complete justice in the cause, while exercising its powers under Article
142 of the Constitution of India, by providing for further extended period
for conclusion of CIRP; for constitution of CoC afresh; and permitting the
IRP to invite fresh expressions of interest for the submission of resolution
plans. This Court also provided that the amount of INR 750 crores, ‘ which
has been deposited in this Court by JAL/JIL shall together with the
interest accrued thereon ’ be transferred to NCLT, which would abide by
the directions as may be issued by NCLT.
4.3. While the proceedings thus restored by this Court were pending,
further question cropped up as to the manner of reckoning the voting
percentage of homebuyers in CoC. Two members of NCLT differed in
their opinion and the matter was referred to the third member. In the
meantime, IDBI Bank sought exclusion, of the period of pendency of the
application for such clarification as to the voting percentage, from the
period of 270 days for completion of CIRP. While this application was
pending, NCLT called upon the concerned parties to file reply on the
4
necessity to proceed further with the CIRP, for considering the resolution
plan received from the bidder, subject to the outcome of the pending
application. The orders passed by NCLT in relation to these aspects were
challenged before the National Company Law Appellate Tribunal, New
12
Delhi . The Appellate Authority, by its judgment dated 30.07.2019,
provided for exclusion of 90 days for the purpose of counting the total
period of 270 days and disposed of the appeals with some more
observations. This gave rise to further appeals in this Court, led by Civil
Appeal No. 8437 of 2019 [@ D No. 27229 of 2019]: Jaiprakash
13
Associates Limited and Anr. v. IDBI Bank Ltd. and Anr. , which were
decided on 06.11.2019. Therein, this Court found that delay in completion
of CIRP was attributable to the process of law and neither the
homebuyers nor any other financial creditor was to be blamed for
pendency of the proceedings; and under the plenary powers, this Court
passed yet further orders so as to ensure that an attempt was made for
revival of the corporate debtor by submission of revised resolution plans.
4.4. Running parallel to the proceedings noticed hereinabove, there
had been another set of proceedings involving two issues: one, relating to
an application filed by IRP before the Adjudicating Authority seeking
orders for avoidance of the certain transactions, whereby several parcels
of land were put under mortgage with the lenders of JAL, the holding
company of JIL; and second, involving the claim of two of the lender
12 Hereinafter also referred to as ‘the Appellate Authority’ or ‘NCLAT’.
13 Final judgment therein has since been reported as (2020) 3 SCC 328.
5
banks of JAL to be included in the category of financial creditors of JIL.
These two aspects eventually came up for adjudication of this Court in
another batch of appeals led by Civil Appeal Nos. 8512-8527 of 2019:
Anuj Jain, Interim Resolution Professional for Jaypee Infratech
Limited v. Axis Bank Limited etc. etc., which were decided on
14
26.02.2020 . This Court held that six out of seven transactions in
question were preferential within the meaning of Section 43 of the Code
and the directions by NCLT for avoidance of such transactions were
upheld. On the second issue, this Court held that the applicant banks
were not the financial creditors of the corporate debtor JIL and the
respective orders passed in that regard by NCLT were restored.
4.5. We shall be dilating on the relevant attributes of the aforesaid
previous rounds of litigation at the appropriate stage and juncture
hereafter. Suffice it to notice for the purpose of brief outline that the
resolution plans submitted by two applicants were put to vote of the
Committee of Creditors and finally, the resolution plan submitted by
NBCC (India) Limited was approved by the CoC on 17.12.2019, by a vast
majority of over 97% of voting share of the financial creditors. Thereafter,
on 19.12.2019, the Interim Resolution Professional moved an application
before the National Company Law Tribunal, Allahabad Bench, being C.A.
No. 5 of 2020 in CP (IB) No. 77/ALD/2017, for submission and approval
of the resolution plan in terms of Section 30(6) read with Sections 31 and
14 Final judgment therein has since been reported as Jaypee Infratech Ltd. Interim
Resolution Professional v. Axis Bank Ltd. and Ors. : (2020) 8 SCC 401.
6
60(5) of the Code and Regulation 39(4) of the Insolvency and Bankruptcy
Board of India (Insolvency Resolution Process for Corporate Persons)
15
Regulations, 2016 . Later on, the proceedings pending before the
Allahabad Bench of the National Company Law Tribunal were transferred
to its Principal Bench at New Delhi wherein, several
objections/suggestions/propositions were submitted by different
stakeholders, going for or against the resolution plan or even off on a
tangent.
4.6. By its order dated 03.03.2020, the Adjudicating Authority (NCLT),
proceeded to approve the resolution plan with some modifications and
certain directions while accepting some of the objections like those of the
dissenting financial creditor bank and the land providing agency but while
rejecting some other, including those of the holding company of JIL and
while leaving a few propositions open for adjudication in the appropriate
16
forum .
4.7. The resolution applicant NBCC preferred an appeal against the
aforesaid order dated 03.03.2020 before the National Company Law
Appellate Tribunal, New Delhi, being Company Appeal (AT) (Insolvency)
No. 465 of 2020 wherein the Appellate Authority, while issuing notice to
the unrepresented parties, made an interim order dated 22.04.2020 that
the approved resolution plan may be implemented subject to the outcome
of appeal but at the same time, also provided that IRP may constitute an
15 Hereinafter also referred to as ‘the CIRP Regulations’.
16 A few typographical errors in this order dated 03.03.2020 were corrected by NCLT by its
order dated 17.03.2020.
7
‘Interim Monitoring Committee’ comprising of the successful resolution
applicant (NBCC) and three major institutional financial creditors, who
were the members of CoC.
4.8. As against the aforesaid order dated 22.04.2020, six associations
of homebuyers in the real estate development projects of the corporate
debtor and a few individual homebuyers approached this Court seeking
permission to maintain their appeals under Section 62 of the Code.
Notices were issued on the prayers so made, returnable on 06.08.2020.
4.9. On 06.08.2020, it was urged before us that several appeals
against the said order dated 03.03.2020 were pending before NCLAT; and
the parties agreed that those appeals may be withdrawn to this Court and
be heard alongwith the aforesaid appeals of the associations and
homebuyers to avoid the likelihood of further delay in the matter.
Acceding to the request, we had withdrawn the mentioned appeals for
analogous hearing with the matters pending before us. By way of interim,
while staying the operation of the impugned order dated 22.04.2020, we
had provided that the IRP shall continue to manage the affairs of the
subject company i.e., JIL. Accordingly, the appeals pending before the
NCLAT, being Company Appeal (AT) (Insolvency) Nos. 486, 488, 475,
478, 480, 489, 506, 547, 544 and 630 of 2020 have been transferred to
this Court and are registered as transferred cases. Further to this, three
more matters have been filed directly in this Court, with the respective
petitioners/appellants having different sets of grievances against the
8
NCLT’s order dated 03.03.2020. A few impleadment/intervention
applications have also been filed in these matters with the applicants
seeking to project their own propositions/viewpoints and/or objections in
relation to the resolution plan in question.
5. It is, therefore, apparent that the resolution plan, as approved by
the CoC on 17.12.2019 and the order dated 03.03.2020, as passed by
the Adjudicating Authority (NCLT) in approval of the resolution plan with
certain directions and modifications, are the pivots of the present litigation
and a subsidiary of these pivots is the interim order dated 22.04.2020, as
passed by NCLAT in the appeal filed by the resolution applicant NBCC,
providing for composition of an ‘Interim Monitoring Committee’ while
implementing the resolution plan.
The parties and their respective roles and interests in the matter
6. For what has been noticed in the outline, and in view of the
adjudication required of various issues raised and different reliefs claimed
in these matters, with several parties carrying different roles and status,
worthwhile it would be to narrate, in brief, the relevant particulars of the
key parties involved, with their feasible classification in terms of their
17
respective interests .
6.1. The main parties before us in this batch, in terms of their
respective stands, contentions and viewpoints vis-à-vis the
aforementioned pivots could be broadly divided in two categories. One
17 This introduction of persons/entities is to broadly co-relate the parties with the points to be
taken up for determination; and is not intended to be an exhaustive list of the parties involved.
9
category is of the parties who stand for the resolution plan, as approved
by the CoC but who state grievance against a few parts of the aforesaid
orders dated 03.03.2020 and 22.04.2020, insofar as providing for
modification of the resolution plan and modified mechanism for its
implementation. The other category is of the parties who carry grievances
against the resolution plan for one or more of its prescriptions or
omissions; and/or who are dissatisfied with the order dated 03.03.2020
insofar as their objections have either been rejected or not taken into
account; and/or who are dissatisfied with the order dated 22.04.2020 for
the reasons different than those of the parties of first part.
The parties standing for the resolution plan
7. The two entities who need not, as such, be aligned with any of the
other contesting parties but for practical purposes, stand for the resolution
plan as approved by CoC are: (i) the corporate debtor company in whose
relation the resolution plan has been adopted and approved; and (ii) the
Interim Resolution Professional. They may be introduced as under:
7.1. Jaypee Infratech Limited (JIL):
It is the corporate debtor company in whose relation CIRP has
been taken up and the resolution plan has been made and approved.
18
This company was essentially set up as a special purpose vehicle after
its holding company Jaiprakash Associates Limited (JAL) was awarded
the rights for construction of an Expressway from Noida to Agra; and a
18 ‘SPV’ for short.
10
19
Concession Agreement was entered into with the Yamuna Expressway
20
Industrial Development Authority . With setting up of this company JIL,
apart from other projects, housing plans were envisaged for construction
of real estate projects in two locations of the land acquired, one in Wish
Town, Noida and another in Mirzapur. A substantial mass of disputes in
the present matters has its roots in the dealings of this company JIL with
the real estate development projects as also in its dealings with the
homebuyers and the lending institutions.
7.2. The Interim Resolution Professional Anuj Jain (IRP):
He is the Interim Resolution Professional in CIRP concerning JIL.
He has taken steps and proceedings from time to time as envisaged by
the Code, including dealing with the claims of a variety of creditors;
making an application for avoidance of certain transactions as being
preferential, which was finally dealt with and accepted by this Court in the
aforementioned judgment dated 26.02.2020; presenting the resolution
plans for voting by CoC; and submitting the approved resolution plan to
the Adjudicating Authority. In relation to the order dated 03.03.2020 as
passed by NCLT, the appeal filed by him before NCLAT , essentially
questioning the jurisdiction of NCLT to modify the resolution plan and to
change the mode of payment to the dissenting financial creditors, being
Company Appeal (AT) (Insolvency) No. 486 of 2020, stands transferred to
19 ‘CA’ for short.
20 ‘YEIDA’ for short.
11
this Court and is registered as T.C. (C) No. 234 of 2020. He is respondent
in almost all other cases.
8. The major set of parties who stand for the approved resolution
plan and seek its implementation while stating objections/grievances
against the modification parts of the order dated 22.04.2020 as passed by
NCLAT and the order dated 03.03.2020 as passed by NCLT are the
following:
8.1. NBCC (India) Limited (NBCC):
NBCC (India) Limited is the resolution applicant and had prepared
the resolution plan for JIL, which was approved by a majority of 97.36% of
the voting share of the CoC. NBCC seeks setting aside of those parts of
the order dated 03.03.2020 where the NCLT has modified some of the
terms of resolution plan and/or has issued certain directions. The appeal
filed by this company, being Company Appeal (AT) (Insolvency) No. 475
of 2020, stands transferred to this Court and is registered as T.C. (C) No.
236 of 2020. This company is also the respondent in various other
appeals/petitions and has comprehensively opposed the objections raised
21
against the resolution plan.
8.2. IDBI Bank Limited:
This bank is standing in the capacity of an institutional financial
creditor of the corporate debtor JIL. The corporate insolvency resolution
process in relation to the corporate debtor JIL, which has culminated in
21 This company has introduced itself in its resolution plan as “Navratna” status Central Public
Sector Enterprise, under the aegis of Ministry of Housing and Urban Affairs, Government of
India, having diversified its areas of operation in various segments including real estate.
12
the approval of the resolution plan submitted by NBCC, got initiated
pursuant to an application moved by this bank under Section 7 of the
Code before the NCLT. This bank leads a set of nine institutional financial
creditors including itself, who have voted in favour of the resolution plan in
question; and stands in support of the resolution plan while opposing the
contentions urged on behalf of the parties on the other side.
8.3. Jaypee Kensington Boulevard Apartments Welfare Association
and 5 others:
They are the associations of homebuyers who have invested in
the housing projects floated by JIL. They are appellants in Civil Appeal
22
No. 3395 of 2020 , questioning the order dated 22.04.2020 as passed by
NCLAT and essentially submit that the resolution plan as approved by
NCLT deserves to be implemented.
8.4. Ishwar Jha and 6 others:
They are individual homebuyers of the flats in the development
projects initiated by JIL. They are appellants in Civil Appeal No. 3396 of
23
2020 , questioning the order dated 22.04.2020 as passed by NCLAT and
they also essentially submit that the resolution plan as approved by NCLT
deserves to be implemented without further delay.
8.5. Krishna Dev Mishra and 2 others:
They are also individual homebuyers of the flats in the
development projects initiated by JIL. They are applicants of I.A. No.
87967 of 2020 in Civil Appeal No. 3395 of 2020 and similarly submit that
22 @ Civil Appeal Diary No. 14741 of 2020.
23 @ Civil Appeal Diary No. 15061 of 2020.
13
the resolution plan as approved by NCLT deserves to be implemented
without further delay.
8.6. Major General Praveen Kumar and Colonel V.S. Gaur:
They are the homebuyers who have moved applications for
impleadment/intervention in Civil Appeal No. 3395 of 2020, being I.A.
Nos. 73323 of 2020 and 73330 of 2020 respectively, essentially seeking
directions to NBCC to complete the remaining works on priority basis in
Tower Nos. 5 to 12 and 14 to 16 in Kensington Park – 1, Jaypee Greens,
Noida so that the possession of flats could be handed over to the buyers.
The objectors
9. The persons/entities who carry grievance/s against the resolution
plan for one reason or the other; and/or who are dissatisfied with the
order passed by the NCLT and/or by the NCLAT, may be grouped with
reference to the objections/propositions they stand for.
10. The first set of objectors consists of such persons/entities who
otherwise belong to the class of ‘homebuyers’ but have their own
grievances in relation to the resolution plan and the subsequent orders.
This set of parties could be introduced as follows:
10.1. Wish Town Home Buyers Welfare Society:
This is a society of homebuyers in the projects of JIL who seeks
implementation of the projects but carries reservations on some of the
terms of the resolution plan, where the requisite compensation in relation
to the delayed implementation of the projects by JIL has not been
14
provided, particularly in terms of Section 18 of the Real Estate
24
(Regulation and Development) Act, 2016 . It has also been suggested
that the plan of another resolution applicant Suraksha Realty was far
better than that of NBCC. This society also has the grievance that NBCC
has failed to specify in the resolution plan the treatment and utilisation of
the sum of INR 750 crores received from JAL as also 758 acres of land
that had come to JIL after the judgment of this Court dated 26.02.2020.
This society had filed Company Appeal (AT) (Insolvency) No. 506 of 2020
before NCLAT against the said order dated 03.03.2020 that stands
transferred to this Court and is registered as T.C. (C) No. 243 of 2020.
This society has also moved an application, I.A. No. 72707 of 2020 in
Civil Appeal No. 3395 of 2020 with the submissions against continuation
of NBCC in the proposed ‘Interim Monitoring Committee’.
10.2. Jaypee Aman Owners Welfare Association:
This is an association of homebuyers in one of the projects of JIL
namely, Jaypee Greens Aman in Sector 151 Noida. This association
maintains that in substance, ‘Project Aman’ stands completed; that Offer
25
of Possession has already been issued to the allottees of 22 Towers;
that delayed penalty ought to be allowed in relation to Tower Nos. 23 and
24 for which, OOP has been issued by IRP; and that IRP ought to take
steps for OOP for flats in Tower Nos. 25 and 27 for which, the application
26
for Occupancy Certificate has already been moved. This association is
24 Hereinafter also referred to as ‘RERA’.
25 ‘OOP’ for short.
26 ‘OC’ for short .
15
aggrieved of the projected date/s of completion and proportional increase
in delay, as provided in the resolution plan. As against the said order
dated 03.03.2020, this association had filed Company Appeal (AT)
(Insolvency) No. 480 of 2020 before NCLAT that stands transferred to this
Court and is registered as T.C. (C) No. 240 of 2020.
10.3. Ashish Mohan Gupta & Anr.:
These are the homebuyers who seek to oppose the resolution
plan while raising questions over the proceedings of the Committee of
Creditors as also on various other grounds, which may be running
common to the grounds urged by the homebuyers/associations who are
objecting to the plan and its approval. They had filed Company Appeal
(AT) (Insolvency) No. 489 of 2020 before NCLAT that stands transferred
to this Court and is registered as T.C. (C) No. 242 of 2020.
10.4. Jaypee Orchard Resident Welfare Society:
This is another society of homebuyers in the projects of JIL who
seeks implementation of the projects of JIL but has its own reservations
on the terms of the resolution plan where the requisite compensation in
relation to the delayed implementation of the projects by JIL has not been
provided in terms of RERA. This society has not filed the appeal before
NCLAT but in view of other appeals having been withdrawn to this Court,
has preferred the petition for special leave to appeal, being SLP Diary No.
18129 of 2020 in this Court, seeking to challenge the said order dated
03.03.2020.
16
10.5. Ishwar Kewalramani and 76 Others:
These are the applicants of another impleadment application
being I.A. No. 88795 of 2020 in Civil Appeal No. 3395 of 2020; they are
homebuyers of the projects undertaken by JIL and are aggrieved by the
order dated 03.03.2020 insofar as NCLT has failed to specify the use of
758 acres of unencumbered land now available with JIL; and another
grievance is that NBCC has violated the statutory provisions by not
providing compensation to the homebuyers due to delayed possession.
10.6. Ashok Chandra:
He is another homebuyer who has moved I.A. No. 84309 of 2020
in Civil Appeal No. 3395 of 2020 and seeks direction to determine
adequate and fair amount of compensation to be paid to the homebuyers
due to the unreasonable delay in completion. He has also suggested that
different mechanism is required to be provided for dealing with the CIRP
in question, in displacement of the resolution plan of NBCC.
11. Other objectors to the resolution plan and the order of NCLT dated
03.03.2020 could be broadly sub-divided into three: one being the holding
company of the corporate debtor JIL and the persons/entities related with
these companies; second being the dissenting institutional financial
creditor of the corporate debtor JIL; and third being the other
stakeholders.
12. In the first sub-sect of objectors, the main parties before us are as
follows:
17
12.1. Jaiprakash Associates Limited (JAL):
It is the holding company of the corporate debtor JIL; it had
approximately 71.64% equity shareholding in JIL as on 31.03.2017. This
company had deposited the sum of INR 750 crores as per the orders
passed by this Court in the case of Chitra Sharma (supra). Apart from a
few other objections, this company JAL is seeking refund of INR 750
crores with accrued interest; and it is contended that the said amount is
not the property of the corporate debtor JIL and it cannot be utilised for
the CIRP of JIL. This holding company had filed Company Appeal (AT)
(Insolvency) No. 478 of 2020 before NCLAT against the said order dated
03.03.2020 that stands transferred to this Court and is registered as T.C.
(C) No. 238 of 2020.
12.2. Pankaj Sharma and 3 others:
They are homebuyers of the projects being developed by JAL and
are similarly contending that the said sum of INR 750 crores with accrued
interest cannot be utilised for the CIRP of the corporate debtor JIL. They
too had filed an appeal before NCLAT against the said order dated
03.03.2020, being Company Appeal (AT) (Insolvency) No. 544 of 2020
that stands transferred to this Court and is registered as T.C. (C) No. 237
of 2020.
12.3. Knights Court Social Welfare Association:
This is an association representing the homebuyers in the ‘Knights
Court’ project of JAL who are aggrieved by the fact that the project has
18
been left incomplete by JAL and who are equally aggrieved by the
provision made in the resolution plan of JIL for utilisation of the said
amount of INR 750 crores. This association has directly challenged the
said order of NCLT dated 03.03.2020 in this Court by way of Special
Leave Petition (Civil) No. 10543 of 2020.
12.4. Manoj Gaur, suspended MD of corporate debtor JIL:
He is the suspended Managing Director of the corporate debtor
JIL and has also stated himself to be the Executive Chairman of JAL. He
has been arrayed as third respondent in the appeal filed by IRP. It is also
noticed that he, along with the holding company JAL, filed an
impleadment application (I.A. No. 1508 of 2020) in the appeal filed by
NBCC that was allowed by NCLAT on 15.07.2020 and that is how he
became the seventh respondent in the appeal of NBCC. According to his
submissions, the IRP failed to ensure that the resolution plan did not
contravene the law for the time being in force; and that approval by CoC
leaves much to be desired. Several of the stipulations and prescriptions in
the resolution plan of NBCC are put to question by him.
13. The second sub-sect of objectors to the resolution plan consists of
the institutional financial creditor of the corporate debtor JIL, being ICICI
Bank Limited.
13.1. The directions issued by NCLT in modification of the resolution
plan in regard to the claim of this bank for payment, in its capacity as the
dissenting financial creditor of JIL, is one of the major grounds of
19
challenge by the persons/entities standing in favour of the resolution plan
in question. This bank has also objected to the clauses in the resolution
plan in regard to the treatment of the said sum of INR 750 crores. In its
another capacity as the lender of JAL and having mortgage over the land
of JIL in security of such lending to JAL, this bank has levied another
challenge to the resolution plan in regard to the release of its security
interest. This bank had challenged the said order dated 03.03.2020
before NCLAT in Company Appeal (AT) (Insolvency) Diary No. 21936 of
2020 and has moved Transfer Petition (C) Diary No. 20274 of 2020 in this
Court, seeking transfer of its appeal before NCLAT for analogous hearing
with the present batch of matters.
14. The third sub-sect of the objectors to the resolution plan
comprises of different entities/persons, mostly carrying their own
claims/grievances. They are as follows:
14.1. Yamuna Expressway Industrial Development Authority:
This Authority, constituted under Section 3 of the Uttar Pradesh
27
Industrial Area Development Act, 1976 was initially called Taj
28
Expressway Industrial Development Authority ; subsequently it was
29
renamed as Yamuna Expressway Industrial Development Authority by a
notification dated 11.07.2018. It had been the land provider for execution
of various projects by JAL/JIL under the Concession Agreement. The
provisions in the resolution plan for dealing with the available parcels of
27 Hereinafter also referred to as the ‘U.P. Act of 1976’.
28 ‘TEA’ for short.
29 ‘YEIDA’ for short.
20
land and for meeting with the contingent liability (as regards payment of
additional compensation towards acquisition of land) are the main areas
of concern of this Authority, who had filed its objections to the resolution
plan. The directions issued in modification of the resolution plan in regard
to YEIDA is also one of the major grounds of challenge by the
persons/entities standing in favour of the resolution plan.
14.2. YES Bank Limited:
This bank is the financial creditor of a wholly-owned subsidiary of
30
JIL, being Jaypee Healthcare Limited . This bank asserts that the assets
of JHL, said to be mortgaged with it, are not within the purview of CIRP of
JIL to be disposed by NBCC; and it seeks modifications in the resolution
plan accordingly. This bank filed an appeal before NCLAT against the said
order dated 03.03.2020, being Company Appeal (AT) (Insolvency) No.
488 of 2020 that stands transferred to this Court and is registered as T.C.
(C) No. 235 of 2020.
14.3. Rajesh Gupta and 2 others:
These three persons, said to have entered into respective
agreements with the corporate debtor, carry their own grievance against
the prescription in the resolution plan where the resolution applicant has
reserved its right to cancel such agreements/sub-lease deeds. They seek
direction for entering into sale deed/s of plot/s in Jaypee Greens Wish
Town or for refund. They had also filed an appeal before NCLAT against
the said order dated 03.03.2020, being Company Appeal (AT)
30 ‘JHL’ for short.
21
(Insolvency) No. 547 of 2020 that stands transferred to this Court and is
registered as T.C. (C) No. 241 of 2020.
14.4. Raman Prakash Mangala and 29 others:
They are minority shareholders of JIL and their assertion is that
the resolution plan approved by CoC ought to consider the interests of
minority shareholders by giving fair market value of the equity shares held
by them. Their appeal against the order dated 03.03.2020 before NCLAT,
being Company Appeal (AT) (Insolvency) No. 630 of 2020, also stands
transferred to this Court and is registered as T.C. (C) No. 239 of 2020.
14.5. Gyanendra Kumar Raveendra:
He is also a minority shareholder of JIL and has moved an
application for impleadment in Civil Appeal No. 3395 of 2020, being I.A.
No. 89429 of 2020. He is similarly aggrieved by the action of NBCC to
extinguish the right of the minority shareholders without giving them a ‘fair
value’ of their shares.
Points for determination
15. Having drawn a brief sketch and outline of the matter and having
introduced the principal parties to this litigation with their respective
interests, we may now indicate the major points, which arise for
determination in view of diverse propositions advanced before us,
coupled with the stipulations in the resolution plan in question and the
modifications ordered by NCLT and NCLAT by way of the orders
impugned. The principal points calling for determination in this batch are:
22
A . What is the extent of, and limitations over, the powers and
jurisdiction of the Adjudicating Authority while dealing with the
resolution plan approved by the Committee of Creditors?
B . As to whether approval of the resolution plan of NBCC is
vitiated because of simultaneous voting over two resolution
plans in the Committee of Creditors?
C . (i) As to whether the Adjudicating Authority has erred in not
approving the stipulations in the resolution plan for meeting
with the contingent liability of additional amount of land
acquisition compensation; and has also erred in modifying
these stipulations?
(ii) As to whether the Adjudicating Authority has erred in
not approving the mechanism provided in the resolution plan
for transfer, of the concessionaire’s rights and obligations
under the Concession Agreement with YEIDA, to the SPVs
proposed to be incorporated; and has also erred in modifying
the relevant stipulations?
(iii) As to whether the Adjudicating Authority has erred in
not approving the reliefs and concessions sought for in the
resolution plan in relation to YEIDA?
D . As to whether the Adjudicating Authority has erred in not
approving the treatment of dissenting financial creditor like
ICICI Bank Limited in the resolution plan, as being not in
23
accord with Section 30(2)(b) of the Code read with
Regulation 38(1)(b) of the CIRP Regulations; and has erred
in modifying the terms of resolution plan and in directing
payment to the dissenting financial creditor in monetary
terms?
E . As to whether the Adjudicating Authority has erred in
modifying the step provided in the resolution plan in regard to
the fixed deposit holders and in directing the resolution
applicant to make provision towards the dues of unclaimed
fixed deposit holders also?
F . (i) As to whether the resolution plan unauthorisedly
purports to deal with the assets of Jaypee Healthcare
Limited?
(ii) As to whether the Adjudicating Authority has erred in
assuming that YES Bank Limited had agreed for constitution
of a committee to take forward the disinvestment process of
Jaypee Healthcare Limited?
G . As to whether the stipulation in the resolution plan for
cancellation of certain agreements/sub-leases is unfair and
the Adjudicating Authority has erred in not modifying the
same?
H . As to whether the minority shareholders are entitled to
state their claims/objections despite having not approached
24
the Adjudicating Authority; and as to whether the resolution
plan does not provide fair treatment to the minority
shareholders?
I . (i) As to whether, after approval of the resolution plan of
NBCC by the Committee of Creditors, where homebuyers as
a class assented to the plan, any individual homebuyer or
any association of homebuyers could maintain a challenge to
the resolution plan and could be treated as a dissenting
financial creditor or an aggrieved person?
(ii) As to whether the stipulations in the resolution plan
stand in violation of the provisions of the Real Estate
(Regulation and Development) Act, 2016?
(iii) As to whether the resolution plan is violative of the
requirements of CIRP Regulations?
(iv) As to whether any housing project which has been
completed or is nearing completion ought to be kept out of
the purview of the resolution plan?
J . (i) As to whether the amount of INR 750 crores, which was
deposited by JAL pursuant to the orders passed by this Court
in the case of Chitra Sharma, and accrued interest
thereupon, is the property of JAL and stipulation in the
resolution plan concerning its usage by JIL or NBCC is
impermissible?
25
(ii) As to whether any amount is receivable by JIL and/or
its homebuyers from JAL; and the accounts between JAL and
JIL need reconciliation?
K . (i) As to whether Clause 23 of Schedule 3 of the resolution
plan providing for extinguishment of security interest of
lenders of JAL could not have been approved by the
Adjudicating Authority?
(ii) As to whether adequate provision is required to be
made in the resolution plan as regards utilisation of the land
bank of 758 acres, that has become available to JIL in terms
of the judgment dated 26.02.2020 by this Court?
L . What should be the appropriate orders on the other issues
raised by the resolution applicant seeking
clarification/directions?
M . As to whether the Appellate Authority was justified in
providing for an Interim Monitoring Committee for
implementation of the resolution plan in question during the
pendency of appeals?
N. What should be the final order and relief?
Relevant factual and background aspects
16. For determination of the points so arising, we need to examine the
relevant provisions contained in IBC and CIRP Regulations and apply the
same to the process related with consideration and approval of the
26
resolution plan in question; and to the terms, prescriptions and
stipulations of the impugned resolution plan as also to the modifications,
as ordered (or as declined) by the Adjudicating Authority (NCLT) in the
impugned order dated 03.03.2020. However, in the given set of facts and
circumstances, before examining the relevant provisions and before
dilating on the relevant features of the resolution plan and the order
impugned, it is expedient to take note of the crucial background aspects
relating to the present CIRP and key attributes of the orders passed by
this Court in previous rounds of litigation concerning this very CIRP.
17. For a clearer picture of the subject matter of this litigation, a few
glimpses of the relevant history shall be apposite.
17.1. By way of a notification dated 24.04.2001, the Government of
Uttar Pradesh, in exercise of its powers under Section 3 of the U.P. Act of
1976, proceeded to set up Taj Expressway Industrial Development
Authority (‘TEA’) for anchoring development of Taj Expressway Project,
being that of a six-lane 160 km long Super Expressway with service roads
and associated facilities connecting Noida and Agra, passing through a
so-called virgin area along the river Yamuna.
17.2. At the initial stages, the said Taj Expressway Industrial
Development Authority invited bids for selecting the entity for execution of
the project. In this process, ultimately, the company known as Jaiprakash
Industries Limited came out as the successful bidder. This company,
27
Jaiprakash Industries Limited, is now named as Jaiprakash Associates
Limited (‘JAL’).
17.3. After the said bidding process, a Concession Agreement dated
07.02.2003 was executed between the principal TEA and the successful
bidder Jaiprakash Industries Limited, who came to be referred to as the
“concessionaire”. Various terms and stipulations of this Concession
Agreement form the subject matter of one segment of dispute in the
present litigation, as discussed at the relevant stages hereafter. At the
present stage, worthwhile it is to notice that under this CA, the
concessionaire was to be provided land for constructing Expressway and
its allied facilities; and was also to be provided other land for
development. In this regard, the concessionaire was given lease of
Expressway land with a right to collect toll from the users of the road for
36 years; and the land adjacent to the road was provided to the
concessionaire for commercial exploitation on a lease for 90 years. As
regards premium for the land being so transferred, the stipulations in the
CA had been to the effect that such premium shall be equivalent to
acquisition cost plus a lease rent of INR 100 per hectare per year. In
Clause 18.1 of CA, it was also agreed to between the parties that in case
the concessionaire and TEA would consider it necessary to transfer the
rights and obligations of concessionaire to a special purpose vehicle
(‘SPV’), the concessionaire would do so in a reasonable time for which,
documents as may be required shall be executed amongst the
28
concessionaire, the TEA and the SPV. For accomplishment of the project,
the Government of Uttar Pradesh proceeded to acquire land for laying of
the Expressway; and also proceeded to acquire additional land along the
road for development of the same for commercial, amusement, industrial,
institutional and residential purposes.
17.4. Coming on the heels of this project and in terms of the said Clause
18.1 of CA, the corporate debtor Jaypee Infratech Limited (‘JIL’) was set
up as a special purpose vehicle by the concessionaire and thereafter, the
rights and obligations under CA were transferred to JIL by way of an
assignment agreement dated 19.10.2007 and deed of agreement dated
27.11.2007. In this manner, the corporate debtor JIL came to be accepted
as the concessionaire. Later on, by way of a notification dated
11.07.2008, Taj Expressway Industrial Development Authority was
renamed as Yamuna Expressway Industrial Development Authority
(‘YEIDA’). The net result of the dealings aforesaid has been that the rights
and obligations under the said Concession Agreement dated 07.02.2003
now relate to the corporate debtor JIL as the concessionaire and YEIDA
as the land providing agency.
17.5. As noticed, the corporate debtor JIL was set up as the SPV by the
original concessionaire JAL; and JAL had approximately 71.64% equity
shareholding in JIL as on 31.03.2017. Admittedly, JAL had been the
holding company of JIL. When JIL was set up as an SPV for the purpose
of execution of the project/s under the said CA, finances were obtained
29
from a consortium of banks against the partial mortgage of land acquired
and a pledge of 51% of the shareholding held by JAL. Accordingly, JIL
took up those two projects; the Expressway was laid and JIL also started
developing real estate projects in two locations of the land acquired, one
in Wish Town, Noida and another in Mirzapur.
17.6. However, JIL defaulted in several of its obligations, including those
in completion of the real estate projects as proposed and in payment of
dues of the lender financial institutions.
18. The default on the part of JIL in payment of its dues led the lender
bank, IDBI Bank Limited, instituting a petition under Section 7 of the Code
before the NCLT, for initiation of the corporate insolvency resolution
process against JIL. The applicant bank alleged that JIL had committed a
default in repayment of its dues to the tune of INR 526.11 crores. JIL filed
its objections to the petition but later on, withdrew the objections and
furnished its consent for resolution plan under the provisions of the Code.
18.1. In view of the above, on 09.08.2017, NCLT initiated the CIRP in
respect of JIL. An order of moratorium was issued under Section 14 of the
Code by which, the institution of suits and continuation of pending
proceedings, including execution proceedings, were prohibited and an
Interim Resolution Professional was appointed. On 14.08.2017, IRP, in
pursuance of the order of NCLT, called for submissions of claims by
financial creditors in Form-C, by operational creditors in Form-B, by the
workmen and employees in Form-E and by other creditors in Form-F. On
30
31
16.08.2017, the Insolvency and Bankruptcy Board of India made an
amendment to its Regulations whereby, Regulation 9(a) was inserted to
include the claims by other creditors; and then, on 18.08.2017, the Board
released a press note that the homebuyers could fill in Form-F, as they
could not be treated at par with financial and operational creditors.
19. The aforesaid position led to several petitions in this Court,
particularly by the aggrieved homebuyers. As noticed, those petitions
were dealt with by this Court as a batch, led by the case of Chitra
Sharma (supra). Several orders were passed by this Court in the said
batch of petitions from time to time, inter alia , to the effect that IRP was
permitted to take over the management of JIL and was directed to ensure
that necessary provisions were made to protect the interests of
homebuyers. Various orders were also made with directions to JAL, as
holding company of JIL, for making deposits in the Court, particularly
looking to the claim of refund being made by some of the homebuyers.
While finally disposing of the matters, this Court took note of the interests
of homebuyers as also the creditors of JAL and JIL; and also took note of
the status of proceedings and the statutory provisions as then obtaining,
including the fact that the statutory period of 180 days, and even the
extended period of 90 days, for concluding the CIRP had come to an end
but then, by way of the Insolvency and Bankruptcy (Amendment)
Ordinance, 2018, which came into force on 06.06.2018, the doubts about
the status of homebuyers were removed and they were expressly
31 Hereinafter also referred to as ‘the Board’.
31
recognised as financial creditors of the corporate debtor. In the given set
of facts and circumstances, this Court provided a reprieve to the CIRP in
question while making further orders in the interests of homebuyers and
other creditors.
19.1. The proceedings and the orders passed by this Court in the said
case of Chitra Sharma are of material bearing in the present case and,
therefore, may be usefully recounted in necessary details.
Orders and directions in the case of Chitra Sharma
20. As noticed, this Court was moved in the case of Chitra Sharma
(supra) essentially for the reason that a large number of homebuyers,
who had invested in the real estate projects proposed by JAL and JIL,
were feeling distressed in the wake of the proposed CIRP concerning JIL
and who were likely to be left in the lurch because, at the given stage,
while IBC recognised three categories of stakeholders namely, (i)
corporate debtors; (ii) financial creditors; and (iii) operational creditors but,
the homebuyers, otherwise having a direct and substantial interest in
CIRP with investment of lifetime, were being treated only as ‘other
creditors’. In the given scenario, on being moved, this Court issued notice
on 04.09.2017 in the said batch of petitions; the proceedings before the
NCLT at Allahabad were stayed until further orders; a copy of the
proceedings was ordered to be served on the office of the learned
Attorney General for India; and the applications for impleadment and
intervention were allowed.
32
20.1. Thereafter, on 11.09.2017, while dealing with an application
moved by IDBI Bank Limited for vacation of the ad-interim order dated
04.09.2017, several facets of the matter and ramifications of the stay
order passed by this Court were projected with reference to the scheme
of the provisions contained in the Code. On the other hand, it was argued
on behalf of the homebuyers that they were of lower and middle income
groups, who had invested their life savings with JIL and JAL and their
interests were required to be protected. It was argued that if CIRP was
restored, there should be a representative from the homebuyers or the
Court may appoint someone on CoC to espouse the interests of the
homebuyers.
20.1.1. Taking note of the submissions so made and in order to safeguard
the interests of stakeholders, this Court modified the earlier order dated
04.09.2017 and issued material directions, inter alia , to the effect that: (i)
IRP shall take over the management of JIL and formulate interim
resolution plan with necessary provision to protect the interests of
homebuyers; (ii) Mr. Shekhar Naphade, learned senior counsel along with
Ms. Shubhangi Tuli, AOR shall participate in the meetings of CoC to
espouse the cause of the homebuyers and to protect their interests; the
Director or Managing Director of JIL or JAL on the date of institution of
insolvency proceedings as also on the date of order, except the nominee
Directors of lending institutions, shall not leave the country without prior
permission of the Court; and all the suits and proceedings against JIL
33
shall remain stayed in terms of Section 14(1)(a) of the Code. In addition,
this Court also directed JAL to deposit a sum of INR 2,000 crores and
provided that if any assets or property of JAL had to be sold for the
purpose, that should be done after obtaining prior approval of this Court.
For its relevance, the aforesaid order dated 11.09.2017, carrying
significant observations and material directions of this Court, which are of
bearing on a substantial part of the present litigation, could be extracted,
in extenso , as under: -
“All the applications for intervention/impleadment are allowed.
IA No. 87575 of 2017 in SLPs (C) Nos. 24001- 24002 of 2017 (D.
Nos. 27277, 27579 and 27624 of 2017)
The present interlocutory application has been filed by the IDBI
Bank Ltd. in the special leave petitions which have been registered
as SLPs (C) Nos. 24001 and 24002 of 2017.
This is an application for vacating/modification of the order dated
4-9-2017. On that day, this Court while issuing notice, had passed
the following order:
“2. …..In the meantime the impugned order(s) passed by the
National Company Law Tribunal, Allahabad shall remain
stayed until further orders. A copy of the special leave petition
be served on the office of learned Attorney General for India.
All applications for impleadment/intervention stand allowed.”
Mr K.K. Venugopal, learned Attorney General for India
appearing for Respondents 1 and 2 submitted that the order
passed by this Court on 4-9-2017 needs to be vacated or modified
because the consequence of the stay would be that the
Management of Respondent 3, Jaypee Infratech Ltd. would stand
restored. This was not a consequence intended by this Court. It is
urged by him that if the erstwhile Management of the said
company continues, it will affect the rights of the creditors and the
consumers as well.
In the course of the hearing, we have been informed that after
the order of stay was passed by this Court, the Interim Resolution
Professional (IRP) has handed over records to Respondent 3,
Jaypee Infratech Ltd. (“JIL”). It is submitted by Mr K.K. Venugopal,
learned Attorney General that some time should be granted to the
34
IRP to formulate at least a preliminary scheme so that the interest
of all stakeholders is protected. He has also shown his concern for
the interest of the homebuyers.
Dr Abhishek Manu Singhvi, learned Senior Counsel appearing
for IDBI Bank Ltd., (Respondent 6 in the writ petition) submits that
under the statutory scheme, the IRP has to take over otherwise the
letter and spirit of the Act is likely to be affected.
The learned counsel appearing for the homebuyers, in contra,
submits that they belong to the lower and middle income group
and have invested life savings with JIL and with its holding
company, Jai Prakash Associates Ltd. (“JAL”). It has been
assiduously urged that the investments of flat purchasers are with
JIL and JAL and, therefore, the interest of the purchasers may be
protected. It is also argued that if the IRP is restored, there should
be a representative from the homebuyers or this Court may
appoint someone on this Committee of Creditors and espouse the
interests of the homebuyers.
Having heard the learned counsel for the parties at length, in
modification of the order dated 4-9-2017, we issue the following
directions:
a) The IRP shall forthwith take over the Management of JIL. The
IRP shall formulate and submit an interim resolution plan within 45
days before this Court. The interim resolution plan shall make all
necessary provisions to protect the interests of the homebuyers;
b) Mr Shekhar Naphade, learned Senior Counsel along with Ms
Shubhangi Tuli, Advocate-on-Record, shall participate in the
meetings of the Committee of Creditors under Section 21 of the
Insolvency and Bankruptcy Code, 2016 to espouse the cause of
the homebuyers and protect their interests;
c) The Managing Director and the Directors of JIL and JAL shall
not leave India without the prior permission of this Court;
d) JAL which is not a party to the insolvency proceedings,
shall deposit a sum of Rs 2000 crores (Rupees two thousand
crores) before this Court on or before 27-10-2017. For the said
purpose, if any assets or property of JAL have to be sold, that
should be done after obtaining prior approval of this Court.
Any person who was a Director or Managing Director of JIL or
JAL on the date of the institution of the insolvency
proceedings against JIL as well as the present
Directors/Managing Director shall also not leave the country
without prior permission of this Court. The foregoing restraint
shall not apply to nominee Directors of lending institutions
(IDBI/ICICI/SBI);
35
e) All suits and proceeding instituted against JIL shall in terms of
Section 14(1)( a ) remain stayed as we have directed the IRP to
remain in Management.
Be it clarified that we have passed this order keeping in view
the provisions of the Act and also the interest of the homebuyers.
IA stands disposed of accordingly.
The matter be listed at 2.00 p.m. on 13-11-2017.
The prior date given by this Court i.e. 10-10-2017 stands
cancelled.”
(emphasis in bold supplied)
20.1.2. It could be readily noticed that in formulating the directions
aforesaid, this Court initiated steps to protect the interests of homebuyers
essentially for the reason that, at the given stage, homebuyers were not
regarded as financial creditors and they were not represented in the CoC.
Significantly, while evolving a workable and protective mechanism, this
Court also took note of the crucial background aspects and the fact that
JIL was essentially an alter ego of JAL; and thus, even while consciously
noting that JAL was not a party to the insolvency proceedings, directed
that JAL shall deposit a sum of INR 2,000 crores and restraints were also
put over disposal of assets or property of JAL and over the movement of
the Directors/Managing Directors of JIL or JAL away from the country.
20.2. JAL moved an application (I.A. No. 102471 of 2017) for
modification/recall of the aforesaid direction for deposit of INR 2,000
crores or for a modification that would enable it to transfer the rights under
the Concession Agreement in respect of the Yamuna Expressway. This
application was considered and rejected by the Court on 25.10.2017 after
36
noticing the submissions in opposition by the learned Attorney General as
also by the learned counsel appearing on behalf of IDBI Bank and YEIDA.
It was also submitted by the counsel for IRP that the rights under the
Concession Agreement belonged to JIL, which was subject to
proceedings under the IBC and therefore, such a request could not be
granted. However, the time for depositing INR 2,000 crores was extended
until 05.11.2017. The relevant part of order dated 25.10.2017 reads as
under: -
“It is submitted by Mr Kapil Sibal and Mr Mukul Rohatgi, learned
Senior Counsel appearing for the applicant that JAL may be
permitted to transfer its rights under the concession agreement in
respect of Yamuna Expressway. The same is seriously opposed by
Mr K.K. Venugopal, learned Attorney General for India, Dr
Abhishek Manu Singhvi, learned Senior Counsel appearing for the
IDBI Ltd. and Mr Ravindra Kumar, learned counsel appearing for
the Yamuna Expressway Industrial Development Authority.
It is also submitted by Mr Parag P. Tripathi, learned Senior
Counsel representing the Interim Resolution Professional (IRP)
that the rights under the concession agreement in respect of
Yamuna Expressway are of Jaypee Infratech Ltd. (JIL), which is
subject to proceeding under the Insolvency and Bankruptcy Code
and, therefore, it cannot be transferred. Mr Ravinder Kumar,
learned counsel appearing for the Authority has submitted that the
rights under the concession agreement, are non-transferable.
We have also heard Mr Ajit Kumar Sinha, learned Senior
Counsel appearing for some of the homebuyers. There are other
counsel who are representing the homebuyers who are interested
in having their flats. We do not want to address the said aspect
today.
We are not inclined to entertain the application for modification
of the order dated 11-9-2017. However, we extend the time to
deposit the sum of Rs 2000 crores (Rupees two thousand crores)
till 5-11-2017.”
20.3. Then, on 13.11.2017, this Court appointed learned counsel Mr.
Pawanshree Agarwal as the amicus curiae , who was to open a web portal
on which details of homebuyers could be uploaded. All the Directors of
37
JAL, except institutional Directors were ordered to remain present before
the Court on the next date with the affidavits disclosing their personal
assets. This order dated 13.11.2017 reads as under: -
“All the applications for impleadment/intervention stand allowed.
The homebuyers are directed to approach Mr Pawanshree
Agarwal, learned counsel, who is appointed as the Amicus Curiae
in the matter to assist the Court and he shall open a web portal so
that the homebuyers can give their details to Mr Pawanshree
Agarwal. Let the matter be listed on 22-11-2017. On that day, all
the Directors except institutional Directors of Jaiprakash
Associates Ltd. (JAL) shall remain personally present in the Court
with the affidavits disclosing their personal assets.”
20.4. On the next date, 22.11.2017, eight independent Directors and five
promoter Directors were present before the Court. On a statement made
on behalf of JAL, this Court permitted JAL to deposit INR 275 crores
during the course of the day and directed further deposit, of INR 150
crores by 13.12.2017 and INR 125 crores by 31.12.2017. A restraint was
imposed on the alienation of properties and assets of the Directors and
their families while maintaining the earlier direction for the deposit of INR
2,000 crores; and the Directors concerned were directed to remain
present on the next date. The amicus curiae was asked to create a web
portal within a week; and for that matter, learned counsel appearing for
JAL was to provide all the details as required by the amicus and also to
provide him a sum of INR 5 lakhs. The relevant part of order dated
22.11.2017 reads as under: -
“ It is submitted by learned Senior Counsel appearing for
Jaiprakash Associates Ltd. (JAL) that the company is ready with
Rs 275 crores. The homebuyers raised their concern about the
realisation of the amount. This Court appreciates the grievance
and the concern of the homebuyers.
38
We think it would be appropriate to direct as follows:
( a ) A demand draft of Rs 275 crores be deposited by Mr
Anupam Lal Das, learned counsel appearing for the company,
before the Registry of this Court, today.
( b ) A sum of Rs 150 crores be deposited by 13-12-2017.
( c ) A further sum of Rs 125 crores be deposited by 31-12-2017.
( d ) Neither the independent Directors nor the promoter
Directors shall alienate their personal properties or assets in any
manner, and if they do so, they will not only be liable for criminal
prosecution but contempt of the court.
( e ) That apart, we also direct that the properties and assets of
their immediate and dependent family members should also not be
transferred in any manner, whatsoever.
Needless to say that direction for deposit of Rs 2000 crores
shall remain as it is. The only indulgence is to pay the same in
instalments.
Mr Pawanshree Agrawal, who had been appointed as Amicus
Curiae on an earlier date, shall create a portal within a week and
do the needful as he has done in similar matters. Mr Anupam Lal
Das, learned counsel shall provide all the details as required by Mr
Pawanshree Agrawal. Mr Anupam Lal Das shall provide a sum of
Rs 5 lakhs to Mr Pawanshree Agrawal for creation of the portal
and to carry on the consequential activities. Matters be listed on
10-1-2018. On that day, all the independent Directors and
promoter Directors of Jaiprakash Associates Limited, shall remain
present. Copies of the affidavits deposed by all the five promoter
Directors, shall be served on the Central Agency, so that the
learned Attorney General can be made aware of that. Call on the
date fixed.”
20.5. Next to the above, the matter was considered on 15.12.2017,
when the deposited INR 150 crores were ordered to be kept in a short-
term deposit and the time (for further payment) was extended until
25.01.2018. Further to that, on 10.01.2018, this Court took note of the
submissions made on behalf of the homebuyers of JAL as also an
32
application made by Reserve Bank of India seeking leave to move the
NCLT against JAL and issued the directions, inter alia , to the effect that
JAL shall file an affidavit disclosing its housing projects throughout the
32 ‘RBI’ for short.
39
country and the stage of their construction; the amicus shall open an
independent web portal for the homebuyers of JAL; the application of RBI
shall be considered at a later stage; and the Directors concerned need
not remain personally present before the Court unless so directed but
shall not leave the country. The relevant part of this order dated
10.01.2018 reads as under: -
“Having heard the learned counsel for the parties, we are
inclined to pass the following directions:
( i ) Jaiprakash Associates Ltd. (JAL) shall file an affidavit stating
therein as to how many housing projects it has throughout the
country and the stage of their construction. The said affidavit shall
be filed within a week hence.
( ii ) Mr Pawanshree Agarwal, learned Amicus Curiae shall create
an independent web portal in respect of the homebuyers of JAL,
which shall reflect the details of the homebuyers.
( iii ) The web portal created by Mr Pawanshree Agarwal qua
Jaypee Infratech Ltd. (JIL) shall be kept alive.
( iv ) The application filed by Reserve Bank of India seeking
permission to move NCLT shall be considered at a later stage.
( v ) The independent Directors of JAL need not remain personally
present on every date of hearing unless so directed by this Court.
The independent Directors shall not leave the country without
leave of this Court.
( vi ) The earlier order of injuncting JAL to create any kind of third-
party interest in the assets is reiterated.
( vii ) The applications for impleadment/intervention and directions
filed before this Court shall be served on Mr Pawanshree
Agarwal.”
20.6. Further effective proceedings took place on 21.03.2018 when it
was stated on behalf of JAL that INR 550 crores had already been
deposited and that only about 8% of homebuyers were interested in
seeking refund while others were desirous of seeking possession of their
flats. This Court indicated that at the given stage, only the matter in
relation to the homebuyers seeking refund was being examined and other
grievances shall be examined in the next phase of proceedings. Since the
40
order for deposit of INR 2,000 crores had not been complied with despite
the end of deadline, the Court issued directions for further deposit of INR
200 crores, as agreed to by the Managing Director of JAL present in the
Court, where the first instalment of INR 100 crores was to be deposited by
15.04.2018 and the second instalment in the like amount was to be
deposited by 10.05.2018. The amicus curiae informed the Court, with
reference to his portal and the record of JAL, that a sum of INR 1,300
crores was required to be refunded by way of principal alone to the
homebuyers who were seeking refunds, whereupon the amicus was
requested to submit a project-wise chart, indicating the number of
persons and the stage of completion. Taking note of the grievances of the
homebuyers that the developer was demanding monthly instalments
despite being unable to complete construction, the developer was
restrained from raising demands towards outstanding or future
instalments in respect of those buyers who had expressed a desire to
obtain refunds. Further to that, the IRP was permitted to finalise the
resolution plan, to be implemented only with the leave of the Court. This
Court also took note of the inability expressed by the learned senior
counsel, who was earlier requested to espouse the cause of homebuyers
in CoC and, in his place, Mr. Gaurav Agarwal Advocate was appointed for
the purpose. This order dated 21.03.2018 reads as under: -
“Heard Mr Anupam Lal Das, learned counsel appearing for
Respondent 4 Jaiprakash Associates Ltd. (JAL). Though many a
contention has been raised by Mr Das, yet, we are not inclined to
entertain the same keeping in view our orders dated 11-9-2017
41
and 25-10-2017. We have been told by Mr Das that JAL has
deposited a sum of Rs 550 crores before the Registry of this
Court. It is submitted by Mr Das that only 8% of the
homebuyers/allottees are inclined to take refund whereas others
have expressed their inclination to have the flats.
We would intend to make it absolutely clear that, for the
present, we are only concerned with those homebuyers who
intend to have refund. In the next phase, we may consider the
grievances, if any, of the homebuyers who intend to have the
flats. In that regard, we think it appropriate to hear Mr Parag P.
Tripathi, learned Senior Counsel appearing for Interim Resolution
Professional (IRP) and Mr Jayant Bhushan and Mr Sanjay Hegde
and others, learned Senior Counsel appearing for some
Associations of homebuyers who intend to have their flats.
As our order for deposit of Rs 2000 crores has not been
complied with, we intend to pass the following directions:
(a) JAL shall deposit a further sum of Rs 200 crores in two
instalments, as agreed by the Managing Director who is
present in Court today. The first instalment of Rs 100 crores
shall be deposited by 15-4-2018 and the second instalment of
Rs 100 crores shall be deposited by 10-5-2018 ;
(b) It is submitted by Mr Pawanshree Agrawal, learned
Amicus Curiae that as per his portal an amount of Rs 1300
crores, at present, is required to be refunded towards the
principal sum for those homebuyers who, as of today, seek
refund. The figure of Rs 1300 crores is as per the record of
JAL.
In view of the aforesaid, we would require Mr Agrawal to
prepare a projectwise chart indicating the number of persons
in respect of that project and the stage of completion of the
respective projects so that appropriate order can be passed
for disbursement of the amount on pro rata basis to the
homebuyers ;
(c) Mr Agrawal, learned Amicus Curiae shall keep the portal
operational. However, the requests of only those persons on
the portal who have sought refund, as of today will be
considered at this stage ;
(d) The submission of the homebuyers who are seeking refund
is that the developer is making demands towards monthly
instalments. We direct that no demand towards outstanding or
future instalments shall be raised by the developer to the flat
buyers who have, as of today, expressed the option to obtain
refund. The demands raised by the developer in respect of the
homebuyers who have already opted for refund till today, shall
remain stayed;
(e) The IRP may proceed to finalise the resolution plan but the
same shall be implemented after taking leave of this Court.
(f) The National Company Law Tribunal (NCLT) shall decide
subject to the directions which we have given hereinabove.
42
Before we fix the next date, we must note that we have been
apprised that Mr Shekhar Naphade, learned Senior Counsel who
was appointed to espouse the cause of the homebuyers before the
Committee of Creditors has expressed his inability to continue as
such.
In view of the aforesaid, a need has arisen to appoint someone
else in place of Mr Shekhar Naphade and accordingly we appoint
Mr Gaurav Agrawal, Advocate. It is further clarified that Mr Gaurav
Agrawal shall be guided by our previous orders.
Let the matter be listed on 16-4-2018 so that this Court can take
note of whether the developer has complied with the direction of
depositing the first instalment and to pass directions with regard to
disbursement of the amount deposited on pro rata basis on the
basis of the report submitted by Mr Pawanshree Agrawal.”
(emphasis in bold supplied)
20.7. On 16.04.2018, apart from dealing with two applications filed by
the Managing Director and the Joint Managing Director of JAL seeking
permission to travel abroad, this Court took note of the deposit of INR 100
crores by JAL and directed that the second instalment of INR 100 crores
be deposited by 10.05.2018. While reiterating liberty to IRP to finalise the
resolution plan in terms of the earlier order, this Court also extended
liberty to JAL to submit a representation to the competent authority
without expressing any opinion on that count and leaving the
33
representation to be considered in accordance with law.
20.8. Thereafter, on 16.05.2018, apart from dealing with another
application filed by an independent Director of JAL seeking permission to
travel abroad, this Court took note of the fact that a sum of INR 750
crores was lying in deposit and it was observed that the same ‘ has to be
disbursed on pro rata basis amongst the homebuyers’ . It was also
33 As discussed a little later, it has appeared in the final judgment passed in the case of Chitra
Sharma that the referred representation had been in relation to the prayer of JAL to participate
as one of the intending bidders in the resolution plan which was being formulated by the IRP;
and such a participation by JAL was impermissible in view of Section 29A introduced to the
Code.
43
directed that JAL, the holding company of JIL, shall deposit a further sum
of INR 1,000 crores ‘ jointly and severally’ by 15.06.2018 subject to which,
stay was granted over further proceedings, only insofar as concerning the
liquidation. The relevant part of this order dated 16.05.2018 reads as
under: -
“ Having heard the learned counsel for the parties at length, it is
directed that Jaiprakash Associates Ltd. (JAL), the holding
company of Jaypee Infratech Ltd. (JIL) shall deposit a further
sum of Rs 1000 crores jointly and severally by 15-6-2018.
Subject to the said deposit, there shall be a stay of further
proceedings only insofar as the liquidation is concerned. In the
meantime, Interim Resolution Professional (IRP) shall remain in
management. If the amount is not deposited by 15-6-2018, the
statutory proceedings shall continue. As far as Rs 750 crores,
which is lying in deposit is concerned, it has to be disbursed
on pro rata basis amongst the homebuyers .”
(emphasis in bold supplied)
20.9. Thereafter, on 13.07.2018, this Court took note of certain
proposals made by JAL, which were opposed by the petitioners. While
observing disinclination to entertain such proposals, this Court posted the
matters on 16.07.2018 ‘exclusively for the purpose of considering the
issue of the rights of the homebuyers and the capability of JAL and JIL to
construct the projects’.
21. After the aforesaid proceedings, the petitions were finally heard
and disposed of by this Court by way of the judgement dated 09.08.2018.
Before taking note of the significant features and attributes of the final
judgement in the case of Chitra Sharma , but to keep feasible track of the
chronology of events, we may indicate that parallel to the proceedings in
44
this Court, NCLT continued with CIRP concerning the corporate debtor JIL
and in that process, passed orders on 09.05.2018 and 15.05.2018,
approving the decision of IRP rejecting the claims of two lenders of JAL to
be recognised as financial creditors of the corporate debtor JIL on the
strength of the mortgage created by the corporate debtor JIL as collateral
security of the debts of its holding company JAL. Thereafter, on
16.05.2018, NCLT accepted an application, that was moved by IRP on
06.02.2018, for avoidance of certain transactions whereby the corporate
debtor JIL had mortgaged its properties as collateral securities for the
loans and advances made by the lender banks and financial institutions to
JAL, as being preferential, undervalued and fraudulent. These aspects
were finally dealt with by this Court in the judgement dated 26.02.2020, as
shall be noticed later.
22. We may now revert to the final judgement dated 09.08.2018 in the
case of Chitra Sharma, and take into account the relevant features,
which do have a bearing on the issues raised in the present litigation .
22.1. In final judgement dated 09.08.2018 in the case of Chitra Sharma
(supra), this Court took note of the past proceedings and also the fact that
when resolution plans were considered and examined by the CoC, JAL
too submitted its proposals which were rejected in view of the bar
contained in Section 29A IBC as also for the reason that JAL failed to
convince the CoC of its ability to tie up the funds for construction.
However, even the other plans could not muster the support of the
45
requisite majority in CoC. Accordingly, IRP informed NCLT that no
resolution plan was approved by the CoC even within the extended period
for completing the CIRP, which came to an end on 12.05.2018. This Court
took note of the mandate of Section 33 IBC whereby liquidation follows
upon rejection of a resolution plan but then, noticed unanimity of the
parties during the course of hearing that the liquidation of JIL was not
going to subserve the interests of the homebuyers who had made
valuable investments by contributing their hard-earned money in the hope
of obtaining a roof over their heads. This Court also observed that a home
for the family was considered to be a part of the right to life and took note
of the appeal made by the homebuyers to ensure complete justice rather
than leaving them at the mercy of the liquidation process. While
appreciating the substance of that plea, this Court nevertheless indicated
the need to abide by the discipline of law and thereafter, proceeded to
take a comprehensive view of the scheme of IBC; and also underscored
the fact that though IBC, as originally enacted, did not contain express
provisions in relation to the interests of homebuyers but, their concerns
were sought to be assuaged in the amendment brought about by the
Insolvency and Bankruptcy (Amendment) Ordinance, 2018, which came
into force on 06.06.2018 and whereby, the homebuyers were expressly
brought within the purview of financial creditors under the IBC. This Court
pointed out that now being duly recognised as financial creditors, the
homebuyers were necessarily a part of the CoC, constituted in terms of
46
Section 21 IBC. This Court also took note of the relevant provisions in the
Regulations relating to the voting share of the respective financial
34
creditors in CoC and selection of an authorised representative to
represent financial creditors in a particular class.
22.2. Proceeding further, this Court extensively referred to a variety of
submissions made on behalf of JAL, seeking to explain the perspective of
the developers with reference to the projects already accomplished by
them and the projects being under execution; and their proposal to
deposit post-dated cheques to the tune of INR 600 crores with the registry
of this Court, if they were allowed to dispose of some of the assets. The
Court also took note of the fact that JAL had sought directions to NCLT to
decide an application for sanctioning the scheme of arrangement,
propounded pursuant to a restructuring agreement accepted by 32
creditors. The request of JAL was to continue with the stay of liquidation
proceedings against its deposit of post-dated cheques of INR 600 crores
and also to stay the directions of this Court whereby IRP was allowed to
remain in management of the corporate debtor. The Court recorded the
propositions of JAL as follows: -
“36. …..JAL has sought to assure that it would double the strength
of existing workers for the construction of its projects. JAL has also
stated that it would deposit postdated cheques of Rs 600 crores
with the Registry of this Court. However, this is subject to the
condition that the Court should allow it to dispose of “identified
cement assets” including its cement plan ( sic ) at Rewa in Madhya
Pradesh. In order to enable it to do so, JAL has sought a direction
to the NCLT at Allahabad to decide the application filed before it for
sanctioning a scheme of arrangement, propounded pursuant to a
34 ‘AR’ for short.
47
master restructuring agreement signed and accepted by the 32
creditors. JAL seeks to continue the stay of liquidation proceedings
against its deposit of postdated cheques of Rs 600 crores. JAL
also seeks a stay on the direction of this Court allowing the IRP to
remain in management.”
22.2.1. After careful consideration, this Court rejected the proposal
submitted on behalf of JAL while explaining that accepting any such
proposal on behalf of JAL would cause serious prejudice to the discipline
of IBC. In that regard, this Court referred to the provisions contained in
Section 29A of the Code and the background in which certain specified
35
persons were made ineligible to be the resolution applicants. This Court,
inter alia , observed and explained as under: -
“39. Clauses ( c ) and ( g ) of Section 29-A would operate as a bar to
the promoters of JAL/JIL participating in the resolution process.
Under clause ( c ), a person who at the time of the submission of
the resolution plan has an account which has been classified a
non-performing asset under the guidelines of RBI or of a financial
regulator is subject to a bar on participation for a stipulated period.
Under clause ( g ), a person who has been a promoter or in the
management or control of a corporate debtor in which a
preferential transaction, undervalued transaction, extortionate
credit transaction or fraudulent transaction has taken place and in
respect of which an order has been made by the adjudicating
authority under the IBC is prohibited from participating. The Court
must bear in mind that Section 29-A has been enacted in the
larger public interest and to facilitate effective corporate
governance. Parliament rectified a loophole in the Act which
allowed a backdoor entry to erstwhile managements in the CIRP.
Section 30 IBC, as amended, also clarifies that a resolution plan of
a person who is ineligible under Section 29-A will not be
considered by the CoC:”
35 We may point out that Section 29A was inserted to the Code along with a few other
amendments by way of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017,
promulgated on 23.11.2017. The Ordinance stated in its Preamble, inter alia, that the same was
being promulgated because it was considered necessary to provide for prohibition of certain
persons from submitting a resolution plan who, on account of their antecedents, may adversely
impact the credibility of the process under the Code. This Ordinance later on took the shape of
the Insolvency and Bankruptcy Code (Amendment) Act, 2017 (No. 8 of 2018) that came into
force with retrospective effect from 23.11.2017.
48
22.3. Apart from the above, this Court also took note of various grounds
urged on behalf of the homebuyers in opposition to the proposal so
submitted and, after examining the matter in its entirety, this Court was
convinced that JAL/JIL were lacking in financial capacity and resources to
complete the unfinished projects; and allowing them to participate in the
process of resolution would render the statutory provisions nugatory.
22.3.1. Having regard to the issues involved herein, we are impelled to
take note of the grounds so urged on behalf of the homebuyers and their
due acceptance by this Court as follows: -
“40. Mr Anand Grover appearing on behalf of the homebuyers
has opposed the proposal submitted by JAL/JIL on the following
grounds:
40.1. Loans given to JAL have been classified as non-
performing assets which renders JAL ineligible as a resolution
applicant/new promoter under Section 29-A( b ) IBC;
40.2. In addition to Section 29-A( b ), JAL is also disqualified
under Section 29-A( g ) IBC. Section 29-A( g ) provides that a person
who is engaged in a fraudulent transaction should not be allowed
to bid for another company as such a person may again engage in
fraudulent transactions. In May 2018, the NCLT, Allahabad set
aside a fraudulent transaction involving a mortgage of around 750
acres of JIL’s land in favour of the lenders of JAL. This mortgage
was without any consideration and the land of 750 acres may be
CLAT
worth INR 5000 crores. The matter is now before the N , which
has specifically framed an issue in this regard;
40.3. RBI is already before this Court seeking initiation of
insolvency proceedings against JAL. JAL’s proposal, although
presented under the garb of protecting the interest of homebuyers,
is aimed at the twin benefits of avoiding insolvency of JAL and
regaining control of JIL, thereby defeating RBI’s application for
insolvency proceedings of JAL as well as Section 29-A IBC;
40.4. The reasons pleaded by JAL/JIL to excuse their failure to
complete the housing projects such as the stay order granted by
the National Green Tribunal have been rejected by the orders of
the National Consumer Disputes Redressal Commission as there
was no stay. One such order was passed by NCDRC on 2-5-2016,
in Developers Township Property Owners Welfare Society v.
Jaiprakash Associates Ltd.;
40.5. The contention of JAL that they faced impediments on
account of the purported stay imposed by NGT is patently incorrect
49
as the stay by NGT was only on handing over possession without
an occupation certificate, which had no bearing on the
construction. Moreover, JAL carried out construction during that
period as is evidenced inter alia by the fact that they raised
demands for construction linked payments during this period;
40.6. During the pendency of the CIRP from 9-8-2017,
construction work was done under the aegis of the IRP under
whom JAL was a mere contractor;
40.7. The claim by JAL that flats have been delivered is a
fractured claim as flats have been delivered in incomplete stages
and are not in accordance with the allotment letters. The flooring is
not complete, doors and windows are missing, no-objection
certificates have not been obtained from the Fire Department and
the offer of possession is being made without the occupation
certificate;
40.8. JAL does not have the capacity to deliver the flats and
22,000 homebuyers are suffering due to delays of more than four
years in completion of various projects of JAL and JIL;
40.9. Under the contracts, JAL and JIL are jointly and
severally liable to deliver the flats. If JAL was serious about
delivering the flats, the present situation would not have
arisen. Further, JAL would have avoided the insolvency
process of JIL and would not have cast the homebuyers to
the uncertainties of insolvency ;
40.10. There are serious doubts about the credentials of
JAL which has diverted funds from JIL towards its other
businesses . The applicant associations had appointed ASA
Financial Services to conduct an audit of JIL’s financials and the
audit report demonstrates that JAL may have diverted more than
INR 10,000 crores from JIL;
40.11. JAL is undergoing a serious financial crisis. This is clear
from the following facts:
40.11.1. JAL has not yet honoured the order of this Court
asking it to deposit Rs 2000 crores for protection of the
interest of the homebuyers. JAL has paid only Rs 750 crores
out of Rs 2000 crores, after the expiry of almost 10 months
from 11-9-2017 which was the date of the initial order of this
Court;
40.11.2. JAL has failed to pay even the latest instalment of Rs
1000 crores by 15-6-2018 in accordance with the order of this
Court dated 16-5-2018;
40.11.3. JAL is a defaulter of more than 30 banks to the extent of
around Rs 30,000 crores. JAL has also defaulted on fixed
deposits, foreign currency convertible bonds and payments to
Noida Authority;
40.11.4. Even in the latest proposal, the proposal to deposit Rs
600 crores is spread over time indicating that JAL has no
resources; and
40.11.5. The proposal of doubling the strength of workers from
4000 to 8000 would only mean doubling the strength from 17
50
workers per tower to 35 workers per tower (228 towers to be built
by 8000 workers). This would amount to 2 workers in each floor of
4 flats (21,532 flats in 228 towers by 8000 workers). At this rate,
completion of flats may take several years.
41. Similar submissions have been urged on behalf of the
homebuyers by other learned counsel.
42. The bar under Section 29-A would preclude JAL/JIL
from being allowed to participate in the resolution process.
Moreover, the facts which have been drawn to the attention of
the Court leave no manner of doubt that JAL/JIL lack the
financial capacity and resources to complete the unfinished
projects. To allow them to participate in the process of
resolution will render the provisions of the Act nugatory. This
cannot be permitted by the Court .”
(emphasis in bold supplied)
22.4. It was, however, submitted on behalf of JAL/JIL that with expiry of
timelines for CIRP, the only option would be to liquidate the corporate
debtor which may not be in the interest of homebuyers and in that
situation, the only way out would be to provide for an arrangement outside
the provisions of IBC. It was also submitted that unless a group of
independent professionals came to a conclusion that it was not financially
viable for JAL/JIL to complete the remaining work in a time-bound
manner, their role as developers should not be discounted. Hence, it was
submitted that an independent committee of experts be constituted by the
Court to evaluate the financial capability of JAL/JIL to continue executing
the ongoing projects. It was also submitted that only 8% of the
homebuyers had opted for refunds while 92% had chosen not to claim
refunds, thereby implying a confidence in the ability of JIL/JAL to
complete the project. However, on the other hand, the homebuyers
uniformly opposed the submissions so made and it was urged before the
Court that they had no confidence in the ability of either JIL or JAL to
51
complete the outstanding projects. In the third dimension, it was
submitted on behalf of the IRP that Court may revive the CIRP by
extending the time specified in IBC in order to enable fresh consideration
to be made of the prospect for a resolution which would take into account
the interests of homebuyers under the amended IBC; and the second
option would be to appoint a committee under the supervision of the Court
to explore the possibility of a resolution which would obviate the need for
liquidation. Having pondered over the diverse propositions, the
requirement of balancing the discipline of the Code, to do complete justice
and to secure the interests of all the concerned, this Court found it just
and proper to accept the suggestion that CIRP be revived and CoC be
reconstituted as per the amended provisions of IBC with recourse to the
powers under Article 142 of the Constitution of India. This Court observed
and held as under: -
“47. In considering the rival submissions, several important facets
of the case need to be underscored.
47.1. First and foremost, the CIRP was initiated on 9-8-2017,
following the order of NCLT admitting the proceedings. The period
of 180 days for concluding the CIRP came to an end on 6-2-2018
and the extended period ended on 12-5-2018. When the CIRP was
initiated and until the period of 270 days concluded, the
homebuyers did not have the status of financial creditors under the
provisions of IBC. They had no statutory voting rights in the CoC.
Under the interim directions of this Court, a workable arrangement
was sought to be put into place by appointing a representative of
the homebuyers on the CoC to facilitate their interests being duly
borne in mind. But the point to be noted is that in the absence of a
statutory recognition of the position of the homebuyers as financial
creditors, the law did not allow for real and substantive
entitlements to them in the CoC. These statutory entitlements have
been brought in by the Ordinance in order to recognise the vital
interests of the homebuyers in a real estate project and to allow
52
them a statutory status in the insolvency resolution process.
Unfortunately by the time that the Ordinance came into being on 6-
6-2018, the period of 270 days had expired; the resolution plan of
Lakshdeep was rejected and the IRP informed NCLT that no
resolution plan had been approved within the extended period of
270 days on 12-5-2018.
47.2. Having regard to the material change which has been
brought about by the amendment of the IBC by the Ordinance
and the fact that this Court has been in seisin of the
proceedings to ensure that the homebuyers are protected, we
are of the view that it is but appropriate and to do complete
justice to secure the interests of all concerned that the CIRP
should be revived and CoC reconstituted as per the amended
provisions to include the homebuyers. In the facts of the
present case, recourse to the power under Article 142 would be
warranted to render complete justice. Parliament has undoubtedly
provided a period of 180 days and an extended period of 90 days
to complete the process. But in the present case a peculiar
situation has arisen as a result of which the status of the
homebuyers which had not been recognised prior to 6-6-2018 has
now been expressly recognised as a result of the amending
Ordinance.
47.3. The learned counsel for the IRP submitted that in the CoC
which will be reconstituted under the amended IBC, the
homebuyers would have a substantial voting power so as to be
able to effectively protect their interests. Moreover, this Court
should follow the discipline of IBC which has been enacted by
Parliament specifically to streamline the resolution of corporate
insolvencies. Matters involving corporate insolvencies require
expert determination. The legislature has made specific provisions
which are conceived in public interest and to facilitate good
corporate governance. The Court should not take upon itself the
burden of supervising the intricacies of the resolution process.
Accepting the suggestion of Mr Nariman (and one of the two
options proposed by Mr Tripathi) of the Court appointing a
committee to supervise the resolution process outside IBC will
involve the Court in an insuperable burden of evaluating intricate
matters of financial expertise on which Parliament has legislated to
create specific mechanisms.
47.4. We are emphatically of the view that it would not be
appropriate for the Court to appoint a committee to oversee the
CIRP and assume the task of supervising the work of the
Committee. We must particularly be careful not to supplant the
mechanisms which have been laid down in the IBC by
substituting them with a mechanism under judicial directions .
Such a course of action would in our view not be consistent with
the need to ensure complete justice under Article 142, under the
regime of law. Hence, the power under Article 142 should be
53
utilised at the present stage for the limited purpose of
recommencing the resolution process afresh from the stage of
appointment of IRP by the order dated 9-8-2017 and resultantly
renew the period which has been prescribed for the completion of
the resolution process. We have furnished above, the reasons for
doing so. Chief amongst them is the fact that in the present case
the period of 270 days expired before the Ordinance conferring a
statutory status on homebuyers as financial creditors came into
existence. In the circumstances, it would be necessary to
revive the period prescribed by the statute by another 180
days commencing from the date of this order. During this
period, the IRP shall follow the provisions of the IBC afresh in
all respects. A new CoC should be constituted in accordance
with the amended provisions IBC to enforce the statutory
status of the allottees as financial creditors . We also clarify that
apart from the three bidders whose bids were found to be eligible
by the IRP, it would be open to the IRP to invite fresh bids to
facilitate a wider field of choice before the CoC. In that process,
the offers made by the intervenors in these proceedings can also
be considered by CoC anew. We are not inclined to evaluate the
merits of the bids submitted by the bidders who were left in the
fray, two of whom have intervened. All bids must follow the
discipline IBC. We have, however, not accepted the
submission to allow JIL or JAL and the erstwhile promoters to
participate in the process. Their participation is expressly
prohibited by Section 29-A and we decline to make any
exception which would breach a salutary and express provision
made in the IBC.”
(emphasis in bold supplied)
22.5. Thereafter, this Court also took into consideration the submissions
made on behalf of some of the homebuyers for issuance of directions to
facilitate pro rata disbursement of INR 750 crores lying in deposit
pursuant to the interim directions. This Court observed that even when the
claim of the refund seekers was to be considered with empathy, such
request could not be acceded to and specified four major reasons for
declining this prayer. The consideration of this Court in relation to the said
sum of INR 750 crores, being also directly relevant for the present
purpose, could be usefully extracted as under: -
54
“48. As we have stated earlier, an amount of Rs 750 crores is lying
in deposit before this Court pursuant to the interim directions, on
which interest has accrued. The homebuyers have earnestly
sought the issuance of interim directions to facilitate a pro rata
disbursement of this amount to those of the homebuyers who seek
a refund. We are keenly conscious of the fact that the claim of the
homebuyers who seek a refund of monies deserves to be
considered with empathy. Yet, having given our anxious
consideration to the plea and on the balance, we are not inclined
to accede to it for more than one reason.
48.1. Firstly, during the pendency of the CIRP, it would as a matter
of law, be impermissible for the Court to direct a preferential
payment being made to a particular class of financial creditors,
whether secured or unsecured. For the present, we leave open the
question as to whether the homebuyers are unsecured creditors
(as was urged by Mr Tripathi) or secured creditors (as was urged
by counsel appearing for them). Directing disbursement of the
amount of Rs 750 crores to the homebuyers who seek refund
would be manifestly improper and cause injustice to the
secured creditors since it would amount to a preferential
disbursement to a class of creditors. Once we have taken
recourse to the discipline IBC, it is necessary that its
statutory provisions be followed to facilitate the conclusion of
the resolution process .
48.2. Secondly, the figures which have been made available
presently, following the opening of the web portal by the Amicus
Curiae, indicate that 8% of the homebuyers have sought a refund
of their monies while 92% would evidently prefer possession of the
homes which they have purchased. We cannot be unmindful of
the interests of 92% of the homebuyers many of whom would
also have obtained loans to secure a home. They would have
a legitimate grievance if the corpus of Rs 750 crores (together
with accrued interest) is distributed to the homebuyers who
seek a refund. The purpose of the process envisaged by IBC for
the evaluation and approval of a resolution plan is to form a
composite approach to deal with the financial situation of the
corporate debtor. Allowing a refund to one class of financial
creditors will not be in the overall interest of a composite plan
being formulated under the provisions of the IBC .
48.3. Thirdly during the course of the hearing, the Court has been
apprised of the concerns of the secured creditors, chief among
them being IDBI Bank Ltd. In its submissions before this Court,
IDBI Bank has emphasised that one of the major reasons for the
enactment of IBC was to protect the interest of lenders. The debt
owing to the banks and financial institutions has been secured by
the assets of JIL, to protect their interests. This debt originates in
the public deposits of the banks and financial institutions, who are
answerable to their stakeholders.
48.4. Fourthly, RBI has moved this Court for permission to initiate
an insolvency resolution process. Parliament enacted the Banking
55
Regulation (Amendment) Act 2017 by introducing Section 35-AA
and Section 35-AB into the Banking Regulation Act 1949. The
amendment empowers the Central Government to authorise RBI
to issue directions to any banking company to initiate an
insolvency resolution process in respect of a default as understood
under the IBC. Such an order was issued by the Central
Government on 5-5-2017. The RBI constituted an Internal
Advisory Committee (IAC) consisting primarily of its independent
Directors. The IAC took up for consideration accounts which were
classified either partly or wholly non-performing from amongst the
top 500 exposures in the banking system as on 31-3-2017. As a
first step, the IAC recommended all such non-performing asset
accounts with fund and non-fund based outstandings exceeding
Rs 5000 crores. The IAC has initially taken up twelve accounts
involving total exposure of Rs 1,79,769 crores. JIL was one of the
twelve accounts in respect of which directions have been issued to
banks for initiating insolvency resolution. Subsequently, the IAC
recommended that in respect of those accounts where 60% or
more had been classified as NPAs as on 30-6-2017, banks may
be directed to implement a viable resolution plan within six months
failing which the accounts may be directed for a reference under
the IBC by 31-12-2017. JAL was one such entity. No viable
resolution plan could be found as a result of which it is also
required to be referred for CIRP. RBI has carried out this exercise
as a matter of economic policy in its capacity as the prime banking
institution in the country, entrusted with a supervisory role, and the
power to issue binding directions……..”
(emphasis in bold supplied)
22.6. Having said so, this Court acceded to the request made on behalf
of the RBI to initiate a CIRP against JAL under IBC and thereafter
proceeded to conclude on the matter with the following directions: -
“50. We, accordingly, issue the following directions:
50.1. In exercise of the power vested in this Court under Article
142 of the Constitution, we direct that the initial period of 180
days for the conclusion of the CIRP in respect of JIL shall
commence from the date of this order. If it becomes
necessary to apply for a further extension of 90 days, we
permit the NCLT to pass appropriate orders in accordance with
the provisions of the IBC;
50.2. We direct that a CoC shall be constituted afresh in
accordance with the provisions of the Insolvency and
Bankruptcy (Amendment) Ordinance, 2018, more particularly
56
the amended definition of the expression “financial
creditors” ;
50.3. We permit the IRP to invite fresh expressions of interest
for the submission of resolution plans by applicants, in
addition to the three shortlisted bidders whose bids or, as the
case may be, revised bids may also be considered;
50.4. JIL/JAL and their promoters shall be ineligible to participate
in the CIRP by virtue of the provisions of Section 29-A;
50.5. RBI is allowed, in terms of its application to this Court to
direct the banks to initiate corporate insolvency resolution
proceedings against JAL under the IBC;
50.6. The amount of Rs 750 crores which has been deposited
in this Court by JAL/JIL shall together with the interest
accrued thereon be transferred to NCLT and continue to
remain invested and shall abide by such directions as may be
issued by NCLT .”
(emphasis in bold supplied)
23. Thus, the ternary, of anxiety on the part of stakeholders to avoid
liquidation of the corporate debtor JIL; of due recognition by the
legislature of the homebuyers as financial creditors; and concern of this
Court to do complete justice in the cause while maintaining the discipline
of law, led to the improvisation in Chitra Sharma , as noticeable in the
preceding paragraphs, with revival of CIRP in relation to the corporate
debtor JIL and re-constitution of CoC with the basic aim to ensure the
resolution of insolvency of the corporate debtor JIL by way of the methods
envisaged by, and permissible under, the Code.
Another round in this Court and further enlargement of time for CIRP
in question.
24. However, this resolution process concerning the corporate debtor
JIL again landed in rough weather, now due to passage of time at different
stages while dealing with another grey area i.e., method of counting of
votes in the Committee of Creditors, which led to another round of
57
litigation; and this Court had to again invoke its plenary powers to salvage
the situation in the judgment dated 06.11.2019 in the case of Jaiprakash
Associates Ltd. (supra). For their relevance, the observations made and
directions issued in that case may also be recapitulated.
25. The second round of litigation concerning this CIRP came up to
this Court in the following circumstances:
25.1. Consequent to the aforesaid directions in the case of Chitra
Sharma , the matter proceeded before the NCLT being the Adjudicating
Authority. The IRP issued public notice inviting claims from all the
stakeholders of JIL, including the homebuyers and submitted his report on
formation of the Committee of Creditors before the Adjudicating Authority
on the following basis:
37.3% in case of financial institutions,
62.3% homebuyers, and
0.4% fixed deposit holders.
25.2. However, on 17.09.2018, an application came to be made before
the Adjudicating Authority by one of the associations of homebuyers
seeking clarification as to the manner in which the voting percentage of
the homebuyers would be reckoned. The two members of NCLT
expressed difference of opinion on the issue as a result of which,
reference was made to the President of NCLT to place the matter before
the third member. Eventually, an order was passed by the third member
on 24.05.2019. This order was challenged by one of the associations of
homebuyers before NCLAT. In the meantime, IDBI Bank filed an
58
application before NCLT for excluding the period of pendency of the said
application for clarification regarding the manner of counting the votes of
the concerned financial creditors, from the period of 270 days for
completion of CIRP. However, during the pendency of such an application,
the NCLT, by its order dated 06.05.2019, called upon the authorities, the
representatives of allottees and others to file reply on the necessity to
proceed further with CIRP for considering the resolution plan received
from the concerned bidder. The IDBI Bank assailed this order of NCLT by
way of another appeal before the NCLAT.
25.3. The aforesaid two appeals were decided together by NCLAT by
way of its judgment dated 30.07.2019. The NCLAT took note of the fact
that no regulation had been framed under the Code as to how the voting
share of thousands of allottees (homebuyers) would be counted when all
of them fell within the meaning of ‘financial creditors’ and hence, were the
members of CoC. The NCLAT observed that this had been an
extraordinary situation where the law was silent and there was no
guideline which led to difference of opinion between the two members and
the matter was finally decided by the third member. The NCLAT opined
that in the given situation, certain period could be excluded while counting
the total period of 270 days. In this judgement dated 30.07.2019, NCLAT
provided for exclusion of 90 days for the purpose of counting 270 days of
CIRP from the date of receipt of the copy of its judgement. The NCLAT
also commented that the aforesaid exclusion was being provided to
59
enable calling of fresh resolution plans but reiterated that no liberty was
available to JAL in view of the observations and decision of this Court in
Chitra Sharma (supra).
25.3.1. Those observations and directions of NCLAT in its judgment dated
30.07.2019, as reproduced in the judgement of this Court dated
06.11.2019, could be usefully recounted as follows: -
“22. In view of the aforesaid extraordinary situation, we are of the
view that the period from 17-9-2018 i.e. the date of application filed
by the association of the allottees for clarification for the order and
till the final decision i.e. 4-6-2019 i.e. the date the matter was
finally decided by the Third Hon'ble Member (total 260 days), can
be excluded for the purpose of counting the 270 days. However,
as the matter is pending since long, we are not inclined to exclude
the total period of 260 days and instead in the interest of the
allottees, we exclude 90 days for the purpose of counting the
period of 270 days of “corporate insolvency resolution process”,
which should be counted from the date of receipt of the copy of
this order.
23. The aforesaid period is excluded to enable the “resolution
professional”/“committee of creditors” to call for fresh “resolution
plans” and to consider them, if so required after negotiations pass
appropriate order under sub-section (5) of Section 30 of the I&B
Code preferably within a period of 45 days. Rest of the period of
45 days margin is given to remove any difficulty and appropriate
order as may be passed by the adjudicating authority.
The voting share of the allottees should be counted in terms of
“I&B Code” as existing on the date of voting/“Regulation” and/or in
accordance with majority decision of the adjudicating authority.
24. It is made clear that all the earlier “resolution plan(s)” including
the plan submitted by the “NBCC”, cannot be considered, having
been rejected by the “committee of creditors”. However, it will be
open to the “NBCC” to file a fresh improved “resolution plan”. It is
informed that “Adani Infra (I) Ltd.” also proposed to file “resolution
plan” but we are not expressing any opinion with regard to the
same. We have given opportunity to all the eligible persons to file
“expression of interest”/(improved) “resolution plan”, individually or
jointly or in concert with any person, but those who are ineligible in
terms of Section 29-A, are barred from filing such plan. No liberty
is given to “Jaiprakash Associates Ltd.”, in view of the aforesaid
observation and decision of Hon'ble Supreme Court in Chitra
Sharma .”
60
26. The aforesaid judgement of NCLAT was assailed in this Court by
JAL and by the Wish Town Homebuyers’ Welfare Society. These appeals
raised essentially two issues before this Court: one, as to whether NCLT
or NCLAT had the power to exclude any period from the statutory period
in exercise of inherent powers sans any express provision in the Code in
that regard; and second, whether it was open to allow the bidder whose
resolution plan had already been rejected by CoC, to submit revised plan
or to invite fresh resolution plans to be considered by CoC after the
statutory period specified for submission of such plans?
27. After cogitating over the submissions made in support of the
appeals, it was clear that the inevitable fallout of accepting the stand
taken by the appellants would be to set aside the impugned judgment and
relegate the parties to a situation where the only option would be to
proceed with the liquidation process concerning JIL on the premise that
no resolution plan was received before the expiry of the period of CIRP or
being a case of rejection of the resolution plan under Section 31 of the
Code. However, during the arguments, there was complete unanimity
(again) between all the stakeholders, including the appellants before this
Court, that the liquidation of JIL must be eschewed as it would do more
harm to the interests of the stakeholders, in particular the large number of
homebuyers.
28. In the given set of circumstances and considering the position
taken by the stakeholders, this Court found it neither necessary nor
61
appropriate to dilate on the issues as urged and instead, proceeded to
again exercise the plenary powers under Article 142 of the Constitution of
India in order to ensure substantial justice in the cause. In the process,
this Court, of course, rejected the suggestions given by a section of
homebuyers to keep the entire process outside the dispensation under
the Code with reference to the observations already made in the case of
Chitra Sharma (supra), but found it justified to modulate a part of such
directions, to the extent such modulation would not stand in conflict with
the legislative intent and subserve the cause of justice, by providing a
window to find out a viable solution. This Court also took note of various
amendments brought about to the Code and the CIRP Regulations; and
the overall circumstances of the case, where delay in completion of CIRP
relating to JIL was attributable to law’s delay and neither homebuyers nor
other financial creditors were to be blamed for pendency of proceedings
before NCLT and before NCLAT. In the peculiar, rather extraordinary,
situation obtaining in the matter, this Court considered it appropriate to
ensure that an attempt was made for revival of the corporate debtor JIL,
lest it was exposed to liquidation process and for that matter, to permit
IRP to reissue the request for resolution plan to the two bidders who had
earlier submitted the plans and to call upon them to submit revised
resolution plans, which could be placed before CoC. In the process, this
Court also took note of the time limit for completion of insolvency
resolution process as per third proviso to Section 12(3) of the Code,
62
which came into effect from 16.08.2019. The relevant observations of this
Court could be usefully reproduced as under: -
“16. Suffice it to note that an extraordinary situation had arisen
because of the constant experimentation which went about at
different level due to lack of clarity on matters crucial to the
decision-making process of CoC. Besides that, in view of the
recent legislative changes, the scope of resolution plan stands
expanded which may now include provision for restructuring the
corporate debtor including by way of merger, amalgamation and
demerger and more so the power bestowed on CoC to consider
not only the feasibility and viability of the resolution plan but also
the manner of distribution proposed, which may take into account
the order of priority amongst the creditors. Additionally, the recently
inserted Section 12-A enables the adjudicating authority to allow
the withdrawal of an application filed under Section 7 or Section 9
or Section 10, on an application made by the applicant with the
approval of 90% voting share of the CoC. Similarly, sub-clause (7)
of Regulation 36-B inserted with effect from 4-7-2018, dealing with
the request for resolution plans unambiguously postulates that the
resolution professional may, with the approval of the Committee,
reissue request for resolution plans, if the resolution plans
received in response to earlier request are not satisfactory, subject
to the condition that the request is made to all prospective
resolution applicants in the final list. In the present case, finally
only two bidders had participated and submitted their resolution
plan which was placed before CoC and stated to have been
rejected. However, applying the principle underlying Regulation
36-B(7), we deem it appropriate to permit IRP to reissue request
for resolution plans to the two bidders (Suraksha Realty and
NBCC) and/or to call upon them to submit revised resolution
plan(s), which can be then placed before CoC for its due
consideration.
17. In the present case, as aforementioned, there is unanimity
amongst all the parties appearing before this Court including the
resolution applicant that liquidation of JIL must be eschewed and
instead an attempt be made to salvage the situation by finding out
some viable arrangement which would subserve the interests of all
concerned.
18. In view of the legislative changes referred to above, we are of
the considered opinion that we need to and must exercise our
plenary powers to make an attempt to revive the corporate debtor
(AIL), lest it is exposed to liquidation process under Chapter III of
Part II of the I & B Code. We are inclined to do so because the
project has been implemented in part and out of over 20,000
homebuyers, a substantial number of them have been put in
possession and the remaining work is in progress and in some
cases at an advanced stage of completion. In this backdrop, it
63
would be in the interest of all concerned to accept a viable plan
reflecting the recent legislative changes.
19. Indeed, the third proviso to Section 12(3) predicates time-limit
for completion of insolvency resolution process, which has come
into effect from 16-8-2019. The same reads thus:
“Provided also that where the insolvency resolution
process of a corporate debtor is pending and has not
been completed within the period referred to in the
second proviso, such resolution process shall be
completed within a period of ninety days from the date
of commencement of the Insolvency and Bankruptcy
Code (Amendment) Act, 2019.”
Taking an overall view of the matter, we deem it just, proper and
expedient to issue directions under Article 142 of the Constitution
of India to all concerned to reckon 90 days’ extended period from
the date of this order instead of the date of commencement of the
Insolvency and Bankruptcy Code (Amendment) Act, 2019. That
means, in terms of this order, the CIRP concerning JIL shall be
completed within a period of 90 days from today.
20. We do not deem it necessary to dilate on the arguments of the
respective counsel for the nature of order that we intend to pass,
including about the locus standi of JAL which, in our opinion,
already stands answered against JAL by virtue of Section 29-A of
the Act as expounded in Chitra Sharma .”
29. In the given circumstances, this Court passed the following order
for the purpose of substantial and complete justice and in the interest of
all the stakeholders: -
“21. Accordingly, we pass the following orders to do
substantial and complete justice to the parties and in the interest of
all the stakeholders of JIL:
21.1. We direct the IRP to complete the CIRP within 90 days
from today. In the first 45 days, it will be open to the IRP to invite
revised resolution plan only from Suraksha Realty and NBCC
respectively, who were the final bidders and had submitted
resolution plan on the earlier occasion and place the revised
plan(s) before CoC, if so required, after negotiations and submit
report to the adjudicating authority NCLT within such time. In the
second phase of 45 days commencing from 21-12-2019, margin is
provided for removing any difficulty and to pass appropriate orders
thereon by the adjudicating authority.
21.2. The pendency of any other application before the NCLT
or N CLAT , as the case may be, including any interim direction
given therein shall be no impediment for the IRP to receive and
process the revised resolution plan from the above named two
bidders and take it to its logical end as per the provisions of the I &
64
B Code within the extended timeline prescribed in terms of this
order.
21.3. We direct that the IRP shall not entertain any expression
of interest (improved) resolution plan individually or jointly or in
concert with any other person, much less ineligible in terms of
Section 29-A of the I & B Code.
21.4. These directions are issued in exceptional situation in
the facts of the present case and shall not be treated as a
precedent.
21.5. This order may not be construed as having answered the
questions of law raised in both the appeals, including as
recognition of the power of NCLT/N CLAT to issue direction or order
not consistent with the statutory timelines and stipulations
specified in the I & B Code and the Regulations framed
thereunder.”
30. The passages above-quoted give insight as to what had been the
concern of all and what had been the intent of the orders passed by this
Court in its plenary powers. It is not far to seek that even where CIRP in
relation to JIL had been facing one hurdle after another, the principal part
of delay was not attributable to any of the stakeholders; and then, all
through, there had been unanimity that liquidation of JIL was to be
avoided and a viable solution ought to be searched. The aforesaid
directions in the judgement dated 06.11.2019 ultimately led the revised
resolution plans by the two applicants being placed before CoC and
voting of CoC in favour of the resolution plan proposed by NBCC which is
the bone of contention in this batch of matters.
31. For completion of the narrative in regard to the second round of
litigation, we may also point out that after the judgment dated 06.11.2019,
even though the process relating to the submission of revised plans and
consideration by CoC took place, but culmination of the proposal in
65
approval of the resolution plan got delayed. Hence, IRP filed one
miscellaneous application in this Court (M.A. No. 540 of 2020), pointing
out various difficulties and unavoidable circumstances which had caused
the delay though the proposal was submitted within the time frame
prescribed. While accepting the reasons stated in the application so filed
by the IRP, this Court, by another order dated 03.02.2020, extended the
time by four weeks for approval of the resolution plan. This is how the
process of approval of resolution plan culminated in the impugned order
36
dated 03.03.2020 by the Principal Bench of NCLT at New Delhi.
32. Before dilating on the resolution plan in question, it appears just
and proper to narrate the features relating to yet another litigation directly
impacting the CIRP concerning the corporate debtor JIL. As indicated,
that litigation had been in relation to the application made by IRP for
avoidance of certain transactions as preferential; and in relation to the
claim of some of the lender institutions of JAL to be recognised as
financial creditors of JIL on the strength of the mortgage transactions
whereby the property of JIL was mortgaged to secure the debts of JAL.
Yet another litigation in this Court relating to preferential
transactions and lenders of JAL
33. The other litigation concerning this CIRP, leading to the judgment
dated 26.02.2020 in the case of Anuj Jain (supra), came up in the
following circumstances:
36 It may be indicated in the passing that later on, a few miscellaneous applications as also
interlocutory applications were filed in relation to the case of Chitra Sharma (supra), most of
which were disposed of by this Court on 18.12.2019, in view of the aforesaid order dated
06.11.2019. Having regard to the points requiring determination herein, it is not necessary to
dilate on those applications.
66
33.1. As already noticed, even during the pendency of proceedings in
this Court in the case of Chitra Sharma (supra), the IRP had filed an
application on 06.02.2018 seeking avoidance of certain transactions,
whereby the corporate debtor had mortgaged several parcels of its land
as collateral security for the loans and advances made by the lender
banks and financial institutions to the holding company JAL. The IRP
alleged that the transactions in question were preferential, undervalued
and fraudulent, in terms of Sections 43, 45 and 66 of the Code. By its
order dated 16.05.2018, the NCLT accepted the application so made by
IRP in relation to six out of seven transactions that were put in question
and held that those transactions were to be avoided as being fraudulent,
preferential and undervalued. In other words, in relation to such six
transactions, the security interest was ordered to be discharged and the
properties involved therein were vested in the corporate debtor, with
release of encumbrances. In appeal, the NCLAT, however, took an
entirely opposite view of the matter and by its judgement dated
01.08.2019, upturned the order so passed by NCLT, while holding that the
transactions in question do not fall within the mischief of being preferential
or undervalued or fraudulent; and that the lenders in question (the lenders
of JAL) were entitled to exercise their rights under the Code. Aggrieved,
the IRP as also one of the creditors of the corporate debtor JIL and the
associations of homebuyers preferred appeals in this Court.
67
33.2. Apart from the above, during the course of CIRP, two of the lender
banks of JAL sought inclusion in the category of financial creditors of JIL
but IRP did not agree and declined to recognise them as such. Being
aggrieved, the said banks preferred separate applications under Section
60(5) of the Code before NCLT while asserting their claim to be
recognised as financial creditors of the corporate debtor JIL, on account
of the securities provided by JIL for the facilities granted to JAL. The
NCLT rejected the applications so filed by the said banks, by way of its
orders dated 09.05.2018 and 15.05.2018, while concluding that on the
strength of the mortgage created by the corporate debtor JIL, as collateral
security of the debt of its holding company JAL, the lenders of JAL could
not be categorised as financial creditors of JIL. The appeals filed by the
aggrieved lenders of JAL against the said orders dated 09.05.2018 and
15.05.2018 were purportedly allowed as per the result recorded in the
impugned order dated 01.08.2019. Aggrieved, one of the lenders of the
corporate debtor JIL preferred an appeal in this Court, while asserting that
such mortgagees could not be taken as financial creditors of the
corporate debtor JIL.
34. The aforesaid two appeals, relating to avoidance of preferential
transactions and the claim of lender banks of JAL to be recognised as
financial creditors of JIL, were considered together and allowed by this
Court by way of the common judgement dated 26.02.2020 in the case of
Anuj Jain (supra).
68
34.1. As regards the transactions in question, this Court held that they
had been of deemed preference to related party by the corporate debtor
JIL during the look-back period of two years and were covered within the
period envisaged by Section 43(4) of the Code. This Court also held that
clause (a) of sub-section (3) of Section 43 of the Code called for
purposive interpretation so as to ensure that the provision operates in
sync with the intention of legislature; and therefore, the expression “or”,
appearing as disjunctive between the expressions “corporate debtor” and
“transferee”, ought to be read as “and”; so as to be conjunctive of the two
expressions i.e., “corporate debtor” and “transferee”. Having interpreted
the provision so, this Court held that the impugned transactions did not
fall within the ordinary course of business of the corporate debtor JIL and
hence, were not of excepted transfers in terms of Section 43(3) of the
Code. Accordingly, this Court held as under: -
“ Summation: The transactions in question are hit by Section
43 IBC
30. For what has been discussed hereinabove, we are clearly of
the view that the transactions in question are hit by Section 43 of
the Code and the adjudicating authority, having rightly held so, had
been justified in issuing necessary directions in terms of Section
44 of the Code in relation to the transactions concerning
Properties Nos. 1 to 6. N CLAT , in our view, had not been right in
interfering with the well-considered and justified order passed by
NCLT in this regard.”
34.2. As regards the second question concerning the status of the
lenders of JAL, this Court observed that when the transactions in question
were found preferential and hit by Section 43 of the Code, they were
denuded of their value and worth; and the security interest created by the
69
corporate debtor JIL over the property involved in those transactions
stood discharged in whole; and, therefore, such lenders of JAL cannot
claim any status as creditors of the corporate debtor JIL much less as
financial creditors. However, the question as regards the status of such
lenders of JAL qua the corporate debtor JIL was examined independent of
the findings that the transactions in question were hit by Section 43 of the
Code, with the following observations: -
“34.4. We may, of course, reiterate that in view of the conclusion
that we have reached in relation to the principal issue, the
transactions in question are denuded of their value and worth, per
the force of the order by NCLT under Section 44 of the Code,
which has been approved by us. To be most specific, the security
interests created by the corporate debtor JIL over the properties in
question stand discharged in whole. Therefore, the respondent
lenders cannot claim any status as creditors of the corporate
debtor JIL and there could arise no question of their making any
claim to be treated as financial creditors as such. However, for its
relevance, we deem it appropriate to determine the issue as to
whether the lenders of JAL, because of creation of the mortgages
in question, could be treated as financial creditors of JIL,
independent of the finding that the transactions in question are hit
by Section 43 of the Code.”
34.3. Thereafter, this Court dealt with the rival submissions relating to
the status of such lenders of JAL and held that they, on the strength of the
mortgages in question, might fall in the category of secured creditors but,
for the reason that the corporate debtor did not owe them any financial
debt, such lenders of JAL were not falling in the category of financial
creditors of the corporate debtor JIL. This Court summed up the
conclusion on this issue in the following terms: -
“ Summation on second issue
57. For what has been discussed hereinabove, on the issue as to
whether lenders of JAL could be treated as financial creditors, we
70
hold that such lenders of JAL, on the strength of the mortgages in
question, may fall in the category of secured creditors, but such
mortgages being neither towards any loan, facility or advance to
the corporate debtor nor towards protecting any facility or security
of the corporate debtor, it cannot be said that the corporate debtor
owes them any “financial debt” within the meaning of Section 5(8)
of the Code; and hence, such lenders of JAL do not fall in the
category of the “financial creditors” of the corporate debtor JIL.”
35. It would be relevant to notice that the parcels of land forming the
subject of seven questioned transactions were admeasuring about 858
acres; and while leaving 100 acres of land forming the subject of seventh
transaction, which was not declared as preferential, a chunk of 758 acres
of land, which earlier carried encumbrances because of the mortgages in
favour of the lenders of JAL, got released with the judgement delivered by
this Court and stood vested in JIL free from encumbrances. The
judgement was delivered by this Court on 26.02.2020, after voting by CoC
on the resolution plan in question but before the impugned order of NCLT
dated 03.03.2020.
36. The foregoing narrative in relation to the past litigations has
essentially been to flag and accentuate those attributes of the decisions of
this Court which carry their own relevance, bearing and implications on
the issues involved in the present batch of matters.
37. Continuing with the narrative, we may now take up the impugned
resolution plan, propounded by the resolution applicant NBCC and voted
in favour by CoC with an overwhelming majority of 97.36%.
The Resolution Plan
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38. As noticed, by the order dated 06.11.2019, this Court directed IRP
to complete the CIRP within 90 days from the date of the order; and for
that matter, it was provided that in the first 45 days, it would be open to
the IRP to invite revised resolution plans only from the two applicants
namely Suraksha Realty and NBCC, who were the final bidders and had
submitted resolution plans on the earlier occasion, and to place the
revised plan(s) before the CoC.
38.1. From the facts stated before us, it is borne out that the revised
resolution plans were called from the said applicants and were placed for
th
consideration in the 16 Meeting of CoC held on 07.12.2019. Having
considered the resolution plans, the members of CoC requested the
resolution applicants to improve their offers and thereupon, both the
resolution applicants agreed to submit addendums to their revised
resolution plans. Accordingly, Suraksha Realty submitted an addendum to
the resolution plan on 07.12.2019 and NBCC submitted its addendum to
the resolution plan on 08.12.2019. Then, with the certificate dated
08.12.2019 from IRP that the resolution plans submitted by Suraksha
Realty and NBCC were fully compliant under Section 30(3) of the Code
read with Regulation 39(2) of the CIRP Regulations, the plans along with
the respective addendums were put to e-voting from 9 a.m. of
10.12.2019, until 11.59 p.m. of 16.12.2019.
38.2. In the voting by CoC, the resolution plan submitted by NBCC
along with addendum was approved by a vote of 97.36% of voting share
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of the financial creditors in favour. On the other hand, the plan submitted
by Suraksha Realty could muster only a vote of 2.12% of voting share of
the financial creditors. The voting results were circulated by the IRP to the
members of CoC on 17.12.2019; and, on the instructions of CoC, the IRP
issued the Letter of Intent on 17.12.2019, which was duly accepted by
NBCC.
38.3. In compliance of the order dated 06.11.2019 passed by this Court,
the IRP filed the application bearing C.A. No. 5 of 2020 in C.P. (IB) No.
77/ALD/2017 seeking approval of the resolution plan of NBCC under
Section 30(6) read with Section 31 of the Code before the Allahabad
Bench of NCLT on 20.12.2019. Later on, the Principal Bench of NCLT at
New Delhi transferred the proceeding to itself and that is how the
impugned order dated 03.03.2020 came to be passed by the Adjudicating
Authority (NCLT, New Delhi) within the time allowed by this Court.
39. For its very nature and for various requirements of the provisions
contained in the Code as also in the CIRP Regulations, the resolution
plan in question is a vast document carrying business plans, financial
proposals including that of treatment of creditors, equity commitment,
projected steps and expected reliefs and concessions. We shall refer to
the particular stipulation/s in this plan at the relevant stage while dealing
with the specific issue related therewith. However, an overview of the
resolution plan shall be apposite to take note of its concept and salient
features. In this regard, we may usefully reproduce the summary of
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resolution plan placed before us by the IRP. This summary is subdivided
into different parts namely, (1) claims and their treatment; (2)
implementation of the plan; (3) key reliefs sought for by NBCC; (4) status
of project; and (5) annexure 1, being a part of the implementation
process.
39.1. The summary of claims and their treatment under the resolution
plan is as under: -
| S.<br>No. | Type of<br>Creditor | Admitted<br>Claim<br>(INR<br>Crores) | Treatment under the NBCC<br>Resolution Plan |
|---|---|---|---|
| 1. | Banks/<br>Financial<br>Institutions | 9,783 | Transfer of ownership of 1526 acres in<br>various land parcels of JIL. NBCC has<br>estimated value of 1526 acres at INR<br>5,001 Cr.<br> Transfer of 100% ownership of Yamuna<br>Expressway including, the remaining<br>concession rights of Yamuna<br>Expressway. Yamuna Expressway will<br>be hived off into a SPV.<br>Expressway SPV will raise fresh borrowings of<br>INR 2,200 Crore and pay it to JIL as part of the<br>consideration for transfer of Expressway. This<br>money will be used by NBCC for construction<br>of units. |
| 2. | Allottees of<br>Real Estate | 9,588<br>(Principal<br>amount) | Allottees to get completed units as per<br>Schedule A, which ranges from 9<br>months to 42 months from date of<br>transfer to NBCC.<br> No delay penalty to be paid for past<br>delays units to be constructed and<br>delivered by NBCC. NBCC will pay<br>Delay Penalty @ INR 5 per sq. ft./per<br>month only if there is delay in delivery of |
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| more than 1 year from the delivery dates<br>mentioned in Schedule A subject to<br>Force Majeure event.<br> Allottees who have not filed their Claims<br>(Approx. 2,100 in number) shall be<br>treated in a manner similar to other<br>allottees and will be provided units,<br>subject to customary check for<br>compliances and KYC of the customers. | |||
|---|---|---|---|
| 3. | Fixed Deposit<br>Holders | 29<br>Note: FD<br>holders of<br>approx. 90<br>Crore did<br>not file<br>Claims. | 100% upfront payment of FD Holders’<br>(only such Claims of FD Holders as are<br>forming part of the Admitted Financial<br>Debt) principal dues amounting to INR<br>29 Cr within 90 days from the Approval<br>Date.<br> Liability for other FD holders (approx.<br>INR 90 Crore) who have not filed their<br>respective claims will be relinquished. |
| 4. | Refund<br>Seekers<br>(Allottees and<br>customers) | 64<br>(Principal<br>amount) | The entire admitted claim of the Refund<br>Seekers shall be settled by payment of<br>an amount not exceeding INR 62.40 Cr,<br>of which 20% shall be paid upfront and<br>the remaining amount shall be paid<br>equally over a period of 4 years i.e. 20%<br>each year in the manner provided under<br>the Resolution Plan. |
| 5. | Operational<br>Creditors | 464 | The Total Operational Debt of 464 Crore<br>is proposed to be settled by payment of<br>INR 20 Cr. This includes Claim of<br>Yamuna Expressway Industrial<br>Development Authority (YEIDA) towards<br>development charges, etc.<br> Claim of YEIDA for approx. INR 6000<br>Crore has not been admitted by IRP<br>since these pertain to future obligations<br>for maintenance of toll road (which have<br>not become due) and sub-judice matters<br>relating to additional farmer<br>compensation. |
| 6. | Employees/<br>workmen of<br>the Corporate<br>Debtor | No Claim | All dues are paid upto date. |
| 7. | Dissenting | Proportionate share in the equity of the |
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| Financial<br>Creditors<br>(other than<br>allottees) | 612 | Yamuna Expressway SPV and land<br>parcel of 1526 acres on liquidation<br>value. | |
|---|---|---|---|
| 8. | Equity<br>Shareholders | 1,388 | NBCC to become 100% shareholder of<br>JIL. Rs. 1 crore to existing shareholders<br>towards consideration. Delisting of<br>equity shares of JIL. |
| 9. | Jaypee<br>Healthcare<br>Limited<br>(Subsidiary<br>Company) | NA | Jaypee Healthcare Limited (JHL) is<br>100% subsidiary of Corporate Debtor.<br>NBCC proposes to divest the entire<br>shareholding of JHL or transfer to a<br>Trust for the purpose of sale.<br> The lenders of JHL shall not be entitled<br>to deal with the assets or adversely<br>interfere with the continued business<br>operations of JHL in any manner<br>whatsoever. |
39.2. In the summary of the implementation process, by way of a flow
chart, various steps have been indicated which include formation of
different SPVs; raising of fresh debts of about INR 2,000 crores by
securitisation of Yamuna Expressway; transfer of rights of Yamuna
Expressway against equity shares and debt disbursement; transfer of
1,526 acres of land worth INR 5,001 crores, bank loan of INR 5,000
crores and issuance of equity of INR 1 crore; diversification of JHL;
infusion of INR 120 crores equity etc. etc.
39.2.1. The IRP has, in this summary, also indicated other key
implementation provisions, most of which are the matters of contention in
this litigation. That summary reads as under: -
“Other key implementation provisions
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- Deemed approval of YEIDA for transfer of Land and Toll road to
designated SPV’s without incurring any cost such as stamp duty,
transfer charges, Etc.
- Liability for additional farmer compensation (presently sub-judice)
not payable by JIL. Alternatively, if found payable, YEIDA to collect
is directly from end user.
- Transfer of INR 750 crores (plus interest) deposited by JAL,
pursuant to the order of the Hon’ble Supreme Court to be
transferred to JIL and to be used exclusively for construction of
houses.
- JAL to pay amount due to JIL (approx. INR 500) (INR 716 Crores
on insolvency commencement date) to JIL.”
39.3. The key reliefs sought for by NBCC in the resolution plan are
summarised as under: -
| Sl.<br>No. | Matter | Key Reliefs sought |
|---|---|---|
| 1. | INR 750 Crore (along with interest)<br>deposited by Jaiprakash<br>Associates Ltd. (JAL), holding<br>company of JIL with the Hon’ble<br>Supreme Court in Writ Petition<br>(Civil) No. 744/2017. | NBCC has retained the right to withdraw<br>its Resolution Plan in case INR 750 Cr<br>along with interest accrued thereon is<br>not made available to JIL. |
| 2. | Enforcement Directorate has<br>initiated investigation under the<br>Prevention of Money Laundering<br>Act, 2002 (“PMLA”) against JIL. | JIL to be discharged from PMLA and<br>other investigations. NBCC has retained<br>the right to withdraw from its Resolution<br>Plan in case the said relief is not<br>granted. |
| 3. | 858 acres of JIL’s land was<br>mortgaged with JAL lenders to<br>secure debt of JAL without any<br>consideration or counter guarantee<br>to JIL (Transaction). | NBCC has sought relief that 858 acres<br>of mortgaged land shall continue to be<br>vested in JIL free of any mortgage,<br>charge and encumbrance subject to the<br>orders of the Hon’ble Supreme Court.<br>Note: In the meanwhile, out of 858<br>acres, the Hon’ble Supreme Court vide<br>order dated 26.2.2020 have set aside<br>mortgage of 758 acres as avoidance<br>transaction. |
| 4. | Deemed approval of YEIDA for<br>business transfer | Approval of the Adjudicating Authority<br>shall be binding on YEIDA and |
77
| constitute adequate approval by YEIDA<br>for any business transfer to be<br>undertaken between the Corporate<br>Debtor and Expressway SPV.<br>As per NBCC, no separate approval will<br>be required for ‘carve-out’ and transfer<br>of lands to land bank SPV and toll road<br>to Road SPV as contemplated in the<br>plan. | ||
|---|---|---|
| 5. | Income Tax Liability | On account of transfer of land parcels<br>from YEIDA to JIL in terms of the<br>Concession Agreement, the Income Tax<br>authority has been making an addition to<br>the income of approximately INR 3,000<br>Cr on an annual basis estimated by the<br>Resolution Applicant to be a tax demand<br>of INR 33,000 Cr. for a period of 30<br>years, treating the transfer of land<br>parcels as the revenue subsidy. This<br>amount is being treated as operational<br>debt and is being settled in accordance<br>with the Resolution Plan. |
| 6. | INR 716 Cr advance to JAL on<br>Insolvency commencement date<br>(subsequently this amount has<br>reduced to approx. INR 500 crore) | INR 716 Cr was advanced to JAL<br>towards construction work and<br>maintenance charges/deposit. This<br>amount of INR 716 Cr outstanding from<br>JAL shall also be available to JIL for the<br>purpose of completion of flats to the<br>Home Buyers and other associated<br>purposes.<br>In case the relief is not granted, the<br>assets currently owned by the JIL and<br>being used by the home buyers of JAL<br>relating to maintenance, shall not be<br>available to the home buyers of JAL with<br>effect from the Approval Date. |
| 7. | Additional FAR appeal by YEIDA | YEIDA to withdraw the appeal filed in<br>the District Court, Gautam Budh Nagar<br>challenging the award dated 23.1.2017<br>passed by arbitral tribunal pertaining to<br>additional FAR and JIL to get the right to<br>use additional FAR as per the<br>Resolution Plan. |
| 8. | Additional Compensation to<br>erstwhile land owner (for both real | Any Claim/claim of YEIDA in future w.r.t.<br>the land acquired and transferred to JIL |
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| estate parcels and land acquired<br>for toll road) | by YEIDA (in terms of the Concession<br>Agreement), if any, shall only be<br>recoverable by YEIDA directly from the<br>actual lease holders (i.e. the sub-<br>lessees) on such date and no<br>Claim/claim shall lie against JIL or<br>NBCC. | |
|---|---|---|
| 9. | Extension of Concession Period | To ensure feasibility and viability of this<br>Resolution Plan, YEIDA and other<br>concerned authorities shall extend the<br>concession period (currently 36 years)<br>under the Concession Agreement for an<br>additional period of ten years. |
| 10. | Liability to repay of capital cost<br>pertaining to Noida-Greater Noida<br>Expressway | This liability shall stand extinguished, on<br>account of failure of YEIDA to allow JIL<br>to collect and retain toll/fee from the<br>users of the Noida-Greater Noida<br>Expressway during the term of the<br>Concession Agreement. |
39.4. The timelines and methods for implementation have been indicated
in the annexure to this summary which reads as under: -
| S.<br>No. | Actions | Timelines |
|---|---|---|
| 1. | Incorporation of NBCC SPV for acquisition of 100%<br>shareholding of JIL | Within 90 days of<br>Approval Date |
| 2. | Infusion of Equity Commitment by NBCC SPV into the<br>Corporate Debtor towards acquisition of 100%<br>shareholding in the Corporate Debtor | Upto a maximum of<br>INR 120 Cr within<br>90 days of taking<br>over the Corporate<br>Debtor in the form<br>of Equity/Quasi-<br>Equity/Debt. |
| 3. | De-listing (with exit price of INR 1 Cr to the public<br>shareholders) and extinguishment of the shares of<br>Non-Promoter Shareholders and Existing Promoters | Within 90 days of<br>Approval Date |
| 4. | Incorporation of Expressway SPV by the Corporate<br>Debtor | Within 90 days of<br>Approval Date |
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| Transfer of Yamuna Expressway asset from the<br>Corporate Debtor to the Expressway SPV by way of<br>business transfer or any other tax efficient transfer<br>mechanism for a consideration equal to the book value<br>of the Yamuna Expressway in the books of the<br>Corporate Debtor | Within 90 days of<br>Approval Date | |
|---|---|---|
| Transfer/Novation of Institutional Financial Creditor’s<br>dues to an extent of INR [Fresh Debt – (less) 2000 Cr]<br>from the Corporate Debtor to the Expressway SPV. | ||
| Issuance of optionally/non-convertible Debentures by<br>Expressway SPV to the Corporate Debtor amounting<br>to INR 2,200 Cr | ||
| Issuance of equity shares by Expressway SPV to the<br>Corporate Debtor for the balance consideration (i.e.<br>book value of the Yamuna Expressway in the books of<br>the Corporate Debtor –(less) INR 2,200 Cr – (less)<br>transferred/novated debt) | ||
| Expressway SPV to avail indebtedness in<br>consultation with the CoC aggregating to a<br>minimum of INR 2,000 Cr (“Fresh Debt”) from<br>the Expressway Lenders by securitizing future<br>cash flows of the Expressway | ||
| 5. | Payment of unpaid CIRP Costs | Within 90 days of<br>Approval Date |
| 6. | Payment of the Operational Debt to Operational<br>Creditors (other than the workmen dues as above) of<br>the Corporate Debtor | INR 20 Cr or the<br>liquidation value, if<br>any due to the<br>Operational<br>Creditors in terms<br>of Sections 30 and<br>53 of the Code<br>(other than the<br>workmen dues as<br>above), whichever<br>is higher, shall be<br>paid in full before<br>any payment to the<br>Financial Creditors. |
| 7. | Payment of transferred/novated debt of INR [Fresh<br>Debt – (less) 2000 Cr] by Expressway SPV to the<br>Institutional Financial Creditors |
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| 8. | Payment of an amount not exceeding INR 29 Cr<br>forming part of the Admitted Financial Debt to FD<br>Holders subject to conditions as specified in the<br>Resolution Plan | Within 90 days of<br>Approval Date |
|---|---|---|
| 9. | Payment of INR 2,000 Cr. by Expressway SPV to the<br>Corporate Debtor towards part redemption of<br>optionally/non-convertible debentures | Within 90 days of<br>the Approval Date |
| 10. | Conversion of Admitted Financial Debt (due to<br>Institutional Financial Creditors) into equity shares of<br>the Corporate Debtor and subsequent reduction of<br>share capital to extinguish the shareholding of<br>Institutional Financial Creditors in the Corporate Debtor<br>in entirety | Within 90 days of<br>the Approval Date |
| 11. | Incorporation of Land Bank SPV and issuance of<br>equity shares by the Land Bank SPV to the tune of INR<br>1 Cr which shall be subscribed to by the Corporate<br>Debtor | Within 90 days of<br>the Approval Date |
| Transfer of land worth INR 5,001 Cr* Jaganpur-187<br>acres, Mirzapur- 170 acres, Tappal-550 acres and<br>Agra-619 acres (the specific land parcels to be<br>transferred to the Land Bank SPV at the aforesaid<br>locations shall be at the discretion of the Resolution<br>Applicant) total admeasuring 1,526 acres from the<br>Corporate Debtor to the Land Bank SPV by way of a<br>business transfer or any other tax efficient transfer<br>mechanism | ||
| Transfer/Novation of Admitted Financial Debt (due to<br>the Institutional Financial Creditors) to an extent of INR<br>5,001 Cr from the Corporate Debtor to Land Bank SPV | ||
| Transfer of 100% shareholding of the Land Bank SPV<br>from the Corporate Debtor to the Institutional Financial<br>Creditors | ||
| 12. | Transfer of equity shares from the Corporate Debtor to<br>Institutional Financial Creditors equivalent to 100%<br>equity share capital of Expressway SPV for a<br>consideration equal to their then outstanding debt to be<br>paid by way of settlement of the outstanding debt to<br>the same extent | Within 90 days of<br>the Approval Date |
| 13. | Delivery of constructed flats to the Home Buyers<br>towards satisfaction of their Claims | As per the Delivery<br>Schedule set out in<br>Annexure A. |
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| 14. | Payment of an amount not exceeding INR 62.40 Cr to<br>the Refund Seekers towards their admitted claims | 20% of INR 62.40<br>Cr. within 90 days<br>of the Approval<br>Date, remaining<br>amount to be paid<br>shall be paid<br>equally over a<br>period of 4 years<br>i.e. 20% each year<br>in the manner<br>provided under this<br>Plan |
|---|---|---|
| 15. | Redemption of remaining amount of INR 200 Cr by the<br>Expressway SPV to the Corporate Debtor | Any time prior to<br>the monetization of<br>the Expressway<br>Asset by the<br>Institutional<br>Financial Creditors. |
40. As noticed, on this resolution plan being presented for approval
before the Adjudicating Authority, various objections were raised by
various stakeholders. All such objections and the prayer for approval of
the resolution plan were considered analogously; and the Adjudicating
Authority has, by its order dated 03.03.2020, proceeded to approve the
plan with a few modifications and with certain directions. This order dated
03.03.2020 is the matter of challenge for one reason or another by the
parties before us. For their relevance, it would be appropriate to take note
of the salient features of this order in necessary details.
Order dated 03.03.2020 by the Adjudicating Authority in approval of
the resolution plan with modifications
41. The order dated 03.03.2020, as passed by NCLT in exercise of its
jurisdiction under Section 31 of the Code, could be reasonably divided in
five segments. In the first place, the NCLT recounted the relevant
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background aspects leading to the CIRP in question and the orders
passed by this Court in the aforementioned three rounds of litigation in the
cases of Chitra Sharma, Jaiprakash Associates Ltd. and Anuj Jain
(supra). Secondly, the NCLT dealt with the issue relating to the said INR
750 crores deposited by JAL in terms of the interim orders passed by this
Court in the case of Chitra Sharma and which was to abide by the
directions of NCLT in terms of the final judgement in Chitra Sharma.
Thirdly, the NCLT examined the resolution plan and summarised its
propositions, projections and stipulations. Thereafter, in the fourth
segment, the NCLT dealt with the objections against the resolution plan
by several persons/entities, including JAL and its stakeholders, ICICI
Bank, YEIDA, some of the aggrieved homebuyers, YES Bank and the
agreement holders. In the fifth segment, the NCLT generally dealt with the
clauses relating to the reliefs and concessions in the resolution plan as
also various other applications filed by different stakeholders. For their
relevance, the material observations and findings of the Adjudicating
Authority (NCLT) in its order dated 03.03.2020 could be relayed
sequentially.
42. In the first part of the order dated 03.03.2020, the NCLT referred
to the very same background aspects which we have already recited
hereinbefore, namely, the award of contract for construction of
Expressway to JAL, incorporation of JIL as special purpose vehicle, the
Concession Agreement extended by YEIDA, taking up of the projects by
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JIL for laying of Expressway and developing residential flats, JIL having
collected money from homebuyers but having failed to deliver flats to
them and having also defaulted in payment of loan instalments, initiation
of CIRP and litigation in this Court in the case of Chitra Sharma (supra).
The NCLT traversed through all the aforementioned relevant interim
orders and final judgment in Chitra Sharma. The NCLT also took note of
the directions of this Court in the judgment dated 06.11.2019 in the case
of Jaiprakash Associates Ltd. and in the judgment dated 26.02.2020 in
the case of Anuj Jain .
43. In the second part, in relation to the said amount of INR 750
crores and accrued interest thereupon, the NCLT took note of a vast
variety of submissions made by different claimants, which may also be
usefully recounted as follows.
43.1. It was submitted on behalf of JAL, who moved an application
seeking return of the said sum of INR 750 crores, that when the Supreme
Court had declined the request of homebuyers for pro rata distribution of
the said amount and had transferred the same to NCLT, the amount could
not be appropriated for any purpose other than refunding it to JAL. It was
submitted that the said deposit of INR 750 crores had acquired the
character of constructive trust and this amount was required to be
refunded to JAL on the principles enshrined in Sections 77 and 83 of the
Indian Trusts Act. It was further submitted that since the Supreme Court
had nowhere directed either to pay the remaining balance or to utilise this
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money towards refund of homebuyers’ money, it had to be treated as the
money of JAL and returned accordingly. It was also submitted that as per
CIRP Regulations 36 and 37, only the properties of the corporate debtor
were subject to the resolution process and the amount deposited by JAL,
being not the asset of the corporate debtor, was required to be returned.
Such submissions of JAL were duly supported by ICICI Bank, the leader
of the consortium of banks, who had lent money to JAL and it was further
submitted that in the case of Chitra Sharma (supra), the Supreme Court
directed the promoters of JAL to deposit INR 2,000 crores in order to
ensure that the homebuyers were not left remediless and their money
could be refunded but after amendment to IBC, the Supreme Court
neither ordered such refund nor insisted upon the promoters of JAL to
deposit the remaining balance of INR 1,250 crores, but simply delegated
this work to the NCLT to proceed with CIRP and to approve the resolution
plan in accordance with IBC. It was submitted on behalf of ICICI Bank
that there being no specific direction by the Supreme Court to utilise this
money for the financial creditors of JIL, the same was required to be
returned to JAL. The promoter-directors of the corporate debtor also filed
an affidavit stating that no part of this money was deposited by JIL and
the same was not handed over to JIL for any purpose whatsoever; and
that the Supreme Court had never held that JAL was legally bound to
contribute funds required for completing the projects of JIL. On similar
lines, the appellant Pankaj Sharma and other homebuyers of JAL also
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prayed for release of the said amount to JAL so that it could be utilised for
the homebuyers of JAL. It was submitted that JAL itself was in financial
distress and if such a huge amount belonging to it was given to another
company, the interests of the stakeholders of JAL would be jeopardised. It
also submitted that the purpose for which the deposit was made had not
been fulfilled and it was not meant for construction of the flats of JIL and
this money, being not an asset of JIL, should be returned to JAL.
43.2. In opposition, it was submitted by the lenders of JIL, led by IDBI
Bank that in the judgement dated 09.08.2018, the Supreme Court was
conscious of the fact that this amount could not be disbursed only to one
class of creditors and hence, it was not allowed to be used for the
purpose of the refund seekers. It was further submitted that the corporate
debtor was generating revenue through collection from Yamuna
Expressway but this money, rather than being utilised for servicing the
loans provided by the institutional lenders, was being utilised towards
construction work and for running the corporate debtor as a going
concern; and in this scenario, the said amount of INR 750 crores with
interest should be distributed on pro rata basis to the lenders of JIL in
accordance with the voting share in the CoC. Along with others, IRP also
made submissions that there were 32,754 allottees to whom flats were
sold as per the records of JIL and as on 05.10.2018, 24,296 of them were
waiting for possession of their flats; and if the money was ordered to be
released for construction and development of the projects of the
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corporate debtor, it would provide a boost to the construction activity and
serve the larger purpose. It was submitted by IRP that as per the orders
passed by this Court in Chitra Sharma (supra), this money was intended
to protect the interests of homebuyers only. It was also pointed out that as
per the tripartite agreement involving JAL, JIL and homebuyers, JAL was
the developer of the project and was responsible for delivering
possession of flats to the homebuyers. The IRP also referred to various
orders passed by this Court in the course of proceedings in the case of
Chitra Sharma as also a settlement proposal given by JAL on
15.02.2019, stating that the said sum of INR 750 crores was to be utilised
towards revival of the business of JIL irrespective of the outcome of legal
proceedings. In the backdrop of these facts and circumstances, it was
submitted that the said amount being for the cause of homebuyers, it was
not open to JAL or its lenders or promoters or homebuyers to seek
reopening of the issue concluded by the decision of this Court.
43.3. Having noticed the length and breadth of the arguments on the
two sides, where one was supporting for utilisation of the said amount of
INR 750 crores and accrued interest for the benefit of the homebuyers of
JIL and where other side was arguing for return of the money to JAL, the
NCLT proceeded to consider as to how this money was to be dealt with.
43.4. The NCLT referred to the background in which this Court had
passed the order for deposit of the said amount where promoter–directors
of JAL and JIL were one and the same; and JIL/JAL had failed to deliver
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flats to the homebuyers of JIL within the timelines given by them. The
NCLT observed that in the orders of this Court, JIL/JAL were directed to
deposit a sum of INR 2,000 crores towards refund of the money of
homebuyers; the Court had never treated that money as the property of
JAL; and the only reason for this Court not distributing the deposited
amount to the homebuyers was that only 8% of them were seeking refund
whereas 92% had asked for possession of the flats and, in order to avoid
preferential treatment, this issue was relegated to the NCLT. The NCLT
further observed that though JAL was per se not a debtor to the
homebuyers but, when the money had come on behalf of the debtor in
relation to a debt obligation or for discharge of an obligation, neither the
person depositing it could subsequently say that he was the owner of the
money nor the money could be construed as a trust money. The NCLT
held that this money had to be utilised to the obligation owed to the
creditors of the corporate debtor and any decision for refund of money to
JAL would be overreaching the wisdom of the Supreme Court. The NCLT,
accordingly, disposed of all the applications with respect to the issue of
INR 750 crores and held that this money is to be treated as the asset of
the corporate debtor. The relevant passages of the observations and
findings of NCLT in regard to this issue could be extracted as under: -
“51. On reading the judgments and orders of Hon'ble
Supreme Court, it is evident that the Hon'ble Supreme Court is
aware of the fact that JAL has deposited the money. It is aware of
the fact that JIL money has gone to JAL for construction of the
towers to the homebuyers of JIL, it is a fact that promoter-directors
of JIL and JAL are one and the same. It is a fact that JIL/JAL failed
88
to deliver flats to the homebuyers of JIL within the timelines given
by them. In all the orders of the Hon'ble Supreme Court, it has only
been said that JIL/JAL shall deposit Rs. 2000 crore towards the
refund of homebuyers money. It has not been treated that money
as the money of JAL. On reading all the orders of the Hon'ble
Supreme Court, all that could be ascertained is the Hon'ble
Supreme Court endeavoured to claw back the homebuyers’ money
from JIL and JAL. In that pursuance, JAL deposited Rs. 750 crore.
The only criteria for not distributing this Rs. 750 crore to the
homebuyers is that only 8% of the homebuyers sought for refund
of the money whereas 92% homebuyers have asked for flats,
therefore to avoid preferential treatment, this issue has been
relegated to the NCLT to deal with in accordance with IBC. One
more fact is, though Hon'ble Supreme Court initially stayed the
proceedings of CIRP, subsequently vacated the stay and allowed
the IRP to proceed with CIRP.
52. In the backdrop of these facts and in the light of
submissions made by either side, let us see what the Honourable
Supreme Court held in Chitra Sharma “ Directing disbursement
of the amount of Rs. 750 Crore to the Homebuyers who seek
refund would be manifestly improper and cause injustice to
the Secured Creditors since it would amount to preferential
treatment to a class of creditors ” (Para 48.1 of Chitra Sharma
case (2018) 18 SCC). This being the observation, now the point
before us is how to go about it. It has not been said anywhere in
the observation that this money should go back to JAL. Moreover
the Hon'ble Supreme Court has not asked JAL/JIL to deposit the
money on the condition that it would be returned to JAL in the
event it has not been distributed to JIL homebuyers. It has not
been said anywhere that it is the money of JAL.
53. It is a fact that if homes are not delivered within the time,
the only recourse is either to complete the homes or to refund the
money. Once a contract is not performed as stated under an
agreement entered between the parties, if the party advanced
money is entitled for refund of the money, the jural relation in
between the person given the money and the person taken the
money will become creditor and debtor relation. When such money
has come back from the debtor to the creditor or to a person in
between for the cause of the creditor, it can never be called as the
money of the debtor, it has to be treated as money returned to the
creditor.
54. In this case, JAL has admittedly failed to complete the
projects as stated by JIL and JAL. It is not the case that this money
was given for charitable purpose. It is not the case that this money
was deposited with the Hon'ble Supreme Court on the condition
that it would be returned to JAL in the event it has not been
distributed to the homebuyers. As long as debtor is liable to pay
89
money to the creditor, once it has been deposited towards that
payment, it can't be stated that money belongs to the debtor.
*
56. ICICI Bank Counsel has argued that money is fungible,
therefore unless money has gone out from JAL for repayment, it
can't be said as money deposited by JIL is the money payable to
JIL homebuyers.
57. No doubt money is fungible, but obligation to repay is not
fungible, therefore when money is deposited or clawed back to
repay it to the creditor, the money being fungible and there being
an obligation for repayment, it can no more be considered as
money owned by the debtor. Though JAL is per se not a debtor to
the Homebuyers, when money has come on behalf of the debtor in
relation to a debt obligation or for discharge of an obligation, the
person deposited it towards that obligation cannot subsequently
say that he is the owner of the money, therefore entitled for return
of it.
58. If trust concept is examined, we will know that trust is a
relationship where property/money held by one party for the
benefit of another party. Trustee holds the property/money for the
benefit of the trust beneficiaries. Trustee is under fiduciary duty to
ensure that the property of the owner is maintained and the benefit
thereof is reached to the persons to whom it is intended to. In the
case of trust, the owner is under no obligation to pass on the
benefit to the beneficiary, therefore, the owner/settler being the
owner of the property, he is entitled to take it back in the event it is
not utilized for the purpose the owner intended to. But that is not
the case when money from the Debtor or on behalf of the Debtor
has gone out towards discharge of an obligation. In the case of
trust, ownership of that property or money remains with the owner
as long as it is not utilized for the purpose intended to. That owner
has no obligation to part with his property/money.
59. In case of homebuyers’ issue, once homebuyers entered
into an agreement with a developer and when their relations
entered into turbulence and not in a position to become normal,
the relation in between them will become creditor and debtor and
the person under obligation shall refund the money of the
homebuyers. In the given case, JAL deposited money on behalf of
JIL for utilization of the same to the homebuyers of the Corporate
Debtor. Therefore, it is evident that this deposit is made towards an
obligation. When any money is received towards an obligation, it
can neither be construed as trust money nor construed as
governed by constructive trust, therefore we have not found any
merit to say that this money is governed by trust concept.
60. In this case, the homebuyers’ money has been lying with
the Corporate Debtor and JAL, it is an admitted fact that money
come from the Homebuyers has gone to JAL in the name of
90
construction. It is not the case of the JAL that JIL money has not
come for construction. Moreover, JAL, by the time it has deposited,
was aware that it was depositing that money towards the
obligation owned to JIL homebuyers.
61. Here there could not be any assumption or presumption
to say that JAL deposited this money before the Honourable
Supreme Court with an assumption that it would come back to it in
the event this money has not been utilized for the distribution of it
to the homebuyers of JIL.
62. As long as the Hon'ble Supreme Court has not stated
that this money has to be returned to JAL, it has to be construed
that the Hon'ble Supreme Court has consciously retained the
money within the custody of it and thereafter transferred this
money to NCLT with a direction that the parties shall abide by the
directions of NCLT. Had the Hon'ble Supreme Court has felt that it
should go back to JAL, the Honourable Supreme Court would
have returned it to JAL, but it has not been done. Whenever any
payment is made towards any liability, it has to be treated as a
payment made towards that liability. It does not matter who paid
the money, it matters as to whether it has been paid towards an
obligation or not. Since JAL has without any objection or condition
paid to the homebuyers of JIL on behalf of JIL, it has to be treated
that the payment is towards the obligation of JIL. Though it has not
been explicitly explained that JAL paid on behalf of JIL, the matter
pending before the Hon'ble Supreme Court being with regard to
homebuyers of JIL, when money was asked to be deposited
towards refund of JIL homebuyers, and the same being paid by
JAL, now it is not open to JAL to say that it is JAL’s money.
63. As to the argument saying that for Rs. 750 Crore has not
gone into the books of Corporate Debtor (JIL), therefore it cannot
be treated as the asset of JIL, when money has been deposited on
the directions of Honourable Supreme Court and that has not been
returned by Honourable Supreme Court, we are only limited to
understand that the Honourable Supreme Court has not refunded
the money because refunding to a few creditors in preference to
other creditors would become a preferential treatment, therefore
such observation cannot be extrapolated to say that the Hon’ble
Supreme Court has refused to refund the money on the
assumption that this money has to go back to JAL.
64. If we see the situation in the perspective of the historical
facts, it is evident that homebuyers paid money, JIL and JAL failed
to deliver homes to the homebuyers, therefore the obligation lies
upon JIL to satisfy that obligation either by refunding the money or
by delivering homes to the homebuyers, for neither of the things
being done, the money having passed from JIL to JAL, and part of
it having come back as per the orders of the Hon'ble Supreme
Court, now it is not open either to JAL or its creditors to canvass
that this money is belonging to JAL.
91
65. In view thereof, we hereby consider that this money has
to be utilized to the obligation owed to the creditors of the
Corporate Debtor and in case this Bench for any reason passes
any order for return of this money to JAL, it would be nothing but
overreaching the wisdom of the Hon'ble Supreme Court and its
directions. When money has been paid by JAL towards an
obligation as per directions of the Hon'ble Supreme Court, it can
no more be considered as the assets of JAL. As to whether it has
been stated in the information memorandum that this Rs. 750
Crore is an asset of the Corporate Debtor or not, every case has to
be seen in the context of its facts. If at all for any reason, this is not
shown as the asset of the corporate Debtor in the information
memorandum, can it be said that the Hon'ble Supreme Court
transferring the deposit to NCLT has no meaning? Any order that
has been passed by the Hon'ble Supreme Court, is binding on all
Courts and Tribunals, for there being no direction to return this
money to JAL or to determine as to whether it has to be paid to
JAL or not, it is not open to this Bench to draw any inference other
than an inference considering that this money is an asset of the
Corporate Debtor. Since JAL is not under further obligation to
complete construction of homes, there is no occasion to assume
that if this money go back to JAL, it would be utilized for the cause
of the creditors of the Corporate Debtor, in view thereof, we hereby
dispose of all CAs related to Rs. 750 Crore issue by holding that
this money is to be treated as the asset of the Corporate Debtor.”
44. After having dealt with the issue of INR 750 crores, the NCLT took
up the issue with regard to the approval of the resolution plan and for that
matter, in the third segment of the impugned order, summarised the
salient features of the resolution plan, which have already been noticed
hereinbefore and need not be repeated. The objections dealt with by the
NCLT in the fourth segment of its order dated 03.03.2020 could now be
noticed with reference to the objector and the subject matter.
45. It was submitted on behalf of JAL that the resolution plan could not
be approved for the reasons that it was being used as a device for
enrichment of NBCC at the cost of the corporate debtor where NBCC was
attempting to acquire JIL having worth of about INR 8,257 crores for a
92
petty sum of INR 120 crores; that the resolution plan was a contingent
one where NBCC reserved its right to withdraw if the said sum of INR 750
crores was not treated as part of the resolution plan and JIL was not
discharged of PMLA and other investigations; that the approval was
inconsistent with Section 11(4)(g) of RERA; that simultaneous voting on
two resolution plans was not permissible in law; that the resolution
applicant wrongly suggested that there was no haircut in the proposed
settlement of dues of financial creditors because the haircut was as far
high as INR 6,101 crores which was 62.36% of the debt of INR 9,783
crores. These contentions were countered by IRP with the submissions
that the promoters of JAL and JIL had no locus to question the offer
accepted by the CoC and as per the decision of this Court in the case of
Maharashtra Seamless Limited v. Padmanabhan Venkatesh and Ors.
37
(C.A. No. 4242 of 2019) , no provision in the Code required the resolution
applicant to match the liquidation value; that no provision in the Code
prevented simultaneous voting over two plans; and that as per the
decision of this Court in the case of Pioneer Urban Land and
Infrastructure Ltd. & Anr. v. Union of India & Ors. : (2019) 8 SCC 416 ,
RERA and IBC co-exist and have to be interpreted harmoniously and in
the event of a clash, RERA must give way to IBC. It was also submitted
that when the homebuyers who were entitled to raise RERA objections
had themselves voted in favour of the plan, the promoters/directors could
not raise any grievance. There was a question of claim of the corporate
37 Since reported as (2020) 11 SCC 467 .
93
debtor against JAL, being the amount given as mobilisation advance on
which, there was a discrepancy in the accounting, but it was admitted on
behalf of JAL that an amount of INR 274 crores was net receivable by JIL
from JAL. To this, the NCLT directed payment of the said amount to JIL
and for reconciliation of the account as regards the remaining dues. The
NCLT had also brushed aside the submissions regarding the contingent
nature of the plan with reference to its finding on the issue related to the
said deposited sum of INR 750 crores and Section 32A inserted to the
Code by way of amendment with effect from 28.12.2019. The relevant
observations of NCLT read as under: -
“69. With regard to these two issues, this Bench has already
decided that Rs. 750 Crore lying with NCLT shall be utilized for the
cause of the creditors of the Corporate Debtor and with regard to
PMLA proceedings, for Section 32A being brought into existence
by way of Amendment to the Code 28.12.2019, now there need
not be any separate protection from the PMLA proceedings over
the assets of the Corporate Debtor, therefore we have not dealt
with this issue, therefore the argument saying that plan is
conditional has no merit.
*
72. Moreover, the calculation of figures given by JAL to say
that figures placed by the Resolution Plan are not supported by
material, in any event, this being an issue to be taken up by the
CoC, this Bench cannot decide the fate of the resolution plan on
the figures shown by the promoters of JIL and JAL, unless such
plan is vitiated by fraud.
73. Apart from this, it is not the case of promoter/directors
that company has positive net worth entitling the promoters of the
company to receive the residual proceeds in the event company is
liquidated. As long as liabilities are more than the assets of the
company, the promoters/directors’ arguments cannot be seen as a
point having bearing on the resolution plan approved by the CoC.
74……….This objection over simultaneous voting per se does not
look as an act in violation of the Code or Regulations thereto. No
provision has envisaged that two plans should not be put to voting.
Moreover there is no mandate that if two plans are put to voting,
94
the plan voted in favour to be declared non est in law. Doctrine of
severance could be applied by validating the action doable under
the law as valid. If any excess has happened, such excess can be
taken out. Besides this, both the plans are not approved. In
addition to it, unsuccessful Resolution Applicant has no grievance
to the plan present before us.
75. With regard to RERA issue, the IRP submits that the
Hon'ble Supreme court in para 28 of Pioneer Urban Land &
Infrastructure Limited & anr. Vs. Union of India & Ors. (WP (c)
no. 43 of 2019) held that RERA and IBC must be held to co-exist
and be interpreted harmoniously and in the event of clash, RERA
must give way to IBC .
76. When the home-buyers, who are entitled to raise RERA
objection themselves have voted in favour of the plan, RERA
violation if any, it cannot be the grievance of the
promoters/directors.
77. With regard to Rs. 716 Crores claim against JAL by the
Corporate Debtor, the IRP submits that after setting off the amount
paid to JAL, the amount to be refunded by JAL is a sum of Rs. 594
Crores as on 31.12.2019. It is an admitted fact that mobilisation
advance of Rs. 586 Crores is due and payable by JAL and JIL as
on 31.12.2019, out of which JAL says, after setting off, the amount
due and payable to JIL by JAL is only Rs. 274 Crores. However,
JAL counsel has not placed material supporting the figures shown
as set off, since JAL Counsel himself has stated that net
receivable by JIL from JAL amounts to Rs. 274 crores, JAL shall
forthwith pay Rs. 274 crores to JIL, as to remaining money as
sought by the Resolution Applicant, JIL and JAL shall draft a
reconciliation statement, accordingly payment has to be made to
whomever any outstanding is payable.”
46. Another major part of objections, in terms of magnitude and
implication, came up from the dissenting financial creditor ICICI Bank. It
was submitted by this lender bank that being a dissenting financial
creditor, it was entitled to receive payment as per the liquidation value in
terms of Section 30(2)(b) of the Code read with Regulation 38(1)(b) of
CIRP Regulations but in the resolution plan, it was sought to be provided
only the land and equity in the SPVs proposed to be incorporated; and
such a provision in the resolution plan was entirely impermissible. It was
95
also submitted that while the assenting financial creditors were allowed to
receive upfront payment of INR 300 crores on the basis of fresh debts
raised by Expressway but the same benefit was not being extended to the
dissenting financial creditors. The NCLT noted the star argument of the
learned counsel for ICICI Bank that distribution of equity or the land
parcels to the dissenting financial creditors does not satisfy the
requirement of “payment” under Section 30(2) of the Code read with
Regulation 38(1)(b) of the CIRP Regulations; and such payment has to be
a liquidated sum, as stated under Section 53 of the Code. Per contra, it
was contended on behalf of the resolution applicant and the IRP that it
was nowhere envisaged in Section 30(2) of the Code that payment of
liquidation value to dissenting financial creditors has to be in cash; that
even Regulation 38(1)(b) of the CIRP Regulations only provided for the
priority of payment to the dissenting financial creditors before the
assenting financial creditors and the mode of payment to be in cash was
not mentioned; that when the assenting financial creditors were not being
paid in cash and had accepted equity and land parcels, payment to the
dissenting financial creditors in cash would cause prejudice to the rights
of the assenting financial creditors. Meaning of the word “payment” in
Black’s Law Dictionary was also cited and it was argued that the money or
other valuable thing delivered to discharge the obligation is to be
construed as payment under Section 30(2) of the Code.
96
46.1. While dealing with the rival submissions in relation to this claim of
the dissenting financial creditor, the NCLT referred to the binding nature of
agreement between JIL and the said creditor as also the rights of a
dissenting financial creditor in terms of Sections 30(2) and 53 of the Code
and concluded that the only recourse available was payment in cash to
such dissenting financial creditor a sum equivalent to the liquidated sum
he would be entitled to receive under Section 53 of the Code. The NCLT
said,-
“91. If you come to the resolution under IBC, there are two
outcomes in it. One is some creditors agreeing for a resolution to
the existing situation. Another is, some creditors may not agree for
the resolution. The persons agree for the resolution, they are no
doubt bound by the arrangement they agreed upon. But as to the
dissenting creditors, who have not agreed for the resolution, they
are governed by sections 30(2) & 53 of the Code. In the case of
dissenting creditor, the Corporate Debtor or the Resolution
Applicant stepping into the shoes of the Corporate Debtor is bound
by the earlier contract entered between the Corporate Debtor and
the dissenting financial creditor and then by the pro rata
distribution entitled u/s 53 of the Code. The only recourse available
is, the dissenting creditor shall be paid in cash equivalent to the
liquidated sum he is entitled to receive u/s 53 of the Code. It is a
deeming fiction to calculate the liquidated sum payable to the
dissenting financial creditor and pay the same to the dissenting
creditor as if the company is liquidated. To make such payment,
the company need not be factually liquidated.”
46.2. The word “payment”, as defined in Black’s Law Dictionary was
also analysed by NCLT and it was stated that the obligation has to be
seen and in the instant case, the obligation was repayment of money lent
along with interest. It was observed, that the dissenting financial creditors
were to be paid in cash not just by virtue of Section 53 of the Code but
97
also by virtue of the terms and conditions of the agreement between JIL
and the dissenting financial creditor, in the following words: -
“92….Therefore this argument will not be ticking to say that
payment in kind to the promise is discharge of obligation. If the
promisee has agreed to give up the payment obligation, he is free
to do so. In this case, for the dissenting financial creditor has not
agreed to the approval of the resolution plan, they shall be paid in
cash, not only by virtue of the mandate under Section 53 of the
Code but also by virtue of terms and conditions of the agreement
between the Corporate Debtor and the dissenting financial
creditor.”
46.3. The NCLT further observed that upon approval of the plan by the
CoC, it was not open to the parties to say that, since the assenting
creditors were not getting better treatment than the dissenting creditor, the
dissenting creditor shall remain bound to the plan; and when a particular
issue was governed by law, something not present in the law could not be
thrust upon any party under the cover of equity. The NCLT, thereafter,
proceeded to analyse the requirements of Section 30(2) of the Code with
Section 53 and Regulation 38 of the CIRP Regulations; and also
examined its powers to deal with those aspects of the resolution plan
which were not compliant with Section 30(2) of the Code. Having
examined and analysed thus, the NCLT held that when the resolution plan
is found non-compliant with Section 30(2), the IRP or the resolution
applicant cannot say that the approval being within the ambit of
commercial wisdom of CoC, all what was decided by CoC was binding on
the dissenting financial creditor; and it was within its (NCLT’s) jurisdiction
to modify the plan so as to make it compliant with the requirements of law
98
without altering its basic structure. The NCLT observed and held as
under: -
“98. If section 30(2) (b) (ii) is carefully examined, and read in
the context of the said clause, it is clear that payment will be the
amount to be paid to the financial creditors under Section 53 of the
code, because it is for payment of the debts of the financial
creditors, thereafter it has been further stated it shall be not less
than the amount to be paid to them in accordance with Section 53
of the code.
99. When all these provisions and IBBI specifications made
clear payment to the dissenting financial creditors means payment
of amount, the resolution professional or the resolution applicant
cannot argue that the payment can, not only be in cash but also in
kind.
100. The persons agreeing for something, they may agree for
anything, it does not mean that the persons disagreeing shall also
be treated as the assenting financial creditors are treated. When
any financial creditor disagreed for a resolution, he knows that he
has to be compromised with the situation befall upon him under
Section 53 of the code. It does not matter as to whether his
entitlement under Section 53 is more or less than the treatment
assenting financial creditors getting. Their rights are already
compromised under section 53 slating them to their entitlement on
pro rata basis. They cannot be put to further sufferance at the wish
of the Resolution Applicant or the CoC. As Section 30 (2) has
referred to section 53 entitlement, and this Bench being made
custodian to verify as to whether section 30(2) compliance has
been accomplished or not, the RP or the resolution plan applicant
cannot say that plan approval is within the ambit of commercial
wisdom of the CoC therefore what all that is decided by the CoC is
binding upon the dissenting financial creditors. Whenever such
compliance is not present in the plan, this Bench is authorised to
examine the same and interfere with the plan despite the plan has
been approved as contemplated under Section 30(4) of the code.
101. Looking at the resolution plan treatment to the dissenting
financial creditor in the light of the aforesaid legal proposition,
since it has not been said in the Code that plan should be
approved as submitted by the resolution professional under
Section 30(6) of the code, we are of the view that this Bench has
jurisdiction to approve the plan by modifying the plan to the extent
that does not alter the basic structure of the plan.”
(underlining is in original)
46.4. Having thus held on the requirements of modification of the plan in
relation to the treatment of the dissenting financial creditor while retaining
99
its basic structure, the NCLT observed that the two aspects which were
made the basic conditions by the resolution applicant namely, getting the
said sum of INR 750 crores and extinguishing of PMLA proceedings were
duly taken care of, respectively by the decision in relation to the said
corpus of INR 750 crores and by the amendment of law. The NCLT further
observed that for the sake of viability and feasibility, the plan could be
modified to make it compliant with Section 30(2) of the Code. Having said
so, NCLT proceeded to modify the terms of resolution plan in the manner
that the resolution applicant shall pay to the dissenting financial creditor
the amount receivable in terms of Section 53 of the Code in twelve
monthly instalments along with interest starting from six months from the
date of order with default conditions of interest. The NCLT ordered as
under: -
“103. In view of the same, for the sake of viability and
feasibility of the plan, we hereby modify this plan to make it in
compliance with the section 30(2) (b) (ii) of the code by holding
that the Resolution Applicant shall pay to ICICI an amount that it is
entitled to receive u/s 53 of the code within 18 months from the
date of approval of this plan, that is in 12 equal monthly
instalments along with interest over the admitted claim starting
from six months hereof. In the event, the Resolution Applicant has
failed to repay as stated above, ICICI is entitled to claim
commercial interest over the admitted claim from the date of
default, that is from the first month of 12 monthly instalments.”
47. Another major contentious issue before the Adjudicating Authority
related to the objections of YEIDA. As noticed, YEIDA had been the land
providing agency and had entered into Concession Agreement for leasing
the land for construction of Expressway and also for the purpose of
development of the surrounding parcels of land.
100
47.1. The NCLT noticed that as per the said CA, the concessionaire
(JIL) was to bear the acquisition cost for the project land given to it and in
consideration, the concessionaire would obtain the right to develop land
for commercial exploitation and the right to operate the Expressway and
collect toll for a period of 36 years; and after the expiry of 36 years from
the grant of concession, the Expressway shall revert to YEIDA. As to the
land for development, it was given on lease for 90 years. It was
essentially submitted on behalf of YEIDA that the question, of additional
compensation of the land acquired, cropped up with the directions of the
Allahabad High Court; and that the liability in regard to the additional
compensation in relation to the land acquired and leased to JIL was that
of the corporate debtor JIL. It was also pointed out that the question of
such additional compensation by JIL was subjected to arbitration
proceedings where an award was made to the effect that the corporate
debtor need not pay this amount of additional compensation but the
award has been questioned by YEIDA in the proceedings under Section
38 39
34 of the Arbitration and Conciliation Act, 1996 - . YEIDA stated its
objection to the stipulation in the resolution plan that in case of the award
being overruled, YEIDA would collect the amount of additional
compensation from the end-users of the project land. It was submitted in
this regard that in the CA, two payment components were present - one
being of acquisition cost payable by the concessionaire and another being
38 Hereinafter also referred as to ‘the Arbitration Act’.
39 It appears from the corrigendum dated 17.03.2020 and the submissions of the parties that
the issue is pending before the Court of District Judge, Gautam Budh Nagar.
101
of lease rent, which could be paid by the sub-lessee/end-user as the case
may be. It was submitted that given such components, the IRP or the
resolution applicant could not insist that YEIDA has to collect the
acquisition cost directly from the end-users. It was also submitted that
even if the land utilised for Expressway was to revert to YEIDA after 36
years, the CA nevertheless provided as key components that the
concessionaire would collect toll for this period and has to bear all the
cost including the cost of acquisition; and there was no exemption as
regards the land of Expressway. It was also submitted that the resolution
applicant cannot split the transferred land into two and say that the
payment of additional compensation would be applicable to the land used
for development alone. It was further submitted that in view of Clause
18.1 of CA, in case of the necessity to transfer the concessionaire's rights
and obligations to an SPV, there has to be necessary documentation
involving YEIDA, the concessionaire and the SPV incorporated, so that
YEIDA could keep exercising its rights over the SPV concerned; and the
resolution applicant or CoC could not have unilaterally transferred the
rights and obligations of the corporate debtor to an SPV without the
consent of YEIDA. A decision of this Court in the case of Embassy
Property Development Pvt. Ltd. v. State of Karnataka and Ors.: 2019
SCC OnLine SC 1542 was also referred to submit that IBC will not have
overriding effect on every enactment which is applicable to the
transactions related to the corporate debtor. It was further submitted that
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the requirement of withdrawal of arbitration case could not be thrust upon
YEIDA under the cover of the plan; and for the resolution plan having set
out so many provisions curtailing the rights held by YEIDA, the same was
required to be rejected. However, the Adjudicating Authority also noticed
that despite such objections, the counsel appearing on behalf of YEIDA
submitted that since the project was for public cause, it would have no
objection for approval of the resolution plan provided necessary changes
were made in it ‘ by removing the fall outs from the concession
agreement’ .
47.2. In regard to this issue relating to the objections and submissions
on behalf of YEIDA, the NCLT was of the view that CoC should not have
approved the resolution plan stating that the additional compensation
would be collected from the end-users; and proceeded to modulate the
terms of the resolution plan to read that YEIDA shall have the right to
collect the acquisition cost through the SPVs concerned. As regards the
issue as to whether additional compensation need not be paid with regard
to the Expressway for the same would revert to YEIDA after 36 years, the
NCLT found it appropriate to read down the resolution plan as leaving it
open to the parties to have proper recourse over this issue in the
competent forum when occasion so arise. The NCLT also observed that
the Concession Agreement was based on the statute created by the State
Government and, therefore, any violation of terms and conditions of the
same would be the violation of law in force. The NCLT, however, again
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recorded the submissions on behalf of YEIDA that their endeavour was
only for compliance of the terms and conditions of CA in order to ensure
proper monitoring on realisation of dues and supervision over the work of
corporate debtors or SPVs but not for rejection of the resolution plan. The
relevant observations, findings and directions of YEIDA in regard to this
issue read as under: -
“118. On hearing the submissions of either side, with regard to
payment of additional compensation, in the event any direction has
been given in the arbitration proceedings to the Corporate Debtor
to pay additional compensation, as per concession agreement,
additional cost shall be paid by the concessionaire. We don't go
into the point as to whether additional compensation is part of the
acquisition cost because i.e. a point already Adjudicated by the
Arbitral Authority and the issue is pending before the Hon'ble High
Court of Delhi, now the limited point to be dealt with is, as to
whether such compensation, if directed to be paid, is to be paid by
the concessionaire or by the end users.
119. As said above, there are two payment components come
from the concessionaire one is acquisition cost, two is the lease
rentals. In the concession agreement, it is obvious that acquisition
cost (actual cost) shall be paid by the concessionaire, as to lease
rentals are concerned, it has been dealt with in detail that lease
rentals could be collected either from sub-lessee or from the end
users, wherever the interest is transferred either to the sub-lessee
or the end users. Therefore, CoC should not have approved the
resolution plan stating that the compensation, if awarded, shall be
collected from the end users.
120. To iron out all these creases and to make this resolution
plan viable, we hereby direct that the resolution plan shall be read
as YEIDA has right to collect acquisition cost through the SPVs
concerned.
121. With regard to other objections that additional
compensation need not be paid with regard to Expressway land on
the premise that since Expressway will revert to YEIDA after 36
years, YEIDA counsel submits that this land has been given on
consideration of collection of toll for about 36 years.
122. In the backdrop of this factual scenario, we are of view
that both are governed by concession agreement, therefore the
Resolution Plan is to be read that it is left open to both the parties
to have proper recourse over this issue before Competent Forum
of law when time comes for payment of additional compensation.
104
123. On transfer of concessionaire's rights and obligations to
SPVs, as per the concession agreement, it is clear that this
Corporate Debtor is a concessionaire, for the first time
concessionaire having proposed to transfer its rights and
obligations to the aforesaid two SPVs, we are of the view that
documents shall be executed between the concessionaire, YEIDA
and each of the SPVs. At last we must say that the concession
Agreement is based on the statute created by the State
Government, therefore any violation of the terms and conditions of
the concession agreement is violation of the law in force as
contemplated under section 30(2) of the Code, it has been decided
as above.
124. Despite YEIDA counsel representing the State
Government Authorities with regard to its rights, the counsel has
categorically mentioned that YEIDA’s endeavour is only for
compliance of the terms and conditions of concession agreement
so that the State Agencies will have proper monitoring on
realization of its dues and will have proper supervision over the
works of the Corporate Debtor or its SPVs, but not to ensure that
this resolution plan is rejected by this Bench on the grounds
aforementioned. ”
48. After having dealt with the aforesaid major issues relating to INR
750 crores, objections of JAL and its stakeholders, ICICI Bank and
YEIDA, the NCLT proceeded to deal with the other issues relating to the
fixed deposit holders, some of the aggrieved homebuyers, YES Bank and
the agreement holders.
48.1. As regards fixed deposit holders, the NCLT provided that the
resolution applicant shall make a provision to clear their dues as and
when the unclaimed fixed deposit holder claims it, and this right will
remain in force as long as they were entitled to claim under the
Companies Act, 2013. These directions of NCLT in the impugned order
read as under: -
“125. Regarding FD holders payments who have not made claims
which have been reflected in the records of the Corporate Debtor,
the Plan Applicant shall make a provision to clear their dues as and
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when the unclaimed FD holder claims it, and this right will remain in
force as long as they are entitled to claim under Companies Act
2013.”
48.2. The NCLT also took note of the submissions of some of the
homebuyers who were not agreeing with the resolution plan in question.
Those dissatisfied homebuyers submitted that the timelines given in the
resolution plan for completion of flats were not workable; there was no
clause for refund of money in the event flats not being completed within
the timelines envisaged, except to the extent of nominal interest; and that
the voting share of homebuyers being only 57.66%, it cannot be said that
cent percent consent had been given for approval of the resolution plan
by CoC. The NCLT declined to recognise such objectors as dissenting
financial creditors because authorised representative of this class of
creditors had voted in favour of the resolution plan. The NCLT observed
and held as under: -
“126. One Rashmi Singhal and another applicant calling
themselves as dissenting home-buyers, filed IA 871/2020, stating
that the time lines given in the Resolution Plan for completion of
flats are not workable and for there being no clause for refund of
money in the event flats are not completed within the time lines
envisaged, except to the extent of nominal interest mentioned in
the plan, these two submit that they have dissented for the
approval of the Resolution Plan. They have further relied upon
voting share saying homebuyers voting share is only 57.66%
therefore, it cannot be called that cent percent consent has been
given for approval of the Resolution Plan by CoC. For there being
a rule under IBC, whenever more than 50% voting has come from
a class of creditors represented by an authorized representative,
the approval given to the authorized representative for more than
50% will become 100% approval, therefore it cannot be said that
dissenting homebuyers before authorised representative to be
considered as dissenting financial creditors against the total voting
of CoC. If the authorized representative dissented in the CoC, then
the respective class of creditors would be considered as dissenting
financial creditors. Moreover, if at all any dissenting financial
106
creditor is there, his only look out is as to whether he has been
paid as per Section 30(2) of the Code or not but not to see
whether the Resolution Plan is workable or not.”
48.3. As regards the objections raised by YES Bank, which had given
loan to Jaiprakash Healthcare Ltd., a wholly-owned subsidiary of JIL,
against dealing with the shares of its borrower (JHL) in the resolution
plan, the NCLT observed that the resolution applicant and the said Bank
having agreed for constitution of a Committee to deal with the shares and
assets of JHL, that issue was not required to be discussed. The NCLT
said, -
“127. YES Bank, which has given loan to Jaiprakash Health
Care subsidiary of JIL, has also raised an objection against
dealing with the shares of the Health Care belonging to the
Corporate Debtor. However, since the Resolution Applicant and
YES Bank having agreed for constitution of a Committee to deal
with the shares and assets of the subsidiary company, we are
under no obligation to discuss this issue any further.”
48.4. As regards the right reserved by the resolution applicant to cancel
the transactions where certain parcels of land were transferred by the
corporate debtor without proper agreement/sub-lease deed, NCLT noticed
the submission made by such agreement holders that the agreements
were executed by the corporate debtor in the normal course of its
business prior to the commencement of CIRP and monies were also
advanced; and therefore, such agreements could not be terminated
unilaterally. The NCLT also noticed the counter submissions by IRP and
NBCC that the agreements allegedly executed between the corporate
debtor and the agreement holders had not been determined, but the
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resolution applicant has reserved its right to cancel such instruments
wherever the corporate debtor had entered into deals without proper
agreements and without support of consideration. In this regard, the NCLT
observed that if an agreement was not valid in law and suffered from want
of consideration, it was not even required to be said that such agreement
could be cancelled by the party concerned. However, the NCLT further
observed that even when such a clause had been mentioned, the
agreement holders had not lost their right to seek remedy in the
competent forum; and determined this part of the matter in the following
words: -
“132. It is a trite law when an agreement is not valid in the eyes
of law and consideration has not been paid, then it need not be
separately said that such agreement could be cancelled by the
effected party.
133. Though such clause has been mentioned, it does not
mean that the agreement holders have lost their rights to seek
remedy for its grievances before Competent Forum, in view
thereof, this clause need not be considered as clause effecting the
rights of the alleged agreement holders.”
48.5. The NCLT also made observations as regards the objections
40
raised by JAL and other objectors against inclusion of 858 acres as part
of the resolution plan and pointed out that such an objection lost its
relevance after the decision of this Court dated 26.02.2020 in the case of
Anuj Jain (supra).
49. Having thus dealt with the relevant objections, the NCLT entered
into the fifth segment of its order and generally dealt with the provisions
40 This figure was corrected on 17.03.2020 by NCLT as ‘758 acres’ in terms of the order of this
Court dated 26.02.2020.
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relating to the reliefs and concessions with the observations/directions as
under: -
“ 134. The clauses already covered in the aforesaid discussion
will not be discussed again, but as to the clauses not covered
above are hereby dealt with as follow: -
Clauses 1 to 5 have already been covered in the above
discussion.
Clause No. 6:- With regard to the past liabilities of income tax
authority, they shall stand extinguished.
Clause No. 7:- Since reduction of the share capital of the corporate
debtor is not part of this resolution, this Adjudicating Authority
cannot waive the procedure for reduction of share capital in
relation to the companies not yet incorporated.
Clause No. 8 & 10:- Payment of stamp duty mentioned in clause 8
is waived to the extent permissible under law.
Clause No. 9:- Any non-compliance arising out of past claims prior
to CIRP initiation shall not have any bearing on this corporate
debtor from hereof.
Clause No. 11:- The lenders to the corporate debtor shall
regularise all the accounts and ensure that such classification of
the loan account is standard in their books with effect from the
transfer dates.
Clause No. 12:- All claims which have been placed before the RP
and any criminal proceedings appurtenant to those claims are
hereby extinguished.
Clause No. 13:- As to the contracts relating to the development of
land by JAL, the Resolution applicant can reserve its right to
terminate the same, as to the claims, if any, the resolution
applicant has right to take appropriate action against JAL.
Clause No. 14:- With regard to liability arising out of concession
agreement in relation to YEIDA, since those issues are governed
by concession agreement, this Bench cannot nullify the rights of
YEIDA against the corporate debtor emanating from the
concession agreement.
Clause No. 15:- The agreements for subleases executed between
the corporate debtor and the third parties, which are not in
accordance with law and not supported by material proof, the
Resolution applicant will have a right to terminate in accordance
with law.
Clause No. 16 to 18:- The resolution applicant is granted 12
months’ time from the approval date to ensure compliances in
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relation to the non-compliance of applicable laws by the corporate
debtor or of its subsidiary pertaining to any period up to the
approval date and licenses if any, to be obtained.
Clause No. 19:- In respect to the lands shown as transferred to
JAL for real estate development, where the title and ownership is
still lying with the corporate debtor, the resolution applicant is at
liberty to proceed in accordance with law.
Clause No. 20:- It goes without saying that the IRP will not be held
responsible with regard to discharge of his duties during CIR
Process. The IRP and the Resolution Applicant will not be liable for
any transactions carried out by the ex-management of the
corporate debtor.
Clause No. 21:- This point has already been dealt with in the
above discussion.
Clause No. 22:- For the purpose of consolidation of the books of
the CD with the resolution applicant, the effective date shall be
treated as the first day of the quarter immediately succeeding
quarter in which the resolution applicant completes the takeover of
the CD.
Clause No. 23:- This point is not clear as to whether it is referring
to the land of the Corporate Debtor mortgaged to the lenders of
JAL, if that is so, since it has been decided by the Honourable
Supreme Court, it need not be reiterated.
Clause No. 24:- This generalization of cancellation of all
agreements cannot be granted unless each transaction is
specifically dealt with.
Clause No. 25:- The resolution applicant cannot modify the
resolution plan once it is approved by the CoC.
Clause No. 26:- As to the claims placed before the IRP and other
liabilities of the CD which are shown in the records of the company
and where notice has been given to such creditors, they can be
construed as withdrawn after the approval date.
Clause No. 27:- With regard to extension of concession period by
YEIDA, it is YEIDA to decide as to whether such extension should
be given or not.
Clause No. 28:- This Adjudicating Authority can only direct the
Central Government and Reserve Bank of India to accord
permissions to the extent permissible under law.”
50. As regards other applications/objections, the NCLT disposed them
of with comments wherever required. We need not elaborate on all such
110
observations but could usefully point out the rejection of two such
applications.
50.1. One such application was filed by a financer of one of the
homebuyers seeking its induction in the CoC. This application was
dismissed as misconceived in the following words: -
“CA-74/2019 filed by PNB Housing Finance Ltd. for directions to
the IRP to induct this applicant in the CoC and if any amount is
refunded to the home-buyers, the amount due to the applicant
ought to be paid to this applicant because it is the lender to the
home-buyers. This application is dismissed as misconceived, as
the lender to the home-buyers will not have any right to be
financial creditors of the CD.”
50.2. Another application was filed by three homebuyers seeking the
relief of quashing the minutes of CoC dated 01.03.2019; for direction to
conduct a forensic land audit of the corporate debtor; and for various
directions to IRP, like those for taking legal opinion on Concession
Agreement, analysis of Expressway cost escalation, providing information
and answers to the queries of homebuyers etc. etc. The NCLT noted the
propositions of these applicants and dismissed the application with the
observations that they were three persons out of thousands of
homebuyers and if such issues were to be examined and decided, the
resolution process could never be completed; and at the stage of
approval of the resolution plan, if objections of this kind were allowed,
there would be no end to it. The NCLT said, -
“It is an application filed by Mr. Hemant Kumar & two others, who
do not have direct voting in the CoC, because there are thousands
of home-buyers, out of them these three are minuscule in number,
if at all these issues are to be examined and decided, and remain
waiting for the remedies, this resolution process will not complete
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even after two years from hereof. Moreover, at the time of approval
of this resolution plan, if objections of this kind are allowed there
cannot be any end to it, therefore, this application is hereby
dismissed.”
51. With the aforesaid, the Adjudicating Authority (NCLT) concluded
on the matter while disposing of all the applications and while holding that
all the stakeholders shall remain bound by the order so passed. However,
various stakeholders have various submissions to make and various
objections to take against the order so passed by the Adjudicating
Authority.
52. Having taken note of the relevant contents of the order dated
03.03.2020, as passed by the Adjudicating Authority (NCLT) in exercise of
its jurisdiction under Section 31 of the Code, it would be worthwhile to
summarise the significant attributes of, and takeaways from, this order
because a substantial part of the forthcoming discussion shall be
revolving around the findings recorded and directions given therein. The
relevant aspects could be summarised as follows:
(a) As regards the said sum of INR 750 crores, the Adjudicating
Authority, with reference to the orders passed by this Court in the case of
Chitra Sharma (supra), held that the deposit made by JAL became an
asset of the corporate debtor JIL; and the said money was to be utilised
towards securing the interests of homebuyers. As regards the question of
the amount payable by JAL to JIL, it was directed that JAL shall make
payment of the admitted amount of INR 274 crores; and after
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reconciliation of accounts, further payment shall be made to whomsoever
outstanding was found payable.
(b) As regards the objections by the dissenting financial creditor ICICI
Bank, the Adjudicating Authority held that payment to such dissenting
financial creditor shall be made in cash, as per the amount it would be
entitled to under Section 53 of the Code, in the form of twelve monthly
instalments with interest to be accrued six months post the order. It was
also observed by the Adjudicating Authority that it had the necessary
jurisdiction to modify the resolution plan to make sure it complied with
Section 30(2) of the Code, so long as its basic structure was not altered.
(c) As regards the objections by YEIDA, the Adjudicating Authority
held that YEIDA shall have the right to collect the acquisition cost through
the SPVs proposed to be incorporated so as to make the resolution plan
compliant with the terms of the Concession Agreement; however, the
Adjudicating Authority refrained from adjudicating on the issue of
additional compensation in relation to the land under Expressway and left
it for the parties to take appropriate action at the appropriate stage. The
Adjudicating Authority also held that for transfer of rights and obligations
to the two SPVs, necessary documents shall be executed involving the
concessionaire (JIL), YEIDA and the SPV concerned. These alterations
were ordered by the Adjudicating Authority ‘ to iron out all these creases
and to make this resolution plan viable ’.
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(d) As regards the issue relating to the fixed deposit holders, the
Adjudicating Authority provided that the resolution applicant shall make a
provision to clear the dues even of those fixed deposit holders who had
not made the claims. In other words, the Adjudicating Authority directed
for another modification of the resolution plan, for satisfying the dues of
unclaimed fixed deposit holders.
(e) The Adjudicating Authority brushed aside the objections sought to
be taken by some of the aggrieved homebuyers, while holding that they
could not be categorised or treated as dissenting financial creditors.
(f) As regards the objections by YES Bank, the Adjudicating Authority
pointed out that no intervention was required since YES Bank agreed to
settle its objections with NBCC by forming a Committee.
(g) As regards the agreement holders, the Adjudicating Authority
observed that if an agreement was not valid in law and suffered from want
of consideration, it was not even required to be said that such agreement
could be cancelled by the party concerned. However, the Adjudicating
Authority also observed that even when such a clause had been
mentioned in the resolution plan, the agreement holders had not lost their
right to seek remedy in the competent forum.
(h) The Adjudicating Authority generally dealt with the clauses relating
to the ‘reliefs and concessions’ in Schedule 3 of the resolution plan as
also various other applications filed by different stakeholders. Some of the
reliefs and concessions sought for by the resolution applicant were not
114
granted or were declined, for the reasons specified against the relevant
clauses. The other applications/objections were disposed of with a few
comments.
Order dated 22.04.2020 by NCLAT making interim arrangement
53. As noticed at the outset, the aforesaid order dated 03.03.2020 was
challenged in various appeals before the Appellate Authority (NCLAT),
which have since been withdrawn to this Court after we took note of all
the factors concerning this litigation and accepted the requests made by
the parties concerned. Such requests were made when the matters first
appeared before us in challenge to an interim order dated 22.04.2020
passed by NCLAT, whereby the NCLAT made an interim arrangement of
constitution of an Interim Monitoring Committee for implementation of the
plan in question. The said order dated 22.04.2020, being also a subject of
challenge in this batch, could be usefully noticed to complete the
narrative.
54. The resolution applicant NBCC preferred an appeal against the
aforesaid order dated 03.03.2020 insofar as it felt aggrieved of the
modifications in the resolution plan. In that appeal, the NCLAT, while
issuing notice to the unrepresented parties, directed that the approved
resolution plan may be implemented subject to the outcome of appeal but
at the same time, it was also provided that IRP may constitute an Interim
Monitoring Committee comprising of the successful resolution applicant
(NBCC) and three major institutional financial creditors, who were the
115
members of CoC. This impugned interim order dated 22.04.2020 reads as
under: -
“ 22.04.2020 The Appellant – NBCC (India) Ltd., which has
emerged as the Successful Resolution Applicant in ‘Corporate
Insolvency Resolution Process’ initiated against Jaypee Infratech
Ltd. (JIL) is aggrieved of modifications made by the learned
Adjudicating Authority in the ‘Resolution Plan’ submitted by it and
as approved by the ‘Committee of Creditors’ to the extent it allows
objections of ICICI Bank Ltd. and Yamuna Expressway Industrial
Development Authority and directs payment to unclaimed Fixed
Deposit Holders. It is submitted that the learned Adjudicating
Authority could not intercede the business decision of the
‘Committee of Creditors’ taken by the prescribed voting shares and
the learned Adjudicating Authority exceeded its jurisdiction in
making such modifications.
Issue notice to the Respondents through Speed Post in the main
appeal as well as in the Interim Application.
On behalf of ICICI Bank Ltd., Ms. Misha, learned Counsel accepts
notice. On behalf of Respondent No.4 – Interim Resolution
Professional, Mr. Sumant Batra, learned Counsel accepts notice.
On behalf of Respondent No.5 – IDBI Bank, Mr. Bidhwajit Dubey,
learned Counsel accepts Notice. No further notice be served upon
these Respondents. The above Respondents may file their reply
affidavits within two weeks. Rejoinders, if any be filed within one
week thereof.
Let notice be served upon Respondent Nos.2 and 3. Requisites
along with process fee be filed within three days. If the Appellant
provides email addresses of the Respondents, let service be
effected through email also.
Mr. Sumant Batra, learned Counsel representing the ‘Resolution
Professional’ intends to file an Appeal in regard to some
observations made in paragraph 103 of the impugned order.
We are told that the implementation of the ‘Successful Resolution
Plan’ would involve participation of the ‘Successful Resolution
Applicant’, i.e. NBCC (India) Ltd. as also the three major
Institutional Financial Creditors, who are Members of the
‘Committee of Creditors’ i.e., IDBI Bank Ltd., IIFCL and LIC.
Meanwhile, till further orders, the approved ‘Resolution Plan’ may
be implemented subject to outcome of this Appeal. The Interim
Resolution Professional may constitute ‘Interim Monitoring
Committee’ comprising of the ‘Successful Resolution Applicant’,
i.e., the Appellant and the three major Institutional Financial
Creditors, who were Members of the ‘Committee of Creditors’ as
named above.
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Mr. Sumant Batra, learned Counsel submits that as of now he is
continuing and managing the affairs of the ‘Corporate Debtor’. The
Resolution Professional, who would be constituent of the ‘Interim
Monitoring Committee’ shall continue to be paid as may be
deemed reasonable by the ‘Interim Monitoring Committee’ from the
date of this order. If any fee is outstanding for the past services
rendered by the Resolution Professional during the ‘Corporate
Insolvency Resolution Process’, the same shall be paid as per the
decision of the ‘Committee of Creditors’. These directions will last
till the disposal of this Appeal.
List the matter for ‘admission after notice’ on 15th May, 2020 .”
The relevant statutory provisions
55. Having taken note of the parties and their respective interests; the
principal points for determination; the relevant factual and background
aspects, particularly with reference to the three decisions of this Court
dated 09.08.2018, 06.11.2019 and 26.02.2020; the salient features of the
resolution plan; and key aspect of the orders impugned, we may now go
through the provisions that would be relevant for determination of the
points arising in this batch of matters.
56. While the expressions generally used in the Code are defined in
Section 3 but then, the expressions employed for the purpose of Part II of
the Code, dealing with insolvency resolution and liquidation of corporate
persons, are defined in Section 5 thereof.
56.1. The relevant definitions as occurring in Section 3 are as under: -
“ Section 3(8): “corporate debtor” means a corporate person who
owes a debt to any person;
Section 3(10): “creditor” means any person to whom a debt is
owed and includes a financial creditor, an operational creditor, a
secured creditor, an unsecured creditor and a decree-holder;
117
Section 3(11): “debt” means a liability or obligation in respect of a
claim which is due from any person and includes a financial debt
and operational debt;
Section 3(12): “default” means non-payment of debt when whole
or any part or instalment of the amount of debt has become due
and payable and is not paid by the debtor or the corporate debtor,
as the case may be;
Section 3(30): “secured creditor” means a creditor in favour of
whom security interest is created;
Section 3(31): “security interest” means right, title or interest or a
claim to property, created in favour of, or provided for a secured
creditor by a transaction which secures payment or performance of
an obligation and includes mortgage, charge, hypothecation,
assignment and encumbrance or any other agreement or
arrangement securing payment or performance of any obligation of
any person:
Provided that security interest shall not include a performance
guarantee;”
56.2. The relevant definitions occurring in Section 5 for the purpose of
Part II of the Code are as under: -
“Section 5(1): “Adjudicating Authority”, for the purposes of this
Part, means National Company Law Tribunal constituted under
section 408 of the Companies Act, 2013 (18 of 2013);
Section 5(7): “financial creditor” means any person to whom a
financial debt is owed and includes a person to whom such debt
has been legally assigned or transferred to;
Section 5(8): “financial debt” means a debt alongwith interest, if
any, which is disbursed against the consideration for the time value
of money and includes-
(a) money borrowed against the payment of interest;
(b) any amount raised by acceptance under any acceptance credit
facility or its de-materialised equivalent;
(c) any amount raised pursuant to any note purchase facility or
the issue of bonds, notes, debentures, loan stock or any similar
instrument;
(d) the amount of any liability in respect of any lease or hire
purchase contract which is deemed as a finance or capital lease
118
under the Indian Accounting Standards or such other accounting
standards as may be prescribed;
(e) receivables sold or discounted other than any receivables sold
on non-recourse basis;
(f) any amount raised under any other transaction, including any
forward sale or purchase agreement, having the commercial effect
of a borrowing;
41
[Explanation.- For the purposes of this sub-clause,-
(i) any amount raised from an allottee under a real estate project
shall be deemed to be an amount having the commercial effect of a
borrowing; and
(ii) the expressions, “allottee” and “real estate project” shall have
the meanings respectively assigned to them in clauses (d) and (zn)
of section 2 of the Real Estate (Regulation and Development) Act,
2016 (16 of 2016);]
(g) any derivative transaction entered into in connection with
protection against or benefit from fluctuation in any rate or price
and for calculating the value of any derivative transaction, only the
market value of such transaction shall be taken into account;
(h) any counter-indemnity obligation in respect of a guarantee,
indemnity, bond, documentary letter of credit or any other
instrument issued by a bank or financial institution;
(i) the amount of any liability in respect of any of the guarantee or
indemnity for any of the items referred to in sub-clauses (a) to (h) of
this clause;
Section 5(20): “operational creditor” means a person to whom an
operational debt is owed and includes any person to whom such
debt has been legally assigned or transferred;
Section 5(21): “operational debt” means a claim in respect of the
provision of goods or services including employment or a debt in
respect of the payment of dues arising under any law for the time
being in force and payable to the Central Government, any State
Government or any local authority;
Section 5(25): “resolution applicant” means a person, who
individually or jointly with any other person, submits a resolution
plan to the resolution professional pursuant to the invitation made
under clause (h) of sub-section (2) of section 25;
Section 5(26): “resolution plan” means a plan proposed by
resolution applicant for insolvency resolution of the corporate
debtor as a going concern in accordance with Part II
41 This Explanation was inserted by Act 26 of 2018 w.r.e.f. 06.06.2018.
119
42
[ Explanation.- For removal of doubts, it is hereby clarified that a
resolution plan may include provisions for the restructuring of the
corporate debtor, including by way of merger, amalgamation and
demerger;]
Section 5(27): “resolution professional”, for the purposes of this
Part, means an insolvency professional appointed to conduct the
corporate insolvency resolution process and includes an interim
resolution professional; and
Section 5(28): “voting share” means the share of the voting rights
of a single financial creditor in the committee of creditors which is
based on the proportion of the financial debt owed to such financial
creditor in relation to the financial debt owed by the corporate
debtor.”
57. As already indicated, and which is not far to seek, the Explanation
inserted to sub-clause (f) of clause (8) of Section 5 with effect from
06.06.2018 made it clear that any amount raised from an allottee under a
real estate project is deemed to be having the commercial effect of a
borrowing and thereby, it answers to the description of a “financial debt”.
The pertinent consequence of this clarificatory amendment is that such an
allottee under a real estate project stands in the capacity of a financial
creditor of the corporate debtor. Prior to this amendment, such an allottee
was sought to be regarded only as an ‘other creditor’ and that had been
the principal cause behind the litigation in this Court in Chitra Sharma
(supra). For a complete and meaningful understanding of this Explanation
inserted to Section 5(8)(f) of the Code, it would be in concordance to take
note of the meanings assigned to the expressions “allottee” and “real
estate project” in RERA. The referred clauses (d) and (zn) of Section 2 of
RERA read as under: -
42 Inserted by Act 26 of 2019, sec. 2 (w.e.f. 16.08.2019).
120
“Section 2(d): “ allottee ” in relation to a real estate project, means
the person to whom a plot, apartment or building, as the case may
be, has been allotted, sold (whether as freehold or leasehold) or
otherwise transferred by the promoter, and includes the person
who subsequently acquires the said allotment through sale,
transfer or otherwise but does not include a person to whom such
plot, apartment or building, as the case may be, is given on rent;
Section 2(zn): “real estate project” means the development of a
building or a building consisting or apartments, or converting an
existing building or a part thereof into apartments, or the
development of land into plots or apartments, as the case may be,
for the purpose of selling all or some of the said apartments or plots
or building, as the case may be, and includes the common areas,
the development works, all improvements and structures thereon,
and all easement, rights and appurtenances belonging thereto;”
58. We may now take note of the relevant provisions contained in the
Code, as amended from time to time and as applicable to the case at
hand, particularly Section 18 relating to the duties of interim resolution
professional; Section 21 specifying the composition of the Committee of
Creditors and matters related with it; Section 24 laying down the norms for
meeting of the Committee of Creditors; Section 25 relating to the duties of
the resolution professional; Section 25A, as inserted with effect from
06.06.2018 and as amended with effect from 16.08.2019, in regard to the
rights and duties of the authorised representative of the financial creditors;
Section 30 on the essentials of a resolution plan and its submission to the
Committee of Creditors by the resolution professional; Section 31 relating
to the approval of resolution plan by the Adjudicating Authority; Sections
32 and 61 relating to the appeal against an order approving the resolution
plan and grounds for such an appeal; Section 53 relating to distribution of
assets in case of liquidation; and Section 238 on the overriding effect of
the Code. These provisions read as under: -
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“Section 18. Duties of interim resolution professional.- The
interim resolution professional shall perform the following duties,
namely:-
(a) collect all information relating to the assets, finances and
operations of the corporate debtor for determining the financial
position of the corporate debtor, including information relating to-
(i) business operations for the previous two years;
(ii) financial and operational payments for the previous two
years;
(iii) list of assets and liabilities as on the initiation date; and
(iv) such other matters as may be specified;
(b) receive and collate all the claims submitted by creditors to him,
pursuant to the public announcement made under sections 13 and
15;
(c) constitute a committee of creditors;
(d) monitor the assets of the corporate debtor and manage its
operations until a resolution professional is appointed by the
committee of creditors;
(e) file information collected with the information utility, if
necessary; and
(f) take control and custody of any asset over which the corporate
debtor has ownership rights as recorded in the balance sheet of
the corporate debtor, or with information utility or the depository of
securities or any other registry that records the ownership of
assets including-
(i) assets over which the corporate debtor has ownership rights
which may be located in a foreign country;
(ii) assets that may or may not be in possession of the
corporate debtor;
(iii) tangible assets, whether movable or immovable;
(iv) intangible assets including intellectual property;
(v) securities including shares held in any subsidiary of the
corporate debtor, financial instruments, insurance policies;
(vi) assets subject to the determination of ownership by a court
or authority:
(g) to perform such other duties as may be specified by the Board.
43
Explanation.– For the purposes of this [section] , the term “assets”
shall not include the following, namely:-
43 Substituted by Act 26 of 2018, sec. 14, for “sub-section” (w.r.e.f. 06.06.2018).
122
(a) assets owned by a third party in possession of the corporate
debtor held under trust or under contractual arrangements
including bailment;
(b) assets of any Indian or foreign subsidiary of the corporate
debtor; and
(c) such other assets as may be notified by the Central
Government in consultation with any financial sector regulator.
44
Section 21. Committee of creditors.- (1) The interim resolution
professional shall after collation of all claims received against the
corporate debtor and determination of the financial position of the
corporate debtor, constitute a committee of creditors.
(2) The committee of creditors shall comprise all financial
creditors of the corporate debtor:
Provided that a financial creditor or the authorised
representative of the financial creditor referred to in sub-section (6)
or sub-section (6A) or sub-section (5) of section 24, if it is a related
party of the corporate debtor, shall not have any right of
representation, participation or voting in a meeting of the committee
of creditors.
Provided further that the first proviso shall not apply to a
financial creditor, regulated by a financial sector regulator, if it is a
related party of the corporate debtor solely on account of
conversion or substitution of debt into equity shares or instruments
convertible into equity shares, prior to the insolvency
commencement date.
(3) Subject to sub-sections (6) and (6A), where the corporate
debtor owes financial debts to two or more financial creditors as
part of a consortium or agreement, each such financial creditor
shall be part of the committee of creditors and their voting share
shall be determined on the basis of the financial debts owed to
them.
(4) Where any person is a financial creditor as well as an
operational creditor,-
44 This Section 21 has undergone various changes in its amendment by Act 26 of 2018 w.r.e.f.
06.06.2018 which include substitution/omission of certain expressions as also insertion of
certain provisions. While leaving aside all the minute details, we may, of course, indicate that by
this very amendment, sub-sections (6A) and (6B) were also inserted and sub-sections (7) and
(8) were substituted. Before their substitution, sub-sections (7) and (8) stood as under:
“(7) The Board may specify the manner of determining the voting
share in respect of financial debts issued as securities under sub-section (6).
(8) All decisions of the committee of creditors shall be taken by a
vote of not less than seventy-five per cent of voting share of the financial
creditors:
Provided that where a corporate debtor does not have any financial
creditors, the committee of creditors shall be constituted and comprise of such
persons to exercise such functions in such manner as may be specified by the
Board.”
123
(a) such person shall be a financial creditor to the extent of the
financial debt owed by the corporate debtor, and shall be included
in the committee of creditors, with voting share proportionate to the
extent of financial debts owed to such creditor;
(b) such person shall be considered to be an operational creditor
to the extent of the operational debt owed by the corporate debtor
to such creditor.
(5) Where an operational creditor has assigned or legally
transferred any operational debt to a financial creditor, the assignee
or transferee shall be considered as an operational creditor to the
extent of such assignment or legal transfer.
(6) Where the terms of the financial debt extended as part of a
consortium arrangement or syndicated facility provide for a single
trustee or agent to act for all financial creditors, each financial
creditor may-
(a) authorise the trustee or agent to act on his behalf in the
committee of creditors to the extent of his voting share;
(b) represent himself in the committee of creditors to the extent
of his voting share;
(c) appoint an insolvency professional (other than the resolution
professional) at his own cost to represent himself in the committee
of creditors to the extent of his voting share; or
(d) exercise his right to vote to the extent of his voting share with
one or more financial creditors jointly or severally.
(6A) Where a financial debt—
(a) is in the form of securities or deposits and the terms of the
financial debt provide for appointment of a trustee or agent to act
as authorised representative for all the financial creditors, such
trustee or agent shall act on behalf of such financial creditors;
(b) is owed to a class of creditors exceeding the number as may
be specified, other than the creditors covered under clause (a) or
sub-section (6), the interim resolution professional shall make an
application to the Adjudicating Authority along with the list of all
financial creditors, containing the name of an insolvency
professional, other than the interim resolution professional, to act
as their authorised representative who shall be appointed by the
Adjudicating Authority prior to the first meeting of the committee of
creditors;
(c) is represented by a guardian, executor or administrator, such
person shall act as authorised representative on behalf of such
financial creditors,
and such authorised representative under clause (a) or clause (b)
or clause (c) shall attend the meetings of the committee of
124
creditors, and vote on behalf of each financial creditor to the extent
of his voting share.
(6B) The remuneration payable to the authorised representative-
(i) under clauses (a) and (c) of sub-section (6A), if any, shall
be as per the terms of the financial debt or the relevant
documentation; and
(ii) under clause (b) of sub-section (6A) shall be as specified
which shall form part of the insolvency resolution process
costs.
(7) The Board may specify the manner of voting and the
determining of the voting share in respect of financial debts
covered under sub-sections (6) and (6A).
(8) Save as otherwise provided in this Code, all decisions of the
committee of creditors shall be taken by a vote of not less than fifty-
one per cent. of voting share of the financial creditors:
Provided that where a corporate debtor does not have any
financial creditors, the committee of creditors shall be constituted
and shall comprise of such persons to exercise such functions in
such manner as may be specified.
(9) The committee of creditors shall have the right to require the
resolution professional to furnish any financial information in
relation to the corporate debtor at any time during the corporate
insolvency resolution process.
(10) The resolution professional shall make available any
financial information so required by the committee of creditors
under sub-section (9) within a period of seven days of such
requisition.
45
Section 24. Meeting of committee of creditors.- (1) The
members of the committee of creditors may meet in person or by
such electronic means as may be specified.
(2) All meetings of the committee of creditors shall be conducted
by the resolution professional.
(3) The resolution professional shall give notice of each meeting
of the committee of creditors to-
(a) members of committee of creditors, including the authorised
representatives referred to in sub-sections (6) and (6A) of section
21 and sub-section (5);
(b) members of the suspended Board of Directors or the
partners of the corporate persons, as the case may be;
45 This Section 24 has also undergone a few changes in its amendment by Act 26 of 2018 w.r.e.f.
06.06.2018 which are essentially of sequel to the amendment of Section 21.
125
(c) operational creditors or their representatives if the amount of
their aggregate dues is not less than ten per cent of the debt.
(4) The directors, partners and one representative of operational
creditors, as referred to in sub-section (3), may attend the meetings
of committee of creditors, but shall not have any right to vote in
such meetings:
Provided that the absence of any such director, partner or
representative of operational creditors, as the case may be, shall
not invalidate proceedings of such meeting.
(5) Subject to sub-sections (6), (6A) and (6B) of section 21, any
creditor who is a member of the committee of creditors may appoint
an insolvency professional other than the resolution professional to
represent such creditor in a meeting of the committee of creditors:
Provided that the fees payable to such insolvency professional
representing any individual creditor will be borne by such creditor.
(6) Each creditor shall vote in accordance with the voting share
assigned to him based on the financial debts owed to such creditor.
(7) The resolution professional shall determine the voting share
to be assigned to each creditor in the manner specified by the
Board.
(8) The meetings of the committee of creditors shall be
conducted in such manner as may be specified.
Section 25. Duties of resolution professional.- (1) It shall be the
duty of the resolution professional to preserve and protect the
assets of the corporate debtor, including the continued business
operations of the corporate debtor.
(2) For the purposes of sub-section (1), the resolution
professional shall undertake the following actions, namely:-
(a) take immediate custody and control of all the assets of the
corporate debtor, including the business records of the corporate
debtor;
(b) represent and act on behalf of the corporate debtor with third
parties, exercise rights for the benefit of the corporate debtor in
judicial, quasi -judicial or arbitration proceedings;
(c) raise interim finances subject to the approval of the
committee of creditors under section 28;
(d) appoint accountants, legal or other professionals in the
manner as specified by Board;
(e) maintain an updated list of claims;
(f) convene and attend all meetings of the committee of
creditors;
126
(g) prepare the information memorandum in accordance with
section 29;
46
[(h) invite prospective resolution applicants, who fulfil such
criteria as may be laid down by him with the approval of committee
of creditors, having regard to the complexity and scale of
operations of the business of the corporate debtor and such other
conditions as may be specified by the Board, to submit a resolution
plan or plans.]
(i) present all resolution plans at the meetings of the committee
of creditors;
(j) file application for avoidance of transactions in accordance
with Chapter III, if any; and
(k) such other actions as may be specified by the Board.
47
Section 25A. Rights and duties of authorised representative
of financial creditors.- (1) The authorised representative under
sub-section (6) or sub-section (6A) of section 21 or sub-section (5)
of section 24 shall have the right to participate and vote in meetings
of the committee of creditors on behalf of the financial creditor he
represents in accordance with the prior voting instructions of such
creditors obtained through physical or electronic means.
(2) It shall be the duty of the authorised representative to
circulate the agenda and minutes of the meeting of the committee
of creditors to the financial creditor he represents.
(3) The authorised representative shall not act against the
interest of the financial creditor he represents and shall always act
in accordance with their prior instructions:
Provided that if the authorised representative represents several
financial creditors, then he shall cast his vote in respect of each
financial creditor in accordance with instructions received from
each financial creditor, to the extent of his voting share:
Provided further that if any financial creditor does not give prior
instructions through physical or electronic means, the authorised
representative shall abstain from voting on behalf of such creditor.
(3A) Notwithstanding anything to the contrary contained in sub-
section (3), the authorised representative under sub-section (6A) of
section 21 shall cast his vote on behalf of all the financial creditors
he represents in accordance with the decision taken by a vote of
46 This clause (h) was substituted by Act 8 of 2018, sec. 4, w.r.e.f. 23.11.2017. Clause (h),
before substitution, stood as under:
“(h) invite prospective lenders, investors, and any other persons to put
forward resolution plans;”.
47 This Section 25A was inserted by Act 26 of 2018 (w.r.e.f. 06.06.2018). Herein, sub-section
(3A) was inserted by Act No. 26 of 2019 (w.e.f. 16.08.2019).
127
more than fifty per cent. of the voting share of the financial creditors
he represents, who have cast their vote:
Provided that for a vote to be cast in respect of an application
under section 12A, the authorised representative shall cast his vote
in accordance with the provisions of sub-section (3).
(4) The authorised representative shall file with the committee of
creditors any instructions received by way of physical or electronic
means, from the financial creditor he represents, for voting in
accordance therewith, to ensure that the appropriate voting
instructions of the financial creditor he represents is correctly
recorded by the interim resolution professional or resolution
professional, as the case may be.
Explanation.- For the purposes of this section, the “electronic
means” shall be such as may be specified.
48
Section 30. Submission of resolution plan .-(1) A resolution
49
applicant may submit a resolution plan [along with an affidavit
stating that he is eligible under section 29 A] to the resolution
professional prepared on the basis of the information
memorandum.
(2) The resolution professional shall examine each resolution
plan received by him to confirm that each resolution plan-
(a) provides for the payment of insolvency resolution process
costs in a manner specified by the Board in priority to the
50
[payment] of other debts of the corporate debtor;
51
[(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
48 This Section 30 has undergone various changes in its amendments by Acts 8 of 2018, 26 of
2018 and 26 of 2019. Several aspects relating to the requirements of Section 30 have formed
the matters of contention herein. For their relevance, all the concerned amendments are being
indicated.
49 Inserted by Act 26 of 2018, sec. 23(i) (w.r.e.f. 06.06.2018).
50 Substituted by Act 26 of 2018, sec. 23 (ii)(A), for “repayment” (w.r.e.f. 06.06.2018).
51 Substituted by Act 26 of 2019, sec. 6(a), for clause (b) (w.e.f. 16.08.2019). Earlier clause (b)
was amended by Act 26 of 2018, sec. 23(ii)(A) (w.r.e.f. 06.06.2018). Clause (b), before
substitution, stood as under:
“(b) provides for the payment of the debts of operational creditors in such
manner as may be specified by the Board which shall not be less than the
amount to be paid to the operational creditors in the event of a liquidation of the
corporate debtor under section 53;”
128
(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 sub-section (1) of section 53 in the event of a liquidation of the
corporate debtor.
Explanation 1 . — For the 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.
Explanation 2.— For the purposes of this clause, it is hereby
declared that on and from the date of commencement of the
Insolvency and Bankruptcy Code (Amendment) Act, 2019, the
provisions of this clause shall also apply to the corporate
insolvency resolution process of a corporate debtor-
(i) where a resolution plan has not been approved or rejected
by the Adjudicating Authority;
(ii) where an appeal has been preferred under section 61 or
section 62 or such an appeal is not time barred under any
provision of law for the time being in force; or
(iii) where a legal proceeding has been initiated in any court
against the decision of the Adjudicating Authority in respect of
a resolution plan;]
(c) provides for the management of the affairs of the Corporate
debtor after approval of the resolution plan;
(d) the implementation and supervision of the resolution plan;
(e) does not contravene any of the provisions of the law for the
time being in force;
(f) conforms to such other requirements as may be specified by
the Board.
52
[ Explanation.— For the purposes of clause (e) , if any approval
of shareholders is required under the Companies Act, 2013 (18 of
2013) or any other law for the time being in force for the
implementation of actions under the resolution plan, such approval
shall be deemed to have been given and it shall not be a
contravention of that Act or law.]
(3) The resolution professional shall present to the committee of
creditors for its approval such resolution plans which confirm the
conditions referred to in sub-section (2).
52 Inserted by Act 26 of 2018, sec. 23(ii)(B) (w.r.e.f. 06.06.2018).
129
53
[(4) The committee of creditors may approve a resolution plan
54
by a vote of not less than [sixty-six] per cent. of voting share of
the financial creditors, after considering its feasibility and viability,
55
[the manner of distribution proposed, which may take into account
the order of priority amongst creditors as laid down in sub-section
(1) of section 53, including the priority and value of the security
interest of a secured creditor] and such other requirements as may
be specified by the Board:
Provided that the committee of creditors shall not approve a
resolution plan, submitted before the commencement of the
Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017
(Ord. 7 of 2017), where the resolution applicant is ineligible under
section 29A and may require the resolution professional to invite a
fresh resolution plan where no other resolution plan is available
with it:
Provided further that where the resolution applicant referred to in
the first proviso is ineligible under clause (c) of section 29A, the
resolution applicant shall be allowed by the committee of creditors
such period, not exceeding thirty days, to make payment of
overdue amounts in accordance with the proviso to clause (c) of
section 29A:
Provided also that nothing in the second proviso shall be
construed as extension of period for the purposes of the proviso to
sub-section (3) of section 12, and the corporate insolvency
resolution process shall be completed within the period specified in
that sub-section.]
56
[Provided also that the eligibility criteria in section 29A as
amended by the Insolvency and Bankruptcy Code (Amendment)
Ordinance, 2018 (Ord. 6 of 2018) shall apply to the resolution
applicant who has not submitted resolution plan as on the date of
commencement of the Insolvency and Bankruptcy Code
(Amendment) Ordinance, 2018 (Ord. 6 of 2018).]
(5) The resolution applicant may attend the meeting of the
committee of creditors in which the resolution plan of the applicant
is considered:
Provided that the resolution applicant shall not have a right to
vote at the meeting of the committee of creditors unless such
resolution applicant is also a financial creditor.
53 Substituted by Act 8 of 2018, sec. 6, for sub-section (4) (w.r.e.f. 23.11.2017). Sub-section (4),
before substitution, stood as under:
“(4) The committee of creditors may approve a resolution plan by a vote of
not less than seventy five per cent of voting share of the financial creditors.”.
54 Substituted by Act 26 of 2018, sec. 23(iii)(a) for “seventy-five” (w.r.e.f. 06.06.2018).
Inserted by Act 26 of 2019, sec. 6(b) (w.e.f. 16.08.2019).
55
56 Inserted by Act 26 of 2018, sec. 23(iii)(b) (w.r.e.f. 06.06.2018).
130
(6) The resolution professional shall submit the resolution plan
as approved by the committee of creditors to the Adjudicating
Authority.
57
Section 31. Approval of resolution plan.- (1) If the Adjudicating
Authority is satisfied that the resolution plan as approved by the
committee of creditors under sub-section (4) of section 30 meets
the requirements as referred to in sub-section (2) of section 30, it
shall by order approve the resolution plan which shall be binding on
the corporate debtor and its employees, members, creditors,
58
[including the Central Government, any State Government or any
local authority to whom a debt in respect of the payment of dues
arising under any law for the time being in force, such as
authorities to whom statutory dues are owed,] guarantors and other
stakeholders involved in the resolution plan:
59
[Provided that the Adjudicating Authority shall, before passing
an order for approval of resolution plan under this sub-section,
satisfy that the resolution plan has provisions for its effective
implementation.]
(2) Where the Adjudicating Authority is satisfied that the
resolution plan does not confirm to the requirements referred to in
sub-section (1), it may, by an order, reject the resolution plan.
(3) After the order of approval under sub-section (1),-
(a) the moratorium order passed by the Adjudicating Authority
under section 14 shall cease to have effect; and
(b) the resolution professional shall forward all records relating
to the conduct of the corporate insolvency resolution process and
the resolution plan to the Board to be recorded on its database.
60
[(4) The resolution applicant shall, pursuant to the resolution
plan approved under sub-section (1), obtain the necessary
approval required under any law for the time being in force within a
period of one year from the date of approval of the resolution plan
by the Adjudicating Authority under sub-section (1) or within such
period as provided for in such law, whichever is later:
Provided that where the resolution plan contains a provision for
combination as referred to in section 5 of the Competition Act, 2002
(12 of 2003), the resolution applicant shall obtain the approval of
the Competition Commission of India under that Act prior to the
approval of such resolution plan by the committee of creditors.]
57 This Section 31 has also undergone various changes in its amendments by Act 26 of 2018
and 26 of 2019. For their relevance, all the concerned amendments of this Section 31 are also
indicated.
58 Inserted by Act 26 of 2019, sec. 7 (w.e.f. 16.08.2019).
59 Inserted by Act 26 of 2018, sec. 24(a) (w.r.e.f. 06.06.2018).
60 Inserted by Act 26 of 2018, sec. 24(b) (w.r.e.f. 06.06.2018).
131
Section 32. Appeal.- Any appeal from an order approving the
resolution plan shall be in the manner and on the grounds laid
down in sub-section (3) of section 61.
Section 61. Appeals and Appellate Authority .-(1)
Notwithstanding anything to the contrary contained under the
Companies Act, 2013 (18 of 2013), any person aggrieved by the
order of the Adjudicating Authority under this part may prefer an
appeal to the National Company Law Appellate Tribunal.
(2) Every appeal under sub-section (1) shall be filed within thirty
days before the National Company Law Appellate Tribunal:
Provided that the National Company Law Appellate Tribunal may
allow an appeal to be filed after the expiry of the said period of
thirty days if it is satisfied that there was sufficient cause for not
filing the appeal but such period shall not exceed fifteen days.
(3) An appeal against an order approving a resolution plan under
section 31 may be filed on the following grounds, namely:–
(i) the approved resolution plan is in contravention of the
provisions of any law for the time being in force;
(ii) there has been material irregularity in exercise of the
powers by the resolution professional during the corporate
insolvency resolution period;
(iii) the debts owed to operational creditors of the corporate
debtor have not been provided for in the resolution plan in the
manner specified by the Board;
(iv) the insolvency resolution process costs have not been
provided for repayment in priority to all other debts; or
(v) the resolution plan does not comply with any other criteria
specified by the Board.
(4) An appeal against a liquidation order passed under section
33 may be filed on grounds of material irregularity or fraud
committed in relation to such a liquidation order.
Section 53. Distribution of assets. –(1) Notwithstanding anything
to the contrary contained in any law enacted by the Parliament or
any State Legislature for the time being in force, the proceeds from
the sale of the liquidation assets shall be distributed in the following
order of priority and within such period and in such manner as may
be specified, namely:-
(a) the insolvency resolution process costs and the liquidation
costs paid in full;
(b) the following debts which shall rank equally between and
among the following:-
132
(i) workmen’s dues for the period of twenty-four months
preceding the liquidation commencement date; and
(ii) debts owed to a secured creditor in the event such
secured creditor has relinquished security in the manner set
out in section 52;
(c) wages and any unpaid dues owed to employees other than
workmen for the period of twelve months preceding the liquidation
commencement date;
(d) financial debts owed to unsecured creditors;
(e) the following dues shall rank equally between and among the
following:-
(i) any amount due to the Central Government and the State
Government including the amount to be received on account
of the Consolidated Fund of India and the Consolidated Fund
of a State, if any, in respect of the whole or any part of the
period of two years preceding the liquidation commencement
date;
(ii) debts owed to a secured creditor for any amount unpaid
following the enforcement of security interest;
(f) any remaining debts and dues;
(g) preference shareholders, if any; and
(h) equity shareholders or partners, as the case may be.
(2) Any contractual arrangements between recipients under sub-
section (1) with equal ranking, if disrupting the order of priority
under that sub-section shall be disregarded by the liquidator.
(3) The fees payable to the liquidator shall be deducted
proportionately from the proceeds payable to each class of
recipients under sub-section (1), and the proceeds to the relevant
recipient shall be distributed after such deduction.
Explanation.– For the purpose of this section-
(i) it is hereby clarified that at each stage of the distribution of
proceeds in respect of a class of recipients that rank equally,
each of the debts will either be paid in full, or will be paid in
equal proportion within the same class of recipients, if the
proceeds are insufficient to meet the debts in full; and
(ii) the term “workmen’s dues” shall have the same meaning
as assigned to it in section 326 of the Companies Act, 2013
(18 of 2013).
Section 238. Provisions of this Code to override other laws.-
The provisions of this Code shall have effect, notwithstanding
anything inconsistent therewith contained in any other law for the
133
time being in force or any instrument having effect by virtue of any
such law.
59. We may also take note of Regulations 16A, 37, 38, 39 and 39B in
CIRP Regulations, as applicable at the relevant time as follows: -
61
“ 16A. Authorised representative.- (1) The interim resolution
professional shall select the insolvency professional, who is the
choice of the highest number of financial creditors in the class in
Form CA received under sub-regulation (1) of regulation 12, to act
as the authorised representative of the creditors of the respective
class:
Provided that the choice for an insolvency professional to act as
authorised representative in Form CA received under sub-
regulation (2) of regulation 12 shall not be considered.
(2) The interim resolution professional shall apply to the
Adjudicating Authority for appointment of the authorised
representatives selected under sub-regulation (1) within two days
of the verification of claims received under sub-regulation (1) of
regulation 12.
(3) Any delay in appointment of the authorised representative for
any class of creditors shall not affect the validity of any decision
taken by the committee.
(4) The interim resolution professional shall provide the list of
creditors in each class to the respective authorised representative
appointed by the Adjudicating Authority.
(5) The interim resolution professional or the resolution
professional, as the case may be, shall provide an updated list of
creditors in each class to the respective authorised representative
as and when the list is updated.
Clarification: The authorised representative shall have no role in
receipt or verification of claims of creditors of the class he
represents.
(6) The interim resolution professional or the resolution
professional, as the case may be, shall provide electronic means of
communication between the authorised representative and the
creditors in the class.
(7) The voting share of a creditor in a class shall be in proportion
to the financial debt which includes an interest at the rate of eight
per cent per annum unless a different rate has been agreed to
between the parties.
61 This Regulation 16A was inserted w.e.f. 04.07.2018.
134
(8) The authorised representative of creditors in a class shall be
entitled to receive fee for every meeting of the committee attended
by him in the following manner, namely:-
| Number of creditors in the class | Fee per meeting of the<br>committee (Rs.) |
|---|---|
| 10-100 | 15,000 |
| 101-1000 | 20,000 |
| More than 1000 | 25,000 |
(9) The authorised representative shall circulate the agenda to
creditors in a class and announce the voting window at least
twenty-four hours before the window opens for voting instructions
and keep the voting window open for at least twelve hours.
62
37. Resolution Plan.- A resolution plan shall provide for the
measures, as may be necessary, for insolvency resolution of the
corporate debtor for maximization of value of its assets, including
but not limited to the following:-
(a) transfer of all or part of the assets of the corporate debtor to
one or more persons;
(b) sale of all or part of the assets whether subject to any
security interest or not;
(ba) restructuring of the corporate debtor, by way of merger,
amalgamation and demerger;
(c) the substantial acquisition of shares of the corporate debtor,
or the merger or consolidation of the corporate debtor with one or
more persons;
(ca) cancellation or delisting of any shares of the corporate
debtor if applicable:
(d) satisfaction or modification of any security interest;
(e) curing or waiving of any breach of the terms of any debt due
from the corporate debtor;
(f) reduction in the amount payable to the creditors;
(g) extension of a maturity date or a change in interest rate or
other terms of a debt due from the corporate debtor;
(h) amendment of the constitutional documents of the corporate
debtor;
(i) issuance of securities of the corporate debtor, for cash,
property, securities, or in exchange for claims or interests, or other
appropriate purpose;
This Regulation 37 was substituted for the earlier one w.e.f. 06.02.2018. Clause (ba) was
62
inserted to this Regulation w.e.f. 28.11.2019; and clause (ca) was inserted w.e.f. 04.07.2018.
135
(j) change in portfolio of goods or services produced or rendered
by the corporate debtor;
(k) change in technology used by the corporate debtor; and
(l) obtaining necessary approvals from the Central and State
Governments and other authorities.
64
63
38. Mandatory contents of the resolution plan.- [(1) The
amount payable under a resolution plan-
(a) to the operational creditors shall be paid in priority over
financial creditors; and
(b) to the financial creditors, who have a right to vote under sub-
section (2) of Section 21 and did not vote in favour of the resolution
plan, shall be paid in priority over financial creditors who voted in
favour of the plan.]
(1A) A resolution plan shall include a statement as to how it has
dealt with the interests of all stakeholders, including financial
creditors and operational creditors, of the corporate debtor.
(1B) A resolution plan shall include a statement giving details if
the resolution applicant or any of its related parties has failed to
implement or contributed to the failure of implementation of any
other resolution plan approved by the Adjudicating Authority at any
time in the past.
(2) A resolution plan shall provide:
(a) the term of the plan and its implementation schedule;
(b) the management and control of the business of the corporate
debtor during its term; and
(c) adequate means for supervising its implementation.
65
[(3) A resolution plan shall demonstrate that-
(a) it addresses the cause of default;
(b) it is feasible and viable;
63 This Regulation 38 has also undergone several changes. The relevant amendments to sub-
regulation (1) and (3) are separately indicated hereinbelow. That apart, sub-regulation (1A) was
inserted w.e.f. 05.10.2017 and sub-regulation (1B) was inserted w.e.f. 24.01.2019
Sub-regulation (1) was amended w.e.f. 04.07.2018; then was substituted w.e.f. 05.10.2018;
64
and then was again substituted w.e.f. 28.11.2019. Before the last substitution, this sub-
regulation (1), stood as under:-
“(1) The amount due to the operational creditors under a resolution plan shall
be given priority in payment over financial creditors.”
65 Sub-regulation (3) was inserted w.e.f. 07.11.2017 and then was substituted w.e.f.
04.07.2018. Before substitution, this sub-regulation (3), stood as under:-
“(3) A resolution plan shall contain details of the resolution applicant and
other connected persons to enable the committee to assess the credibility of
such applicant and other connected persons to take a prudent decision while
considering the resolution plan for its approval.”.
136
(c) it has provisions for its effective implementation;
(d) it has provisions for approvals required and the timeline for
the same; and
(e) the resolution applicant has the capability to implement the
resolution plan.]
67
66
39. Approval of resolution plan.- [(1) A prospective resolution
applicant in the final list may submit resolution plan or plans
prepared in accordance with the Code and these regulations to the
resolution professional electronically within the time given in the
request for resolution plans under regulation 36B along with-
(a) an affidavit stating that it is eligible under section 29A to
submit resolution plans;
68
[*]
(c) an undertaking by the prospective resolution applicant that
every information and records provided in connection with or in the
resolution plan is true and correct and discovery of false information
and record at any time will render the applicant ineligible to continue
in the corporate insolvency resolution process, forfeit any
refundable deposit, and attract penal action under the Code.
(1A) A resolution plan which does not comply with the
provisions of sub-regulation (1) shall be rejected.]
69
[(2) The resolution professional shall submit to the committee
all resolution plans which comply with the requirements of the Code
and regulations made thereunder along with the details of following
transactions, if any, observed, found or determined by him-
(a) preferential transactions under section 43;
(b) undervalued transactions under section 45;
66 This Regulation 39 has also undergone wide ranging amendments, the relevant of which are
indicated hereinbelow.
Sub-regulation (1) was substituted w.e.f. 01.01.2018 and that was replaced by sub-
67
regulation (1) and (1A) w.e.f. 04.07.2018. Before 04.07.2018, sub-regulation (1) stood as
under: –
“(1) A resolution applicant shall submit resolution plan(s) prepared in accordance
with the Code and these regulations to the resolution professional within the time
given in the invitation made under clause (h) of sub-section (2) of section 25.”
Clause (b) was omitted w.e.f. 05.10.2018. Before omission, it stood as under:
68
“(b) an undertaking that it will provide for additional funds to the extent
required for the purposes under sub-regulation (1) of regulation 38; and”.
69 Sub-regulation (2) was substituted w.e.f. 07.11.2017 . Prior to this substitution, this sub-
regulation (2) stood as under:
“(2) The resolution professional shall present all resolution plans that meet
the requirements of the Code and these Regulations to the committee for its
consideration.”
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(c) extortionate credit transactions under section 50; and
(d) fraudulent transactions under section 66,
and the orders, if any, of the adjudicating authority in respect of
such transactions.]
70 71
- [(3) The committee shall evaluate the resolution plans received
under sub-regulation (1) strictly as per the evaluation matrix to
identify the best resolution plan and may approve it with such
modifications as it deems fit:
Provided that the committee shall record its deliberations on the
feasibility and viability of the resolution plans.]
72
[(4) The resolution professional shall endeavour to submit the
resolution plan approved by the committee to the Adjudicating
70 This sub-regulation (3) was substituted w.e.f. 04.07.2018; before its substitution it stood as
under:
“(3) The committee may approve any resolution plan with such modifications
as it deems fit”
Its proviso was substituted w.e.f. 25.07.2019; before its substitution it stood as
under:
“Provided that the committee shall record the reasons for approving or
rejecting a resolution plan.”
There had also been an insertion of sub-regulation (3A) w.e.f. 06.02.2018 but the
same was omitted w.e.f. 05.10.2018.
71 We may further indicate that w.e.f. 07.08.2020, entire of this sub-regulation (3) has been
substituted and sub-regulations (3A) and (3B) have been inserted, essentially dealing with the
eventuality of consideration of more than one resolution plans by the CoC.
Though the amendment w.e.f. 07.08.2020, would not directly apply to the present
case but, for reference, we may reproduce the newly substituted sub-regulation (3),(3A) and
(3B) as under:
“(3) The committee shall-
(a) evaluate the resolution plans received under sub-regulation (2) as per
evaluation matrix;
(b) record its deliberations on the feasibility and viability of each resolution
plan; and
(c) vote on all such resolution plans simultaneously.
(3A) Where only one resolution plan is put to vote, it shall be considered
approved if it receives requisite votes.
(3B) Where two or more resolution plans are put to vote simultaneously, the
resolution plan, which receives the highest votes, but not less than requisite
votes, shall be considered as approved:
Provided that where two or more resolution plans receive equal votes, but
not less than requisite votes, the committee shall approve any one of them, as
per the tie-breaker formula announced before voting:
Provided further that where none of the resolution plans receives requisite
votes, the committee shall again vote on the resolution plan that received the
highest votes, subject to the timelines under the Code.”
72 This sub-regulation was substituted for the earlier one w.e.f. 04.07.2018 and was also
amended w.e.f. 24.01.2019.
138
Authority at least fifteen days before the maximum period for
completion of corporate insolvency resolution process under section
12, along with a compliance certificate in Form H of the Schedule
and the evidence of receipt of performance security required under
sub-regulation (4A) of regulation 36B.]
(5) The resolution professional shall forthwith send a copy of
the order of the Adjudicating Authority approving or rejecting a
resolution plan to the participants and the resolution applicant.
(6) A provision in a resolution plan which would otherwise
require the consent of the members or partners of the corporate
debtor, as the case may be, under the terms of the constitutional
documents of the corporate debtor, shareholders’ agreement, joint
venture agreement or other document of a similar nature, shall take
effect notwithstanding that such consent has not been obtained.
(7) No proceedings shall be initiated against the interim
resolution professional or the resolution professional, as the case
may be, for any actions of the corporate debtor, prior to the
insolvency commencement date.
(8) A person in charge of the management or control of the
business and operations of the corporate debtor after a resolution
plan is approved by the Adjudicating Authority, may make an
application to the Adjudicating Authority for an order seeking the
assistance of the local district administration in implementing the
terms of a resolution plan.
73
[(9) A creditor, who is aggrieved by non-implementation of a
resolution plan approved under sub-section (1) of section 31, may
apply to the Adjudicating Authority for directions.]”
74
39B. Meeting liquidation cost.- (1) While approving a resolution
plan under sub-section (4) of section 30 or deciding to liquidate the
corporate debtor under sub-section (2) of section 33, the committee
may make a best estimate of the amount required to meet
liquidation costs, in consultation with the resolution professional, in
the event an order for liquidation is passed under section 33.
(2) The committee shall make a best estimate of the value of the
liquid assets available to meet the liquidation costs, as estimated in
sub-regulation (1).
(3) Where the estimated value of the liquid assets under sub-
regulation (2) is less than the estimated liquidation costs under sub-
regulation (1), the committee shall approve a plan providing for
contribution for meeting the difference between the two.
(4) The resolution professional shall submit the plan approved
under sub-regulation (3) to the Adjudicating Authority while filing the
approval or decision of the committee under section 30 or 33, as the
case may be.
73 This sub-regulation was inserted w.e.f. 24.01.2019.
74 This sub-regulation was inserted w.e.f. 25.07.2018.
139
Explanation.- For the purposes of this regulation, ‘liquidation costs’
shall have the same meaning as assigned to it in clause (ea) of sub-
regulation (1) of regulation (2) of the Insolvency and Bankruptcy
Board of India (Liquidation Process) Regulations, 2016.
60. We would hasten to reiterate that in the foregoing extractions of
the provisions, we have indicated the
amendments/substitutions/insertions in the related footnotes to the extent
relevant for the present purpose; and not necessarily all the changes as
brought about from time to time.
JIL’s CIRP: Chronicle of complications
61. The factual and background aspects relating to this batch of
matters make it evident that the insolvency resolution of the corporate
debtor JIL carries with it vexed and strikingly intricate issues where twice
over this Court had exercised its plenary powers under Article 142 of the
Constitution of India to ensure complete justice in the cause and yet, for a
variety of reasons, the insolvency resolution is eluding the corporate
debtor JIL; and even when the resolution plan is said to have been
approved by a vast majority of 97.36% of the voting share of Committee
of Creditors, several issues are still hovering over with an assortment of
grievances of different stakeholders and role players. Even the very
process taken up by the Committee of Creditors has been questioned
apart from several questions over one or the other stipulation in the
resolution plan. Further, several questions have spurt up on the order
passed by the Adjudicating Authority, wherein some of the objections
have been accepted and the plan has been modified while a few other
140
objections have been rejected. Modification of the resolution plan by the
Adjudicating Authority has given the resolution applicant and even IRP
several causes to be discontented with and at the same time, rejection of
some of the objections has also been challenged by the objectors. This
apart, some of the stakeholders, who did not raise objections before the
Adjudicating Authority, have also raised their grievances against the plan.
Put in a nutshell, this process of resolution is yet to pass through a maze
of hurdles.
61.1. Having regard to the peculiar circumstances of this case, we had
withdrawn all the appeals pending before NCLAT to this Court and have
heard the entire matter at sufficient length, while extending opportunity of
making oral and written submissions to practically all the parties who
wished to put their say on record.
61.2. We have examined the submissions so made as also the material
placed on record with reference to the law applicable and have given
anxious consideration to the relevant submissions, which are reflected in
the points for determination formulated hereinbefore.
62. Before proceeding further, we may also recapitulate that while
entertaining these matters and transferring the cases pending before
NCLAT to this Court by order dated 06.08.2020, we had directed that the
IRP shall continue to manage the affairs of the subject company i.e., JIL.
We may point out that the IRP has filed an affidavit dated 05.09.2020,
stating the status of the corporate debtor and the major part of activities
141
relating to construction of flats and issuing Offers of Possession which,
according to the IRP, has resulted in reduction of liability to the real estate
allottees. The relevant paragraphs of this affidavit read as under: -
“I state that as part of management of the affairs of the
Corporate Debtor, the Deponent inter alia is continuing the
construction of residential and commercial dwelling units forming
part of the real estate projects of the Corporate Debtor. I further
state during the corporate insolvency resolution process
(hereinafter, “ CIR Process ”), the IRP continued construction of
residential and commercial dwelling units and has issued Offer of
Possessions (OOPs) for 7996 units based on occupancy
certificates received from the NOIDA Authority, from time to time.
That out of these OOPs issued, sub-lease registration of 6,429
has been completed. The process of issuance of OOPs as started
by the Deponent after the receipt of such occupancy certificates
continues.
I further state that for approximately 2,688 allottees to whom
OOPs providing for delay rebate was issued prior to 17.12.2019,
either the Sub-Lease Deed is still to be executed or the Sub-Lease
Deed is pending for registration before the Registrar of
Assurances of Noida.
I state that the delivery of units and their transfer by way of sub-
lease registration has resulted in a reduction of Financial
Creditors’ (Real-Estate Allottees) liability by more than Rs. 2,250
Crores since commencement of the CIR Process in the Corporate
Debtor.”
The objectives and scheme of IBC
63. For dealing with the questions involved, worthwhile it would be to
begin the discussion broadly on the scheme of the Code and
assignments of some of the relevant role players in the corporate
insolvency resolution process.
63.1. As noticed from the Preamble, the Code came to be enacted to
consolidate and amend the laws relating to reorganisation and insolvency
resolution of corporate persons, partnership firms and individuals in a
time bound manner; the objectives, inter alia , being for maximisation of
142
the value of assets of such persons and balance of interests of all the
stakeholders. The Preamble reads as under: -
“ An Act to consolidate and amend the laws relating to
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 the stakeholders including alteration in the order of priority of
payment of Government dues and to establish an Insolvency and
Bankruptcy Board of India, and for matters connected therewith or
incidental thereto .”
63.2. In the judgment delivered on 25.01.2019 in the case of Swiss
Ribbons Private Limited and Anr. v. Union of India and Ors. : (2019) 4
75
SCC 17 , this Court traversed through the historical background and
scheme of the Code in the wake of challenge to the constitutional validity of
various provisions therein. One part of such challenge had been founded on
the ground that the classification between ‘financial creditor’ and ‘operational
creditor’ was discriminatory and violative of Article 14 of the Constitution of
India. This ground as also several other grounds pertaining to various
provisions of the Code were rejected by this Court after elaborate dilation on
the vast variety of rival contentions. In the course, this Court took note, inter
alia , of the pre-existing state of law as also the objects and reasons for
enactment of the Code. While observing that focus of the Code was to
ensure revival and continuation of the corporate debtor, where liquidation
would be the last resort, this Court pointed out that on its scheme and
framework, the Code was a beneficial legislation to put the corporate debtor
75 Hereinafter also referred to as the case of ‘Swiss Ribbons’ .
143
on its feet, and not a mere recovery legislation for the creditors. This Court
said, -
“ 27 . As is discernible, the Preamble gives an insight into what is
sought to be achieved by the Code. The Code is first and
foremost, a Code for reorganisation and insolvency resolution of
corporate debtors. Unless such reorganisation is effected in a
time-bound manner, the value of the assets of such persons will
deplete. Therefore, maximisation of value of the assets of such
persons so that they are efficiently run as going concerns is
another very important objective of the Code. This, in turn, will
promote entrepreneurship as the persons in management of the
corporate debtor are removed and replaced by entrepreneurs.
When, therefore, a resolution plan takes off and the corporate
debtor is brought back into the economic mainstream, it is
able to repay its debts, which, in turn, enhances the viability
of credit in the hands of banks and financial institutions.
Above all, ultimately, the interests of all stakeholders are
looked after as the corporate debtor itself becomes a
beneficiary of the resolution scheme—workers are paid, the
creditors in the long run will be repaid in full, and
shareholders/investors are able to maximise their investment .
Timely resolution of a corporate debtor who is in the red, by an
effective legal framework, would go a long way to support the
development of credit markets. Since more investment can be
made with funds that have come back into the economy, business
then eases up, which leads, overall, to higher economic growth
and development of the Indian economy. What is interesting to
note is that the Preamble does not, in any manner, refer to
liquidation, which is only availed of as a last resort if there is either
no resolution plan or the resolution plans submitted are not up to
the mark. Even in liquidation, the liquidator can sell the business of
76
the corporate debtor as a going concern. (See ArcelorMittal at
para 83, fn 3)
28 . It can thus be seen that the primary focus of the
legislation is to ensure revival and continuation of the
corporate debtor by protecting the corporate debtor from its
own management and from a corporate death by liquidation.
The Code is thus a beneficial legislation which puts the
corporate debtor back on its feet, not being a mere recovery
legislation for creditors . The interests of the corporate debtor
have, therefore, been bifurcated and separated from that of its
promoters/those who are in management. Thus, the resolution
76 ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta & Ors: (2019) 2 SCC 1.
144
process is not adversarial to the corporate debtor but, in fact,
protective of its interests…..”
(emphasis in bold supplied)
64. Keeping in view the objectives of the Code and observations of
this Court, we may now take an overview of the scheme and structure of
the relevant parts of the Code. Part I thereof contains the provisions
regarding title, extent, commencement and application of the Code as
also the definition and meaning of various expressions used in the Code.
Different provisions have come into force on different dates, as
permissible under proviso to sub-section (3) of Section 1. Part II of the
Code deals with insolvency resolution and liquidation for corporate
persons. Chapter I of Part II makes provision for its applicability and also
defines various expressions used in this Part (Sections 4 and 5). Chapter
II of Part II contains the provisions for corporate insolvency resolution
process in Sections 6 to 32 whereas Chapter III of this Part II contains the
77
provisions for liquidation process in Sections 33 to 54 .
64.1. A glance at Chapter II of Part II would inform that it contains the
blueprint for the process of insolvency resolution in relation to the
corporate debtors to whom this Part applies, while specifying the persons
who could initiate the process; the manner and impact of such initiation;
the roles and rights as also duties of key persons and entities to be
involved in the resolution process like the resolution professional, the
Committee of Creditors, the authorised representative of financial
77 Sections 4 to 32 came into force on 01.12.2016 whereas Section 33 to 54 came into force
on 15.12.2016.
145
creditors and the resolution applicant; the matters essential for
preparation of the resolution plan; the submission and approval of the
resolution plan; and the appeal against approval of the resolution plan.
Approval of resolution plan: Crucial steps and role players
65. As noticed, as per the requirements of the Code read with the
orders passed by this Court in the cases of Chitra Sharma and
Jaiprakash Associates Ltd. (supra), the insolvency resolution process
in relation to the corporate debtor JIL has already passed through the
stages of initiation, appointment of interim resolution professional,
constitution and reconstitution of the Committee of Creditors, submission
and resubmission of resolution plans, approval of the resolution plan of
NBCC by the Committee of Creditors, submission of the said resolution
plan to the Adjudicating Authority, and its approval by the Adjudicating
Authority, albeit with some modifications.
65.1. The issues now raised before us basically relate to the contents
of the resolution plan in question; its approval by the Committee of
Creditors; and the order passed by the Adjudicating Authority in its
approval with modifications. Thus, on the issues raised and points arising
for determination, the focus in the present case is on the dispensation
governing the process of approval of the resolution plan by CoC who,
under Section 30(4) of the Code, considers and votes at the resolution
plan after it has been verified by the resolution professional as being
compliant with the statutory requirements specified in Section 30(2) of
146
the Code; and on the approval of resolution plan by the Adjudicating
Authority in terms of Section 31 of the Code. Having regard to the issues
involved, we may usefully take note of the relevant principles enunciated
by this Court in relation to these crucial steps of CIRP.
66. The relevant aspects relating to the steps in CIRP for approval of
the resolution plan have come up for interpretation before this Court in at
least three major decisions, in the cases of K. Sashidhar v. Indian
Overseas Bank and Ors. : (2019) 12 SCC 150 (decided on 05.02.2019),
Committee of Creditors of Essar Steel India Limited v. Satish Kumar
Gupta and Ors. : (2020) 8 SCC 531 (decided on 15.11.2019), and
Maharashtra Seamless Limited v. Padmanabhan Venkatesh and
Ors. : (2020) 11 SCC 467 (decided on 22.01.2020). The contesting
parties have also relied upon these decisions in support of their
respective contentions. We shall be referring to these cases in a little
detail in the later part of this judgment while determining Point A
concerning the scope of the jurisdiction of the Adjudicating Authority in
dealing with the resolution plan approved by the Committee of Creditors.
At this juncture, we may only indicate the importance of a few essential
role players in the process, as discernible from the relevant provisions of
the Code and as exposited by this Court.
66.1. In the scheme of IBC, the script of corporate insolvency resolution
process, to a large extent, revolves around the resolution professional.
When CIRP gets initiated with admission of the application by the
147
Adjudicating Authority as per Sections 7, 9 or 10, as the case may be, an
interim resolution professional is appointed by the Adjudicating Authority
in terms of Section 13(1)( c ) and in the manner laid down in Section 16.
Collating and admitting the claims of all creditors; appointing and
convening the meetings of the Committee of Creditors; and running the
business of the corporate debtor as a going concern during the
intermediate period are the key tasks assigned to the interim resolution
professional, as distinctly appears from Sections 15, 17, 18 and 20 of the
Code. Further, in the scheme of IBC, the Committee of Creditors, in its
first meeting to be held within seven days of its constitution, has to
resolve to appoint the interim resolution professional as a resolution
professional or to replace him by another resolution professional ( vide
Section 22 IBC). In terms of Section 23, the resolution professional is to
conduct the entire CIRP and manage the operations of the corporate
debtor during the period of CIRP. His duties and responsibilities extend to
the conduct of all the meetings of the Committee of Creditors, giving
notice of such meetings to the members of CoC, to the members of the
suspended Board of Directors and to the operational creditors, if amount
of their aggregate dues is not less than 10% of the debt. Akin to the
duties of the interim resolution professional under Section 18 of the
Code, the resolution professional is also required to preserve and protect
the assets of the corporate debtor while continuing with the business
operations and while undertaking the actions contemplated by Section
148
25(2) of the Code. Significantly, the resolution professional is also
required to prepare the information memorandum in terms of Section 29
of the Code; invite prospective resolution applicants; and present the
resolution plans at the meeting of the Committee of Creditors, while duly
examining them as required by Section 30 of the Code. These
compliances are duly regulated by Regulations 35, 36, 36A and 36B of
the CIRP Regulations.
66.1.1. Taking note of the relevant provisions, this Court in the case of
Essar Steel (supra) summed up the key role of the resolution
professional in the following terms: -
“48 . The detailed provisions that have been stated hereinabove
make it clear that the resolution professional is a person who is not
only to manage the affairs of the corporate debtor as a going
concern from the stage of admission of an application under
Sections 7, 9 or 10 of the Code till a resolution plan is approved by
the Adjudicating Authority, but is also a key person who is to
appoint and convene meetings of the Committee of Creditors, so
that they may decide upon resolution plans that are submitted in
accordance with the detailed information given to resolution
applicants by the resolution professional. Another very important
function of the resolution professional is to collect, collate and
finally admit claims of all creditors, which must then be examined
for payment, in full or in part or not at all, by the resolution
applicant and be finally negotiated and decided by the Committee
of Creditors.”
66.2. Further, the role of prospective resolution applicant has also been
explained in Essar Steel with reference, inter alia, to UNCITRAL
Legislative Guide as also Regulations 37 and 38 of the CIRP Regulations
on the contents of a resolution plan, while pointing out the rights of a
prospective resolution applicant to receive necessary information as also
149
its duty to prepare the resolution plan providing for necessary measures
for insolvency resolution of the corporate debtor with maximisation of the
value of its assets.
Committee of Creditors: the protagonist of CIRP
67. While in their representative roles, the resolution professional and
the resolution applicant are duty bound to ensure that the resolution plan
is prepared in conformity with the requirements of the Code and the
CIRP Regulations and is properly presented for consideration, the central
role in taking the decision as to whether a resolution plan be adopted or
not, in the same form as presented to it or in a modified form; and as to
whether the attempt for revival of corporate debtor be made or not,
ultimately rests with the pivotal body, comprising of the financial creditors
of the corporate debtor and termed as “Committee of Creditors”. As
noticed from the provisions above-quoted, the final decision on a
resolution plan is taken by the Committee of Creditors; and, for approval,
a resolution plan is required to be voted in favour by not less than 66% of
the voting share of the financial creditors, as per Section 30(4) of the
Code. It is also relevant to point out that though the resolution
professional is to run the business of the corporate debtor as a going
concern during the corporate insolvency resolution process but, as per
Section 28(3) of the Code, he cannot take certain decisions relating to
150
the management of the corporate debtor without prior approval of the
78
Committee of Creditors by a vote of at least 66% of the voting shares .
67.1. It is, therefore, evident that corporate insolvency resolution, with
approval of the plan of resolution, is ultimately in the exclusive domain of
the Committee of Creditors. Even during the resolution process, major
decisions as regards management and finances of the corporate debtor
are in the control of the Committee of Creditors. As per the composition
delineated in Section 21 of the Code, the Committee of Creditors is
comprised of all financial creditors of the corporate debtor; and the frame
of Section 21 puts it beyond doubt that the voting share of each financial
creditor is determined on the basis of financial debt owed to it. It is also
clear from Section 30(4) as also Section 28(3) that the major decisions of
approval are to be taken by the Committee of Creditors by a vote of at
least 66% of the voting share of the financial creditors and not by a
simple majority. The reasons and purpose for assigning such a unique
and decisive role in corporate insolvency resolution to the Committee of
rd
Creditors and for that matter, to a substantial block of not less than 2/3
of voting share of the financial creditors, were extensively delineated in
the report of the Bankruptcy Law Reforms Committee of November, 2015
while remarking on the essential theme that the ‘ appropriate disposition
of a defaulting firm is a business decision, and only the creditors should
make it’ .
78 This percentage of minimum votes of CoC, for approval of resolution plan as also for prior
approval of certain actions, was ‘seventy-five’ in the Code as originally enacted and was altered
to ‘sixty-six’ by way of an amendment with effect from 06.06.2018.
151
67.2. In the case of K. Sashidhar (supra), while setting out the relevant
extracts from the said Report, this Court exposited on the primacy of the
commercial wisdom of the Committee of Creditors in the corporate
insolvency resolution process in the following terms: -
“ 52 . As aforesaid, upon receipt of a “rejected” resolution plan the
adjudicating authority (NCLT) is not expected to do anything more;
but is obligated to initiate liquidation process under Section 33(1)
of the I&B Code. The legislature has not endowed the adjudicating
authority (NCLT) with the jurisdiction or authority to analyse or
evaluate the commercial decision of CoC much less to enquire into
the justness of the rejection of the resolution plan by the dissenting
financial creditors. From the legislative history and the background
in which the I&B Code has been enacted, it is noticed that a
completely new approach has been adopted for speeding up the
recovery of the debt due from the defaulting companies. In the
new approach, there is a calm period followed by a swift resolution
process to be completed within 270 days (outer limit) failing which,
initiation of liquidation process has been made inevitable and
mandatory. In the earlier regime, the corporate debtor could
indefinitely continue to enjoy the protection given under Section 22
of the Sick Industrial Companies Act, 1985 or under other such
enactments which has now been forsaken. Besides, the
commercial wisdom of CoC has been given paramount status
without any judicial intervention, for ensuring completion of the
stated processes within the timelines prescribed by the I&B Code.
There is an intrinsic assumption that financial creditors are
fully informed about the viability of the corporate debtor and
feasibility of the proposed resolution plan. They act on the
basis of thorough examination of the proposed resolution
plan and assessment made by their team of experts. The
opinion on the subject-matter expressed by them after due
deliberations in CoC meetings through voting, as per voting
shares, is a collective business decision. The legislature,
consciously, has not provided any ground to challenge the
“commercial wisdom” of the individual financial creditors or
their collective decision before the adjudicating authority.
That is made non-justiciable.
53 . In the report of the Bankruptcy Law Reforms Committee of
November 2015, primacy has been given to CoC to evaluate the
various possibilities and make a decision. It has been observed
thus:
“ The key economic question in the bankruptcy process
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When a firm (referred to as the corporate debtor in the
draft law) defaults, the question arises about what is to be
done. Many possibilities can be envisioned. One
possibility is to take the firm into liquidation. Another
possibility is to negotiate a debt restructuring, where the
creditors accept a reduction of debt on an NPV basis, and
hope that the negotiated value exceeds the liquidation
value. Another possibility is to sell the firm as a going
concern and use the proceeds to pay creditors. Many
hybrid structures of these broad categories can be
envisioned .
The Committee believes that there is only one correct
forum for evaluating such possibilities, and making a
decision: a creditors committee, where all financial
creditors have votes in proportion to the magnitude of debt
that they hold. In the past, laws in India have brought arms
of the Government (legislature, executive or judiciary) into
this question. This has been strictly avoided by the
Committee. The appropriate disposition of a defaulting firm
is a business decision, and only the creditors should make
it .”
(emphasis in bold supplied; emphasis in italics is in original)
67.3. In Essar Steel (supra), a 3-Judge Bench of this Court surveyed
almost all the relevant provisions concerning corporate insolvency
resolution process; and, as noticed above, explained the assignments of
different role players in this process. In that context, this Court again
explained the primacy endowed on the commercial wisdom of the
Committee of Creditors and reasons therefor, with a further detailed
reference to the aforesaid report of the Bankruptcy Law Reforms
Committee of November, 2015. Apart from the passage from the said
report that was noticed in K. Sashidhar (reproduced hereinabove), the
Court noticed various other passages from this report in Essar Steel ;
and one part thereof, which further underscores the rationale for only
financial creditors handling the process of resolution, could be usefully
reproduced as under (part of paragraph 56 at p. 578 of SCC): -
153
“5.3.1. Steps at the start of the IRP
*
4. Creation of the creditors committee
The creditors committee will have the power to decide the final
solution by majority vote in the negotiations. The majority vote
requires more than or equal to 75 per cent of the creditors
committee by weight of the total financial liabilities. The majority
vote will also involve a cram down option on any dissenting
creditors once the majority vote is obtained . …
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 Code will provide that the
creditors committee should be restricted to only the financial
creditors .”
(emphasis in italics is in original)
67.4. In Essar Steel, the Court referred to the above-quoted and other
passages from the judgement in K. Sashidhar (supra) and explained the
decisive role of the commercial wisdom of the Committee of Creditors,
inter alia , in the following passages: -
“ 54. Since it is the commercial wisdom of the Committee of
Creditors that is to decide on whether or not to rehabilitate
the corporate debtor by means of acceptance of a particular
resolution plan, the provisions of the Code and the
Regulations outline in detail the importance of setting up of
such Committee , and leaving decisions to be made by the
requisite majority of the members of the aforesaid Committee in its
discretion.……
*
59. Even though it is the resolution professional who is to run the
business of the corporate debtor as a going concern during the
intermediate period, yet, such resolution professional cannot take
certain decisions relating to management of the corporate debtor
without the prior approval of at least 66% of the votes of the
Committee of Creditors…….
154
60. Thus, it is clear that since corporate resolution is
ultimately in the hands of the majority vote of the Committee
of Creditors, nothing can be done qua the management of the
corporate debtor by the resolution professional which
impacts major decisions to be made in the interregnum
between the taking over of management of the corporate
debtor and corporate resolution by the acceptance of a
resolution plan by the requisite majority of the Committee of
Creditors. Most importantly, under Section 30(4), the
Committee of Creditors may approve a resolution plan by a
vote of not less than 66% of the voting share of the financial
creditors, after considering its feasibility and viability, and
various other requirements as may be prescribed by the
Regulations.
*
64. Thus, what is left to the majority decision of the Committee of
Creditors is the “feasibility and viability” of a resolution plan, which
obviously takes into account all aspects of the plan, including the
manner of distribution of funds among the various classes of
creditors. As an example, take the case of a resolution plan which
does not provide for payment of electricity dues. It is certainly open
to the Committee of Creditors to suggest a modification to the
prospective resolution applicant to the effect that such dues ought
to be paid in full, so that the carrying on of the business of the
corporate debtor does not become impossible for want of a most
basic and essential element for the carrying on of such business,
namely, electricity. This may, in turn, be accepted by the resolution
applicant with a consequent modification as to distribution of
funds, payment being provided to a certain type of operational
creditor, namely, the electricity distribution company, out of upfront
payment offered by the proposed resolution applicant which may
also result in a consequent reduction of amounts payable to other
financial and operational creditors. What is important is that it is
the commercial wisdom of this majority of creditors which is
to determine, through negotiation with the prospective
resolution applicant, as to how and in what manner the
corporate resolution process is to take place .”
(emphasis in bold supplied)
67.5. In the case of Maharashtra Seamless Ltd. (supra), again, a 3-
Judge Bench of this Court referred extensively to the enunciations in
Essar Steel (supra) and reiterated the primacy assigned to the
commercial wisdom of the Committee of Creditors in the matter of
corporate insolvency resolution.
155
68. For what has been noticed hereinabove, it would not be an
exaggeration in terms that, in corporate insolvency resolution process,
the role of Committee of Creditors is akin to that of a protagonist, giving
finality to the process (subject, of course, to approval by the Adjudicating
Authority), who takes the key decisions in its commercial wisdom and
also takes the consequences thereof. As noticed, the process is aimed at
bringing the corporate debtor back on its feet and it is acknowledged that
appropriate disposition of a defaulting corporate debtor and the choice of
solution, to keep the corporate debtor as a going concern or to liquidate
it, is to be made by the financial creditors, who could assess the viability
and may take decisions in modification of the terms of the existing
liabilities. In other words, the decision as to whether the corporate debtor
be resurrected or not, by acceptance of a particular resolution plan, is
essentially a business decision and hence, is left to the committee
consisting of the financial creditors, that is, the Committee of Creditors
but, with the requirement that the resolution plan, for its approval, ought
to muster not less than 66% votes of the voting share of the financial
creditors.
69. The significance of primacy of the Committee of Creditors in the
process of corporate insolvency resolution unfolds itself when we
examine the contours of the jurisdiction of Adjudicating Authority dealing
with a resolution plan after the same has been voted at by the Committee
of Creditors. We have formulated the questions relating to such contours
156
as the first point for determination in view of the fact that most of the
other questions involved in this batch of matters revolve around the order
dated 03.03.2020 as passed by the Adjudicating Authority in approval of
the resolution plan of NBCC with certain modifications. The decision on
legality and validity of the order passed by the Adjudicating Authority on
any particular objection or issue would largely depend on the question as
to whether the Adjudicating Authority has acted within its jurisdiction or
has overstepped its jurisdiction or has acted illegally or with material
irregularity in exercise of its jurisdiction. In fact, contours of the
jurisdiction of the Adjudicating Authority are also delineated by this Court
in the aforesaid decisions, as shall be noticed infra .
70. With the foregoing observations and while keeping the
aforementioned enunciations in view, we may now take up the points
arising for determination in this case.
Point A
Contours of the jurisdiction of Adjudicating Authority in dealing with a
resolution plan
71. As noticed, the resolution plan in relation to the corporate debtor
JIL, as propounded by NBCC, has been approved by the Committee of
Creditors with the votes of 97.36% of the voting share of financial
creditors. However, the Adjudicating Authority (NCLT), while passing the
impugned order dated 03.03.2020, has modified some of the terms of the
resolution plan while also declining modification in relation to some other
terms of the resolution plan. In relation to either of the events, whether of
157
modifying the terms of the plan or declining the prayer for modification,
invariably the question pertaining to the jurisdiction of the Adjudicating
Authority would arise for consideration.
72. The contours of the powers and jurisdiction of Adjudicating
Authority dealing with a resolution plan approved by the Committee of
Creditors have been clearly defined, delineated and described by this
Court in the aforesaid decisions in K. Sashidhar , Essar Steel and
Maharashtra Seamless Ltd. Appropriate it would be to take note of the
principles emanating from these decisions with a brief reference to the
relevant factual aspects of each of these cases.
73. The first in this series of judgments relating to the process of
approval of resolution plan in CIRP proceedings had been the case of K.
Sashidhar (supra) where the matters in issue related to two different
corporate debtors, Kamineni Steel & Power (India) (P) Ltd. (‘KSPIPL’)
and Innovative Industries Ltd. (‘IIL’).
73.1. Shorn of unnecessary details, the relevant factual aspects of the
case of KSPIPL had been that the said company had filed a petition
under Section 10 of the Code seeking initiation of CIRP that was
admitted on 10.02.2017 by NCLT, Hyderabad and IRP was appointed
with directions to constitute CoC. Accordingly, CoC was constituted and
there had been a few rounds of consideration of the matter by CoC,
where different propositions were mooted for insolvency resolution.
Ultimately, on 30.10.2017, the voting share of consenting banks
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expressly approving the proposed resolution plan was 66.67% and the
voting share of dissenting lender banks was 26.97%. Bank of
Maharashtra, having 6.36% voting share, neither approved nor rejected
the plan nor abstained from voting but conveyed that they remained
‘open to consider the resolution plan’. Be it noted that at the relevant
time, the requirement for approval of the resolution plan, as per Section
30(4) of the Code, was that it ought to be approved by a vote of not less
than 75% of voting share of the financial creditors.
73.1.1. The position as obtainable after the aforesaid voting was that the
resolution plan fell short of receiving minimum 75% votes of the voting
share of the financial creditors. IRP filed an affidavit of the outcome
before the Adjudicating Authority (NCLT, Hyderabad) on 03.11.2017.
However, the Managing Director of the corporate debtor submitted before
the Adjudicating Authority that the majority ought to be counted without
taking into account the voting share of the financial creditor who chose
not to participate in the voting. It was the submission that with such
exclusion, the percentage of voting share in approval of the plan would
be 78.63% and, therefore, the plan could be taken as approved by the
CoC. The NCLT, by its order dated 20.11.2017, allowed the petition so
filed and approved the resolution plan with certain directions. The three
dissenting financial creditors, including the said Bank of Maharashtra,
filed an appeal before NCLAT against the order of NCLT in approving the
resolution plan despite the same having not received the approval of
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minimum 75% votes of the voting share of financial creditors. The
Managing Director of the corporate debtor also filed an appeal
challenging the observation made by NCLT regarding the corporate
guarantee to be proceeded with.
73.2. The factual aspects relating to the other corporate debtor IIL had
been that its lender bank filed insolvency application that was admitted
by NCLT, Mumbai on 17.01.2017. In the CoC meeting relating to this
corporate debtor, the financial creditors holding 66.57% voting share
voted in favour of approving the proposed resolution plan, whereas
dissenting financial creditors, having 33.43% voting share, voted against.
Resultantly, the proposed plan was not approved for want of support of
the requisite percentage of voting share. The resolution applicant filed an
application seeking permission to submit a revised resolution plan and to
invite fresh votes. The impending liquidation proceedings were objected
to by the workers’ union too. The NCLT, however, rejected the
applications and directed initiation of liquidation proceedings by its order
dated 23.11.2017. An appeal was filed challenging the order so passed
by the NCLT.
73.3. The Appellate Authority (NCLAT) took up both the appeals relating
to KSPIPL and IIL together and the same were disposed of by a common
judgment dated 06.09.2018, wherein it was held that the statutory
requirement of approval of resolution plan by vote of not less than 75% of
the voting share of financial creditors, as laid down under Section 30(4)
160
of the Code, was mandatory and the plans in question were not approved
by the requisite majority. Therefore, the appeals were dismissed.
73.4. The common judgment so passed by NCLAT was in challenge
before this Court. During the pendency of appeals in this Court, the
aforesaid amendment to Section 30(4) was made and the requisite voting
share for approval of resolution plan was reduced to 66% with effect from
06.06.2018.
73.5. After examining the long length of rival submissions, this Court
proceeded to determine the questions as to whether the percentage of
voting share of the financial creditors specified in Section 30(4) of IBC
was mandatory; as to whether the votes of the financial creditors who had
abstained from voting were required to be ignored for the purpose of
computing the required percentage of voting share; as to whether the
amendments brought into force during the pendency of appeals were
applicable to those cases; and as to whether it was open to the
Adjudicating Authority/Appellate Authority to reckon any factor other than
those specified in Sections 30(2) or 61(3) of IBC, as the case may be, for
rejection of the resolution plan?
73.6. This Court analysed the entire scheme of the Code, particularly
concerning the resolution plan and its approval by the Committee of
Creditors and then by the Adjudicating Authority; and held that the
percentage of voting share was not directory and in the light of the
provisions contained in the Code and the CIRP Regulations, the
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approving votes must fulfil the requisite percentage of voting share. The
Court also held that the amendment to Section 30(4), prescribing new
qualifying standard for approval of resolution plan was neither
retrospective in operation nor was having retroactive effect. The Court
also rejected the suggestion for different percentage of voting share in the
case of KSPIPL. These aspects are not much relevant for the present
purpose. The aspects relevant are the enunciations in relation to the
respective roles of the Committee of Creditors and the Adjudicating
Authority. As already noticed, this Court explained in detail the primacy
given to the commercial wisdom of the Committee of Creditors and such
commercial wisdom being made non-justiciable. Having said so, this
Court also proceeded to define the strict limits of the jurisdiction of
NCLT/NCLAT while dealing with the matter relating to approval of
resolution plan in the following passages: -
“ 55. Whereas, the discretion of the adjudicating authority (NCLT)
is circumscribed by Section 31 limited to scrutiny of the resolution
plan “as approved” by the requisite per cent of voting share of
financial creditors. Even in that enquiry, the grounds on which
the adjudicating authority can reject the resolution plan is in
reference to matters specified in Section 30(2), when the
resolution plan does not conform to the stated requirements.
Reverting to Section 30(2), the enquiry to be done is in
respect of whether the resolution plan provides: ( i ) the
payment of insolvency resolution process costs in a specified
manner in priority to the repayment of other debts of the
corporate debtor, ( ii ) the repayment of the debts of
operational creditors in prescribed manner, ( iii ) the
management of the affairs of the corporate debtor, ( iv ) the
implementation and supervision of the resolution plan, ( v )
does not contravene any of the provisions of the law for the
time being in force, ( vi ) conforms to such other requirements
as may be specified by the Board. The Board referred to is
established under Section 188 of the I&B Code. The powers
162
and functions of the Board have been delineated in Section
196 of the I&B Code. None of the specified functions of the
Board, directly or indirectly, pertain to regulating the manner
in which the financial creditors ought to or ought not to
exercise their commercial wisdom during the voting on the
resolution plan under Section 30(4) of the I&B Code. The
subjective satisfaction of the financial creditors at the time of
voting is bound to be a mixed baggage of variety of factors. To wit,
the feasibility and viability of the proposed resolution plan and
including their perceptions about the general capability of the
resolution applicant to translate the projected plan into a reality.
The resolution applicant may have given projections backed by
normative data but still in the opinion of the dissenting financial
creditors, it would not be free from being speculative. These
aspects are completely within the domain of the financial creditors
who are called upon to vote on the resolution plan under Section
30(4) of the I&B Code.
56. For the same reason, even the jurisdiction of N CLAT being
in continuation of the proceedings would be circumscribed in
that regard and more particularly on account of Section 32 of the
I&B Code, which envisages that any appeal from an order
approving the resolution plan shall be in the manner and on the
grounds specified in Section 61(3) of the I&B Code…….
57. On a bare reading of the provisions of the I&B Code, it would
appear that the remedy of appeal under Section 61(1) is against
an “order passed by the adjudicating authority (NCLT)”, which we
will assume may also pertain to recording of the fact that the
proposed resolution plan has been rejected or not approved by a
vote of not less than 75% of voting share of the financial creditors.
Indubitably, the remedy of appeal including the width of jurisdiction
of the appellate authority and the grounds of appeal, is a creature
of statute. The provisions investing jurisdiction and authority
CLAT
in NCLT or N as noticed earlier, have not made the
commercial decision exercised by CoC of not approving the
resolution plan or rejecting the same, justiciable. This
position is reinforced from the limited grounds specified for
instituting an appeal that too against an order “approving a
resolution plan” under Section 31. First, that the approved
resolution plan is in contravention of the provisions of any
law for the time being in force. Second, there has been
material irregularity in exercise of powers “by the resolution
professional” during the corporate insolvency resolution
period. Third, the debts owed to operational creditors have
not been provided for in the resolution plan in the prescribed
manner. Fourth, the insolvency resolution plan costs have not
been provided for repayment in priority to all other debts.
Fifth, the resolution plan does not comply with any other
criteria specified by the Board. Significantly, the matters or
grounds—be it under Section 30(2) or under Section 61(3) of the
I&B Code—are regarding testing the validity of the “approved”
163
resolution plan by CoC; and not for approving the resolution plan
which has been disapproved or deemed to have been rejected by
CoC in exercise of its business decision.
58. Indubitably, the inquiry in such an appeal would be limited to
the power exercisable by the resolution professional under Section
30(2) of the I&B Code or, at best, by the adjudicating authority
(NCLT) under Section 31(2) read with Section 31(1) of the I&B
Code. No other inquiry would be permissible. Further, the
jurisdiction bestowed upon the appellate authority (N CLAT ) is also
expressly circumscribed. It can examine the challenge only in
relation to the grounds specified in Section 61(3) of the I&B Code,
which is limited to matters “other than” enquiry into the autonomy
or commercial wisdom of the dissenting financial creditors. Thus,
CLAT
the prescribed authorities (NCLT/N ) have been endowed
with limited jurisdiction as specified in the I&B Code and not
to act as a court of equity or exercise plenary powers .”
(emphasis in bold supplied)
74. A few months after the decision in the case of K. Sashidhar , the
aforesaid provisions relating to the approval of resolution plan came up
for further exposition before a 3-Judge Bench of this Court in the case of
Essar Steel (supra).
74.1. On the background aspects, while omitting details, suffice it to
notice for the present purpose that in the case of Essar Steel , the NCLT,
Ahmedabad admitted the petition filed by a lender bank and after a few
rounds of proceedings, the negotiated resolution plan of ArcelorMittal
(India) (P) Ltd. was approved by CoC by a majority of 92.24%. After
several further proceedings, the Adjudicating Authority, by its order dated
08.03.2019, disposed of the application to approve the resolution plan.
However, in the appeal, the NCLAT modified the terms of the resolution
plan and proceeded to redistribute the proceeds while, inter alia, holding
that financial creditors and operational creditors deserve equal treatment
under a resolution plan and while further holding that CoC was not
164
empowered to decide the manner in which distribution was to be made
between one or other creditors, as there would be a conflict of interest
between financial and operational creditors. The order so passed by the
NCLAT was in challenge before this Court.
74.2. In the given backdrop, the roles of resolution professional,
resolution applicant and Committee of Creditors as also the jurisdiction of
Adjudicating Authority and Appellate Authority came up for further and
fuller exposition by this Court in Essar Steel (supra). We have already
noticed the passages from this decision in regard to the scheme of IBC
and the pivotal role of Committee of Creditors in the process of insolvency
resolution of a corporate debtor. As regards the jurisdiction of Adjudicating
Authority and Appellate Authority in this process of insolvency resolution,
in Essar Steel , this Court extensively referred to the principles laid down
and explained in K. Sashidhar and thereafter held as under: -
“Thus,
it is clear that the limited judicial review available,
which can in no circumstance trespass upon a business
decision of the majority of the Committee of Creditors, has to
be within the four corners of Section 30(2) of the Code , insofar
as the Adjudicating Authority is concerned, and Section 32 read
with Section 61(3) of the Code, insofar as the Appellate Tribunal is
concerned, the parameters of such review having been clearly laid
”
down in K. Sashidhar.
(emphasis in bold supplied)
74.3. In Essar Steel , it was however argued that sub-section (5) of
Section 60 was not considered in K. Sashidhar and in that context, this
Court examined the rights of operational creditors and the reasons set
forth in the Insolvency Committee Report, 2018 and then, reiterated the
165
primacy of Committee of Creditors while declaring the law in no uncertain
terms that the Adjudicating Authority cannot interfere on merits with the
commercial decision taken by the Committee of Creditors; the limited
judicial review available to it was to see that the Committee of Creditors
had taken into account the requirement of keeping the corporate debtor
as a going concern with maximisation of the value of assets and the
interests of all stakeholders including operational creditors were taken
care of. Significantly, in Essar Steel , this Court laid down that if the
Adjudicating Authority would find that the requisite parameters had not
been kept in view, it may send the resolution plan back to the Committee
of Creditors to resubmit the same after satisfying the parameters. This
Court laid down as under: -
“ 73. There is no doubt whatsoever that the ultimate discretion
of what to pay and how much to pay each class or sub-class
of creditors is with the Committee of 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
166
to the Committee of Creditors to re-submit 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.”
(emphasis in bold supplied)
74.4. Thereafter, this Court dealt with the matter on merits in relation to
certain claims and objections which need not be elaborated; suffice it
would be to notice that this Court did not approve the impugned order of
NCLAT and directed that CIRP of the corporate debtor shall take place in
accordance with the amended resolution plan, as accepted by the
Committee of Creditors.
75. Maharashtra Seamless Ltd. (supra) has been yet another
decision in which interference with the decision of Committee of Creditors
by NCLAT met with total disapproval of this Court.
75.1. In Maharashtra Seamless Ltd., the matter related to CIRP
concerning the corporate debtor United Seamless Tubular Private Ltd.
where resolution plans of four different applicants were considered and
CoC approved the resolution plan filed by the appellant Maharashtra
Seamless Ltd. by a majority of 87.10% of the voting share of financial
creditors. Certain differences arose with respect to the liquidation value of
the assets of corporate debtor and the CoC took an average of the
closest estimate. However, NCLAT ordered re-determination of liquidation
value and accordingly, the revised value was arrived at. Thereafter, the
CoC again approved the resolution plan of the appellant considering the
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revised liquidation value. Then, NCLT approved the resolution plan
submitted by the appellant which included an upfront payment of INR 477
crores for infusion in the capital of the corporate debtor. A promoter of the
corporate debtor and a financial creditor filed appeals before NCLAT
contending that the resolution plan gave unfair advantage to the
resolution applicant whereupon, the Appellate Authority proceeded to give
a direction to the resolution applicant to enhance its fund inflow upfront.
75.2. In the aforesaid backdrop, the matter was considered in appeal
filed by the resolution applicant. After having examined the relevant
provisions of the Code and the CIRP Regulations as also the
enunciations in Essar Steel (supra), this Court observed that there was
no provision in the Code or Regulations under which the bid of any
resolution applicant has to match the liquidation value; that the object
behind such valuation process was to assist the CoC to take a proper
decision on the resolution plan; and once the plan was approved by CoC,
the Adjudicating Authority was only to ascertain if the resolution plan was
meeting the requirements of sub-sections (2) and (4) of Section 30. The
Court observed that in the given case, the Appellate Authority had
proceeded on equitable perceptions rather than commercial wisdom.
Even while observing that release of assets at the value 20% below the
liquidation value arrived by valuers appeared inequitable, this Court
observed that the adjudicatory process ought to cede ground to the
commercial wisdom of the creditors rather than assess the resolution plan
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on the basis of quantitative analysis. While disapproving interference by
the Appellate Authority, this Court observed and held as under: -
“ 27. Now the question arises as to whether, while approving a
resolution plan, the adjudicating authority could reassess a
resolution plan approved by the Committee of Creditors, even if
the same otherwise complies with the requirement of Section 31 of
the Code. The learned counsel appearing for Indian Bank and the
said erstwhile promoter of the corporate debtor have emphasised
that there could be no reason to release property valued at Rs
597.54 crores to MSL for Rs 477 crores. The learned counsel
appearing for these two respondents have sought to strengthen
their submission on this point referring to the other resolution
applicant whose bid was for Rs 490 crores which is more than that
of the appellant MSL.
28. No provision in the Code or Regulations has been brought to
our notice under which the bid of any resolution applicant has to
match liquidation value arrived at in the manner provided in
Regulation 35 of the Insolvency and Bankruptcy Board of India
(Insolvency Resolution Process for Corporate Persons)
Regulations, 2016. This point has been dealt with in Essar Steel.
We have quoted above the relevant passages from this judgment.
29. It appears to us that the object behind prescribing such
valuation process is to assist the CoC to take decision on a
resolution plan properly. Once, a resolution plan is approved by the
CoC, the statutory mandate on the adjudicating authority under
Section 31(1) of the Code is to ascertain that a resolution plan
meets the requirement of sub-sections (2) and (4) of Section 30
thereof. We, per se, do not find any breach of the said provisions
in the order of the adjudicating authority in approving the resolution
plan.
30. The appellate authority has, in our opinion, proceeded on
equitable perception rather than commercial wisdom. On the
face of it, release of assets at a value 20% below its
liquidation value arrived at by the valuers seems inequitable.
Here, we feel the Court ought to cede ground to the
commercial wisdom of the creditors rather than assess the
resolution plan on the basis of quantitative analysis. Such is
the scheme of the Code. Section 31(1) of the Code lays down in
clear terms that for final approval of a resolution plan, the
adjudicating authority has to be satisfied that the requirement of
sub-section (2) of Section 30 of the Code has been complied with.
The proviso to Section 31(1) of the Code stipulates the other point
on which an adjudicating authority has to be satisfied. That factor
is that the resolution plan has provisions for its implementation.
The scope of interference by the adjudicating authority in limited
judicial review has been laid down in Essar Steel, the relevant
passage (para 54) of which we have reproduced in earlier part of
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this judgment. The case of MSL in their appeal is that they want to
run the company and infuse more funds. In such circumstances,
we do not think the appellate authority ought to have interfered
with the order of the adjudicating authority in directing the
successful resolution applicant to enhance their fund inflow
upfront.”
(emphasis in bold supplied)
76. The expositions aforesaid make it clear that the decision as to
whether corporate debtor should continue as a going concern or should
be liquidated is essentially a business decision; and in the scheme of IBC,
this decision has been left to the Committee of Creditors, comprising of
the financial creditors. Differently put, in regard to the insolvency
resolution, the decision as to whether a particular resolution plan is to be
accepted or not is ultimately in the hands of the Committee of Creditors;
and even in such a decision making process, a resolution plan cannot be
taken as approved if the same is not approved by votes of at least 66% of
the voting share of financial creditors. Thus, broadly put, a resolution plan
is approved only when the collective commercial wisdom of the financial
rd
creditors, having at least 2/3 majority of voting share in the Committee of
Creditors, stands in its favour.
77. In the scheme of IBC, where approval of resolution plan is
exclusively in the domain of the commercial wisdom of CoC, the scope of
judicial review is correspondingly circumscribed by the provisions
contained in Section 31 as regards approval of the Adjudicating Authority
and in Section 32 read with Section 61 as regards the scope of appeal
against the order of approval.
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77.1. Such limitations on judicial review have been duly underscored by
this Court in the decisions above-referred, where it has been laid down in
explicit terms that the powers of the Adjudicating Authority dealing with
the resolution plan do not extend to examine the correctness or otherwise
of the commercial wisdom exercised by the CoC. The limited judicial
review available to Adjudicating Authority lies within the four corners of
Section 30(2) of the Code, which would essentially be to examine that the
resolution plan does not contravene any of the provisions of law for the
time being in force, it conforms to such other requirements as may be
specified by the Board, and it provides for: (a) payment of insolvency
resolution process costs in priority; (b) payment of debts of operational
creditors; (c) payment of debts of dissenting financial creditors; (d) for
management of affairs of corporate debtor after approval of the resolution
plan; and (e) implementation and supervision of the resolution plan.
77.2. The limitations on the scope of judicial review are reinforced by the
limited ground provided for an appeal against an order approving a
resolution plan, namely, if the plan is in contravention of the provisions of
any law for the time being in force; or there has been material irregularity
in exercise of the powers by the resolution professional during the
corporate insolvency resolution period; or the debts owed to the
operational creditors have not been provided for; or the insolvency
resolution process costs have not been provided for repayment in priority;
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or the resolution plan does not comply with any other criteria specified by
the Board.
77.3. The material propositions laid down in Essar Steel (supra) on the
extent of judicial review are that the Adjudicating Authority would see if
CoC
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 have been taken care of.
And,
if the Adjudicating Authority would find on a given set of facts that the
requisite parameters have not been kept in view, it may send the
resolution plan back to the Committee of Creditors for re-submission after
satisfying the parameters. Then, as observed in Maharashtra Seamless
Ltd. (supra), there is no scope for the Adjudicating Authority or the
Appellate Authority to proceed on any equitable perception or to assess
the resolution plan on the basis of quantitative analysis. Thus, the
treatment of any debt or asset is essentially required to be left to the
collective commercial wisdom of the financial creditors.
77.4. During the course of submissions, one of the parties (YEIDA),
seeking to support modification of the resolution plan concerning some of
the terms and stipulations, has referred to a decision by a learned Single
Judge of the Allahabad High Court in the case of Pradumna Kumar Jain
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v. U.P. Secondary Education Service Commission, Allahabad and
Ors. : (1997) 30 ALR 339 to submit that the power to approve or
disapprove includes the power to modify; and it has been strongly argued
that the power to modify is inherent in the power of approval in terms of
Section 31 of the Code. It is noticed that the questions involved in the
cited decision related to the powers under Regulation 8 of the U.P.
Secondary Education Services Commission (Procedure for Approval of
Punishment) Regulations, 1985, which provided that ‘ the Commission
shall after due consideration approve or disapprove the punishment
proposed or may issue any other directions deemed fit in the case ’. While
interpreting the said provision, where the Commission was to act as a
superior authority and the provision itself postulated that the said authority
could ‘ issue any other directions deemed fit’ , the Court held that the
expressions indicated the existence of the power to modify. We are afraid,
the principles stated in the said decision or in other decisions of like
nature cannot be imported to read the power to modify the resolution plan
into Section 31 of the Code.
77.5. In fact, the power of approval conferred on the Adjudicating
Authority in Section 31 of the Code is required to be visualised with
reference to the overall scheme of the Code and the purposes for which
such powers have been conferred. The power of judicial review in Section
31 is not akin to the power of a superior authority to deal with the merits of
the decision of any inferior or subordinate authority. As succinctly stated in
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Essar Steel (supra), the limited judicial review available is to see that the
Committee of Creditors has adhered to the specified parameters, of
keeping the corporate debtor going as a going concern during the
resolution process; maximisation of the value of its assets; and taking
care of the interests of all stakeholders. This Court has, in no uncertain
terms, held that if the specified parameters have not been kept in view,
the Adjudicating Authority may send a resolution plan back to the
Committee of Creditors to re-submit such plan after satisfying the
parameters. The reasons given by the Committee of Creditors are, thus,
looked at by the Adjudicating Authority only from this point of view. It is not
a jurisdiction to decide as to what ought to be the terms of the resolution
plan. That jurisdiction, in the scheme of IBC, is conferred on the
Committee of Creditors alone, who has to take such a decision in its
commercial wisdom, while keeping in view the applicable provisions and
the specified parameters; of course, its decision of approval has to be by
the requisite majority of minimum 66% of the voting share.
77.6. In yet another set of submissions, on behalf of the erstwhile
director of JIL and JAL, it has been repeatedly asserted that the
Committee of Creditors had failed in its statutory duty to ensure
maximisation of JIL’s assets and protecting the interests of all
stakeholders; and it is submitted that the Committee of Creditors failed to
visualise that there was no justification for NBCC seeking to acquire JIL
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on a meagre amount of INR 120 crores despite the net worth of JIL being
much higher.
77.6.1. The assessment about maximisation of the value of assets, in the
scheme of the Code, would always be subjective in nature and the
question, as to whether a particular resolution plan and its propositions
are leading to maximisation of value of assets or not, would be the matter
of enquiry and assessment of the Committee of Creditors alone. When
the Committee of Creditors takes the decision in its commercial wisdom
and by the requisite majority; and there is no valid reason in law to
question the decision so taken by the Committee of Creditors, the
adjudicatory process, whether by the Adjudicating Authority or the
Appellate Authority, cannot enter into any quantitative analysis to adjudge
as to whether the prescription of the resolution plan results in
maximisation of the value of assets or not. The generalised submissions
and objections made in relation to this aspect of value maximisation do
not, by themselves, make out a case of interference in the decision taken
by the Committee of Creditors in its commercial wisdom.
78. To put in a nutshell, the Adjudicating Authority has limited
jurisdiction in the matter of approval of a resolution plan, which is well-
defined and circumscribed by Sections 30(2) and 31 of the Code read
with the parameters delineated by this Court in the decisions above-
referred. The jurisdiction of the Appellate Authority is also circumscribed
by the limited grounds of appeal provided in Section 61 of the Code. In
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the adjudicatory process concerning a resolution plan under IBC, there is
no scope for interference with the commercial aspects of the decision of
the CoC; and there is no scope for substituting any commercial term of
the resolution plan approved by the CoC. Within its limited jurisdiction, if
the Adjudicating Authority or the Appellate Authority, as the case may be,
would find any shortcoming in the resolution plan vis-à-vis the specified
parameters, it would only send the resolution plan back to the Committee
of Creditors, for re-submission after satisfying the parameters delineated
by Code and exposited by this Court.
79. The other points arising in this batch of matters, particularly with
reference to the findings and directions by the Adjudicating Authority in
the impugned order dated 03.03.2020 and with reference to the other
related aspects, may now be examined within the framework of the
parameters aforesaid and the principles laid down by this Court.
Point B
Simultaneous voting over two resolution plans by CoC
80. While dealing with a plethora of disputes and objections
concerning the resolution plan of NBCC and the process of its approval,
we deem it appropriate to deal, first of all, with a part of objections that
approval of the resolution plan of NBCC by CoC is vitiated because of the
fact that two resolution plans, of Suraksha Realty and NBCC, were put to
simultaneous voting whereas such simultaneous voting on the resolution
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plans was not permissible. If this part of objections is accepted, perhaps,
nothing more would require consideration.
81. It has been argued on behalf of the objectors that at the time of
voting by CoC in the present matter, there was no provision in the Code
permitting the voting by CoC at more than one resolution plan at a time
and in the very scheme of the Code and the requirements of due
consideration, it was necessary that one plan was considered at one point
of time. The process of simultaneous voting in the present case has
vitiated the decision of CoC. It has also been argued that Regulation
39(3B), permitting the CoC to put more than one resolution plan to vote,
was inserted to CIRP Regulations only with effect from 07.08.2020 and
being prospective in operation, would not apply to the present process.
Per contra, it is contended by the parties standing with the approval of the
plan in question that there had not been any prohibition or restriction in
the Code for putting more than one resolution plan to vote at the same
time. On behalf of IRP, it has also been contended that in terms of sub-
section (3) of Section 30, he was required to present the CoC such
resolution plans, which were conforming to the conditions referred in sub-
section (2); and as per sub-section (4) of Section 30, the CoC ‘may
approve a resolution plan’ . It is, therefore, submitted that in the present
process, both the plans were rightly placed before the CoC; and the CoC
rightly voted on such plans and approved one of them. It is submitted that
the amendment brought about with effect from 07.08.2020 is clarificatory
177
in nature and only gives out the methodology for putting more than one
resolution plan to vote.
82. Having examined the objection against simultaneous voting with
reference to the material on record and the law applicable, we are unable
to find any substance whatsoever in this objection.
83. It is noteworthy that there has not been any prohibition in the
scheme of IBC and CIRP Regulations that CoC could not simultaneously
consider and vote upon more than one resolution plan at the same time
for electing one of the available options. It has rightly been contended on
behalf of IRP that in terms of sub-section (3) of Section 30 of the Code,
he was obliged to place both the plans before CoC when they were found
conforming to the conditions referred to in sub-section (2) of Section 30;
and thereafter, it was for the CoC to consider the plans and to vote upon
the same. Of course, the CoC could have approved only one resolution
plan; and that has precisely been done in the present case. There does
not appear any flaw or fault in the process adopted in the present case as
regards voting over the resolution plans by the CoC.
83.1. Moreover, as noticed, the legislature itself has made the position
clear by way of a later amendment with effect from 07.08.2020, by
specifically making stipulations for simultaneous voting over more than
one resolution plan by the CoC, particularly with amendment of sub-
regulation (3) of Regulation 39 of CIRP Regulations and insertion of sub-
79
regulations (3A) and (3B) thereto. Such an amendment could only be
79 vide second footnote to sub-regulation (3) of Regulation 39 of CIRP Regulations, ibid.
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visualised as clarificatory in nature; and, in any case, even before
amendment, there had not been any prohibition in putting two or more
conforming resolution plans to vote simultaneously.
84. It is also noticeable that when the matter was considered in the
second round of litigation and this Court issued various necessary
directions in the order dated 06.11.2019 in exercise of its plenary powers
under Article 142 of the Constitution of India, it was specifically provided
that the two applicants viz., Suraksha Realty and NBCC would be invited
to submit revised plans for consideration. The minutes of CoC meeting
have also been placed before us by IRP and it appears that this very
aspect was duly deliberated in the meeting where IDBI Bank proposed for
simultaneous voting over the two plans and this suggestion was accepted
by almost all CoC members except ICICI Bank Ltd. and Axis Bank Ltd.,
who were having together the voting share of only about 2.3%. Due
deliberations in this regard, in the meeting of Committee of Creditors
dated 07.12.2019, read as under: -
“The IRP enquired from CoC about the Resolution Plan that need
to be put for voting by CoC. IDBI Bank on behalf of lenders
proposed that given the unique nature of this case both plans
should be put to vote as this will provide equal opportunity for
individual members of COC to select their preferred Resolution
Plan. The main reason for proposing joint vote on both plans was
-
-Specific directions of Hon’ble Supreme Court under its special
powers (Article 142) where COC/IRP was required to consider
Resolution Plans from only NBCC and Suraksha in accordance
with law and regulation.
-Ideally it would like to propose the H1 Resolution Plan to vote,
but since the total overall evaluation scores were very close and
there is no consensus amongst members of COC on the
evaluation methodology used.
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-Giving equal opportunity to all members of COC (including
Home buyers and FD holders) to approve the plan most preferred
by them.
-Given the unique and complex nature of this Resolution
process.
All CoC members except ICICI Bank Limited, Axis Bank Limited
(together having vote share of approx. 2.3%) agreed with the
suggestion made by IDBI Bank and decided to put both the
Resolution Plans simultaneously to vote. Accordingly, it was
decided that both the Resolution Plans will be put to vote
simultaneously and in the event both secure the minimum
threshold of 66% votes, the plan securing overall higher vote will
be considered as the preferred resolution plan. The IRP agreed to
follow the COC’s instructions and organise the voting.
It was pointed out by CAM in the CoC meeting that since both
the Resolution Plans are being put to vote, we might end up in a
situation where both the Resolution Plans will receive more than
66% votes, thus creating doubts as to whether both resolution
applicants are equally entitled to have their plans submitted to the
adjudicating authority for approval. Therefore, to avoid such a
situation, the CoC members should be allowed to vote on either of
the two Resolution Plans only. The Authorised Representative of
the Home Buyers informed that almost all home buyer does not
want liquidation of the corporate debtor. In case there is a spilt of
vote between Home Buyers and other members of COC, there are
more chances of no resolution plan getting approved and situation
of liquidation may arise. Majority of home buyers who have written
to AR of Home Buyers have indicated NBCC as its preferred
choice. Home Buyers are also fully aware that without support of
other members of COC, none of the resolution plan will get
approved by COC. Para 21(i) of Hon’ble Supreme Court judgment
dated 06.11.2019 also directed to “ place the revised plan(s) before
the CoC, if so required, after negotiations and submit report to the
adjudicating authority NCLT within such time .”
To avoid scenario of liquidation or non-compliance of Hon’ble
Supreme Court direction, AR of Home Buyers insisted that both
the Resolution Plans should be put to vote and the CoC members
should be allowed to vote on both the Resolution Plans and in the
event that both the Resolution Plans receive more than 66%
votes, then the successful Resolution Applicant will be decided
basis ( sic ) the Resolution Plan that has received higher number of
votes.”
85. In view of the above, we are unable to find any fault in
simultaneous consideration and voting over two resolution plans by CoC
for electing one of them; and we would have no hesitation in giving our
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imprimatur to such a process. The baseless objection in this regard has
rightly been rejected by the Adjudicating Authority.
Point C
Matters related with the land providing agency YEIDA
86. We may now enter into the first major point for determination in
this batch of matters; and that relates to the stipulations in the resolution
plan concerning the land providing agency YEIDA. The frontal aspect of
this issue is about the provision made in the resolution plan for meeting
with the contingent liability of additional compensation for land acquisition.
The other aspect pertains to the directions by the Adjudicating Authority
for execution of tripartite agreement amongst YEIDA, the corporate
debtor JIL and the SPVs proposed to be set up in terms of the resolution
plan. An ancillary aspect relates to certain reliefs and concessions sought
for by the resolution applicant.
87. As noticed, the rights under the land in question were provided to
the original concessionaire under the Concession Agreement dated
07.02.2003 and later on, JIL was recognised as the concessionaire. In the
broad framework, one chunk of land was provided to the concessionaire
for constructing the Expressway and its allied facilities, for which the CA
provided, inter alia , as under: -
“4.1 Land for construction of Expressway shall be provided by TEA
to the Concessionaire, generally in a width of 100 meters along the
alignment of the Expressway with additional land width, where
required, for developing other facilities like Toll Plazas etc., on
following terms & conditions.
*
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b. The land shall be leased for a period starting from the date
of transfer till the end of the Concession Period through such
lease deed as may be mutually agreed between the Parties.
*
d. The sole premium of the transferred land shall be
equivalent to the acquisition cost plus a lease rent of Rs.
100.00 (Rupees one hundred) only per hectare per year. The
acquisition cost shall be the actual compensation paid to the
land owners without any additional charge and shall be
payable by the Concessionaire as per applicable rules. The
lease rent shall be payable annually.”
Another chunk of land was provided to the concessionaire for
commercial exploitation, for which the CA provided, inter alia , as under: -
“4.3 Land for development shall be transferred by TEA to the
Concessionaire free from all Encumbrances on following terms &
conditions:
a. It shall be on lease for a period of 90 (ninety) years from
the date of transfer through such lease deeds as may be
mutually agreed between the Parties.
*
c. The sole premium of the transferred land shall be
equivalent to the acquisition cost plus a lease rent of Rs.
100.00 (Rupees one hundred) only per hectare per year. The
acquisition cost shall be the actual compensation paid to the
land owners without any additional charge and shall be
payable by the Concessionaire as per applicable rules. The
rent shall be payable annually for 90 (Ninety) years from the
date of transfer of land.
d. The Concessionaire shall be entitled to further sub-lease
developed / undeveloped land to sub-lessees / end-users in
its sole discretion without any further consent or approval or
payment of any charges / fee etc. to TEA or any other
relevant authority.
e. After sub-lease of part of the land by the Concessionaire,
the same can be transferred / assigned without requiring any
consent or approval of or payment of any additional charges,
transfer fee, premiums etc. to TEA or to any other relevant
authority and/or there can be subsequent multiple sub-leases
of the land in smaller parts. The lease rent of the respective
sub-leased portion of land shall be paid by the sub-lessees /
transferees to TEA directly on pro-rata basis @ Rs. 100.00
(Rupees one hundred) per hectare per year. The
Concessionaire shall be required to pay lease rent to TEA for
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the portion of land remaining in its possession after sub-
lease, on pro-rata basis at the aforesaid prescribed rate.
Total lease rent paid by the Concessionaire and various sub-
lessees / transferees shall be Rs. 100.00 (Rupees one
hundred) per hectare per year.
*
g. The Concessionaire may make a request to TEA to
execute the lease deed directly in favour of Concessionaire’s
subsidiaries, assigns, transferees etc. in respect of any
portion of the land on the same terms and conditions as
mentioned above, and on receipt of such request TEA shall
execute the lease deed in respect of such portion of land
directly in favour of such subsidiaries, assigns and
transferees.
h. In case TEA and the Concessionaire consider it
appropriate, tripartite agreement for sub-lease deed may be
executed between the TEA, Concessionaire and the Sub-
Lessee.
4.4 The Concessionaire shall be free to decide the purpose for
which transferred land will be used i.e. for commercial,
amusement, industrial, institutional, residential etc. and also for the
area of land to be allocated for different uses. The Concessionaire
shall also be free to decide whether the sub-leased land shall be in
the form of plots or constructed properties. No permission of TEA
shall be required either for the land use or for transfer of leasehold
/ sub-leasing / multiple sub-leasing of land. The land use shall
however be as per applicable Master Plan and other regulations.”
Another stipulation, in Clause 18.1 of the CA, which has its own
relevance to the present case, may also be taken note of as under: -
“TRANSFER OF CONCESSIONAIRE’S RIGHTS AND
OBLIGATIONS TO SPV
18.1 In case the Concessionaire and the TEA consider it
necessary to transfer Concessionaire’s rights and obligations
under this Agreement to a SPV, the Concessionaire shall, in a
reasonable time, transfer all its rights and obligations under this
Agreement to a SPV for which documents as may be required
shall be executed between the Concessionaire, the TEA and the
SPV without additional cost to the Concessionaire or the SPV.”
87.1. It is not in dispute that under the said Concession Agreement, JIL
got the rights: (a) to construct and operate the Expressway and collect toll
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for a period of 36 years; and (b) to use the land along the Expressway for
commercial exploitation for a period of 90 years.
88. The issue pertaining to additional amount of land acquisition
compensation cropped up in the wake of a decision of the Full Bench of
Allahabad High Court dated 21.10.2011 in the case of Gajraj and Ors. v.
State of U.P. and Ors. : 2011 SCC OnLine All 1711, wherein the High
Court ruled in favour of payment of additional compensation to the land
owners involved therein. The said decision in Gajraj was upheld by this
Court in the case of Savitri Devi v. State of U.P. & Ors. : (2015) 7 SCC
21 . In sequel, a spate of litigation in Allahabad High Court concerning
other parcels of land came up and several other land owners, including
whose land stood acquired for the project in question, demanded
additional compensation. It is stated by YEIDA that looking to such
litigations and agitations, the Government of U.P. proceeded to set up a
committee called the ‘Chaudhary Committee’; and the said committee
recommended for grant of additional compensation (to the extent of
64.7%) to the land owners whose land had been acquired. While
accepting these recommendations, the Government of U.P. proceeded to
issue G.O. dated 29.08.2014, directing YEIDA to ensure payment of
additional compensation to all the land owners. In this turn of events,
YEIDA demanded the amount of additional compensation from JIL to the
tune of INR 2591.78 crores by its communication dated 20.01.2015 and
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yet another amount of approximately INR 247 crores by its
communication dated 31.05.2017.
88.1. The aforesaid communications of YEIDA and the said G.O. dated
29.08.2014 were challenged by JIL by way of a writ petition before the
High Court of Allahabad but, later on, JIL sought permission to withdraw
with a view to seek recourse to the alternative remedy of arbitration, as
provided in the CA. The High Court of Allahabad, by its order dated
03.11.2016, permitted JIL to withdraw and to pursue the alternative
80
remedy of arbitration . Thereafter, the concessionaire JIL took up the
matter in arbitration which led to the arbitral award dated 02.11.2019 in its
favour, holding that the demand made by YEIDA was not sustainable.
This award has been challenged by YEIDA under Section 34 of the
Arbitration and Conciliation Act, 1996 and those proceedings, being
Arbitration Case No. 3 of 2020, are pending in the Court of District Judge,
Gautam Budh Nagar. It has also been pointed out that the said G.O. was
struck down by the Allahabad High Court in other petitions; and the order
so passed by the High Court has been challenged in SLP (Civil) No.
10015-10034 of 2020, pending in this Court.
89. At the stage of drawing up the resolution plan in question, the said
arbitral award had been made with the result that the liability towards the
amount of additional compensation was not standing against JIL.
However, for the reason that the matter was sub judice , the resolution
80 As per the facts stated, the said order of High Court was challenged by YEIDA in this Court
in D. No. 15058 of 2017, which was dismissed on 01.09.2017.
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applicant considered it appropriate to make a provision for meeting with
the contingency, in case this liability would ultimately get fastened on JIL;
and proposed in the resolution plan as under: -
“1.2 Treatment of creditors
As part of the Resolution Plan, it is proposed that:
(i) As mentioned in this Plan, this Resolution Plan assumes that no
amount is payable by the Corporate Debtor in relation to the
Landowner Compensation Debt in view of the Award. However, if
the said position changes on account of the Award being overruled
then in relation to the Landowner Compensation Debt, the
amounts payable to the landowners shall be collected directly by
YEIDA in the following manner for the following parcels of lands (in
relation to which such debt accrues), from the ultimate end-users:
(i) Land under development (real estate projects) – the
compensation in this regard shall be collected by YEIDA from
the Home Buyers;
(ii) Land already subleased to other entities by the Corporate
Debtor – the compensation shall be collected from the
respective sub-lessees to whom the lands have been
subleased by the Corporate Debtor either directly or
indirectly;
(iii) Unutilized land parcels – the compensation shall be
collected from the end users in whose favour such land shall
be transferred/subleased by the Corporate Debtor; and
(iv) Yamuna Expressway – Yamuna Expressway is a project
of public utility and the ultimate owner of the project land is
YEIDA, who will get the ultimate ownership of the Yamuna
Expressway after the expiry of the concession period under
the Concession Agreement and accordingly the
compensation in this regard shall be payable by YEIDA.”
90. Apart from the above, the resolution applicant also proposed to set
up two separate SPVs, one being Expressway SPV and another being
Land Bank SPV. It was proposed that the assets and liabilities pertaining
to Expressway shall be transferred to the Expressway SPV by way of
transfer of 100% shareholding and the concession rights under the CA;
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and that out of the unutilised parcels of land available with the corporate
debtor, 1,526 acres shall be transferred to Land Bank SPV; and that Land
Bank SPV will also take over the admitted financial debt to the tune of
INR 5,100 crores. In the resolution plan, the applicant also stated about
the approvals required and its assumptions in that regard in the following
terms: -
“ BUSINESS PLAN / FINANCIAL PROJECTIONS
*
(d) Provisions for the Approvals required and the timeline for
the same
*
(ii) The Resolution Applicant is of the view that the approval of this
Resolution Plan by the Adjudicating Authority shall be deemed to
have waived all the requirements in relation to transfer of Yamuna
Expressway and land bank asset by way of business transfer and
no approval/consent shall be necessary from any other person
(including Yamuna Expressway Industrial Development Authority
(“ YEIDA ”) or any other Governmental Authority), in this regard.”
91. Moreover, in Clauses 4, 14 and 27 of Schedule 3 of the resolution
plan, while seeking ‘reliefs and concessions’, the resolution applicant
mooted a few more propositions concerning YEIDA and the Concession
Agreement, which have also contributed to the intricacies of the matter.
91.1. In Clause 4 of Schedule 3 of the resolution plan, NBCC expected
that YEIDA shall withdraw its challenge to another award dated
23.01.2017, pertaining to the issue of additional FAR, in the following
terms: -
“4. YEIDA to withdraw the appeal filed in the District Court,
Gautam Budh Nagar being Arbitration Case No. 69 of 2017
challenging the award dated January 23, 2017 passed by arbitral
tribunal pertaining to additional FAR and the Corporate Debtor to
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get the right to use additional FAR as per details contained in
Annexure-P at all five land parcels immediately (on withdrawal of
such appeal) without any additional payment for the same.
However, the Resolution Applicant shall make a payment of INR 1
Cr in consideration of full and final settlement of YEIDA’s claim if
any arising out of such appeal, considering YEIDA’s claim as
Operational Debt in terms of IBC and to ensure equitable
treatment to all the Operational Creditors.”
91.2. Further, in Clause 14 of Schedule 3 of the plan, the resolution
applicant sought extinguishment of liability towards capital cost pertaining
to Noida-Greater Noida Expressway in the following terms: -
“ 14. The liability arising out of the Concession Agreement, to
repay the capital cost pertaining to Noida-Greater Noida
Expressway (treated as interest free loan from YEIDA to the
Corporate Debtor) shall stand extinguished, on account of failure
of YEIDA to allow the Corporate Debtor to collect and retain toll/fee
from the users of the Noida-Greater Noida Expressway during the
term of the Concession Agreement, as agreed under Clause 3.7 of
the Concession Agreement.”
91.3. Yet further, in Clause 27 of Schedule 3, the resolution applicant
expected an extension of the period under the CA by 10 years. This
Clause reads as under: -
“27. To ensure feasibility and viability of this Resolution Plan,
YEIDA and other concerned authorities shall extend the
concession period (currently 36 years) under the Concession
Agreement for an additional period of ten years.”
92. YEIDA took exception to several parts of the stipulations aforesaid
before the Adjudicating Authority and essentially submitted that the liability
towards the amount of additional compensation, in relation to the land
acquired and leased to JIL, was that of JIL, although such a question was
sub judice in challenge to the arbitral award under Section 34 of the
Arbitration Act. It was submitted on behalf of YEIDA that in case the
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liability is ultimately mulcted on JIL, YEIDA cannot be driven to collect the
amount of additional compensation from the end-users as proposed in the
plan. It was asserted that the terms of CA provided for two payment
components: one being of acquisition cost payable by the concessionaire
and other being of leased rent to be paid by the sub-lessee/end-user; and
given such components, it could not have been provided that YEIDA
would collect the acquisition cost directly from the end-users.
92.1. It was also submitted that the resolution applicant was not entitled
to split the transferred land into two, and to say that the payment of
additional compensation would be applicable only towards the land used
for development and not for the land used for Expressway.
92.2. As regards the expected exemption to pay the acquisition cost
pertaining to the land utilised for Expressway, it was submitted that even if
Expressway was to revert to YEIDA after 36 years, JIL was allowed to
collect toll for this period and there could be no exemption as regards cost
of acquisition for the land of Expressway.
93. Another part of objection was that if the concessionaire’s rights
and obligations were proposed to be transferred to SPVs, proper
documentation was required, so that YEIDA could exercise its rights over
the SPVs concerned. It was yet further submitted that withdrawal of the
arbitration case could not be thrust upon YEIDA.
94. As noticed, the Adjudicating Authority observed in regard to these
issues concerning YEIDA that looking to the terms of CA, the Committee
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of Creditors should not have approved the resolution plan stating that the
compensation, if awarded, shall be collected from the end-users.
However, the Adjudicating Authority proceeded to modulate such terms ‘to
make the plan viable’ and provided that the resolution plan be read to
mean that YEIDA shall have a right to collect acquisition cost through the
SPVs concerned. With regard to the issue of additional compensation
concerning the land of Expressway, the Adjudicating Authority considered
it appropriate to read the resolution plan in the way that it is left open to
both the parties to have proper recourse over this issue before a
competent forum when the time would come for payment of additional
compensation. As regards transfer of concessionaire’s rights and
obligations to SPVs, the Adjudicating Authority was of the view that, when
JIL as concessionaire was, for the first time, proposing to transfer its
rights and obligations to SPVs, the documents involving the
concessionaire JIL, YEIDA and the SPV concerned were required to be
executed. The NCLT also observed that the CA was based on the statute
created by the State Government and, therefore, violation of its terms and
conditions would be a violation of the law in force and would not be
permissible in terms of Section 30(2) of the Code.
94.1. Interestingly, the other reliefs and concessions in regard to YEIDA,
as sought for in the aforementioned Clauses 14 and 27, were specifically
declined by the Adjudicating Authority ( vide the comments on these
clauses in paragraph 134 of the order dated 03.03.2020). However, as
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regards Clause 4 of the ‘reliefs and concessions’ that YEIDA shall
withdraw the arbitration case filed under Section 34 of the Arbitration Act,
though the Adjudicating Authority noticed this aspect in the arguments of
the parties but, did not make any specific order in that regard and in
paragraph 134 of the impugned order dated 03.03.2020, merely observed
that Clauses 1 to 5 were covered by the previous discussion.
95. On behalf of the resolution applicant (NBCC), while questioning
the directions and observations of the Adjudicating Authority in relation to
the dealings with YEIDA and particularly in relation to the contingent
liability of additional compensation, a detailed reference has been made
to all the background aspects and extensive arguments have been made
in support of the stipulations in the resolution plan.
95.1. It is submitted on behalf of the resolution applicant that as on date,
there is no claim of YEIDA against JIL in relation to the additional amount
of compensation but, keeping the larger interests in view, the resolution
plan has provided for this eventuality in the manner that YEIDA would be
able to collect the amounts from the end-users. While taking exception to
the observations in the order impugned, it is submitted that the
Adjudicating Authority has seriously erred in seeking to construe the CA
because that was an issue pending in the arbitration case. It is further
submitted that in terms of Regulation 37 of CIRP Regulations, the
resolution plan can propose modifications/alterations of contracts of the
corporate debtors and in fact, all the contracts are being modified under
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the plan, of course, subject to the approval by the CoC with requisite
majority. As regards legal status of the Concession Agreement , it is
submitted that the Adjudicating Authority has erred in assuming as if it
were a statutory contract. In this regard, with reference to Section 6-A of
81
the U.P. Act of 1976 , it is contended that YEIDA may by an agreement
authorise any person to provide or maintain, or continue to provide or
maintain, any infrastructure or amenities and therefore, once an
agreement was reached between JIL and YEIDA, their relationship would
be governed by that contract (Concession Agreement). It is submitted that
while enacting Section 6-A of the U.P. Act of 1976, the intent of the
legislature has been to carve out a contractual relationship distinct from
the statute and this goes against the whole construct of ‘statutory contract’
which YEIDA is trying to project. The decisions of this Court in the cases
of India Thermal Power Ltd. v. State of M.P . and Ors. : (2000) 3 SCC
379 and Kerala State Electricity Board and Anr. v. Kurien E. Kalathil
and Ors. : (2000) 6 SCC 293 have been referred to submit that merely for
YEIDA being a statutory body, the contract in question does not partake
the character of a statutory contract. This issue relating to contingent
liability of additional compensation, according to NBCC, is required to be
81 Section 6-A of U.P. Act of 1976 reads as under: -
“6-A Notwithstanding anything to the contrary contained in any other provisions
of this Act and subject to such terms and conditions as may be specified in the
regulations, the Authority may, by Agreement, authorize any person to provide or
maintain or continue to provide or maintain any infrastructure or amenities under
this Act and to collect taxes or fees, as the case may be, levied therefore.”
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settled for proper implementation of the resolution plan or else, it may
lead to serious impediment in future.
95.2. As regards those observations of the Adjudicating Authority where
the issue of additional compensation qua the Expressway land has been
left open for decision in the competent forum, it is submitted that the
observations are not in accord with the decision in Essar Steel (supra),
that there ought to be finality of claims against the corporate debtor.
According to YEIDA, if this issue is left to be decided in any other
proceedings, the same would lead to ‘hydra head’ popping up in the
future.
95.3. It is further submitted that Expressway land would admittedly
revert to YEIDA after the end of concession period and, therefore, YEIDA
is the end-user of the Expressway. It is submitted that since the plan
proposed the payment by end-users and this principle was approved by
CoC, YEIDA has to be the entity liable towards additional compensation in
relation to the land of Expressway, for it being the end-user with the land
reverting to it. It has also been submitted that YEIDA has otherwise stated
no objection to the pass-through proposition as regards liability towards
additional compensation to the end-users and hence, its objection
towards this liability qua Expressway land remains unjustified. It is also
submitted that in the resolution plan, a debt of INR 2,000 crores is
proposed to be raised on the Expressway for the purpose of construction
of flats; and in the event this liability of additional compensation on the
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Expressway land is not passed on to the end-user, raising of the loan may
become difficult.
95.4. NBCC has further stated its objection to the proposed tripartite
agreement with reference to Clauses 4.3(d), 4.3(e) and 4.4 of CA and it is
submitted that the right of transfer being available to the concessionaire,
foisting of tripartite agreement with YEIDA is not justified. It is submitted
that so far as the execution of tripartite agreement in relation to the
Expressway SPV is concerned, this part of the order is not being
challenged but as regards Land Bank SPV, there is no requirement of
entering into a tripartite agreement because JIL has unfettered rights
under CA to transfer the land to any person.
95.5. As regards decision of this Court in the case of Municipal
Corporation of Greater Mumbai (MCGM) v. Abhilash Lal and Ors. :
(2019) SCC OnLine SC 1479, which is relied upon by YEIDA, it is
submitted that the said decision is not applicable to the facts of the
present case because therein, MCGM had not entered into a binding
lease agreement containing the terms similar to the CA applicable to the
parties herein. Moreover, in the said decision, the statute, i.e., Municipal
Corporation of Greater Mumbai Act, 1888, itself provided that the only
way MCGM’s properties could be dealt with was through lease or by way
of creation of any other interest with the prior permission of MCGM, but
there is no similar provision in the U.P. Act of 1976.
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96. On behalf of the IRP, it has been submitted that granting or
refusing the reliefs sought for under Schedule 3 of the resolution plan is a
matter within the discretion of the Adjudicating Authority and even if the
same have not been granted, they do not form a part of the commercial
terms of the plan; and the referred clauses of ‘reliefs and concessions’ are
not hit by Section 30(2)(e) of the Code.
97. The associations of homebuyers as also the individual
homebuyers standing in support of the plan have contended that the
alleged terms of the Concession Agreement and any alleged breach
thereof does not amount to a breach under Section 30(2)(e) of the Code
and therefore, the Adjudicating Authority has acted wholly without
jurisdiction in dealing with such terms because they do not come within
the scope of Section 31 of the Code.
97.1. However, one of the homebuyers, who has moved an application
for intervention, I.A. No. 84309 of 2020, has made several submissions
questioning the dealings of JIL and YEIDA and has submitted that the
Concession Agreement having not been provided to the homebuyers, the
CIRP proceedings are rendered void.
98. In response to the aforesaid submissions in favour of the
resolution plan, several counter arguments have been made by different
parties. To avoid prolixity and repetition, we take into account the
submissions of the parties directly related with these issues namely,
YEIDA. Added to that, we may also refer to the submissions made on
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behalf of the erstwhile director of the corporate debtor JIL as also its
holding company JAL.
99. It has been stated and reiterated, as had been the submissions
before the NCLT, that YEIDA does not stand to oppose the resolution plan
only for the sake of opposition; rather it would like the plan to succeed
but, it has a public duty to ensure that the framework under CA is
preserved; and the issues being raised by it are solely intended to
preserve the CA and to enforce the terms therein. Again, a detailed
reference has been made to the background aspects concerning the land
in question and the Concession Agreement as also to the findings of
NCLT and thereafter, the contentions urged on behalf of the resolution
applicant have been refuted.
99.1. In the first place, YEIDA has submitted that the resolution
applicant is not correct in suggesting that the Adjudicating Authority has
dealt with the interpretation of CA to hold that compensation was to be
paid by the concessionaire and by the proposed SPVs. Paragraph 118 of
the impugned order dated 03.03.2020 has been referred wherein, the
Adjudicating Authority stated that the question, as to whether additional
compensation was a part of the acquisition cost, was not being examined
because it had already been adjudicated in arbitration and is pending in
the Court.
99.2. While supporting the other part of impugned order dated
03.03.2020, it is submitted that there being no privity of contract between
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YEIDA and the end-users, the amount towards additional compensation
could only be collected from the SPVs and not directly from the end-
users. According to YEIDA, the Adjudicating Authority has rightly modified
the mechanism in the resolution plan for collection of additional
compensation in the manner that instead of collecting the amount directly
from the end-users, YEIDA would now be collecting it through the SPVs
concerned. This has, according to YEIDA, no impact on the commercial
aspects of the resolution plan.
99.3. It is also submitted that the contract in question, that is, the
Concession Agreement, is a statutory contract entered into by YEIDA for
public purpose and it cannot be altered or modified through a resolution
plan as an ordinary commercial contract. It is submitted that the CA grants
and governs the rights of corporate debtor JIL over the land of YEIDA;
that such rights are limited and distinct from ownership rights; and that the
resolution applicant cannot unilaterally alter the CA and improve upon the
rights granted thereunder to enhance the assets of the corporate debtor.
99.4. As regards the land falling under Expressway, YEIDA has
questioned the contentions urged on behalf of NBCC and it is submitted
that such a ground was not taken in the appeal filed against the impugned
order and was raised for the first time in written submissions.
Nevertheless, according to YEIDA, the argument is patently incorrect, for
it ignores the fact that the corporate debtor JIL and its successor SPVs
would derive the benefits of both, the toll collected from Expressway for
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36 years as also from the other land for development. It has also been
submitted that the additional compensation for Expressway, when to be
passed on to the end-users, could only be passed on to the commuters in
the form of appropriate adjustment in the toll, but not otherwise.
99.5. Moving on to the questions related with creation of SPVs, transfer
of land to them and the aforesaid stipulations in the resolution plan, it is
submitted that the project in question is an integrated and indivisible one,
as held by this Court in the case of Nand Kishore Gupta & Ors. v. State
of U.P. & Ors. : (2010) 10 SCC 282 and hence, its bifurcation is
impermissible.
99.6. It is also submitted that the assumption in the resolution plan, that
the approval of NCLT would waive the requirement of YEIDA’s approval,
is misconceived. Regulation 37 of CIRP Regulations has been referred to
submit that the plan has to provide for necessary measures for insolvency
resolution including approvals from the Central and State Governments
and other authorities. Therefore, according to YEIDA, such pre-emptory
waiver as envisaged in the plan is contrary to the CIRP Regulations. A
further reference has been made to Clause 18.1 of the CA and it is
contended that in terms thereof, in case any SPV is to be set up,
necessary documents involving the concessionaire JIL, YEIDA and SPV
have to be executed. It is reiterated that despite such objections, YEIDA is
taking a practical view of the matter so as to ensure the success of the
resolution plan and, therefore, the Adjudicating Authority (NCLT) has also
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rightly provided for such documentation without disturbing the commercial
effect of the plan while ensuring that all the future dealings shall be in
terms of the CA and thereby, fulfilling the requirements of Section 30(2) of
the Code.
99.7. As regards the contentions on the part of the resolution applicant
that Land Bank SPV is not governed by the CA or that there is no
restriction on the corporate debtor’s ability to sub-lease, it is submitted
that the rights for development of the land along the proposed
Expressway were to be provided at five or more locations with one
location in Noida or Greater Noida in terms of Clause 3.3 of the CA.
Therefore, the suggestion that this land may not be governed by CA is not
correct. As regards the right to sub-lease, it is submitted on behalf of
YEIDA that as per the terms of plan, it is not a mere sub-lease in favour of
Land Bank SPV but the chunk of land for development is sought to be
transferred to the Land Bank SPV by way of business transfer; and in any
case, in terms of the referred clauses of CA, execution of tripartite
agreement is a condition indispensable.
99.8. It has also been submitted that YEIDA has consistently taken the
stand that it would be ready to do everything within its power to ensure
that the plan is a success but even after long length of time, the resolution
applicant has not even approached YEIDA for execution of necessary
documents. While relying on the aforesaid decision in MCGM , it has been
argued that the provisions of the Code cannot override a public body’s
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right and duty to control and regulate as to how its properties are to be
dealt with.
99.9. As regards the powers of the Adjudicating Authority to modify the
plan, reliance is placed on the decision in ArcelorMittal (supra), where
this Court has held that the Adjudicating Authority is to apply judicial mind
to a resolution plan to satisfy itself that the plan meets the requirements
under Section 30 of the Code. It is further submitted that even in Essar
Steel (supra), this Court has recognised the Adjudicating Authority’s
power of judicial review. Further, with reference to the decision of
Allahabad High Court in the case of Pradumna Kumar Jain (supra), it is
submitted that the power to approve or reject a plan must necessarily
include the power to modify a plan. According to YEIDA, such power of
the Adjudicating Authority is implicit in Section 31; and if the Adjudicating
Authority finds that a resolution plan does not conform to the Code but
would do so by modifications, such modifications deserve to be upheld,
lest the corporate debtor is pushed to liquidation. It is re-emphasised that
the modifications provided in the impugned order dated 03.03.2020 have
no commercial implications and they relate only to the mechanism
prescribed by the resolution plan, which are required to be modified to
uphold the CA, a statutory contract.
99.10. Apart from the above, it has also been submitted on behalf of
YEIDA, that the resolution plan carries such other terms and stipulations
which cannot be approved; and objections of YEIDA to such terms were
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upheld but, NBCC has not appealed against that part of the order of the
Adjudicating Authority. Therefore, those stipulations deserve not to be
approved. In this regard, it has been pointed out that YEIDA has taken
objection to Clause 4 of Schedule 3 requiring it to give up the litigation
under the Arbitration Act; and this objection was noted by the Adjudicating
Authority and NBCC has not challenged those observations. Such a relief,
according to YEIDA, cannot be claimed in a resolution plan and ought to
be declined. It has further been pointed out that the stipulations in the said
Clauses 14 and 27 of Schedule 3 of the resolution plan, respectively for
extinguishment of the liability arising under the CA and for extension of
term of CA, have not been granted by the Adjudicating Authority; and
these aspects having not been appealed against, the clauses in question
deserve to be deleted from the resolution plan.
100. The submissions so made on behalf of YEIDA have been
supported by the erstwhile director of JIL with reference to the decision in
Embassy Property (supra) and with the submissions that YEIDA being a
statutory body created under the U.P. Act of 1976, the agreement entered
into between YEIDA and the corporate debtor is statutory in nature and
this relationship is not just contractual but is statutorily governed. The
requirement that YEIDA must collect compensation from the homebuyers
or end-users in case it succeeds in the arbitration case, according to the
erstwhile director, is in contravention of the law for the time being in force,
for it violates the U.P. Act of 1976. It is further submitted that the
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Adjudicating Authority has rightly ordered execution of tripartite
agreement involving the proposed SPVs. In essence, the submission has
been that the treatment of YEIDA in the resolution plan is not in conformity
with the law and the order passed by the Adjudicating Authority calls for
no interference.
101. While dealing with the rival submissions, we may indicate at the
outset that some of the objections like questioning the dealings of JIL and
YEIDA and want of availability of CA with the homebuyers have
unnecessarily been raised and carry no meaning to the real questions in
controversy. They require no discussion and are left at that.
102. Coming to the real questions in controversy, in the first place, we
deem it appropriate to observe that the suggestion on behalf of YEIDA
and erstwhile director of the corporate debtor, that the Concession
Agreement in question is a statutory contract, is not correct and cannot be
accepted. It has rightly been pointed out on behalf of the resolution
applicant NBCC that the said CA is not a statutory contract; it has only
been executed by YEIDA in exercise of its enabling powers conferred by
the statute, that is, U.P. Act of 1976 but the same is neither an agreement
provided by the statute nor executed under a statute. This Court has
clarified the law in this respect in the case of India Thermal Power Ltd.
(supra) in the following terms: -
“ 11. It was contended by Mr Cooper, learned Senior Counsel
appearing for appellant GBL and also by some counsel appearing
for other appellants that the appellant/IPPs had entered into PPAs
under Sections 43 and 43-A of the Electricity Supply Act and as
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such they are statutory contracts and, therefore, MPEB had no
power or authority to alter their terms and conditions. This
contention has been upheld by the High Court. In our opinion the
said contention is not correct and the High Court was wrong in
accepting the same. Section 43 empowers the Electricity Board to
enter into an arrangement for purchase of electricity on such terms
as may be agreed. Section 43-A(1) provides that a generating
company may enter into a contract for the sale of electricity
generated by it with the Electricity Board. As regards the
determination of tariff for the sale of electricity by a generating
company to the Board, Section 43(1)(2) provides that the tariff
shall be determined in accordance with the norms regarding
operation and plant-load factor as may be laid down by the
authority and in accordance with the rates of depreciation and
reasonable return and such other factors as may be determined
from time to time by the Central Government by a notification in
the Official Gazette. These provisions clearly indicate that the
agreement can be on such terms as may be agreed by the parties
except that the tariff is to be determined in accordance with the
provision contained in Section 43-A(2) and notifications issued
thereunder. Merely because a contract is entered into in
exercise of an enabling power conferred by a statute that by
itself cannot render the contract a statutory contract. If
entering into a contract containing the prescribed terms and
conditions is a must under the statute then that contract
becomes a statutory contract. If a contract incorporates
certain terms and conditions in it which are statutory then the
said contract to that extent is statutory. A contract may
contain certain other terms and conditions which may not be
of a statutory character and which have been incorporated
therein as a result of mutual agreement between the parties.
Therefore, the PPAs can be regarded as statutory only to the
extent that they contain provisions regarding determination of tariff
and other statutory requirements of Section 43-A(2). Opening and
maintaining of an escrow account or an escrow agreement are not
the statutory requirements and, therefore, merely because PPAs
contemplate maintaining escrow accounts that obligation cannot
be regarded as statutory. ”
(emphasis in bold supplied)
102.1. Applying the principles aforesaid to the facts of the present case,
we are clearly of the view that the agreement in question does not acquire
the status of a statutory contract merely for having been executed in
terms of the powers with YEIDA under Section 6-A of the U.P. Act of 1976.
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102.2. Apart from above, another part of the submissions on behalf of
YEIDA with reference to the case of Nand Kishore Gupta (supra) against
incorporation of two SPVs cannot be accepted. The observations of this
Court in the case of Nand Kishore Gupta (supra) came in the wake of
challenge to the very acquisition process concerning the land parcels for
the project in question, that is Yamuna Expressway Project. One of the
arguments therein was that about 25 million square kilometres of land
was being acquired for 5 parcels of land to be given for commercial
exploitation. This Court found the High Court right in commenting that
such creation of 5 zones for industry, residence, amusement etc. was
going to be complementary to the creation of highway. However, the
observations in Nand Kishore Gupta (supra), holding all the parcels of
land to be part of integrated and indivisible project, cannot be read to
mean that creation of two SPVs by the concessionaire, one for the
Expressway and another for the remaining land for commercial
development, can never be provided.
102.3. However, even if the submissions of YEIDA are not correct in
regard to the aforesaid two aspects, all other submissions made on its
behalf cannot be discarded and rather, on substance, they deserve
acceptance to a large extent.
103. The contract in question, the CA, even though not a statutory one,
is nevertheless a contract entered into between the concessionaire and
statutory authority, that is, YEIDA. It is needless to observe that even if in
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the scheme of IBC, a resolution plan could modify the terms of a contract,
any tinkering with the contract in question, that is, the Concession
Agreement, could not have been carried out without the approval and
consent of the authority concerned, that is, YEIDA. Any doubt in that
regard stands quelled with reference to Regulation 37 of CIRP
Regulations that requires a resolution plan to provide for various
measures including ‘ necessary approvals from the Central and State
Governments and other authorities ’. The authority concerned in the
present case, YEIDA, is the one established by the State Government
under the U.P. Act of 1976 and its approval remains sine qua non for
validity of the resolution plan in question, particularly qua the terms
related with YEIDA. The stipulations/assumptions in the resolution plan,
that approval by the Adjudicating Authority shall dispense with all the
requirements of seeking consent from YEIDA for any business transfer
are too far beyond the entitlement of the resolution applicant. Neither any
so-called deemed approval could be foisted upon the governmental
authority like YEIDA nor such an assumption stands in conformity with
Regulation 37 of the CIRP Regulations.
104. Furthermore, the suggestion that Clause 18.1 of the CA had been
a one-time measure and that stands exhausted with creation of JIL as
SPV and transfer of original concessionaire’s rights to JIL, has its own
shortcomings. The concept and purport of Clause 18.1, of course, at the
relevant time had been of the obligation on the original concessionaire to
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execute the documents for creation of SPV and this clause came in
operation when JIL was created as an SPV. However, it would be wholly
unrealistic to say that once JIL was created as an SPV, the said Clause
18.1 stood exhausted and there remained no obligation on the part of JIL
(as the substituted concessionaire) to execute the necessary documents
if it would propose to transfer its rights and obligations under the CA to
another SPV; and it could do so without the consent of YEIDA. This
suggestion carries an inherent fallacy because if Clause 18.1 is removed
from the CA, a serious question would arise as to how the rights and
obligations of the substituted concessionaire JIL could at all be transferred
to another SPV? Looking to the pith and substance of the CA, the said
Clause 18.1 has to be applied for creation of any SPV by or on behalf of
JIL.
104.1. The other clauses in CA permitting creation of sub-lease could
hardly be applied for en bloc transfer of land to the SPVs, as proposed in
the resolution plan. The referred Clauses 4.3(d) and 4.3(e) were
essentially meant for creation of sub-leases when the land given to the
concessionaire for development, or part thereof, was to be sub-leased to
the end-user/s. Even in that regard, the provisions were made for the
concessionaire to make a request to the land providing agency to execute
the lease-deed directly in favour of its subsidiaries, assigns or
transferees; and in case the agency and the concessionaire would
consider it appropriate, tripartite agreement for sub-lease may be
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executed. Taking all the relevant clauses together with the substance and
purport of CA, it is difficult to countenance that the proposed transfer to
SPVs could be treated as an ordinary sub-lease for which, no
documentation involving YEIDA would be required.
104.2. Although, as urged, the proposal to create two separate SPVs
may not be impermissible looking to the framework of the CA, where
different stipulations were made in relation to the land for constructing
Expressway with its allied facilities and the land for commercial
exploitation, respectively in Clauses 4.1 and 4.3 of the CA, but the
question is as to the method of transfer of concessionaire’s rights and
obligations to such SPVs. That could only be in accordance with the
approval of YEIDA and with the execution of necessary tripartite
documents as envisaged by CA.
104.3. As observed hereinbefore, looking to the terms and purport of the
CA, creation of two SPVs, one for Expressway and another for the
remaining land for commercial development, is not altogether prohibited
but then, it cannot be suggested by NBCC that such creation of SPVs
could be even without necessary documentation involving YEIDA. In this
regard, YEIDA seems to be right in its contentions that such
documentation is even otherwise required for avoiding any ambiguity
about the rights and obligations and also for itself (YEIDA) to properly
monitor the functioning of SPVs, each of which would stand in the
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capacity of concessionaire and would be carrying the rights and
obligations under the CA.
104.4. For what has been discussed above, we need not delve into the
decision of this Court in MCGM (supra), where the statutory provision
itself required prior approval of the local body before dealing with its
properties through lease or by creation of any other interest. Though in
the present case, there is no such statutory embargo but for that matter,
all the terms of the Concession Agreement cannot be forsaken. Any
alteration in the essentials of the Concession Agreement would require
the consent of YEIDA.
104.5. The Adjudicating Authority (NCLT), while disapproving the
stipulations in the resolution plan whereby documentation for such
transfer was sought to be avoided, proceeded to order execution of such
documents. According to YEIDA, this modification has no commercial
effect and therefore, has rightly been ordered by NCLT. Although this
modification, prima facie , does not appear to be having any commercial
effect, for it being only a matter of proper documentation but, interlaced
with this process of documentation are the other stipulations, which do
impact the commercial terms of the resolution plan, particularly those
relating to the amount of additional compensation, if payable.
105. With the observations foregoing, we may now take up another
important aspect of the objections, which relates to the provisions in the
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resolution plan towards the amount of additional compensation, if
payable.
105.1. Concisely put, as per the resolution plan, the contingent liability
concerning additional amount of land acquisition compensation is
proposed to be dealt with in the manner that in the event any such
amount of additional compensation is to be paid, YEIDA would collect the
same from the end-users; and as regards the land of Expressway, such
additional compensation shall be payable by YEIDA because YEIDA will
be the end-user on getting ownership of the land of Expressway after
expiry of the concession period. NBCC has justified these propositions on
various grounds as noticed hereinabove. YEIDA takes serious exception
to them and particularly to the stipulation that additional compensation in
regard to the land of Yamuna Expressway would be payable by it. The
Adjudicating Authority has made two-fold modifications in this regard. In
paragraph 120 of the impugned order dated 03.03.2020, the Adjudicating
Authority has said that to iron out creases and to make the resolution plan
viable, it would direct that the plan shall be read to mean that YEIDA has
a right to collect acquisition cost through the SPVs concerned. On the
other hand, concerning the Expressway land, the Adjudicating Authority
has provided in paragraph 122 of the impugned order that the resolution
plan would be read to mean that it is left open to both the parties to have
proper recourse before competent forum when the time comes for
payment of additional compensation. In the submissions of YEIDA, such
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modifications were necessary to make the plan compliant with the rights
and obligations under the CA.
105.2. We find the prescriptions in the resolution plan in regard to the
contingent liability of additional compensation to be questionable on more
than one count.
106. The question is yet to be finally determined as to whether such a
liability towards additional amount of compensation rests with the
corporate debtor JIL or with YEIDA, because the arbitral award made in
favour of JIL is the subject matter of challenge in the Court. However, the
contingency was required to be provided in the plan in case liability would
be ultimately fastened on the corporate debtor JIL. It has not been
suggested that any such bifurcation of liability, qua the land under
Expressway on one hand and other parcels on the other, is a subject
matter of the arbitration proceedings. However, going by the terms of the
CA, prima facie, we are unable to find any indication therein that the
liability for compensation with reference to the land under Expressway is
not of the concessionaire. In any case, while making a provision for
meeting with this contingent liability of additional amount of
compensation, the resolution applicant could not have decided of its own
that there will not be any liability of the concessionaire or its assigns
towards the land under Expressway.
106.1. It appears that while proposing to create two different SPVs, the
resolution applicant stumbled on an idea that the liability for additional
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compensation as regards Expressway land could be simply deflected to
YEIDA with reference to the fact that YEIDA will get this land back after 36
years; and reflected this idea by way of the questioned proposition in the
resolution plan. The Adjudicating Authority has chosen to leave this issue
open, for being litigated at the appropriate time and before the competent
forum. In our view, such a prescription as regards Expressway land
amounts to alterations of the material terms of CA and cannot be made
without the consent of YEIDA. This aspect could have only been
disapproved.
106.2. Similarly, the resolution applicant, of its own, could not have
decided that end-user would mean sub-lessee and thereby deflect even
collection of the amount towards this liability on YEIDA and that too when
YEIDA was not going to be a party in creation of any sub-lease. The
structuring of these propositions regarding contingent liability turns out to
be wholly illogical, apart from being at loggerheads with the terms of the
Concession Agreement.
106.3. It needs no great deal of discussion to find that the said aspect
concerning the provision for additional compensation, if not approved on
material terms, is of significant commercial impact. Even the other
modification by the Adjudicating Authority, that YEIDA shall have a right to
collect acquisition cost through SPVs concerned, carry their own
commercial implications. These are not the terms which could be taken up
for modification without disturbing the financial proposal of the resolution
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plan. While these prescriptions could not have been approved, in our
view, the Adjudicating Authority could not have entered into any process
of modification. The only course open for the Adjudicating Authority
(NCLT) was to send the plan back to the Committee of Creditors for
reconsideration.
107. Apart from the aforesaid, the reliefs and concessions as sought for
by the resolution applicant in relation to YEIDA in Clauses 4, 14 and 27 of
Schedule 3 are also required to be disapproved. We are unable to
countenance the proposition that by way of a resolution plan, it could be
enjoined upon an agency of the government like YEIDA to give up or
withdraw from a pending litigation. Similarly, extinguishment of existing
liability qua YEIDA is not a relief that could be given to the resolution
applicant for askance. For the same reason, the resolution applicant
cannot seek extension of time period of the Concession Agreement by
way of a clause of ‘relief’ in the resolution plan without the consent of a
governmental body like YEIDA.
108. Before concluding on this point for determination where we have
accepted the major parts of the objections of YEIDA, we may, in fairness
to all the parties concerned, reiterate that despite stating its objections,
YEIDA has consistently maintained before the NCLT as also before this
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Court that it does not stand to oppose the resolution plan only for the
sake of opposition; rather it would like the plan to succeed but, it has a
public duty to ensure that the framework under CA is preserved and else,
82 vide paragraphs 47.2, 99 and 99.8 (supra)
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it would be ready to do everything within its power to ensure that the plan
is a success. Thus, it would not be out of place to add a sanguine hope
that being the owner of the land in question and public authority, YEIDA,
who had envisaged and promoted the entire project, would, in future
dealing with the matter, act with caution and circumspection, while
earnestly reflecting upon the practical impact of its propositions/decisions
on various stakeholders, including the homebuyers.
109. For what has been discussed hereinabove, we are constrained to
hold that the stipulations in the resolution plan, as regards dealings with
YEIDA and with the terms of Concession Agreement, have rightly not
been approved and the stipulations in question, when not being
consented to by YEIDA, are required to be disapproved. Further, in the
cumulative effect of the stipulations which have not been approved, the
only correct course for the Adjudicating Authority was to send the plan
back to the Committee of Creditors for reconsideration.
Point D
Treatment of the debt of dissenting financial creditor ICICI Bank Limited
110. Now, we need to enter into another area of major dispute, which
relates to the objections of a dissenting financial creditor, ICICI Bank
Limited.
111. For dealing with the issue concerning dissenting financial creditor,
we need to look closely at the relevant prescriptions in the resolution plan
of NBCC. As noticed, in Schedule 2 of the resolution plan, detailed steps
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are mentioned for acquisition of control of the corporate debtor and
implementation of the resolution plan. Steps 6A and 6B relate to the
institutional financial creditors. The preceding steps, in their chronology,
are (1) incorporation of NBCC SPV and acquisition of the corporate
debtor by the resolution applicant through that SPV; (2) incorporation of
Expressway SPV by the corporate debtor and transfer of Yamuna
Expressway to that SPV and securitisation of toll cash flow; (3) payment
of unpaid CIRP costs; (4) payment of total operational debt; and (5)
incorporation of Land Bank SPV. The sixth step is divided in two parts,
being Step 6A concerning upfront payment to the institutional financial
creditors and 6B concerning treatment of institutional financial creditors
for the remaining amount. In the second part of Step 6B, specific
stipulations are contained as regards the dissenting financial creditors.
For comprehension of the gamut of such prescriptions, we may reproduce
Steps 6A and 6B in the resolution plan as under: -
“S TEP 6A: U PFRONT P AYMENT TO THE I NSTITUTIONAL F INANCIAL
C REDITOR
1. Part of the Admitted Financial Debts of the Institutional Financial
Creditors shall be settled to an extent of INR [Fresh Debt- 2,000]
Cr by making upfront Payment of ~ INR [Fresh Debt - (less) 2,000]
Cr by the Expressway SPV, to be incorporated by the Corporate
Debtor under Step 2 above. No prepayment penalty shall be
payable to the Institutional Financial Creditors, in the event of any
upfront payment of debt of as provided above.
2. In this regard, it is clarified that upon payment of upfront amount
aggregating to INR [Fresh Debt - (less) 2,000] Cr to the
Institutional Financial Creditors, their charge over the Yamuna
Expressway and toll cash flow shall be automatically released,
without any further deed or act by the parties.
TEP REATMENT OF NSTITUTIONAL INANCIAL REDITORS FOR
“S 6B: T I F C
THE REMAINING A MOUNT
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After upfront payment is made to the Institutional Financial
Creditors as contemplated under Step-6A above, the remaining
Admitted Financial Debt due to the Institutional Financial Creditors
shall be settled in its entirety in the following manner.
Conversion of part of Admitted Financial Debt (due to
Institutional Financial Creditors) into equity shares of the
Corporate Debtor and subsequent reduction of share capital to
extinguish the shareholding of Institutional Financial Creditors in
the Corporate Debtor in entirety;
Transfer of 100% shareholding of Land Bank SPV from the
Corporate Debtor to the Institutional Financial Creditors;
Transfer of 100% shareholding of Expressway SPV from the
Corporate Debtor to the Institutional Financial Creditors for a
consideration equal to their then outstanding debt to be paid by
way of settlement of the outstanding debt to the same extent;
and
It is also proposed that the Resolution Applicant shall enter into:
(i) a management agreement with the Land Bank SPV (to be
owned by the Institutional Financial Creditors) for the purpose of
monetizing the land held by the Land Bank SPV for an initial
tenure of 5 years subject to a fixed/success-based fee to be
mutually agreed between the Institutional Financial Creditors
and the Resolution Applicant. Detailed terms and conditions of
such management agreement, including any escrow
mechanism may be mutually agreed between the Institutional
Financial Creditors and the Resolution Applicant. Additionally,
the Resolution Applicant reserves its first right to buy back the
land held by the Land Bank SPV, at the then prevailing market
rate.
(ii) an operations & maintenance agreement with the Expressway
SPV (to be owned by the Institutional Financial Creditors) to
operate and maintain the Expressway for a tenure of 5 years
subject to a fee to be mutually agreed between the Institutional
Financial Creditors and the Resolution Applicant. Detailed terms
and conditions of such O&M agreement, including any escrow
mechanism may be mutually agreed between the Institutional
Financial Creditors and the Resolution Applicant.
We have structured the transaction in a tax efficient manner to the
best of our knowledge. However, in the event any income tax
liability or goods and services tax (GST) liability, arises in future on
account of transfer of land parcels, same shall be borne by the
Institutional Financial Creditors in a pro rata manner without any
recourse, express or implied, to the Resolution Applicant.
As per IBC, Dissenting Financial Creditors are required to be paid
a minimum of amounts in the nature of liquidation value due to
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them in terms of Sections 30(2) and 53 of the IBC. However, as
per the amendment to the CIRP Regulations on 31 December
2017, the requirement for disclosing the Liquidation Value of a
corporate debtor undergoing resolution to the resolution applicants
has been dispensed with and accordingly, the Liquidation Value for
the Corporate Debtor is currently not available with us. However,
as per our estimate, the liquidation value owed to the Dissenting
Financial Creditors, in terms of Sections 30 and 53 of the IBC read
with Regulation 38 of the CIRP Regulations is expected to be nil.;
However, in the event the Dissenting Financial Creditors are
entitled to some amount in the nature of liquidation value in terms
of Sections 30 and Section 53 of the IBC read with Regulation 38
of the CIRP Regulations, then the Dissenting Financial Creditors
would be provided the liquidation value owed to them in terms of
Section 30(2) and Section 53 of the IBC read with Regulation 38 of
the CIRP Regulations in the form of proportionate share in the
equity of the Expressway SPV and transfer of certain land parcels
belonging to the Corporate Debtor. For avoidance of doubt it is
clarified that on account of the transfer of equity and transfer of
land parcels in favour of Dissenting Financial Creditors as
stipulated above there will be a corresponding decrease in the
equity and area of land parcels being transferred to the
Institutional Financial Creditors (through the Land SPV) who vote
in favour of the Plan. Further the Resolution Applicant shall have
the sole discretion to determine the location of the land parcels to
be transferred to the Dissenting Financial Creditors and the value
of such land parcels being transferred shall be same as that
proposed under this Resolution Plan for the Institutional Financial
Creditors who vote in favour of the Plan.
Provided further that the Dissenting Financial Creditors shall bear
the stamp duty, registration costs, and other applicable taxes
including goods and services tax (GST) involved in the transfer of
land parcels in their favour as stipulated hereinabove.
Notwithstanding anything contained in this Resolution Plan, the
Dissenting Financial Creditors shall neither be entitled to nor shall
they receive any other amounts other than the amounts due to
them in the nature of liquidation value as stipulated hereinabove.”
111.1. Thus, the proposal in the resolution plan is to the effect that, if the
dissenting financial creditors would be entitled to some amount in the
nature of liquidation value in terms of Sections 30 and Section 53 of the
IBC read with Regulation 38 of the CIRP Regulations, they would be
provided such liquidation value ‘in the form of proportionate share in the
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equity of the Expressway SPV and transfer of certain land parcels
belonging to the Corporate Debtor’ .
112. The dissenting financial creditor of JIL, namely, ICICI Bank
Limited, took exception to the stipulations aforesaid and submitted before
the Adjudicating Authority that being a dissenting financial creditor, it was
entitled to receive cash payment as per the liquidation value in terms of
Section 30(2)(b) of the Code read with Regulation 38(1)(b) of the CIRP
Regulations; and providing for land and equity in the proposed SPVs in
lieu of the requisite payment was entirely impermissible. These objections
were countered by IRP and NBCC with the submissions that it was
nowhere provided in the scheme of the Code and CIRP Regulations that
payment of liquidation value to the dissenting financial creditor has to be
in cash. It was also submitted that when mode of discharge of obligation
towards dissenting financial creditor was not envisaged only by way of
cash payment, money or other valuable thing delivered to discharge the
obligation would be construed as “payment”, fulfilling the requirement of
Section 30(2) of the Code. It was also submitted that when the assenting
financial creditors were not being paid in cash, any such payment to the
dissenting financial creditors would cause prejudice to the rights of the
assenting financial creditors. As noticed, the Adjudicating Authority
rejected the stand so taken by IRP and NBCC and observed that all the
provisions and specifications of the Board made it clear that payment to
dissenting financial creditors means payment of the amount; and it cannot
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be argued that the payment could also be in a manner other than cash.
The Adjudicating Authority also rejected the contention made with
reference to the treatment assigned to the assenting financial creditors
while observing that a person agreeing might agree for anything but the
same may not be acceptable to the person disagreeing. Accordingly, the
Adjudicating Authority (NCLT) did not approve the proposal in the
resolution plan as regards treatment of the dissenting financial creditors.
112.1. However, after disapproving, the Adjudicating Authority proceeded
on the lines that this objectionable part of the resolution plan could be
modified without altering the basic structure of the plan. Having said so,
the Adjudicating Authority proceeded to modify the resolution plan in the
manner that the resolution applicant shall pay to the dissenting financial
creditors the amount, that was receivable in terms of Section 53 of the
Code, in twelve monthly instalments together with interest with other
stipulations, as contained in paragraph 103 of its order, which we have
reproduced in paragraph 46.4 hereinbefore. This part of the order of the
Adjudicating Authority has been challenged by NBCC as also by IRP in
their respective appeals. The assenting financial creditors, including IDBI
Bank and the assenting homebuyers have also supported this challenge.
Their submissions have been countered by the dissenting financial
creditor ICICI Bank as also by the erstwhile director of the corporate
debtor.
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113. We may now summarise the essential contents of extensive
submissions made by the parties in challenge to this part of the order of
the Adjudicating Authority, while avoiding repetition of the same contention
by different parties.
113.1. It has been strenuously contended on behalf of the IRP that the
Adjudicating Authority has acted wholly without jurisdiction in modifying
the terms of the resolution plan that was approved by 97.36% of the
voting share of the Committee of Creditors. It is submitted that the
resolution plan in question is duly compliant with the requirements of
Section 30 of the Code and if the Adjudicating Authority was at all of the
view that the plan did not meet with any particular requirement, it could
have only sent it back to CoC to consider the proposed modifications, so
as to afford an opportunity to the resolution applicant to modify the plan
and to the CoC to reconsider and vote upon the same. It is submitted that
the Adjudicating Authority, by itself, could not have made any modification
in the resolution plan, particularly on any commercial aspect of the plan
which remains exclusively within the domain of the CoC.
113.1.1. It has also been submitted on behalf of IRP that in the meeting
of CoC dated 28.11.2019, ICICI Bank did not raise any objection to the
mode of payment and only objected to the amount provided by the
resolution applicant and that being the position, it could not have raised
any objection at a later stage.
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113.1.2. It is further submitted that the requirements in Section 30(2)(b)
of the Code stress upon the ‘value’ a dissenting financial creditor is
entitled to receive but, it has nowhere been provided that the manner of
payment has to be in cash; rather the manner of payment has been left to
be specified by the Board and the Board has also not specified that such
payment has to be in cash only.
113.1.3. Further, according to IRP, if the word “payment” is given a
prescriptive meaning, it would result in clause (b) of sub-section (2) of
Section 30 prescribing the manner of distribution and that would amount
to amending the word “creditor” in sub-section (4) of Section 30. It is
submitted that in the scheme of the Code, dissenting financial creditors
are bound to accept the manner of distribution in the resolution plan as
approved by the majority of 66% or more of the voting share in the CoC
and if they are not held so bound, the provisions permitting the CoC to
take decisions with requisite majority would be rendered nugatory.
113.2. The resolution applicant NBCC has also made long ranging
submissions in challenge to the directions in paragraph 103 of the order
of the Adjudicating Authority while defending the terms and stipulations in
the resolution plan. It is submitted that Step 6B in the resolution plan has
been formulated in due compliance of the requirements of Section 30(2)
of the Code and Regulation 38(1) of the CIRP Regulations. It is stated in
its written submissions that the requirements of law are duly satisfied as
follows:
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“3. Thus, the requirements of law have been met in the
following manner:
a. Payment of liquidation value in terms of payment of
proportionate share in the Land Bank SPV and Expressway SPV;
and
b. the payment to the Dissenting Financial Creditors shall
be made in terms of Regulation 38 of the CIRP Regulations and
further states that on account of the payments to the Dissenting
Financial Creditors in the form of proportionate equity in the
Expressway SPV and transfer of certain land parcels, there would
be corresponding decrease in the equity and land parcels being
transferred to the lenders who vote in favour of the plan.”
113.2.1. As regards the expression “payment” for the purpose of Section
30(2) of the Code, the meaning of this term stated in Black’s Law
th
Dictionary (9 Edition) has been referred. Further, reliance is placed on
the decisions of this Court in the case of Pioneer Urban (supra),
Himachal Pradesh Housing and Urban Development Authority and
Anr. v. Ranjit Singh Rana : (2012) 4 SCC 505 ; and on the decision of the
th
Court of Appeal for the 6 Circuit, USA in the case of Samuel Katkin and
Doris Katkin v. Commissioner of Internal Revenue : 570 F.2d 139 as
also on a decision of the High Court of Calcutta wherein, a decision of the
Court of Appeal of England in White v. Elmdene Estates Ltd. : 1959 ALL
ER 605 has been relied upon. With reference to the Dictionary meaning
and the cited decisions, the contention has been that “payment” means
the discharge of an obligation by delivery of money or its equivalent; and
the expression “payment” is not restricted to delivery of money or legal
tender only.
113.2.2. It is argued that Section 8 of the Code, as relied upon by ICICI
Bank, uses the term “payment” to denote the payment of amounts that
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are “operational debts” before commencement of the insolvency
resolution process, whereas the same term is used under Section 30(2) to
denote the payment under a resolution plan. The language employed
under Section 8(2)(b) of the Code includes payment by way of electronic
transfer or by cheque. On the other hand, Section 30(2) of the Code is in
relation to payment under a resolution plan, and does not in any manner
stipulate the mode of payment.
113.2.3. It is also contended that the word ‘payment’ is required to be
interpreted with reference to its context and placement; and to support the
submissions on contextual interpretation, reliance is placed on the
decisions in Commissioner of Income Tax, Madhya Pradesh & Bhopal
v. Shrimati Sodra Devi : AIR 1957 SC 832; Kolkata Metropolitan
Development Authority v. Gobinda Chandra Makal and Anr. : (2011) 9
SCC 207; Indian Handicrafts Emporium and Ors. v. Union of India
and Ors. : 2003 (7) SCC 589; CIT, Bangalore v. Venkateswara
Hatcheries (P) Ltd. : (1999) 3 SCC 632; and Union of India v.
Sankalchand Himatlal Sheth and Anr. : (1977) 4 SCC 193.
113.2.4. It has also been submitted that the context in relation to the
word “payment” needs to be examined in terms of the object and purpose
of resolution of insolvency and not in terms of recovery of debt; and in the
light of the fact that for the purpose of insolvency resolution, a resolution
plan may provide for various ways of settlement of claims. On the scheme
of the Code and object and purpose of resolution, the decisions in
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ArcelorMittal and Swiss Ribbons (supra) have been referred.
Regulation 37(1) of the CIRP Regulations has also been referred wherein
it is provided that a resolution plan may provide for securities in exchange
of claims. It is also submitted that limiting the word “payment” only to
mean cash would defeat the purpose of resolution and would rather
incentivise dissent. It is submitted that such mode of payment by cash
should not be read in the statute, when not provided therein. The decision
of this Court in the case of State through Central Bureau of
Investigation v. Parmeshwaran Subramani and Anr. : (2009) 9 SCC
729 has been referred.
113.2.5. It has also been submitted that the “value” under Section 53 is
only a guiding factor for the CoC to exercise its commercial wisdom and
the reference to “value” in Section 53 does not mean that the dissenting
financial creditor has to be paid such value only in cash. It is also
submitted that the liquidation value is not known to the resolution
applicant and there is no requirement of mentioning the liquidation value
in the resolution plan. It is pointed out that earlier, sub-clauses (j) and (k)
of Regulation 36(2) provided for inclusion of liquidation value of the
corporate debtor and liquidation value due to the operational creditors as
part of information memorandum, but these clauses were deleted w.e.f.
31.12.2017 and the resolution applicant is not given access to the
liquidation value of the corporate debtor. It is also submitted that as per
the decision in Maharashtra Seamless Ltd. (supra), there is no
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requirement for a resolution applicant to match the liquidation value of a
corporate debtor. It has been vehemently contended that all the amounts
being raised or made available to NBCC are going to be utilised for
construction of homes and any requirement of payment in cash would be
detrimental to the object of completing the construction on time, which
would cause prejudice to the homebuyers. It is also submitted that
‘payment in kind’ is accepted under banking norms and in this regard, it is
also indicated that on an earlier occasion, the objector ICICI Bank itself
had accepted land-debt swap as a method of payment for discharge of
the debt of JIL.
113.2.6. Apart from above, NBCC has also referred to its affidavit filed
during the course of hearing while submitting that the admitted debt of
ICICI Bank is INR 304.1 crores which is 1.31% of total financial debt and
as per the final statement available, the proportionate liquidation value
payable to this bank would be about INR 238.84 crores. Thereafter,
particulars of the parcels of land proposed to be offered to ICICI Bank and
their estimated value as also the estimated value of equity in Expressway
have been stated to suggest that adequate provision is being made for
payment of debt of this bank while indicating that the bank would also be
entitled to its proportionate share under Step 6A of the resolution plan.
113.3. The assenting financial creditor, IDBI Bank, has also supported the
submissions aforesaid. The additional parts of its submissions are that
ICICI Bank is using its dissent to obtain an advantage over the assenting
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financial creditors, by seeking to be paid in cash purely by virtue of
dissent. It is also submitted that resolution plan was approved by 97.36%
of the voting share of the creditors in CoC in its commercial wisdom after
assessing the viability and feasibility of the resolution plan; and if the
other institutional financial creditors also wanted to receive their money,
they would have simply voted for liquidation which would have deprived
thousands of homebuyers of any chance of getting their homes. It is also
submitted that if cash payment is considered to be the only mode of
payment available to the dissenting financial creditors, it would incentivise
the financial creditors to go for dissent, leading to more liquidations and
fewer resolutions and thereby defeating the theme and spirit of the Code.
It has also been submitted in the alternative that if at all, this Court
upholds the related part of the order of NCLT and permits cash payment,
the interests of the assessing financial creditors need to be safeguarded
and such payment should not result in any dilution or reduction in the
amount payable to the assenting financial creditors.
114. While opposing the submissions so made and supporting the
modification of the resolution plan by NCLT, it has been emphatically
argued on behalf of the dissenting financial creditor, ICICI Bank, that the
resolution plan in question had been non-compliant with the requirements
of law and had it not been amended to provide for payment of the
amounts admittedly owed to it by the corporate debtor, the only course
would have been of rejection of the plan; and that would have jeopardised
225
the entire resolution process carried out for more than two years under
exceptional circumstances and would have pushed the corporate debtor
to liquidation, much to the disappointment of homebuyers.
114.1. With reference to Section 30(2)(b) of the Code and Regulation
38(1)(b) of the CIRP Regulations, it is submitted that as per the statutory
mandate, a resolution applicant is required to pay a minimum of
liquidation value [in terms of Section 53(1) of the Code] to the dissenting
financial creditors in priority over the assenting financial creditors; and if a
resolution plan does not provide for this mandatory payment in priority, the
same cannot be approved.
114.2. It is submitted that, admittedly, the corporate debtor owed an
amount of INR 304.1 crores to ICICI Bank as on the insolvency
commencement date; and this bank, holding 1.3% voting share in the
CoC, voted against the resolution plan proposed by NBCC and therefore,
came to be categorised as a dissenting financial creditor. Consequently,
this bank has the right and entitlement to be paid, and in priority over the
assenting financial creditors, the amount against its dues, which shall be
not less than the amount payable in accordance with Section 53(1) of the
Code, that is, the liquidation value; and this payment could only be made
in terms of cash and not by any other mode or method.
114.3. It is contended that Section 53 contemplates the proceeds from
the sale of the liquidation assets to be utilised to pay the dissenting
financial creditors and there is no such conceivable possibility that the
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assets of a corporate debtor would be liquidated in any other
consideration, apart from cash. The payment, for the purpose of Section
30(2)(b) of the Code, would only be in terms of money or a legal tender;
and it is entirely impermissible for a resolution applicant to pay such
liquidation value to the dissenting financial creditor in kind, unless the
latter accepts such form of payment. Various decisions on the process of
interpretation have been referred on behalf of the objector bank including
those in Sankalchand Himatlal Sheth (supra) and Rathi Khandsari
Udyog and Ors. v. State of Uttar Pradesh and Ors. : (1985) 2 SCC 485.
114.4. It is further submitted that in the resolution plan, the treatment of
the dissenting financial creditors is inferior to the assenting financial
creditors inasmuch as the latter is being provided an upfront payment of
INR 300 crores, whereas the former is not provided with any cash at all.
Such treatment defeats the purpose of Section 30(2)(b) of the Code,
which has been amended to protect the interests of the dissenting
financial creditors.
114.5. Yet further, it is submitted that the presumption of NBCC that the
liquidation value towards the dissenting financial creditors shall be nil is
baseless; and the treatment of dissenting financial creditors in the
resolution plan is vague and incapable of precise valuation as it is based
on speculation rather than current market figures.
114.6. While questioning the valuation suggested in the resolution plan, it
is submitted that valuation of the land proposed to be transferred to the
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Land Bank SPV is INR 5001 crores which is based on future potential. On
the other hand, the valuations conducted by the IRP comes at INR 2509
crores and by the others equals to INR 3643 crores which is significantly
less than the value arrived at by NBCC. The treatment under the plan also
mentions that the land so transferred shall carry with it the liabilities
attached and the dissenting financial creditor shall bear such uncertain
and unquantified liabilities. This, it is submitted, raises a doubt as to
whether this provision even satisfies the liquidation value payable to the
dissenting financial creditors.
114.7. It is further submitted that the contention of NBCC, that the intent
of the legislature while using the word “amount” cannot be restricted to
only payment in cash, does not have any basis in law. ICICI Bank submits
that even a look at the language of Section 8 of the Code makes it clear
that when it comes to the requirement of payment in relation to corporate
insolvency resolution, the same has to be in monetary terms. It is
submitted that once the language of a statute is clear, the meaning of the
provisions cannot be altered by judicial interpretation.
114.8. It is further submitted that the purpose of guaranteeing liquidation
value to the dissenting financial creditors is to protect their interests so as
to make sure that they are not in a worse position than they would have
been in the event of liquidation but, the treatment provided in the
resolution plan for dissenting financial creditors is done in a way that they
get punished for their dissent.
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114.9. It is further submitted that once the resolution plan is put forth
before the Adjudicating Authority for its approval, judicial mind is applied
to see as to whether such plan fulfils the mandatory requirements under
the Code, which involves firstly, compliance with Section 30(2) of the
Code; secondly, whether the plan is fair and equitable and balances the
interests of all the stakeholders; and thirdly, whether the plan maximises
the value of assets. Such approval of NCLT is never a formality, but a
necessity. According to the objector bank, the Adjudicating Authority, while
modifying the resolution plan, has made sure that the modifications do not
alter the basic structure of the plan and hence, has not violated the
principle of judicial review. Therefore, the contention that NCLT has acted
beyond its jurisdiction and has overridden the commercial wisdom of CoC
is incorrect.
114.10.It is also submitted that just because ICICI Bank has voted against
the approval of both the resolution plans, it does not mean that the
intention of the Bank would be the liquidation of the corporate debtor.
Such contention of NBCC furthers its mala fide intentions and is placed
only to undermine the dissentient bank.
115. The submissions so made on behalf of the dissenting financial
creditor bank have also been supported by the erstwhile director of the
corporate debtor JIL and JAL. It is submitted that the proposition in the
resolution plan to satisfy the claim of the dissenting financial creditors in
the form of share and equity or transfer of land parcels is not in conformity
229
with the requirements of Section 30(2)(b) of the Code. It is also submitted
that proposing to satisfy the claim of the dissenting financial creditors by a
mode other than monetary payment is tantamount to reading the word
‘equivalent’ in the relevant provision, which is entirely impermissible in
law. The decision of this Court in the case of Dadi Jagannadham v.
Jammulu Ramulu and Ors. : (2001) 7 SCC 71 , has been referred. It is
also submitted that reliance of NBCC on Regulation 37 of the CIRP
Regulations, to justify the manner in which dissenting financial creditors
are to be paid, is misplaced because instead of Regulation 37, the
relevant provision which needs consideration is Regulation 38(1)(b), as it
is directly related to Section 30(2)(b)(ii) of the Code. It is, therefore,
maintained that the resolution plan, as regards prescription for the
dissenting financial creditors, being violative of the requirements of law,
could not have been approved.
116. Having examined the rival submissions with reference to the law
applicable in relation to the treatment of the debt of dissenting financial
creditor in CIRP under the Code, we find the objections taken by the
dissenting financial creditor in the present case fully justified; and the
interpretation suggested by the IRP, the resolution applicant and the
assenting financial creditor cannot be accepted.
117. An overview of the Insolvency and Bankruptcy Code, 2016 gives
the basic idea that even while the avowed objects of the Code are
towards insolvency resolution in a time bound manner for maximisation of
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value of assets of the corporate debtors and balance of interests of all the
stakeholders, the core provisions of the Code, a comparatively new
legislation, have already undergone several amendments from time to
time. In fact, in Pioneer Urban (supra), this Court has recognised the
legislature’s right to experiment when coming to the economic legislation
like the Code, while observing as under: -
“ The Legislature’s right to experiment in matters economic
15 . In Swiss Ribbons , this Court was at pains to point out,
referring, inter alia, to various American decisions in paras 17 to
24, that the legislature must be given free play in the joints when it
comes to economic legislation. Apart from the presumption of
constitutionality which arises in such cases, the legislative
judgement in economic choices must be given a certain degree of
deference by the courts. In para 120 of the said judgment, this
Court held: (SCC p. 112)
“ 120 . The Insolvency Code is a legislation which
deals with economic matters and, in the larger sense,
deals with the economy of the country as a whole.
Earlier experiments, as we have seen, in terms of
legislations having failed, “trial” having led to repeated
“errors”, ultimately led to the enactment of the Code.
The experiment contained in the Code, judged by the
generality of its provisions and not by so-called crudities
and inequities that have been pointed out by the
petitioners, passes constitutional muster. To stay
experimentation in things economic is a grave
responsibility, and denial of the right to experiment is
fraught with serious consequences to the nation. We
have also seen that the working of the Code is being
monitored by the Central Government by Expert
Committees that have been set up in this behalf.
Amendments have been made in the short period in
which the Code has operated, both the code itself as
well as to subordinate legislation made under it. This
process is an ongoing process which involves all
stakeholders, including the petitioners.”
It is in this background that the constitutional challenge to the
Amendment Act will have to be decided.”
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118. A few aspects of the vast variety of amendments to IBC have been
noticed hereinbefore and are being dealt with in this judgment, to the
extent relevant for the issues involved. One part of such amendments
relates to Section 30, with which we are concerned in this point for
determination. As noticed, the earlier clause (b) of sub-section (2) of
Section 30 of the Code required that the resolution plan should provide for
payment of debts of operational creditors, which should not be less than
the amount to be paid to the operational creditors in the event of
liquidation. The treatment of various classes of creditors in the scheme
then existing had been a matter of debate at various levels and in several
decisions. It acquired attention of the legislature that a balance was
required to be brought about in treatment of different creditors and ‘critical
gaps’ were noticed in the corporate insolvency framework, including those
in the treatment of dissenting financial creditors. This led to the
introduction of Bill No. XXVI of 2019, being the Insolvency and
Bankruptcy Code (Amendment) Bill, 2019, in the Rajya Sabha in July
2019. The Statement of Objects and Reasons for this Bill, giving a
reasonable insight as to what was sought to be achieved, reads as under:
-
“STATEMENT OF OBJECTS AND REASONS
The Insolvency and Bankruptcy Code, 2016 (the Code) was
enacted with a view to consolidate and amend the laws relating to
reorganization and insolvency resolution of corporate persons,
partnership firms and individuals in a time-bound manner for
maximization of value of assets of such persons, to promote
entrepreneurship, availability of credit and balance of interests of
all the stakeholders including alteration in the order or priority of
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payment of Government dues and to establish an Insolvency and
Bankruptcy Board of India.
2. The Preamble to the Code lays down the objects of the Code
to include “the insolvency resolution” in a time bound manner for
maximization of value of assets in order to balance the interests of
all the stakeholders. Concerns have been raised that in some
cases extensive litigation is causing undue delays, which may
hamper the value maximization. There is a need to ensure that
all creditors are treated fairly, without unduly burdening the
Adjudicating Authority whose role is to ensure that the
resolution plan complies with the provisions of the Code.
Various stakeholders have suggested that if the creditors were
treated on an equal footing, when they have different pre-
insolvency entitlements, it would adversely impact the cost and
availability of credit. Further, views have also been obtained so as
to bring clarity on the voting pattern of financial creditors
represented by the authorized representative.
3. In view of the aforesaid difficulties and in order to fill the
critical gaps in the corporate insolvency framework, it has
become necessary to amend certain provisions of the Insolvency
and Bankruptcy Code. The Insolvency and Bankruptcy Code
(Amendment) Bill, 2019, inter alia, provides for the following,
namely:-
( a ) to amend clause ( 26 ) of section 5 of the Code so as to insert
an Explanation in the definition of “resolution plan” to clarify that a
resolution plan proposing the insolvency resolution of corporate
debtor as a going concern may include the provisions for corporate
restructuring, including by way of merger, amalgamation and
demerger to enable the market to come up with dynamic resolution
plans in the interest of value maximization;
( b ) to amend sub-section ( 4 ) of section 7 of the Code to provide
that if an application has not been admitted or rejected within
fourteen days by the Adjudicating Authority, it shall provide the
reasons in writing for the same;
( c ) to amend sub-section ( 3 ) of section 12 of the Code to
mandate that the insolvency resolution process of a corporate
debtor shall not extend beyond three hundred and thirty days from
the insolvency commencement date, which will include the time
taken in legal proceedings, in order to prevent undue delays in the
completion of the Corporate Insolvency Resolution Process.
However, if the process, including time take in legal proceedings,
is not completed within the said period of three hundred and thirty
days, an order requiring the corporate debtor to be liquidated
under clause ( a ) of sub-section ( 1 ) of section 33 shall be passed. It
is clarified that the time taken for the completion of the corporate
insolvency resolution process shall include the time taken in legal
proceedings;
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( d ) to insert sub-section ( 3A ) in section 25A of the Code to
provide that an authorized representative under sub-section ( 6A )
of section 21 will cast the vote for all financial creditors he
represents in accordance with the decision taken by a vote of
more than fifty per cent. of the voting share of the financial
creditors he represents, who have cast their vote, in order to
facilitate decision making in the committee of creditors, especially
when financial creditors are large and heterogeneous group;
( e ) to amend sub-section ( 2 ) of section 30 of the Code to
provide that –
( i ) the operational creditors shall receive an amount
that is not less than the liquidation value of their debt or the
amount that would have been received if the amount to be
distributed under the resolution plan had been distributed in
accordance with the order of priorities in section 53 of the
Code, whichever is higher;
( ii ) the financial creditors who do not vote in favour
of the resolution plan shall receive an amount that is not less
than the liquidation value of their debt;
( iii ) the provisions shall apply to the corporate insolvency
resolution process of a corporate debtor-
( A ) where a resolution plan has not been approved or rejected by
the Adjudicating Authority; or
( B ) an appeal is preferred under section 61 or 62 or such appeal is
not time barred under any provision of law for the time being in
force; or
( C ) where a legal proceeding has been initiated in any court
against the decisions of the Adjudicating Authority in respect of a
resolution plan;
( f ) to amend sub-section ( 1 ) of section 31 of the Code to clarify
that the resolution plan approved by the Adjudicating Authority
shall also be binding on the Central Government, any State
Government or any local authority to whom a debt in respect of
payment of dues arising under any law for the time being in force,
such as authorities to whom statutory dues are owed, including tax
authorities;
( g ) to amend sub-section ( 2 ) of section 33 of the Code to clarify
that the committee of creditors may take the decision to liquidate
the corporate debtor, in accordance with the requirements
provided in sub-section ( 2 ) of section 33, any time after the
constitution of the committee of creditors under sub-section ( 1 ) of
section 21 until the confirmation of the resolution plan, including at
any time before the preparation of the information memorandum.
4. The Bill seeks to achieve the above objectives.”
234
(emphasis in bold supplied)
118.1. The aforesaid Bill ultimately took the shape of the Insolvency and
Bankruptcy Code (Amendment) Act, 2019, being Act 26 of 2019. This
Amendment Act of 2019 not only provided that operational creditors would
receive an amount that is not less than liquidation value of their debts or
the amount that would have been received if the amount to be distributed
under the resolution plan had been distributed in accordance with the
order of priorities in Section 53 but, in addition to that, this amendment
ensured that the dissenting financial creditors would also be paid a certain
minimum amount, which would not be less than the amount to be paid in
the event of liquidation; and the Explanation clarified that the distribution
in accordance with clause (b) would be fair and equitable to all the
creditors. The purport and connotation of this amendment came to be
tersely explained by this Court in the case of Essar Steel as under: -
“128. When it comes to the validity of the substitution of Section
30(2)( b ) by Section 6 of the Amending Act of 2019, it is clear that
the substituted Section 30(2)( b ) gives operational creditors
something more than was given earlier as it is the higher of the
figures mentioned in sub-clauses ( i ) and ( ii ) of sub-clause ( b ) that
is now to be paid as a minimum amount to operational creditors.
The same goes for the latter part of sub-clause ( b ) which refers to
dissentient financial creditors. Ms Madhavi Divan is correct in her
argument that Section 30(2)( b ) is in fact a beneficial provision in
favour of operational creditors and dissentient financial
creditors as they are now to be paid a certain minimum
amount , the minimum in the case of operational creditors being
the higher of the two figures calculated under sub-clauses ( i ) and
( ii ) of clause ( b ), and the minimum in the case of dissentient
financial creditor being a minimum amount that was not earlier
payable. As a matter of fact, pre-amendment, secured financial
creditors may cramdown unsecured financial creditors who are
dissentient, the majority vote of 66% voting to give them nothing or
next to nothing for their dues. In the earlier regime it may have
235
been possible to have done this but after the amendment such
financial creditors are now to be paid
the minimum amount
mentioned in sub-section (2) . Ms Madhavi Divan is also correct
in stating that the order of priority of payment of creditors
mentioned in Section 53 is not engrafted in sub-section (2)( b ) as
amended. Section 53 is only referred to in order that a certain
minimum figure be paid to different classes of operational and
financial creditors. It is only for this purpose that Section
53(1) is to be looked at as it is clear that it is the commercial
wisdom of the Committee of Creditors that is free to
determine what amounts be paid to different classes and sub-
classes of creditors in accordance with the provisions of the
Code and the Regulations made thereunder.
129. As has been held in this judgment, it is clear that
Explanation 1 has only been inserted in order that the
Adjudicating Authority and the Appellate Tribunal cannot
enter into the merits of a business decision of the requisite
majority of the Committee of Creditors. As has also been held
in this judgment, there is no residual equity jurisdiction in the
Adjudicating Authority or the Appellate Tribunal to interfere in the
merits of a business decision taken by the requisite majority of the
Committee of Creditors, provided that it is otherwise in conformity
with the provisions of the Code and the Regulations, as has been
laid down by this judgment.”
(emphasis in bold supplied)
118.2. As noticed, the decision of this Court in Essar Steel was delivered
on 15.11.2019. A few days after this decision, i.e., on 28.11.2019,
amendment was carried out in clause (1) of Regulation 38 of the CIRP
Regulations, which has direct co-relation with the aforesaid amended
clause (b) of Section 30(2) of the Code. By way of this amendment of
Regulation 38(1), the priority for the amount payable came to be
specified, not only to the operational creditors but also to the dissenting
financial creditors over their assenting counterparts. The aforesaid
amendments and the expositions of this Court in Essar Steel make it
clear that the interests of dissenting financial creditors are duly taken care
236
of, while providing for the minimum amount they are entitled to and, for
that matter, in priority over the assenting financial creditors.
118.3. Even when the legislature has filled in the gaps in IBC, particularly
qua the dissenting financial creditors; and their interests are sought to be
taken care of by making it mandatory to provide for the payment of their
dues in terms of liquidation value, another grey area has surfaced in the
present case. It is concerning the mode of translating such assured
returns to reality. Putting it differently, there is no doubt that now the
dissenting financial creditors shall get payment and that too, in priority
over the assenting financial creditors but, the question remains about the
mode of fulfilling such obligations towards dissentient financial creditors.
119. In the present case, the resolution plan has, in the first place,
stated that according to the estimate of the resolution applicant, the
liquidation value to be received by the dissenting financial creditors was
likely to be nil but then, has provided for discharge of any likely obligation
towards them in the manner that they shall be provided a proportionate
share in the equity of Expressway SPV and land parcels but not any
payment in terms of money. The dissenting financial creditor, ICICI Bank,
is thoroughly dissatisfied with such a prescription whereby its dues shall
be satisfied by a mode other than direct payment in cash. On the other
hand, the IRP, the resolution applicant and even the assenting financial
creditor would assert that such a prescription satisfies all the essential
requirements of Section 30(2)(b) and Regulation 38(1)(b). Both these
237
provisions essentially use the expressions “payment”; “the amount to be
paid”; “the amount payable”; and “shall be paid”. ICICI Bank asserts that
these expressions refer only to the payment in monetary terms, whereas
the submissions are countered with the assertions that the term
“payment” is with reference to discharge of obligation and that could be
brought about by any of the methods permissible in law and not
necessarily by way of payment in terms of money alone. This takes us to
the principles of interpretation and assigning appropriate meaning to the
expressions used.
119.1. The principles in the decisions cited by the learned counsel for the
contesting parties are not of much debate and hence, we need not
elaborate on every cited decision. The contextual interpretation remains
one of the fundamental guiding principles; and the relevant observations
in paragraph 54 of the decision in Sankalchand Himatlal Sheth (supra),
which have been referred to by the contesting parties, would suffice for
the purpose, which read as under: -
“54. Now, it is undoubtedly true that where the language of an
enactment is plain and clear upon its face and by itself susceptible
to only one meaning, then ordinarily that meaning would have to
be given by the Court. In such a case the task of interpretation can
hardly be said to arise. But language at best is an imperfect
medium of expression and a variety of significations may often lie
in a word or expression. It has, therefore, been said that the words
of a statute must be understood in the sense which the legislature
has in view and their meaning must be found not so much in a
strictly grammatical or etymological propriety of language, nor in its
popular use, as in the subject or the occasion on which they are
used and the object to be attained. It was said by Mr. Justice
Holmes in felicitous language in Town v . Eisner that “a word is not
a crystal, transparent and unchanged; it is the skin of a living
thought and may vary greatly in colour and content according to
238
the circumstances and the time in which it is used”. The words
used in a statute cannot be read in isolation: their colour and
content are derived from their context and, therefore, every
word in a statute must be examined in its context. And when I
use the word ‘context’, I mean it in its widest sense “as including
not only other enacting provisions of the same statute but its
preamble, the existing state of the law, other statutes in pari
materia and the mischief which – the statute was intended to
remedy”. The context is of the greatest importance in the
interpretation of the words used in a statute. “It is quite true”,
pointed out Judge Learned Hand in Helvering v . Gregory “that as
the articulation of a statute increases, the room for interpretation
must contract; but the meaning of a sentence may be more than
that of the separate words, as a melody is more than the notes,
and no degree of particularity can every obviate recourse to the
setting in which all appear, and which all collectively create”.
Again, it must be remembered that though the words used are the
primary, and ordinarily the most reliable, source of interpreting the
meaning of any writing, be it a statute, or contract, or anything
else, it is one of the surest indexes of a mature and developed
jurisprudence not to make a fortress out of the dictionary, but to
remember that a statute always has some purpose or object to
accomplish, whose sympathetic and imaginative discovery, is the
surest guide to its meaning. The literal construction should not
obsess the Court, because it has only prima facie preference, the
real object of interpretation being to find out the true intent of
the law maker and that can be done only by reading the
statute as an organic whole, with each part throwing light on
the other and bearing in mind the rule in Heydon’s case which
requires four things to be “discerned and considered” in
arriving at the real meaning : (1) what was the law before the
Act was passed; (2) what was the mischief or defect for which
the law had not provided; (3) what remedy Parliament has
appointed; and (4) the reason of the remedy. There is also
another rule of interpretation which is equally well settled and
which seems to follow as a necessary corollary, namely, where the
words, according to their literal meaning “produce an
inconsistency, or an absurdity or inconvenience so great as to
convince the Court that the intention could not have been to use
them in their ordinary signification”, the Court would be justified in
“putting on them some other signification, which, though less
proper, is one which the Court thinks the words will bear”. Vide
River Wear Commissioners v . Admson . It is in the light of these
principles of interpretation that I must proceed to consider what is
the true meaning and effect of clause (1) of Article 222: whether it
permits transfer of a Judge from one High Court to another,
irrespective of his consent.”
(emphasis in bold supplied)
239
119.2. There is no doubt on the principles that, depending upon context,
the same word may be used in different parts of the statute with different
meanings, as observed in Kolkata Metropolitan Development
Authority (supra); and the same word in the context of one provision of
the enactment may convey one meaning and another meaning in different
context, as pointed out in Venkateswara Hatcheries (supra). However, it
is also fundamental that construction of a statute leading to absurdity is
required to be rejected and if more than one meaning or interpretation is
possible, the one which favours the objects of the statute ought to be
adopted. When it comes to the world of business and commerce, the
observations of the majority in Rathi Khandsari Udyog (supra) are
pertinent where, in paragraph 34 of the decision, this Court observed that
in the legislations pertaining to the world of business and commerce, the
dictionary to be referred to is the dictionary of the inhabitants of that
world. It is also a settled principle of statutory interpretation that the
statute is required to be read as a whole; and for that matter, it would be
rather pre-elementary to say that for understanding the meaning and
connotation of a particular expression in a particular statutory provision,
the provision itself is required to be read as a whole. When we look at the
‘context’ for the purpose of a particular expression, which has otherwise
not been defined in the statute elsewhere, a comprehension of the
sentence or phrase in which the expression occurs coupled with the
frame of the provision taken as a whole and, on the broad sphere, the
240
entire statute with its objects and intents would lead to the true
construction of the expression under reference; of course, while also
keeping in view the other relevant principles, including the basics that
natural and ordinary meaning of a word or expression is not ignored,
unless there be any reason therefor.
120. Keeping the principles aforesaid in view, we may embark upon the
interpretation required in this case, of the expressions used in the relevant
provisions of Section 30(2)(b) of the Code and Regulation 38(1)(b) of the
CIRP Regulations.
120.1. The expression “payment” occurs in Section 30(2) of the Code,
which lays down certain basics which the resolution professional has to
find in the resolution plan before he presents the same to the Committee
of Creditors. As per clauses (a) and (b) of sub-section (2) of Section 30,
the resolution plan ought to provide for: (a) payment of insolvency
resolution process costs; and (b) payment of debts of operational
creditors as also dissenting financial creditors. Such payment has to be in
the manner specified by the Board and the resolution process costs rank
top in priority. This provision, read with Regulation 38(1), makes it clear
that the next priority is of operational creditors who are followed by the
dissenting financial creditors. The question is as to what is intended by
these provisions and as to how the action of “payment” is to be
performed?
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120.2. The referred observations in the case of Pioneer Urban that the
expression “payment” is elastic enough to include “recompense” and
“repayment” had been with reference to following passages in the case of
Ranjit Singh Rana (supra): -
“13. Webster Comprehensive Dictionary (International Edn.) Vol. 2
defines “payment”:
“Payment .- (1) the act of paying.
(2) Pay; requital; recompense.”
14. The Law Lexicon by P. Ramanatha Aiyar, 2nd Edn. Reprint,
inter alia, states:
“payment is defined to be the act of paying, or that which is
paid; discharge of a debt, obligation or duty; satisfaction of claim;
recompense; the fulfilment of a promise or the performance of an
agreement; the discharge in money of a sum due”.
15. The word “payment” may have different meaning in different
context but in the context of Section 37(1)( b ); it means
extinguishment of the liability arising under the award. It signifies
satisfaction of the award. The deposit of the award amount into the
court is nothing but a payment to the credit of the decree-holder. In
this view, once the award amount was deposited by the appellants
before the High Court on 24-5-2001, the liability of post-award
interest from 24-5-2001 ceased. The High Court, thus, was not
right in directing the appellants to pay the interest @ 18% p.a.
beyond 24-5-2001.”
120.3. We need not enter into the other observations regarding the words
“pay” and “payment”, made in the context of different statutes and
different provisions but, we may profitably look at the meaning assigned to
these expressions in the relevant dictionaries and lexicons. In Black’s Law
Dictionary (Tenth Edition, page 1309), the verb “pay”, which leads to the
derivative “paid” is defined as follows: -
“ Pay , vb. (13c) 1. To give money for a good or service that one
buys; to make satisfaction <pay by credit card>. 2. To transfer
money that one owes to a person, company, etc. <pay the utility
bill>. 3. To give (someone) money for the job that he or she does;
to compensate a person for his or her occupation; COMPENSATE
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(1) <she gets paid twice a month>. 4. To give (money) to someone
because one has been ordered by a court to do so <pay the
damages>. 5. To be profitable; to bring in a return <the venture
paid 9%>.”
On the same page in Black’s Law Dictionary (Tenth Edition, page
1309), the expression “payment” is defined in the following terms: -
“ Payment. (14c) 1. Performance of an obligation by the delivery of
money or some other valuable thing accepted in partial or full
discharge of the obligation. 2. The money or other valuable thing
so delivered in satisfaction of an obligation.”
120.4. In the Law Lexicon by P. Ramanatha Aiyar (Fifth Edition, Volume 3
at page 3796), several connotations of the expression “payment” have
been mentioned. We may reproduce the relevant part thereof as under: -
“Payment is defined to be the act of paying, or that which is paid;
discharge of a debt, obligation, or duty; satisfaction of claim;
recompense; the fulfilment of a promise or the performance of an
agreement; the discharge in money of a sum due.
In legal contemplation, payment is the discharge of an obligation
by the delivery of money or its equivalent, and is generally made
with the assent of both parties to the contract.”
120.5. Significantly, the “payment”, as envisaged by clause (b) of Section
30(2) as also Regulation 38(1), is of the “amount”. The word “amount” in
its noun form is defined in Webster’s Third New International Dictionary
(at page 72) in the parlance of accounting as under: -
| “ | 3 | accounting: | a principal sum and the interest on it” |
|---|
121. Taking up the provisions under debate, it is but clear that as per
sub-section (2) of Section 30, the resolution plan ought to provide for
certain payments; and first of that is the insolvency resolution process
costs. An action of “payment” being that of discharge of an obligation by
delivery of money or other valuable thing accepted in discharge of
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obligation, one could at once notice that proposing to pay the insolvency
resolution process costs in any form other than money would be an
exercise in absurdity. Such a payment has to be in terms of money alone.
Then comes clause (b) whereby and whereunder, the resolution plan is to
provide for payment of debts of operational creditors and the minimum
quantum is specified in terms of ‘amount to be paid’ or ‘amount that would
have been paid’ with reference to the event of liquidation and/or
distribution in terms of Section 53 of the Code. Here again, if any
proposition is suggested for payment of debts of operational creditors by
way of something other than money, and that too in the form of equities in
the other corporate entities to be carved out of the corporate debtor, that
would not be shunning off the debts of operational creditors but would
only be keeping them glued to the corporate debtor or its successor
entities. Such a method of payment could least be a step towards
insolvency resolution. The same features, with necessary variations,
would apply to the second part of clause (b) of sub-section (2) of Section
30 in regard to the dissenting financial creditors. The operational creditors
as also the dissenting financial creditors are to be paid in terms of the
amount to be determined with reference to Section 53 of the Code and
are to be paid in priority, as described in Regulation 38(1) of the CIRP
Regulations.
121.1. Therefore, when, for the purpose of discharge of obligation
mentioned in the second part of clause (b) of Section 30(2) of the Code,
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the dissenting financial creditors are to be “paid” an “amount” quantified in
terms of the “proceeds” of assets receivable under Section 53 of the
Code; and the “amount payable” is to be “paid” in priority over their
assenting counterparts, the statute is referring only to the sum of money
and not anything else. In the frame and purport of the provision and also
the scheme of the Code, the expression “payment” is clearly descriptive
of the action of discharge of obligation and at the same time, is also
prescriptive of the mode of undertaking such an action. And, that action
could only be of handing over the quantum of money, or allowing the
recovery of such money by enforcement of security interest, as per the
entitlement of the dissenting financial creditor.
121.2. We would hasten to observe that in case a dissenting financial
creditor is a secured creditor and a valid security interest is created in his
favour and is existing, the entitlement of such a dissenting financial
creditor to receive the “amount payable” could also be satisfied by
allowing him to enforce the security interest, to the extent of the value
receivable by him and in the order of priority available to him. Obviously,
by enforcing such a security interest, a dissenting financial creditor would
receive “payment” to the extent of his entitlement and that would satisfy
83
the requirement of Section 30(2)(b) of the Code . In any case, that is,
whether by direct payment in cash or by allowing recovery of amount via
the mode of enforcement of security interest, the dissenting financial
83 Though it is obvious, but is clarified to avoid any ambiguity, that the “security interest”
referred herein for the purpose of money recovery by dissenting financial creditor would only be
such security interest which is relatable to the “financial debt” and not to any other debt or claim.
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creditor is entitled to receive the “amount payable” in monetary terms and
not in any other term.
122. The indications as emerging from the text of other provisions as
also from the scheme of the Code, are to the effect that the resolution
applicant, with approval of resolution plan, is to proceed on a clean slate
rather than carrying the cargo of such debts which need to be satisfied (to
the extent required) and then jettisoned. The expressions “payment” and
“amount to be paid”, when read in the context and on the canvass of the
objects and purposes of the Code, in our view, these expressions only
convey their ordinary meaning, as understood in ordinary business
parlance, that is, delivery of money alone; and there is no reason to
construe these expressions to be conveying the meaning of ‘delivery of
money or its equivalent’.
123. A good length of arguments on behalf of IRP are devoted to the
stand that, what CoC considers in sub-section (4) of Section 30 is the
manner of distribution proposed; and such manner of distribution ought to
be fair and equitable, as explained in Explanation 1 to clause (b) of
Section 30(2). It is contended that if legislature intended the word
“payment” to have a prescriptive meaning, that is, payment by way of
payment of money only, there would have been no need to add
Explanation 1 to clause (b) which provides that distribution under clause
(b) to operational and dissenting financial creditors shall be fair and
equitable because in such a case, the distribution would only mean a
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crystallised sum of money with no room to test if distribution was fair and
equitable. The argument is, again, of stretching the plain words beyond
their real intent and meaning. The said Explanation is for removal of
doubts and for clarification that distribution in terms of clause (b) shall be
fair and equitable to the creditors covered thereunder that is, operational
and dissenting financial creditors. This Explanation appears to have been
necessitated for the reason that quantification of the minimum amount
payable under clause (b) of Section 30(2) is in the realm of certain
guesswork or estimate with reference to the distribution envisaged by
Section 53 of the Code. This Explanation cannot and does not provide
meaning to the expressions “payment” and “amount to be paid”. These
and other arguments of similar nature, could only be rejected.
123.1. A submission made on behalf of IRP suggesting estoppel against
the dissenting financial creditor for having not raised the issue in the
meeting of the Committee of Creditors also remains baseless. This is for
the simple reason that no estoppel could operate against the statutory
right of the dissenting financial creditor to receive payment in terms of
Section 30(2)(b) of the Code.
123.2. The submission that commercial banks are permitted by the
Banking Regulations Act, 1949 to swap the debt for land and equity has
its own shortcomings, rather shortfalls. The expressions “payment” and
“amount to be paid” and “amount payable” as occurring in Section 30(2)
and Regulation 38(1) cannot be interpreted only for the purpose of banks
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as financial creditors; the provisions refer to “financial creditors” as such
and it would be too far stretched to say that these expressions may have
different meanings for different financial creditors in the manner that a
financial creditor who could accept payment by any mode other than
money could be “paid” by that mode and the other financial creditors who
cannot accept anything except money shall be receiving payment in cash.
This kind of interpretation would not only be reading words but even
phrases and provisos in the statutory provisions, which is entirely
impermissible.
123.3. Similarly, the suggestion that the Government and the
Governmental bodies, which are not permitted by law to swap debt with
equity or land will have to be paid by way of money and to that extent, the
meaning of “payment” in the first part of clause (b) of Section 30(2) will
have contextually different meaning, is, again, seeking to provide multiple
sub-sects of the mode of payment, whereas no such differentiation or
classification is indicated in the provisions under reference or in any other
provision contained in the Code.
123.4. The suggestion about prejudice being caused to the assenting
financial creditors by making payment to the dissenting one has several
shortcomings. As noticeable, in the scheme of IBC, a resolution plan is
taken as approved, only when voted in favour by a majority of not less
than 66% of the voting share of CoC. Obviously, the dissenting sect
stands at 34% or less of the voting share of CoC. Even when the financial
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rd
creditors having a say of not less than 2/3 in the Committee of Creditors
choose to sail with the resolution plan, the law provides a right to the
remainder (who would be having not more than 34% of voting share) not
to take this voyage but to disembark, while seeking payment of their
outstanding dues. Even this disembarkment does not guarantee them the
time value for money of the entire investment in the corporate debtor;
what they get is only the liquidation value in terms of Section 53 of the
Code. Of course, in the scheme of CIRP under the Code, the dissenting
financial creditors get, whatever is available to them, in priority over their
assenting counterparts. In the given scheme of the statutory provisions,
there is no scope for comparing the treatment to be assigned to these two
divergent sects of financial creditors. The submissions made on behalf of
assenting financial creditors cannot be accepted.
123.5. The other submissions and counters with reference to the
phraseology of Section 8 of the Code do not require much dilation
because, the said provision essentially relates to the dues of an
operational debtor and the steps envisaged before commencement of
insolvency resolution process. Nevertheless, “payment” for the purpose of
the said provision is also of money transfer; and not by any other mode.
124. To sum up, in our view, for a proper and meaningful
implementation of the approved resolution plan, the payment as
envisaged by the second part of clause (b) of sub-section (2) of Section
30 could only be payment in terms of money and the financial creditor
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who chooses to quit the corporate debtor by not putting his voting share
in favour of the approval of the proposed plan of resolution (i.e., by
dissenting), cannot be forced to yet remain attached to the corporate
debtor by way of provisions in the nature of equities or securities. In the
true operation of the provision contained in the second part of sub-clause
(ii) of clause (b) of sub-section (2) of Section 30 (read with Section 53), in
our view, the expression “payment” only refers to the payment of money
and not anything of its equivalent in the nature of barter; and a provision
in that regard is required to be made in the resolution plan whether in
terms of direct money or in terms of money recovery with enforcement of
security interest, of course, in accordance with the other provisions
concerning the order of priority as also fair and equitable distribution. We
are not commenting on the scenario if the dissenting financial creditor
himself chooses to accept any other method of discharge of its payment
obligation but as per the requirements of law, the resolution plan ought to
carry the provision as aforesaid.
125. For what has been observed and held hereinabove, we have no
hesitation in rejecting the contentions urged in challenge to that part of
the decision of NCLT where the proposition in the resolution plan,
concerning the method of meeting with the liability towards dissenting
financial creditors, has been disapproved. That part of the decision of
NCLT is unexceptionable and is approved.
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126. However, as noticed, after disapproving the terms of the resolution
plan concerning dissenting financial creditors, the Adjudicating Authority
proceeded on the assumption that the offending terms could be modified
without changing the basic structure of the plan; and then proceeded to
make such modifications by providing that payment shall be made to the
dissenting financial creditor bank in instalments. The question is as to
whether the Adjudicating Authority could have done so? The answer is
simply in the negative.
127. As noticed and held in Point A (supra), the Adjudicating Authority
has no jurisdiction to enter into the commercial aspects of the resolution
plan and to interfere with the wisdom of the Committee of Creditors. The
terms as provided in the resolution plan for discharging the obligations
towards the dissenting financial creditors were clearly and directly
pertaining to the financial model proposed by the resolution applicant and
accepted by the requisite majority of the Committee of Creditors. The
submissions made on behalf of the IRP in this regard are correct that if
the Adjudicating Authority was of the view that the plan did not meet with
any particular requirement, it could have only sent it back to the CoC to
consider the proposed modifications, so as to afford an opportunity to the
resolution applicant to modify the plan and to the CoC to reconsider and
vote upon the same.
128. In other words, the Adjudicating Authority, of its own, could not
have made any modification in the resolution plan, particularly on any
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commercial aspect thereof. The suggestions that in carrying out the
requisite modifications by the Adjudicating Authority, the basic structure of
the resolution plan is not altered do not merit acceptance, particularly
because the terms taken up for modification by the Adjudicating Authority
belong to the thick of commercial aspects of the resolution plan; and any
alteration thereof goes to the very root of the financial model propounded
by the plan.
129. The upshot of the discussion foregoing is that though the
Adjudicating Authority has not erred in disapproving the treatment of
dissenting financial creditor like ICICI Bank in the resolution plan but, has
erred in modifying the terms of the resolution plan and in not sending the
matter back to the Committee of Creditors for reconsideration while
extending an opportunity to the resolution applicant to make the
necessary modifications.
130. For what has been discussed and held hereinabove, we see no
reason to enter into the other area of suggestions and disputes
concerning the particular parcels of land being offered by the resolution
applicant to the objector bank. These aspects are rendered redundant
once we have held that the payment envisaged by Section 30(2)(b) read
with Section 53 of the Code has to be in monetary terms and not in any
other mode.
Point E
Matters related with fixed deposit holders
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131. As regards payment to the fixed deposit holders, it is noticed that
the resolution plan has provided for 100% upfront payment to the fixed
deposit holders whose claims were forming part of the admitted financial
debt in the following terms (Schedule 2 to the plan relating to the steps for
implementation): -
“ VIII. S TEP 7: P AYMENT TO FD H OLDERS
Following the Approval Date, the Admitted Financial Debt of the
FD Holders shall be settled by making 100% upfront payment of
their principal dues within 90 days from the Approval Date but after
payment of the CIRP Cost and the Admitted Operational Debt.
It is clarified that other than the Claims of FD Holders forming part
of the Admitted Financial Debt, no other payment shall be made to
any other FD Holder.”
132. It is also noticed from the minutes of CoC meeting dated
07.12.2019 that the authorised representative of the fixed deposit holders
made the submissions for honouring the claims received until the date of
approval of the resolution plan, which was recorded as under: -
“ Payment to FD Holders : Authorised Representative (“AR”) of
Fixed Deposit (“FD”) holders submitted to CoC that FD claims
have increased to INR 29 Crores as per the latest CoC
reconstitution dated 30.11.2019 and both the Resolution
Applicants have fixed the amount to FD holders at INR 28 Crores
which shall be paid on pro rata basis, therefore the principal
amount to FD holders shall be reduced proportionately. AR of FD
holders requested CoC that all the claims received from FD
holders till the Resolution Plan approval date should be honored
by the Resolution Applicants to avoid any sort of litigation by FD
holders.”
133. However, the NCLT, in paragraph 125 of its order has proceeded
to modify the said term of the resolution plan as approved by CoC and
has provided that the resolution applicant shall make provision to clear
even the dues of unclaimed fixed deposit holders when they would make
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a claim and such a right will remain in force as long as they were entitled
to make a claim under the Companies Act, 2013.
134. The aforesaid modification of the terms of resolution plan has
been challenged by NBCC with the submissions that such directions of
the Adjudicating Authority are wholly unjustified and are beyond the
mandate of this Court in Essar Steel (supra). In our view, the
submissions of NBCC deserve to be accepted.
135. In the scheme of the process for corporate insolvency resolution, it
is preliminarily provided in Section 13 of the Code that, after admission of
an application for corporate insolvency resolution process, the
Adjudicating Authority, apart from declaring moratorium and appointing an
interim resolution professional, is also required to cause a public
announcement of the initiation of CIRP and ‘ call for submission of claims
under Section 15 ’. As per Section 15, the material information in the
public announcement is to contain, inter alia, ‘the last date for submission
of claims, as may be specified’ . The IRP is enjoined with several duties
under Section 18 and as per clause (b) thereof, he is to ‘ receive and
collate all the claims submitted by the creditors to him, pursuant to the
public announcement made under sections 13 and 15’. CIRP Regulations
make the position clearer still, where, by virtue of Regulation 12, a
creditor is required to submit his claim with proof ‘ on or before the last
date mentioned in the public announcement’ ; and a creditor who fails to
submit the claim within the stipulated time, may yet submit the claim with
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proof ‘on or before the ninetieth day of the insolvency commencement
date’ . As per Regulation 13, the resolution professional concerned is to
verify the claims within seven days of the last date of receipt of claims.
135.1. Due adherence to the timelines provided in the Code and the
related Regulations and punctual compliance of the requirements is
fundamental to the entire process of resolution; and if a claim is not made
within the stipulated time, the same cannot become a part of the
Information Memorandum to be prepared by IRP and obviously, it would
not enter into consideration of the resolution applicant as also of the
Committee of Creditors. In the very scheme of the corporate insolvency
resolution process, a resolution applicant cannot be expected to make a
provision in relation to any creditor or depositor who has failed to make a
claim within the time stipulated and the extended time as permitted by
Regulation 12. In Essar Steel (supra), while dealing with the topic
‘Extinguishment of Personal Guarantees and Undecided Claims’ , this
Court disapproved that part of the NCLT judgment which held that other
claims, that might exist apart from those decided on merits by the
resolution professional and by the Adjudicating Authority/Appellate
Tribunal, could be decided in an appropriate forum in terms of Section
60(6) of the Code. This Court specifically held that a resolution applicant
cannot be made to suddenly encounter undecided claims after resolution
plan submitted by him has been accepted; and in the scheme of the
Code, all claims must be submitted to, and decided by, the resolution
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professional so that the resolution applicant could proceed on a fresh
plate. This Court, inter alia , held as under: -
“107. For the same reason, the impugned N CLAT judgment in
holding that claims that may exist apart from those decided on
merits by the resolution professional and by the Adjudicating
Authority/Appellate Tribunal can now be decided by an appropriate
forum in terms of Section 60(6) of the Code, also militates against
the rationale of Section 31 of the Code. A successful resolution
applicant cannot suddenly be faced with “undecided” claims after
the resolution plan submitted by him has been accepted as this
would amount to a hydra head popping up which would throw into
uncertainty amounts payable by a prospective resolution applicant
who would successfully take over the business of the corporate
debtor. All claims must be submitted to and decided by the
resolution professional so that a prospective resolution applicant
knows exactly what has to be paid in order that it may then take
over and run the business of the corporate debtor. This the
successful resolution applicant does on a fresh slate, as has been
pointed out by us hereinabove. For these reasons, N CLAT
judgment must also be set aside on this count.”
135.2. It has not been the case of anyone that in the process in question,
any of the requirements of Sections 13, 15 and 18 had not been complied
with. It has also not been anybody’s case that any claim made by any
fixed deposit holder within the stipulated time was not taken into account
by IRP.
136. In the given fact situation and in view of the law declared by this
Court, we find no justification for the directions contained in paragraph
125 of the order passed by NCLT. Those directions are required to be
annulled.
Point F
Objections of the financial creditor of subsidiary of the corporate debtor
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137. Indisputably, the corporate debtor JIL owns 100% equity
shareholding in JHL which is having three operational hospitals in the
State of Uttar Pradesh. Substantial part of the shareholding of JHL is
pledged with its lenders. In the resolution plan, NBCC has proposed in
regard to JHL as follows: -
“Since, majority of shareholding of Jaypee Healthcare Limited is
already pledged to the lenders to the hospitals to secure the
indebtedness of Jaypee Healthcare Limited, it is proposed to
divest the entire shareholding of Jaypee Healthcare Limited by
inviting bids for the same and utilize the divestment funds for
settlement of outstanding debt obligations of Jaypee Healthcare
Limited, without any additional payment by the Corporate Debtor.
In this regard, the pledge over shareholding of JIL (shares of
Jaypee Healthcare Limited held by JIL) created in favour of the
lenders of Jaypee Healthcare Limited shall stand released in terms
of this Resolution Plan immediately upon the approval of this
Resolution Plan by the Adjudicating Authority. Such release would
inter alia be in consideration of the proposed repayment of the
outstanding debt of the lenders of Jaypee Healthcare Limited.
Such repayment would not include levy of any penalties or
charges including prepayment penalty, penal charges, etc. In
furtherance of the aforesaid objective the lenders of Jaypee
Healthcare Limited shall not be entitled to deal with the assets of
Jaypee Healthcare Limited or adversely interfere with the
continued business operations of Jaypee Healthcare Limited in
any manner whatsoever including enforcement of any security
created in their favour by the Corporate Debtor or by Jaypee
Healthcare Limited (pledge, mortgage, etc.), entering into
operation and maintenance agreements or any other agreements
with any person which has an effect of selling, leasing or otherwise
disposing off the whole or substantially the whole of the
undertaking of Jaypee Healthcare Limited, take any action which
would otherwise require the consent of the shareholders of Jaypee
Healthcare Limited or take any other steps which may be contrary
to the treatment proposed for Jaypee Healthcare Limited under
this Resolution Plan.
Further, the Resolution Applicant also reserves its right to cause
the Corporate Debtor to transfer its entire shareholding in Jaypee
Healthcare Limited into a trust. Such trust would be settled by the
Corporate Debtor, the beneficiary of the trust would be the
Resolution Applicant and the trustee would be a professional entity
(to be appointed by the Resolution Applicant). The trust property
would comprise inter alia of the entire shareholding of the
Corporate Debtor in Jaypee Healthcare Limited.”
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138. The objector YES Bank Limited, as being the financial creditor of
JHL, had raised objections as regards such stipulations and proposals
while asserting that the assets of its debtor JHL could not have been dealt
with in this resolution plan. The Adjudicating Authority, though took up
such objections for consideration but observed that the resolution
applicant NBCC and YES Bank having agreed for constitution of a
committee to deal with the shares and assets of the subsidiary company,
this issue was not required to be discussed.
139. The objector YES Bank has taken exception to the aforesaid part
of the order impugned with the submissions that no such settlement was
drawn out with NBCC and the Adjudicating Authority has failed to
consider the objections on rather incorrect assumptions. It is submitted
that the resolution plan interferes with the statutorily protected rights of
the lenders of JHL, who are effectively the third parties and not the
members of CoC of JIL. It is also submitted that the transfer of the entire
undertaking and business of JHL, a wholly-owned subsidiary of JIL, under
the garb of sale of equity is not permissible as per the Section 18(f) read
with its Explanation (b) and Regulation 37(a) of the CIRP Regulations
whereby, the resolution plan is only limited to the assets of the corporate
debtor. With reference to various decisions, including that in the case of
Vodafone International Holdings BV v. Union of India and Anr. :
(2012) 6 SCC 613 , it is submitted that holding company does not own the
undertaking or business of subsidiary company even if it holds all the
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shares therein. It is also contended that the CIRP of JHL must be
independently conducted as the sale of business or undertaking in the
manner suggested by NBCC severely prejudices the rights of the
creditors of JHL to recover their legitimate dues. It is yet further submitted
that the shares of JIL, the corporate debtor, are subject to the pledge
created by them to secure the debts of JHL and the resolution plan
cannot unilaterally extinguish the security interest provided to the lenders
of JHL, who are not the creditors of JIL and therefore, not the part of the
CoC of JIL. This objector bank submits that the resolution plan does not
account for the total debts incurred by JHL and the securities or
encumbrances, to the extent of 63.65% of the shares, as created by JHL
over its assets. It has, therefore, been prayed that this objector bank be
allowed to continue with its appeal before the Allahabad Bench of NCLT
against JHL and the portion of resolution plan dealing with JHL and its
assets be deleted.
139.1. It is noticed that without prejudice to the aforesaid and other
submissions, the objector YES Bank has given out its proposition for
evolving a workable mechanism with certain stipulations in sub-
paragraphs “ff” and “gg” of paragraph 7 of the memo of appeal, which
read as under: -
“ff. Without prejudice to any of the above and the following legal
grounds raised in the present proceedings, the Appellant in the
best interest of all the interested parties including the interests of
the Resolution Applicant and in spirit of reconciliatory approach is
still willing to work with the Resolution Applicant in finding a
working solution so that JHL assets can be monetized in a timely
manner. Provided, the Respondent No. 2 / Resolution Applicant is
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willing to accept the proposals and the safeguards as requested
by the Appellant. For brevity’s sake, the Appellant’s proposal for a
workable mechanism is set out in the Written Submissions filed
before the Ld. Adjudicating Authority, which is reiterated below:
(i) The lenders of JHL led by YBL will take all necessary
preparatory measures required for finding a viable buyer to take
over the JHL units in a completely transparent manner.
(ii) To the above cause, JHL lenders shall be permitted to
prepare an information memorandum, seek bids from prospective
buyers, appoint independent, impartial and reputed investment
bankers to run the process of JHL monetisation.
(iii) This is proposed to be done through fullest co-operation
from RP of JIL as well as Board and Management of JHL as
information and engagement will be critical to run an efficient and
effective sale process.
(iv) JHL lenders shall liaise with the IRP, Mr. Jain and share the
status of the steps periodically with IRP and NBCC.
(v) A Sale Committee to bet set up with participation of lenders
of JHL and NBCC, for sale of JHL;
(vi) The decision to accept the bid of a particular buyer shall be
taken by a unanimous vote of NBCC and YBL (on behalf of the
lenders of JHL);
(vii) The sale process shall be finalised within a period on 3
months from the date of approval of the resolution plan by Hon’ble
NCLT and latest by June 30, 2020 and until such time rights of
lenders of JHL vis-à-vis assets of JHL as well as pledge of JHL
Shares (held by JIL as investment) in favour of JHL lenders shall
be kept intact;
(viii) In the event of successful disinvestment of JHL, the
disinvestment funds shall be utilized for settlement of debt of JHL
lenders in priority, in accordance with existing Resolution Plan;
(xi) During the period above, until June 30, 2020, there shall be
a moratorium on the rights of the JHL lenders to enforce its
securities held in JHL including the share pledge by JIL;
(x) Should the sale still not be finalised before June 30,2020, for
any reason whatsoever (including any delay due to legal
proceedings), then the moratorium over enforcement of pledged
shares as well as other assets of JHL, shall stand lifted; and
(xi) Thereafter, JHL lenders will have all rights to enforce its
securities against JHL to recover its outstanding dues including
but not limited to enforcement of pledge, and, or continuation of
CIRP against JHL.
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gg. If the Respondent No. 2 is agreeable to accept the above
mechanism then the Appellant shall not press its remedies for
challenging the Resolution Plan. Failing which the entire
Resolution Plan insofar as it relates to JHL Assets is required to be
severed and set aside.”
140. In response, it is submitted that as a resolution applicant, NBCC is
entitled to get the management of the corporate debtor on a clean slate
(as observed by this Court in the case of Essar Steel ); and when NBCC
under its plan is extinguishing all the contingent liabilities, disinvestment
of JHL shares cannot be taken exception of. It has also been submitted
that in the resolution plan, it was made clear that NBCC does not possess
the expertise to run the operation of a healthcare business and, therefore,
seeks to divest the entire shareholding of JHL to a third party and/or a
trust who would have the requisite expertise to deal with the requirements
of healthcare business. It is also submitted, with reference to Section
18(f)(v) of the Code, that the assets of the corporate debtor include
securities and shares held in any subsidiary; and shares of a subsidiary
company are held as the assets of the parent company in its books, as
held by this Court in the case of Vodafone (supra).
140.1. Apart from the above, NBCC has referred to the proceedings
before the Adjudicating Authority before passing of the order dated
03.03.2020 and it is pointed out that the Adjudicating Authority, in its order
dated 04.02.2020 observed that a settlement may be reached between
NBCC and YES Bank and pursuant thereto, YES Bank and NBCC held a
meeting on 06.02.2020 to discuss the mechanism for sale of shares of
JHL and thereafter, on 07.02.2020, a proposal for sale of shares of JHL
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was given by YES Bank to which NBCC, in its email dated 14.02.2020
stated that “NBCC is agreeable for constitution of a committee which will
take forward the disinvestment process of JHL after approval of the
resolution plan as submitted by NBCC.” Thus, according to NBCC, there
has been an agreement between the parties on the manner of sale to be
carried out of JHL shares. This apart, NBCC has also referred to the
aforesaid proposal stated in the memo of appeal and while reproducing
the first part of the above-quoted paragraph “gg”, has stated its
acceptance of the proposal so made by YES Bank subject to the approval
of resolution plan.
141. We have carefully examined the submissions made by the parties.
In the totality of circumstances of the case and the stance of respective
parties, when it is noticed that the aforesaid proposal of YES Bank, as
stated in sub-paragraphs “ff” and “gg” of paragraph 7 of the memo of
appeal, is acceptable to NBCC, subject to approval of the resolution plan,
we do not find any reason to say anything further on this score and would
leave the parties to work out a viable solution in the best interest of all the
stakeholders; and for that purpose, the parties concerned, if necessary,
may seek appropriate orders from NCLT, as regards mode and modalities
of the process to be carried out.
142. In view of the above, we do not consider it necessary to render
any other finding in this point for determination except the observation
that the resolution plan essentially deals with the assets of the corporate
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debtor JIL and not that of its subsidiary JHL. Differently put, what the
resolution plan deals with are the shares in JHL, which are regarded as
assets of the corporate debtor JIL. As observed, no further comments are
required and we leave this aspect of the matter at that only.
Point G
Grievance of agreement holders
143. As regards certain transfers without proper agreement/sub-lease
deed and without consideration, the resolution applicant had reserved a
right in itself to cancel such instruments or term sheets without any
corresponding obligation to the counter party in the following terms
(Clause 21 Schedule 3 of the resolution plan): -
“21. With respect to any alleged transfer of land parcels by the
Corporate Debtor to third parties without any proper
agreement/sub-lease deeds and where the consideration amount
has not been paid to the Corporate Debtor inter alia including the
land parcels listed in Annexure G , the Resolution Applicant
reserve a right to cancel such instruments/agreements/term sheets
and upon cancellation the title in such land parcels will continue to
be legally vested in the Corporate Debtor without any
liability/obligation to the counter-party.”
144. The NCLT has observed that when an agreement is invalid and
consideration has not been paid, no separate stipulation is required to be
made that such agreement could be cancelled. However, at the same
time, NCLT has also observed that even though such a clause has been
mentioned in the resolution plan, that did not mean that the agreement
holders have lost their right to seek remedy before the competent forum.
145. The agreement holders, while questioning this part of the
resolution plan in their appeal, have given the details of five term
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sheets/agreements with the corporate debtor between 01.05.2017 to
08.08.2017 i.e., before the date of initiation of CIRP (09.08.2017). It is
submitted that those term sheets were rectified by CoC in its meetings
dated 10.11.2017 and 28.11.2017 and upon assurances of IRP for
external development and providing of other services, the appellants had
made further part payment, in addition to the amounts already paid. It is
further submitted that the resolution plan is contrary to Section 30(2)(e) of
IBC as the term sheets/agreements were found valid during the CIRP by
the CoC and they cannot become improper agreements overnight on the
mere saying of the resolution applicant. The grievance of the appellants is
that even after holding that the appellants have not lost their right to seek
remedy before a competent forum, the questioned Clause 21 (in ‘reliefs
and concessions’) of the resolution plan was not modified by NCLT.
According to the appellants, the approved resolution plan carrying such a
clause purports to take away their rights without due process of law in
contravention of Article 300-A of the Constitution of India and hence, is
violative of Section 30(2)(e) of IBC. The appellants also submit that the
Development Plan of the concerned area has not yet been renewed by
the Noida Authority and the status of the development is also uncertain.
145.1. With these submissions, the appellants have stated their prayer in
the manner that they are willing to pay the balance amount within 1 year
in respect of the property at C-1/E, Sector 133 Noida, which is in their
possession and to cancel the other 4 term sheets/agreements relating to
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the land at Sector 151 Noida with adjustment of the payments made
therein towards the property at Sector 133 Noida; and to execute the sale
deed and get the master plan sanctions for the next 5 years. Alternatively,
the appellants pray for the refund of the amount deposited by them, to the
tune of INR 24.03 crores approximately, with appropriate interest.
146. Per contra , NBCC maintains that the resolution plan as approved
by CoC and the Adjudicating Authority is binding on all the stakeholders
including the appellants and in any case, the relief in question, as
provided in the resolution plan, is limited to such instances where no
proper agreements/sub-lease deeds have been executed by the
corporate debtor with counter parties and therefore, Article 300-A of the
Constitution is not violated and the relief provided in the resolution plan is
not arbitrary or unfair. It is also submitted by NBCC that while dealing with
the segment of ‘reliefs and concessions’, the Adjudicating Authority has
not passed any favourable order in regard to the said relief; and even
while granting the right to NBCC to cancel the agreement, has kept intact
the right of an affected party to seek remedy in a competent forum.
147. In our view, looking to the nature of dealings and the propositions
advanced by agreement holders, the observations made by the
Adjudicating Authority, in addendum to Clause 21 of ‘reliefs and
concessions’ in the resolution plan but, without encroaching upon the
commercial wisdom of CoC, only work towards viability of the plan while
extending a fair treatment to the agreement holders, by keeping their right
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to seek remedy in a competent forum intact. The resolution applicant,
NBCC, also does not appear to be having any qualms about it.
148. Thus, in the overall scheme of the resolution plan, the stipulation
in question cannot be said to be unfair; and the observations of the
Adjudicating Authority in paragraphs 132 and 133 of the impugned order
dated 03.03.2020 remain just and proper. No further orders are required
in this regard. This point stands determined accordingly.
Point H
Grievance of minority shareholders
149. The other set of objectors is of the non-promoter shareholders of
the corporate debtor, who are also referred to as the minority
shareholders. Their grievance is that the resolution plan does not deal
with their interests and they have not been provided with a fair exit option.
It is submitted that such non-promoter shareholders have invested their
hard-earned money in the equity of the corporate debtor much before
initiation of CIRP; that they had made the investment on the basis of the
financial statements filed by the corporate debtor, suggesting the
valuation of various assets including the Expressway and other land
parcels; and the corporate debtor has adequate and appreciating assets
to take care of all the liabilities and interests of the stakeholders.
150. These shareholders have referred to a valuation report, said to
have been prepared by India Infrastructure Finance Co. Ltd., on
31.03.2017 suggesting that even after accounting for liabilities, net worth
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of the corporate debtor was about INR 7,377 crores. It is submitted that
the IRP itself had valued the corporate debtor at INR 8,257 crores but
NBCC is attempting to acquire the company for a meagre sum of INR 120
crores and extinguishing the entire public shareholding of the corporate
debtor by paying a sum of INR 1 crore in total, as against the fair value
per share at INR 56.68; and the offer of NBCC is unconscionable, is
against the principles of proportionality, results in misappropriation of
funds of these shareholders, and is being used as a device to enrich the
resolution applicant at the cost of stakeholders.
150.1. It is also submitted that the plan is in contravention of Section 230
of the Companies Act, 2013, which provides for the power to compromise
or make arrangements with any creditor or member of a company; that
the minority shareholders, even if not a part of the CoC, have a right to
know and participate in any compromise or arrangement which affects
their rights; that they have a right to dissent with any terms of the
compromise or arrangement which affects their rights and for that matter,
they would be deemed to be dissenting shareholders, who need to be
provided a reasonable exit option or opportunity. It is further submitted,
while referring to the decision in Essar Steel (supra), that the ultimate
decision of what amount to pay may rest with the CoC, but the decision
should be made by taking into account the maximum value of the assets
of the corporate debtor and after adequately balancing the interests of all
stakeholders including operational creditors.
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150.2. These minority shareholders further contend that when the intent
of the IBC is to keep the corporate debtor as a going concern, the action
of delisting the public shareholding of the corporate debtor totally defeats
the objective. It is also submitted that the resolution plan has not been
formulated in accordance with the procedure envisaged by the Securities
and Exchange Board of India (Delisting of Equity Shares) Regulations,
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2009 which require that an exit opportunity ought to be provided for de-
listing of shares from the stock exchange.
150.3. It is submitted that though the said shareholders were not part of
CoC and did not get the opportunity to attend the meetings of CoC, they
made all efforts to voice their concerns and even got issued the notice
dated 19.02.2020 to IRP and the resolution applicant but the notice failed
to evoke any response. According to these objectors, the resolution plan,
as approved by the NCLT, is not in accord with Regulation 38(1A) of the
CIRP Regulations and is contrary to the intent of IBC inasmuch as it has
failed to maximise the value of assets of corporate debtor and to protect
the interests of all the stakeholders. It is also contended that the interests
of all the stakeholders ought to have been protected but the Adjudicating
Authority has not even considered the matter relating to the interests of
the minority shareholders.
150.4. With the aforesaid submissions, it has been prayed that
appropriate orders are required to safeguard the interests of minority
shareholders and the respondents deserve to be directed to device a
reasonable exit scheme for them whereby, they are given a price at least
84 Hereinafter also referred to as ‘Delisting Regulations’.
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as per the book value of shares at the time of initiation of CIRP or an
order be issued to swap the shares of existing minority shareholders with
the shares of NBCC.
151. The contentions so urged are opposed by NBCC with the
submission that these shareholders have, for the first time, approached in
appeal though they were aware of the proceeding before the Adjudicating
Authority, as is evidenced by the letter sent by their advocate on
19.02.2020; and the issue has been raised at this stage only to create
unnecessary hindrances and to cause prejudice to the entire process.
151.1. As regards fairness of the treatment given to the minority
shareholders, it is submitted that the resolution plan provides an exit
option to the existing public shareholders at a price which is higher than
the liquidation value; and they are being paid an exit price of INR 1 crore,
which is in contrast to the treatment being accorded to promoter
shareholders, whose shareholding is being extinguished and cancelled in
its entirety without any consideration.
151.2. It is submitted that the liquidation value as determined by the
valuers appointed by the IRP under the Code is approximately INR
17,876 crores (as per RBSA) and INR 17,658 crores (as per GAA),
whereas the total debt owed to financial creditors is approximately INR
23,247 crores. In the aforesaid scenario, according to NBCC, where the
minority shareholders are not entitled to any value, the resolution plan,
with offer of exit at a price of INR 1 crore, is neither unfair nor arbitrary.
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151.3. It has further been submitted that in the scheme of IBC, specific
and novel method of insolvency resolution is provided wherein, by way of
amendment brought about by Act 26 of 2018 w.e.f. 06.06.2018, the
Explanation to Section 30(2)(e) has been inserted, providing for deemed
approval of shareholders and, therefore, the submissions on behalf of the
minority shareholders do not deserve consideration.
152. Having given anxious consideration to the rival submissions, we
are clearly of the view that objections sought to be taken by the minority
shareholders must fail.
153. It is noticed from the resolution plan that the Delisting Regulations,
as amended on 31.05.2018, have been duly taken note of; and the step
for delisting and extinguishment of existing shareholding is provided in
Schedule 2 thereof, in the following terms: -
“IX. S TEP 8: D ELISTING AND E XTINGUISHMENT OF E XISTING
S HAREHOLDING
1. As an integral part of the Resolution Plan, post implementation
of Step 1, the shares of the Corporate Debtor shall be de-listed, in
terms of SEBI (Delisting of Equity Shares) Regulations, 2009.
(“ Delisting Regulations ”), as amended by Amendment to
Delisting Regulations dated May 31, 2018, which prescribes that
the procedure under the Delisting Regulations are not applicable
for any delisting pursuant to an approved resolution plan under the
Code, if:
(a) the resolution plan sets out a specific delisting
procedure; or
(b) the resolution plan provides an exit option to existing
public shareholders at a price which is higher of the liquidation
value (as applied in the order of priority of claims prescribed under
Section 53 of IBC) and the exit price being paid to the promoters.
In this regard, the Non-Promoter Shareholders (i.e. the public
shareholders) shall be paid an exit price aggregating to INR 1 Cr
and pursuant to the same, their shareholding shall be
extinguished.
2. In terms of the definition of Public Shareholders under the
Delisting Regulations, Existing Promoters are specifically carved
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out. Accordingly, simultaneous to the de-listing, the issued equity
share capital of the Corporate Debtor as held by the Existing
Promoters i.e. 84.70 Cr equity shares of face value of INR 10
(Rupees Ten each) shall be extinguished and cancelled in its
entirety without any consideration.
3. Extinguishment of shares of Corporate Debtor may be done
through Capital Reduction or selective Capital Reduction.
4. Extinguishment of shares of Corporate Debtor may be done
through credit to Capital Reserve Account.
The equity shareholding of the Corporate Debtor post De-listing
and Capital Reduction shall be as follows:
| Category of<br>shareholder | % of Equity<br>Shareholding |
|---|---|
| NBCC SPV (New<br>Promoter) | 100% |
| Existing Promoters | Nil |
| Non-Promoter<br>Shareholder (public<br>shareholder) | Nil |
| Total Issued,<br>subscribed and Paid<br>up equity Capital | 100.00%” |
It cannot be said that the resolution plan is not compliant with the
requirements of Regulation 38(1A) of the CIRP Regulations.
153.1. As noticed, by way of Explanation to Section 30(2)(e) of the Code,
it has been made clear by the legislature that if any approval of
shareholders is required under the Companies Act, 2013 or any other law
for the time being in force for implementation of actions under the
resolution plan, such approval shall be deemed to have been given and it
shall not be a contravention of that Act or law. The attempt on the part of
minority shareholders to raise objection against the resolution plan simply
flies in the face of this Explanation to Section 30(2)(e) of the Code.
153.2. Needless to reiterate that in the scheme of IBC, only the CoC is
entrusted with the task of dealing with and approving the plan of
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insolvency resolution; and the shareholders of a corporate debtor, who is
already reeling under debts, have not been provided any participation in
the insolvency resolution process. It goes without saying that in the case
of a corporate debtor like JIL, if the process of liquidation is resorted to
under Chapter III of the Code, there is a very little likelihood of the
shareholders getting even dewdrops out of the waterfall of distribution of
assets, as delineated in Section 53 of the Code, where the preference
shareholders and equity shareholders stand last in the order of priority. In
the totality of circumstances, when the promoters’ shareholding is
extinguished and cancelled in toto without any consideration, even
nominal exit price of INR 1 crore for minority shareholders cannot be
termed as unfair or inequitable. In any case, a decision in regard to the
aforesaid step in the resolution plan had been that of the commercial
wisdom of the Committee of Creditors and is not amenable to judicial
review.
153.3. Reference to Section 230 of the Companies Act, 2013, which
deals with power to compromise or make arrangements with creditors
and members is entirely inapt in the context of the present case because
no such proceedings for compromise or arrangements are in
contemplation. On the contrary, in the present case, the proceedings of
CIRP under the Code have reached an advanced stage with approval of
resolution plan by the CoC and the Adjudicating Authority.
153.4. Apart from the above, NBCC also appears right in contending that
once the resolution plan stands approved by the Adjudicating Authority,
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the objecting shareholders, who did not even raise any grievance before
the Adjudicating Authority, cannot now, for the first time, object to the
arrangement arrived under the resolution plan, in view of Section 31 read
with Section 238 of the Code which provide that the approved resolution
plan shall be binding on all stakeholders and that the provisions of IBC
shall prevail not only over the laws but also the instruments having effect
by virtue of any such law.
154. Viewed from any angle, in our view, it cannot be said that the
resolution plan does not adequately deal with the interests of minority
shareholders. The grievances as suggested by these shareholders
cannot be recognised as legal grievances; and do not provide them any
cause of action to maintain their objections. The objections by the
minority shareholders stand rejected.
Point I
Matters related with dissatisfied homebuyers of JIL
155. We may now take up the issues raised by a section of
homebuyers of JIL against the resolution plan of NBCC. For dealing with
this segment of disputes, a bit of prelude concerning the status and
position of homebuyers in CIRP shall be apposite.
156. Not much of discussion is required to notice that the largest block
of stakeholders, who are likely to bear the brunt in the event of liquidation
of JIL and conversely, who are likely to find succor in case of resolution of
insolvency of JIL, is that of the homebuyers, who have invested their
hard-earned money in the projects of JIL. In the first two rounds of
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litigation, they had been the focal point of consideration where this Court
invoked its powers under Article 142 of the Constitution of India to ensure
that the insolvency resolution process of JIL is taken ahead within the
discipline of IBC while obviating the likelihood of liquidation. As narrated
in sufficient detail hereinbefore, during the pendency of the case of
Chitra Sharma , by the amendment of IBC with insertion of Explanation to
Section 5(8)(f), the doubts about the status of homebuyers got clarified
and, for being duly recognised as financial creditors of the corporate
debtor, the homebuyers got their say in the Committee of Creditors. In
fact, such an amendment and inclusion of homebuyers in the Committee
of Creditors had far-reaching and ground-breaking effects in the present
case for the reason that the homebuyers, as a class, acquired a dominant
status in the Committee of Creditors, with more than half of the voting
share with them. Obviously, no effective decision of the Committee of
Creditors could have been taken without the involvement and assent of
the homebuyers. As noticed, the resolution plan in question had been
approved by CoC of JIL with more than 97% of the voting share in its
favour. In this voting, the homebuyers had the voting share of more than
57%. It goes without saying that if the homebuyers were not to vote for
this plan, the same would have not seen its approval with minimum 66%
of the voting share of financial creditors, as required by the Code. The
other plan of Suraksha Realty got less than 3% votes. If both the plans
were unable to muster the requisite (not less than 66%) voting share, the
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only consequence would have been liquidation of JIL, which every
stakeholder wanted to avoid.
157. In the process envisaged by the Code, where the CoC may
approve a resolution plan by a vote of not less than 66% of voting share,
there remains an obvious possibility of some of the financial creditors not
voting for approval of the plan but by the very nature of process, they
would be having the voting share of not more than 34% and could be
conveniently described as ‘dissenting financial creditors’. The resolution
plan is required to carry specific provision for payment of debts of such
dissenting financial creditors, more particularly in view of the
requirements of the second part of Section 30(2)(b) of the Code. All the
features related with such provisions and their operation have been
examined in Point D (supra) concerning the dissenting financial creditor,
who has indeed not voted in favour of the plan in question.
158. The relevant aspect for the present point for determination is that
apart from such dissenting financial creditors, a few of the associations of
homebuyers and some of the individual homebuyers carry their own
grievances against the resolution plan and seek to submit that their
interests have not been safeguarded and they are being denied of their
legal rights. These dissatisfied associations and individual homebuyers
seek to contend that the resolution plan is lacking in various requisite
arrangements; is violative of the CIRP Regulations; and is also violative of
the provisions of RERA and therefore, it could not have been approved.
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One block of such objectors is rather differently dissatisfied for the reason
that according to them, the housing projects which have been completed
or are nearing completion ought to be kept out of the purview of this plan
of resolution. In counter, it is contended on behalf of the resolution
applicant that these dissatisfied homebuyers or associations have no right
to maintain any objection as if being the dissenting financial creditors
because the homebuyers have voted as a class in favour of the resolution
plan and are bound as a class with ‘drag along’ provisions in the Code.
The objections have been refuted on merits too. These rival submissions
have led to the formulation of four different questions in this point for
determination.
159. The associations and the individual homebuyers who are
dissatisfied with the resolution plan and the process of its approval have
made various overlapping and repeat submissions; we may summarise
the substance thereof, while avoiding prolixity, as far as possible.
159.1. It is contended on behalf of the association of homebuyers, who
has filed the appeal (in T.C. No. 243 of 2020) and has also filed an
intervention application in the appeal filed by other associations, that the
homebuyers have the locus standi to file an appeal even though they
belong to a class of creditors represented through an authorised
representative, who voted in favour of the resolution plan of NBCC. This
association of dissatisfied homebuyers submits that sub-section (3A) of
Section 25A of the Code is only intended to iron out the logistical issues
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and technical difficulties which arise due to the large number of creditors;
and the mere fact that more than 51% of the homebuyers voted in favour
of the resolution plan cannot take away the statutory right of appeal.
159.1.1. As regards the major part of grievances, it is contended on
behalf of this association that the resolution plan in question is patently
illegal and is in contravention of the provisions of RERA and its rules.
With reference to Section 30(2)(e) of the Code, it has been argued that
the resolution plan must be in conformity with other laws in force and
merely because IBC has a non-obstante provision over other laws would
be no ground to hold that a resolution plan framed under the scheme
must also be elevated to such status; that RERA is one such legislation
which expressly deals with the rights of the homebuyers and if there is
any inconsistency between IBC and RERA, the former would prevail but,
the same cannot be said about a resolution plan under IBC. It is
submitted that Sections 13(2), 18 and 19(4) of RERA as also U.P. RERA
(Agreement for Sale/Lease) Rules, 2018 are in violation as the resolution
plan does not provide an option to the homebuyers to seek refund in case
the flat is not delivered within the time period prescribed in the revised
schedule; and does not provide interest as well as compensation on the
amounts already paid by homebuyers, in case they seek refund.
Therefore, according to this association, if the resolution plan as existing
is approved, it would take away all the rights bestowed upon the
homebuyers under RERA and homebuyers will be at the mercy of ‘one
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sided agreements’ made by NBCC with no future remedies available to
them. It is also submitted that the resolution plan actually recognises the
interest amount to be paid to the homebuyers as part of the ‘Admitted
Amount’ but does not pass on this amount to the homebuyers.
159.1.2. In another line of submissions, it has been contended that 758
acres of land is returned to JIL as per the judgment of this Court dated
26.02.2020 in the case of Anuj Jain (supra) but NBCC has failed to
specify anything in the resolution plan regarding the treatment and
utilisation of this big parcel of land though the same ought to be put to use
for the purpose of providing delay penalty/interest to the homebuyers. It is
submitted that NBCC cannot be allowed to unjustly enrich itself at the
cost of the corporate debtor’s unencumbered assets and ought to use this
land bank to make its resolution plan compliant with the provisions of
RERA.
159.1.3. In yet another line of submissions, it has been contended that
the IRP, while filing Form-H along with the approval application, has not
placed on record the liquidation costs; and this cost is required for
assessing the feasibility and viability of the resolution plan. Therefore,
there had been complete violation of Regulation 39B of the CIRP
Regulations. It is also submitted that the resolution plan in question, being
a conditional one in terms of Clauses 1 and 2 of Schedule 3 thereof,
could not have been taken as a resolution plan standing in conformity
with the requirements of Regulation 36A(7) of the CIRP Regulations.
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159.1.4. Of course, as regards the said amount of INR 750 crores
deposited by JAL, this association maintains that the same was to protect
the interests of homebuyers of JIL and forms the part of corpus of JIL but,
it is also submitted that if there be any ambiguity with respect to the
homebuyers of JAL and they are also to be covered under the deposit so
made by JAL, then the amount may be used by the corporate debtor and
JAL on a pro rata basis so as to secure the interests of the homebuyers
of both these companies. It has also been prayed that NBCC be directed
to start the construction within 30 days and to complete the entire project
within 3 years; that NBCC be barred from withdrawing; and that NBCC be
prohibited from charging the homebuyers with any extra amount towards
arbitrary increase in the name of ‘Super Built-Up Area’, which would be
illegal without corresponding increase in the carpet area.
159.2. Another society of homebuyers of the projects undertaken by JIL
has directly approached this Court against the order dated 03.03.2020
passed by NCLT, and is essentially aggrieved that the resolution plan
does not provide for the interest to be accrued to the homebuyers or
compensation for delay period on their deposits.
159.2.1. On behalf of this society also, the aforesaid submissions
relating to 758 acres of land, violation of the provisions of RERA and
proposed changes in ‘Super Built-Up Area’ are re-emphasised. This apart,
it is submitted that the resolution plan provides for unfair treatment to the
homebuyers of JIL inasmuch as they are liable to pay interest at 18% p.a.
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in the event of default to pay the remaining instalments but, on the other
hand, a meagre delay compensation, amounting to INR 5/- per square
feet per month, is offered to them in case of delay in construction and the
same is stated to be due only after the expiry of one year from the date of
delivery of possession. It is submitted that the “financial debt” in terms of
Section 5(8) of IBC is that of “disbursal against the consideration for the
time value of money”, which means compensation for the length of time
for which the money has been disbursed. Thus, the provisions for the
homebuyers in the resolution plan ought to mandatorily include a just and
fair interest to account for the period of delay.
159.3. As noticed, in paragraph 126 of the order dated 03.03.2020, the
Adjudicating Authority rejected the submissions sought to be made by a
few other homebuyers, who asserted themselves to be the “dissenting”
homebuyers, because the authorised representative on behalf of the
homebuyers had assented to the resolution plan while observing that ‘ it
cannot be said that dissenting homebuyers before authorised
representative to be considered as dissenting financial creditors against
the total voting of CoC ’. These homebuyers have filed a separate appeal
(in T.C. No. 242 of 2020) with many a submissions running common to
those of the contesting associations. While avoiding repetition, we may
take note of the other material submissions on behalf of these appellants-
homebuyers.
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159.3.1. It is contended on behalf of these homebuyers that they and
several other homebuyers have consistently dissented from the resolution
plan as the proposed timelines for completion are not workable and there
is no clause for refund of money in a situation that the construction is not
completed within time; and cent percent approval has not been given for
effectuating the resolution plan. The grievance is that their application
was rejected by NCLT on the ground that AR on behalf of the
homebuyers had assented to the resolution plan but without dealing with
the specific objection raised by the appellants with regard to the
proceedings before the CoC and the procedure adopted by it; and they
were not even allowed to make all their submissions before NCLT.
According to these appellants, NCLT has applied two standards while
dealing with objections of two dissenting financial creditors i.e., ICICI
Bank on one hand and the appellants on the other, which amounts to
unfair discrimination amongst the same class of creditors; and the
findings in paragraph 126 of the impugned order are in the teeth of
NCLT’s findings in paragraphs 100 and 101 of the same order.
th
159.3.2. It is submitted that in the 16 meeting of CoC, there was no
consensus with regard to the resolution plan to be adopted; and on
evaluation of the resolution plans, it was found that the plan of Suraksha
Realty was better than that of NBCC considering the scores given by the
experts. The appellants have submitted that in the resolution plan by
Suraksha Realty, provision was made for delay penalty pertaining to
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previous period in the form of fixed compensation by way of transfer of
land worth INR 250 crores at Mirzapur and for this purpose, creation of a
Trust was proposed; and it was also proposed that the said resolution
applicant shall endeavour to monetise the land for 4 years and the sale
proceeds would be distributed amongst the eligible homebuyers.
According to the appellants, the plans were put to vote contrary to the
provisions of IBC and yet, IRP moved an application for approval of the
plan submitted by NBCC, which was objected by them and various other
parties with the submissions that the resolution plan of NBCC was unfairly
adopted through illegal voting; and that the plan of NBCC was in
contravention of RERA.
159.3.3. It is submitted that in the resolution plan in question, Schedule 2
Step 9 provides for treatment of homebuyers and refund seekers in the
manner that the claim of homebuyers shall be satisfied by ensuring
delivery of flats in accordance with the schedule at Annexure A, whereby
project completion period is provided as 42 months with moratorium
period of one year and therefore, for 54 months, the appellants and other
homebuyers would not get any compensation and thereafter only a delay
penalty of INR 5/- per square feet per month is provided, which is also
subject to non-occurrence of any force majeure event.
159.3.4. While questioning the process of voting and the proposition that
homebuyers have as a class assented to the plan of NBCC, these
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appellants have submitted that the voting percentage in respect of
NBCC’s plan was distributed in the following manner:
Home Buyers voting share 57.66%;
Assenting 34.10%;
Dissenting 1.05%;
Abstained 22.51%
Therefore, according to the appellants, the claim that 97.02%
homebuyers have voted for NBCC’s plan is misleading; and as per the
voting percentage, rough ratio is that for every 3 homebuyers who voted
for NBCC, 2 have dissented/abstained. The appellants have further
contended that the authorised representative of homebuyers made two
wrong statements before the Committee of Creditors: one, that both the
resolution plans of Suraksha Realty and NBCC would be put to vote and
second, that the majority of homebuyers had written to him indicating
NBCC as the preferred choice. It is submitted that both these statements
on behalf of the homebuyers were grossly incorrect and contrary to
record and as such, the entire voting process of the CoC, as
contemplated under Section 21(8) of the Code, is vitiated. There had
been no such written instruction to the authorised representative of the
homebuyers and he could not have determined what was the majority
mark of homebuyers. It is further submitted that even if the said
authorised representative could have consented to put both the resolution
plans to vote contrary to the mandate of Regulation 39(3), CoC could not
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have acted contrary to the provisions of IBC as there could be no waiver
of the statute. It is submitted that these objections could have been, and
had rightly been, raised before the Adjudicating Authority because there is
no other forum to raise these concerns; but the Adjudicating Authority has
not addressed them at all.
159.3.5. The issue relating to the said land parcel of 758 acres has also
been raised by these appellants with the submissions that after the
judgment of this Court dated 26.02.2020, the said land ought to have
been included in the resolution plan and used in the interest of
homebuyers but the Adjudicating Authority has not examined this aspect
of the matter either.
159.4. The submissions on behalf of yet another association of
homebuyers (appellant in T.C. No. 240 of 2020) are considerably
different, where it is prayed that the project related with its members
being substantially complete, deserves to be separated from the
resolution plan.
159.4.1. It is submitted on behalf of this association that the construction
of all 4228 flats in 26 towers of the project “Jaypee Greens Aman” is
complete and only the finishing works for Tower Nos. 23, 24, 25 & 27 are
pending due to delay in execution of the agreements. It is also submitted
that out of 18153 homebuyers of the corporate debtor forming part of the
financial creditors, only 459 homebuyers in Project Aman (which amount
to 2.53 %) were part of the creditors at the time of voting for the resolution
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plan. According to this association, “Jaypee Greens Aman” is an inhabited
project where more than 1500 families have already started living and it is
situated over 10 kms away from the location of “Wish Town” and hence,
should be considered as an independent housing colony and ought to be
separated from the resolution plan; and any order on the resolution plan
should not have an adverse impact on this project. It is submitted that in
relation to the project in question, the resolution applicant is only to
complete the finishing work which could be carried out by the IRP himself
to avoid further delay whereas, if the resolution plan is followed, these
homebuyers shall have to wait for another 18 months to receive
possession of the completed flats which would add to their mental agony.
159.4.2. It has also been submitted that the members of this association
had deposited an Interest Free Maintenance Deposit (‘IFMD’) and a
Maintenance Advance and also executed Maintenance Agreements with
JAL; and even though this refundable security deposit was not a part of
the information memorandum, the resolution plan in question stakes claim
over this amount while ignoring the basic rules of business and to siphon
off the hard-earned/borrowed money of the allottees. According to the
association, this amount ought to be refunded to the allottees concerned.
159.4.3. It is also submitted that the approved resolution plan only talks
about the date of completion of the construction of flats but does not
indicate the completion date of the entire project of “Jaypee Greens
Aman”; and as construction of flats of this project is carried out, specific
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directions need to be issued for completion of the project with all
amenities and finishing works.
159.4.4. This association has also relied upon decision of this Court in
the case of Wg. Cdr. Arifur Rahman Khan & Ors. v. DLF Southern
Homes Pvt. Ltd. & Ors. : (2020) SCC OnLine SC 667 and has prayed for
a relief of 6% p.a. simple interest which shall be attached to the allottees
of the project “Jaypee Greens Aman” on the total amount paid towards
the purchase of the flats in addition to the delay period penalty. It is also
submitted that the allottees of Tower Nos. 23, 24, 25 & 27 should not be
discriminated and must be treated at par with other allottees, who have
already received the penalty for delayed period.
159.4.5. This association has also prayed for directions to IRP to release
the payments in a time bound manner to keep the project and its activities
as a going concern as the work at the project “Jaypee Greens Aman” has
come to a standstill for want of requisite payment of bills of contractors.
This association has made yet another prayer for directions to the Noida
Authority to issue the necessary Occupancy Certificate.
159.5. Apart from the above-mentioned appellants, a few more
homebuyers have filed intervention applications in the leading appeal
while essentially reiterating the same contentions that the resolution plan
of NBCC is not compliant with the requirements of RERA and that the
homebuyers would be put to prejudice in relation to their rights under
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RERA. The issue relating to the said 758 acres of land has also been
raised.
159.6. For completing the panorama of diverse submissions, we may
take note of the fact that the applicant of I.A. No. 84309 of 2020 has filed
separate written submissions and has contended that there had been
diversion of the money deposited by homebuyers to YEIDA and the same
was accepted by JIL and the lenders constituting the CoC without
considering that it was a wrongful and fraudulent diversion against
accepted norms; that JIL and YEIDA have remained silent on the issue
and allowed homebuyers’ money to be used in Yamuna Expressway,
which acted as an interest free loan to JIL for almost 10 years and
therefore, the homebuyers ended up funding 25% of the project of
Expressway and the said investment ought to be returned to the
homebuyers; that the provisions of the Concession Agreement regarding
curing the defaults were never addressed before NCLT and before this
Court; that when JIL caused a delay in delivering possession of the flats
to the homebuyers, the material adverse effect clause should have been
invoked, rather than initiation of the CIRP; that the homebuyers were
made aware of liquidation of JIL as the only possibility; that the
homebuyers were not provided with the Concession Agreement and even
when it was demanded from the IRP, it was not furnished. Therefore, not
sharing CA and not providing any such legal advice on CA has put the
CIRP proceedings under the scanner and the same be held null and void.
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It has further been contended that the resolution plan of NBCC ought to
have been rejected as it contravenes several of the provisions of law
including that of RERA. It is also contended that the homebuyers to whom
flats were delivered could not have been taken out of CoC once it had
been constituted; and such taking out has impacted a few thousand
homebuyers and thereby, the voting weightage by about 10%. The
applicant has further submitted that the present one is an exceptional
case requiring innovative approach and has even suggested the
alternative that Government of Uttar Pradesh takes over the full project as
it is, provided it meets all rights of the homebuyers! It is submitted that
this could be a possibility under Article 142 of the Constitution of India.
160. The submissions so made have been duly opposed by the
persons/entities standing in favour of the resolution plan as approved by
the Adjudicating Authority. For avoiding unnecessary expansion, we deem
it appropriate to take note of the submissions made on behalf of IRP and
NBCC as also the financial creditor of JIL in this regard.
160.1. It is submitted on behalf of IRP and NBCC that these associations
and homebuyers have no locus standi to challenge the approved
resolution plan because, in terms of Section 25A(3A) read with Section
21(6A) of the Code, the homebuyers vote in the CoC as a class; even a
dissenting individual within the class is bound by the decision of the
majority of that class; and as such, this decision operates as a statutory
estoppel against the members of the entire class. It is submitted that the
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manner of voting by homebuyers has been extensively dealt with by this
Court in Pioneer Urban (supra) and the Adjudicating Authority has, in
accordance with Section 25A(3A) and the law laid down in Pioneer
Urban , rightly dealt with the issue of ‘dissenting homebuyers’ in
paragraph 126 of the order impugned. It is further submitted that the
legislature has recognised the likelihood of conflicting interests among the
groups of homebuyers and accordingly, the IBC amendment dated
16.08.2019 has provided a ‘drag along’ mechanism so far as voting by
homebuyers in relation to the approval of a resolution plan is concerned,
by way of insertion of sub-section (3A) to Section 25A of the Code. It is,
therefore, evident that the minority shall be dragged along with the
majority in voting on approval of a resolution plan and hence, the
appellants are bound by the decision taken by the collective majority of
the homebuyers.
160.2. It is also submitted that as per Section 61 of the Code, an appeal
can be filed by a person who is aggrieved by the approval of the
resolution plan but, considering that homebuyers as a class have
assented to the resolution plan of NBCC, individual homebuyers cannot
be treated as dissenting creditors or even aggrieved persons within the
meaning of Section 61 of the Code. It is, therefore, submitted that such
appeals ought to be dismissed for having been filed without any locus.
160.3. It is yet further submitted that the appellant Wish Town Society
attempted to submit an application and objections that were rejected by
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the Adjudicating Authority on 31.01.2020, essentially on the grounds that
the society had failed to implead itself as the party to the application; that
only 448 homebuyers had voted against the resolution plan but the
society was claiming to represent 1500 homebuyers without mentioning
as to who were the persons who authorised filing of the objections; and
that the society had no locus to raise objections. It is submitted that now
the society is seeking to place on record a list of alleged 1248 members
but no such list was produced before the Adjudicating Authority and
cannot be allowed to be introduced at the appellate stage.
160.4. As regards the questions related with RERA, it is submitted that
the alleged violation of RERA has been contended by these homebuyers
without demonstrating the manner in which any provision under RERA is
being violated; and that the resolution plan, at no instance, states that it
would not comply with the applicable laws. However, it is submitted that in
the event there is any conflict between the approved resolution plan and
the provisions of RERA, the approved resolution plan shall remain binding
on all stakeholders under Section 31 of the Code and would override the
provisions of RERA in accordance with Section 238 of the Code.
160.5. It is also submitted that resolution plan can alter the contracts with
financial creditors and the Code gives wide powers to the resolution
applicant to modify financial and operational contracts so as to best serve
the interests of all the stakeholders. It is submitted that, as per the
proposal under the resolution plan, NBCC would construct and deliver the
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flats to homebuyers but would not be paying outstanding interests to any
homebuyer, and such a proposition is permissible under Regulation 37(f)
of CIRP Regulations, that permits a resolution plan to reduce any debts
due to any creditors; and such an amendment to the contracts having
been agreed to by the overwhelming majority of the CoC, remains binding
on all the homebuyers.
160.6. As regards liquidation costs, it is submitted that under Regulation
39B of the CIRP Regulations, CoC has been given a discretion to
ascertain the liquidation costs at the time of approval of a resolution plan
or deciding to liquidate a company; and, as per the Explanation to
Regulation 39B, liquidation costs have the same meaning as given to it
under Regulation 2(1)(ea) of the Insolvency and Bankruptcy Board of
India (Liquidation Process) Regulations 2016, whereunder ‘liquidation
costs’ have been defined to mean, inter alia, the costs in the liquidation
process of a company. It is submitted that non-submission of liquidation
costs under Form-H is not an irregularity that is fatal to the CIRP or the
resolution plan; that the liquidation costs have no bearing on the feasibility
and viability of a resolution plan; and liquidation costs are different from
liquidation value, which has been defined under Regulation 2(k) of the
CIRP Regulations to mean ‘ the estimated realisable value of the assets
of the corporate debtor, if the corporate debtor were to be liquidated on
the insolvency commencement date’. The IRP under Form-H has
mentioned the fair value and liquidation value of the corporate debtor.
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160.7. As regards the objections raised by Jaypee Aman Owners Welfare
Association for exclusion from resolution plan, it is submitted that the
NBCC’s resolution plan is intended to cover all the homebuyers of JIL,
where the creditor-debtor relationship continues to subsist i.e., where the
final settlement between the homebuyer and JIL, through execution of
sub-lease deed, has not been achieved. With reference to the provisions
in the resolution plan, it is submitted that the plan specifically provides
that “Aman Project” shall be completed within a period of 15 months from
the date resolution applicant acquires the shareholding of the corporate
debtor; and such an indicative period has been provided in respect of all
the pending projects of JIL, which are to be completed by NBCC in terms
of the resolution plan. It is further submitted that the contents of the plan
including the indicative delivery schedules were available to all
homebuyers and they had, in full cognizance of the same, chosen to
approve the plan in question which would remain binding on all the
stakeholders of the corporate debtor in terms of Section 31 of the Code
once it is approved; and therefore, the said association is estopped from
challenging, or seeking an exit from, the resolution plan as the plan
stands approved. In regard to the submission that the IRP may be
directed to do certain things like apply for OCs in respect of certain towers
or issue OOPs, it is submitted that the IRP has disclosed in an affidavit
before the Court that during the CIRP process, he has been managing JIL
as a going concern and has continued construction of residential and
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commercial dwelling units and has issued OOPs for 7996 units based on
the OCs received from the Noida Authority; and out of the OOPs issued,
sub-lease registration of 6429 has been completed. It is submitted that
the claims of a homebuyer vis-à-vis JIL stand settled on execution of the
sub-lease deed and, therefore, all those homebuyers whose sub-lease
deeds have not been executed shall be bound by the resolution plan
approved by the CoC of JIL.
160.8. Again, as regards IFMD, Step 9 in Schedule 2 has been referred
and it is submitted that the above provision is only in relation to the
monies paid by the homebuyers to JAL (either directly or indirectly,
including payment through JIL) as the resolution applicant does not and
will not have any control over JAL.
160.9. Apart from the above, it has also been submitted on behalf of IRP
that Regulation 36A(7) applies only to expression of interest which cannot
be conditional but that provision does not apply to the resolution plan and
it is no one’s case that the expression of interest submitted by NBCC was
conditional. The amendment to the Code with effect from 28.12.2019, that
is, before passing of the order by NCLT has also been referred to submit
that with Section 32A having been inserted to the Code, NBCC would be
entitled to claim the protection thereunder and the question of
withdrawing from the resolution plan for the reason stated in Clause 2 of
Schedule 3 does not arise.
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160.10. The financial creditor of JIL has also opposed the submissions
made by these dissatisfied homebuyers and it is submitted that they have
erroneously identified ICICI Bank to be similarly situated with them. It is
submitted that this bank is a dissenting financial creditor in terms of the
resolution plan unlike those dissatisfied homebuyers; and this bank is
entitled to a different treatment in terms of Section 30(2)(b) of the Code.
161. We have given anxious consideration to the wide variety of
submissions made by dissatisfied homebuyers and the counters thereto.
162. Before proceeding further, it appears appropriate to point out that
the contentions urged in regard to simultaneous voting over two
resolution plans have already been discussed and rejected in Point B
hereinbefore. These contentions, in our view, have unnecessarily been
taken by the persons who wish to remain on the dissenting side of the
fence by carving out every possible objection, whether of substance or
not. The issue relating to 758 acres of land, that is now available to JIL
after the judgment of this Court in the case of Anuj Jain , is being
considered separately in Point K infra . Likewise, the issue relating to the
amount of INR 750 crores deposited by JAL pursuant to the directions in
the case of Chitra Sharma as also other areas of accounting between
JAL and JIL including the issue relating to IFMD are being considered
separately in Point J infra . These issues, thus, would require no comment
herein.
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163. Taking up other aspects of the rival submissions and having
examined the scheme of the Code in relation to a plan of insolvency
resolution, we are clearly of the view that the propositions of some of the
associations and individual homebuyers to claim themselves as
‘dissenting homebuyers’ and thereby, ‘dissenting financial creditors’ do
not stand in conformity with the scheme of the Code and the manner of
voting on a plan of resolution by the Committee of Creditors.
164. As noticed, for the purpose of approval of a resolution plan in
CIRP, what is required is its approval by a vote of not less than 66% of
the voting share of financial creditors; and what is counted for the
requisite percentage (66) is the voting share of the financial creditors and
not the individual votes of financial creditors. The expression ‘voting
share’ has been precisely defined in clause (28) of Section 5 to mean the
voting rights of a single financial creditor in the Committee of Creditors,
which is based on the proportion of the financial debt owed to such a
financial creditor vis-à-vis the financial debt owed by the corporate debtor.
In the scheme of the Code with Explanation to Section 5(8)(f), the debt
owed by the corporate debtor towards allottees of the real estate project
is considered to be a financial debt but for that matter, every individual
allottee does not become an independent financial creditor of the
corporate debtor, if the number of allottees are 10 or more, in terms of the
meaning assigned to the expression “class of creditors” in CIRP
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85
Regulations . The allottees, like the homebuyers of JIL, falling within
clause (f) of sub-section (8) of Section 5, do carry the status of financial
creditors but they would be falling in a class collectively; and the voting
share of that class would be in terms of the financial debt owed to that
class as a whole.
164.1. Specific provisions have been made for voting on behalf of a class
of creditors in terms of clause (b) of sub-section (6A) of Section 21 by the
authorised representative. The rights and duties of the authorised
representative of financial creditors are also delineated in Section 25A of
the Code and any doubt, as to how he would vote and how his vote is
counted, is put to rest by insertion of sub-section (3A) to Section 25A,
which provides that notwithstanding anything to the contrary contained in
sub-section (3), the AR shall cast his vote on behalf of all the financial
creditors he represents ‘ in accordance with the decision taken by a vote
of more than fifty per cent. of the voting share of the financial creditors he
represents, who have cast their vote’ .
164.2. At this juncture, we may usefully take note of the enunciation of
this Court in the case of Pioneer Urban (supra) that has direct bearing on
the questions raised herein. The decision in Pioneer Urban was
rendered by this Court in the backdrop of challenge to the said
amendment made to the Code whereby, the allottees of real estate
85 The relevant definition clause in CIRP Regulations, inserted with effect from 04.07.2018
reads as under: -
“(aa) “class of creditors” means a class with at least ten financial creditors under clause (b)
of sub-section (6A) of section 21 and the expression, “creditors in a class” shall be construed
accordingly;”
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projects were provided the status of financial creditors by way of insertion
of Explanation to sub-clause (f) of clause (8) of Section 5 of the Code and
with corresponding insertion of Section 25A as also sub-section (6A) to
Section 21. While dealing with such a challenge, in Pioneer Urban
(supra), this Court extensively referred to the objects and reasons for
these amendments as also their meaning, connotation and effect. The
relevant part of the matter, in regard to the issue at hand, is that along
with the aforesaid amendment, this Court also examined the amendment
of Section 25A with insertion of sub-section (3A) by Act 26 of 2019. This
Court explained the connotation of the said amendment and its logic,
while rejecting the challenge to Section 21(6A) and 25A of the Code, in
the following: -
“ 63 . Given the fact that allottees may not be a homogeneous
group, yet there are only two ways in which they can vote on
the Committee of Creditors—either to approve or to
disapprove of a proposed resolution plan. Sub-section (3-A)
goes a long way to ironing out any creases that may have
been felt in the working of Section 25A in that the authorised
representative now casts his vote on behalf of all financial
creditors that he represents. If a decision taken by a vote of
more than 50% of the voting share of the financial creditors
that he represents is that a particular plan be either accepted
or rejected, it is clear that the minority of those who vote, and
all others, will now be bound by this decision. As has been
stated by us in Swiss Ribbons , the legislature must be given free
play in the joints to experiment. Minor hiccups that may arise in
implementation can always be sorted out later. Thus, any
challenge to the machinery provisions contained in Sections 21(6-
A) and 25A of the Code must be repelled.”
(emphasis in bold supplied)
164.3. In the face of clear language of sub-section (3A) of Section 25A of
the Code, read with the law declared by this Court in Pioneer Urban
297
(supra), the suggestion on behalf of the dissatisfied homebuyers that the
said provision was only intended to iron out the logistical issues and
technical difficulties is required to be rejected altogether. The said
provision, as held by this Court, is to iron out the creases that might have
been felt in the proper working of Section 25A; and it is made explicit that
the allottees, even if not a homogeneous group, they could vote only
either to approve the resolution plan or to disapprove the same.
Divergence of the views within their own class may exist but, when
coming to the vote in the Committee of Creditors, their vote would be that
of a class.
164.4. Having regard to the scheme of IBC and the law declared by this
Court, it is more than clear that once a decision is taken, either to reject or
to approve a particular plan, by a vote of more than 50% of the voting
share of the financial creditors within a class, the minority of those who
vote, as also all others within that class, are bound by that decision.
There is absolutely no scope for any particular person standing within that
class to suggest any dissention as regards the vote over the resolution
plan. It is obvious that if this finality and binding force is not provided to
the vote cast by the authorised representative over the resolution plan in
accordance with the majority decision of the class he is authorised to
represent, a plan of resolution involving large number of parties (like an
excessively large number of homebuyers herein) may never fructify and
the only result would be liquidation, which is not the prime target of the
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Code. In the larger benefit and for common good, the democratic
principles of the determinative role of the opinion of majority have been
duly incorporated in the scheme of the Code, particularly in the provisions
relating to voting on the resolution plan and binding nature of the vote of
authorised representative on the entire class of the financial creditor/s he
represents.
164.5. To put it in more clear terms qua the homebuyers, the operation
of sub-section (3A) of Section 25A of the Code is that their authorised
representative is required to vote on the resolution plan in accordance
with the decision taken by a vote of more than 50% of the voting share of
the homebuyers; and this 50% is counted with reference to the voting
share of such homebuyers who choose to cast their vote for arriving at
the particular decision. Once this process is carried out and the
authorised representative has been handed down a particular decision by
the requisite majority of voting share, he shall vote accordingly and his
vote shall bind all the homebuyers, being of the single class he
represents.
165. In the present case, on one hand, it has consistently been
submitted by the stakeholders, particularly the homebuyers, that
liquidation of JIL should be eschewed, but on the other hand, some of the
associations and homebuyers have attempted to find faults with the
resolution plan to which their majority, who voted, took the decision for
approval. There is no scope for any homebuyer suggesting himself to be
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a dissenting financial creditor merely because he was not with majority
within the class. His dissatisfaction does not partake the legal character of
a dissenting financial creditor.
165.1. A rather overambitious attempt has been made by the
homebuyers who have filed separate appeal (T.C. No. 242 of 2020) to
refer to the percentage of voting share of homebuyers and it has been
suggested that out of the total voting share of homebuyers i.e., 57.66%,
the assenting voting share was only 34.10%, whereas 22.51% abstained
and 1.05% dissented. It is submitted that roughly, for every 3 homebuyers
who voted for NBCC, 2 had dissented/abstained. Even assuming the
percentage as stated by these appellants to be correct, we are at a loss
to find any logic in the submissions so made. A re-look at sub-section (3A)
of Section 25A would make it clear that ‘50%’ for the purpose of the said
provision is of those homebuyers who cast their vote. On the percentage
figures as given before us, out of the total voting share of homebuyers at
57.66%, the persons carrying 22.51% voting share simply abstained and
of the persons casting their votes, ayes were having the voting share of
34.10% whereas nays were having the voting share of 1.05%. Obviously,
50% would be counted only of the persons who chose to vote where,
much higher than 50% of the homebuyers who cast their vote, stood for
86
approval of the resolution plan of NBCC . Such a voting cannot be set at
86 The IRP has given the details of voting by the allottees in the following terms (in paragraph 4
of its written submissions under the heading- ‘Issues raised by homebuyers’): -
“…. In the present case, out of 21781 allottees forming the class of allottees,
12147 cast their vote on the Resolution Plan. (It is pertinent to mention that
through the resolution plan process of JIL, around 9000 allottees have always
remained non-responsive and abstained from voting at any time.) Out of 12147
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naught for the purported dissatisfaction of a miniscule minority, which was
about 3.69% in terms of the number of persons voting; and about 1.05%
in terms of the voting share. They have to sail along with the
overwhelming majority. That is the purport and effect of ‘drag along’ or
‘sail along’ provisions in the scheme of the Code.
166. For what has been discussed hereinabove, the suggestions that
there was no cent percent approval of the resolution plan, or that there
was no consensus amongst homebuyers, or that the plan of Suraksha
Realty was considered better, are required to be rejected. It is not the
case that the AR of homebuyers has not voted in accordance with the
decision taken by a vote of more than 50% of the voting share of
homebuyers who did cast their vote. In the given set of facts, we have no
hesitation in thoroughly disapproving the unnecessary imputations made
by one set of homebuyers against the AR that he made any incorrect
statement before the CoC. That being the position, and the authorised
representative having voted in accordance with the instructions given to
him from the class of financial creditors i.e., homebuyers, every individual
falling in this class remains bound by his vote and any association or
homebuyer of JIL cannot be acceded the locus to stand differently and to
project its/his own viewpoint or grievance by way of objections or by way
allottees who cast their vote (present and voting), 11699 allottees voted in
favour of the Resolution Plan while 448 voted against the Resolution Plan. Thus,
the number of allottees who voted in favour of the Resolution Plan, this 11699,
comprise 96.31% of the total number of allottees present and voting….”
301
of appeal. All such objections and appeals are required to be rejected on
this ground alone.
167. The suggestion about the so-called statutory right of appeal has
only been noted to be rejected. The homebuyers as a class shall be
deemed to have voted in favour of approval of the resolution plan of
NBCC; and once having voted so, any particular constituent of that class
cannot be heard in opposition to the plan by way of objection or appeal.
The statute, that is IBC, has itself provided for estoppel against any such
attempted opposition to the plan by a constituent of the class that had
voted in favour of approval.
168. The misplaced assumptions on the part of dissatisfied
homebuyers have gone to the extent that they have attempted to put
themselves at par with the dissenting financial creditors like ICICI Bank,
who carry an entirely different legal status in CIRP, for being not within the
class of homebuyers and being of a different class of financial creditors.
The said financial creditor has rightly opposed these submissions and has
rightly pointed out that its rights in terms of Section 30(2)(b) of the Code
stand at an entirely different footing.
169. Another attempt has been made as regards calculation of voting
weightage by suggesting that the homebuyers to whom flats have been
delivered could not have been taken out of CoC. Even this suggestion
remains bereft of substance. When a person does not stand in the
capacity of a financial creditor i.e., to whom no financial debt is owed by
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the corporate debtor, he could only be taken out of the block of financial
creditors. We are impelled to observe that consideration and voting at the
resolution plan is not a process or event where any objection or grievance
could be raised even by a person who does not stand in the capacity of a
financial creditor. His remedies, in accordance with law, could be
elsewhere but not in this process of approval of resolution plan under the
Code.
169.1. For the same reasons as above, the suggestion to keep any
housing project which is already complete or nearing completion out of
the purview of the resolution plan is required to be rejected. When
approval of the resolution plan is to be voted by CoC; and its composition
is specified by the Code, there is no such concept of keeping any
particular homebuyer out of CoC even if the relationship of creditor and
debtor subsists between him and the corporate debtor.
170. To sum up this part of discussion, in our view, after approval of the
resolution plan of NBCC by CoC, where homebuyers as a class assented
to the plan, any individual homebuyer or association cannot maintain any
challenge to the resolution plan nor could be treated as carrying any legal
grievance.
171. Once we have held that these dissatisfied homebuyers and
associations are not entitled to put up any challenge to the resolution plan
contrary to the decision of the requisite majority of their class, all their
objections are required to be rejected outright. Yet, in the interest of
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justice, we have examined these objections to find if there be any aspect
worth consideration within the periphery of Section 30(2) of the Code. We
find none.
171.1. The major part of the objections of these dissatisfied homebuyers
relate to the purported rights under RERA. We are afraid, even such
propositions do not stand in conformity with law. The interplay of RERA
and IBC also came up for fuller exposition in the case of Pioneer Urban
(supra) and this Court rejected the contentions urged on behalf of the
petitioners that RERA being a special enactment dealing with real estate
development projects must be given precedence over the Code. In
Pioneer Urban , this Court noticed Section 238 of the Code and held as
under: -
“25. It is significant to note that there is no provision similar to that
of Section 88 of RERA in the Code, which is meant to be a
complete and exhaustive statement of the law insofar as its
subject-matter is concerned. Also, the non obstante clause of
RERA came into force on 1-5-2016, as opposed to the non
obstante clause of the Code which came into force on 1-12-2016.
Further, the amendment with which we are concerned has come
into force only on 6-6-2018. Given these circumstances, it is a little
difficult to accede to arguments made on behalf of the learned
Senior Counsel for the petitioners, that RERA is a special
enactment which deals with real estate development projects and
must, therefore, be given precedence over the Code, which is only
a general enactment dealing with insolvency generally. From the
introduction of the Explanation to Section 5(8)( f ) of the Code, it is
clear that Parliament was aware of RERA, and applied some of its
definition provisions so that they could apply when the Code is to
be interpreted. The fact that RERA is in addition to and not in
derogation of the provisions of any other law for the time being in
force, also makes it clear that the remedies under RERA to
allottees were intended to be additional and not exclusive
remedies. Also, it is important to remember that as the authorities
under RERA were to be set up within one year from 1-5-2016,
remedies before those authorities would come into effect only on
and from 1-5-2017 making it clear that the provisions of the Code,
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which came into force on 1-12-2016, would apply in addition to
RERA.”
*
29. It is clear, therefore, that even by a process of harmonious
construction, RERA and the Code must be held to co-exist, and, in
the event of a clash, RERA must give way to the Code. RERA,
therefore, cannot be held to be a special statute which, in the
case of a conflict, would override the general statute viz. the
Code .
30. As a matter of fact, the Code and RERA operate in completely
different spheres. The Code deals with a proceeding in rem in
which the focus is the rehabilitation of the corporate debtor. This is
to take place by replacing the management of the corporate debtor
by means of a resolution plan which must be accepted by 66% of
the Committee of Creditors, which is now put at the helm of affairs,
in deciding the fate of the corporate debtor. Such resolution plan
then puts the same or another management in the saddle, subject
to the provisions of the Code, so that the corporate debtor may be
pulled out of the woods and may continue as a going concern,
thus benefitting all stakeholders involved. It is only as a last resort
that winding up of the corporate debtor is resorted to, so that its
assets may be liquidated and paid out in the manner provided by
Section 53 of the Code. On the other hand, RERA protects the
interests of the individual investor in real estate projects by
requiring the promoter to strictly adhere to its provisions. The
object of RERA is to see that real estate projects come to fruition
within the stated period and to see that allottees of such projects
are not left in the lurch and are finally able to realise their dream of
a home, or be paid compensation if such dream is shattered, or at
least get back monies that they had advanced towards the project
with interest. At the same time, recalcitrant allottees are not to be
tolerated, as they must also perform their part of the bargain,
namely, to pay instalments as and when they become due and
payable. Given the different spheres within which these two
enactments operate, different parallel remedies are given to
allottees under RERA to see that their flat/apartment is constructed
and delivered to them in time, barring which compensation for the
same and/or refund of amounts paid together with interest at the
very least comes their way. If, however, the allottee wants that the
corporate debtor’s management itself be removed and replaced,
so that the corporate debtor can be rehabilitated, he may prefer a
Section 7 application under the Code. That another parallel
remedy is available is recognised by RERA itself in the proviso to
Section 71(1), by which an allottee may continue with an
application already filed before the Consumer Protection Fora, he
being given the choice to withdraw such complaint and file an
application before the adjudicating officer under RERA read with
Section 88. In similar circumstances, this Court in Swaraj
Infrastructure (P) Ltd. v. Kotak Mahindra Bank Ltd. has held that
the Debts Recovery Tribunal proceedings under the Recovery of
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Debts Due to Banks and Financial Institutions Act, 1993 and
winding-up proceedings under the Companies Act, 1956 can carry
on in parallel streams (see paras 21 and 22 therein).”
(emphasis in bold supplied)
171.1.1. In view of the above, all the contentions regarding operation of
RERA and claim thereunder or any other claim for compensation or
interest, when not standing in conformity with the approved resolution
plan, deserve to be rejected. In fact, the question as to what kind of
agreement should be entered into with financial creditors like homebuyers
is essentially a matter falling within the arena of commercial decision; and
needless to repeat that in the process of approval of a resolution plan, the
factors related with commerce are left to the wisdom of the Committee of
Creditors. When the Committee of Creditors has approved the proposals
of NBCC in the resolution plan, the same cannot be tinkered with
reference to the grievance of some of the homebuyers about deprivation
of adequate interest or compensation. In this view of the matter, the
decision of this Court in the case of Wg Cdr. Arifur Rahman Khan
(supra) needs no discussion because that would not apply to the issues
presently under consideration.
172. Yet another objection as regards liquidation costs has rightly been
clarified by the IRP and NBCC that under Regulation 39B of the CIRP
Regulations, the CoC has been given a discretion to ascertain liquidation
costs at the time of approval of the resolution plan or deciding to liquidate
the company. This aspect, essentially lying within the arena of commerce,
is also required to be left to the commercial wisdom of the Committee of
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Creditors. In any case, this aspect cannot be said to have a bearing on
the decision as regards feasibility and viability of the resolution plan of
NBCC and is required to be rejected. Similarly, the objections with
reference to Regulation 36A(7) are also required to be rejected because
there had not been any condition imposed by NBCC in expression of
interest. As regards the conditions in the resolution plan, particularly
Clauses 1 and 2 of Schedule 3 thereof, as already indicated, the matter
relating to the said amount of INR 750 crores deposited by JAL pursuant
to the directions of this Court in Chitra Sharma (supra) is being
considered separately; and the stipulation in Clause 2 of Schedule 3 is
even otherwise redundant in view of insertion of Section 32A to the Code,
as discussed by the Adjudicating Authority, which need not be repeated.
Suffice it to observe for the present purpose that the process of approval
of the resolution plan is not vitiated because of such stipulations.
Needless to say that these observations are not to be construed as our
approval of Clause 1 of Schedule 3 of the resolution plan, because its
legality and validity is being examined separately in Point J infra .
173. We have summarised the major aspects of multifarious
submissions, objections and suggestions projected before us but find that
the attempt to raise such objections is itself baseless for being not in
conformity with the provisions of the Code read with the law declared by
this Court in Pioneer Urban (supra). The objections and submissions do
not carry any merits either. In this view of the matter, we are not entering
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into the other submissions made by NBCC as regards the number of
members of one of the appellant-association because nothing turns upon
that.
174. Before concluding on this segment of discussion, we are impelled
to indicate that the objections and suggestions by dissatisfied
homebuyers have gone to the extent of suggesting that IRP should be
directed to release funds for raising construction; the Noida Authority be
directed to issue the necessary Occupancy Certificate; and NBCC be
directed to complete the entire project within 3 years and be prohibited
from charging the homebuyers with any extra amount towards arbitrary
increase in the name of ‘Super Built-Up Area’. An objection is stated that
there had been diversion of the money deposited by homebuyers to
YEIDA; and the suggestion has gone to the extent that the project may be
taken over by the Government of Uttar Pradesh. These and other similar
nature submissions, which do not relate to the real questions in
controversy, neither carry any meaning nor any substance; they have only
been noted to be rejected.
175. For what has been discussed above, we hold that the homebuyers
as a class having assented to the resolution plan of NBCC, any individual
homebuyer or any association of homebuyers cannot maintain a
challenge to the resolution plan and cannot be treated as a dissenting
financial creditor or an aggrieved person; the question of violation of the
provisions of the Real Estate (Regulation and Development) Act, 2016
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does not arise; the resolution plan in question is not violative of the
mandatory requirements of the CIRP Regulations; and when the
resolution plan comprehensively deals with all the assets and liabilities of
the corporate debtor, no housing project could be segregated merely for
the reason that the same has been completed or is nearing completion.
Point J
INR 750 crores and accounting between JAL and JIL
176. We now need to enter into another area of serious dispute in
these matters, which relates to the claim over the amount of INR 750
crores (which was deposited by JAL pursuant to the directions of this
Court in the case of Chitra Sharma ) and the interest accrued thereupon.
On one hand, JAL and the persons/entities related with it, including its
homebuyers and institutional financial creditor, assert that this money is
the property of JAL and ought to come back to JAL but, on the other
hand, the resolution applicant NBCC as also the persons/entities related
with the corporate debtor JIL, including its homebuyers and the
institutional financial creditor, assert that this money is a part of the assets
of JIL and the Adjudicating Authority has rightly held so. In a third angle,
an association of homebuyers of JAL submits that a part of this amount
be designated to complete the construction work in relation to their
project. Yet another angle is projected by some of the dissatisfied
homebuyers of JIL, who suggest that NBCC is simply aiming at
profiteering by getting hold of this money but without making any
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corresponding provision in the resolution plan for its appropriate use for
the benefit of homebuyers. Added to these rival claims are the other
disputes of accounting, in relation to the advance made by JIL and its
homebuyers to JAL towards special advance and Interest Free
Maintenance Deposit etc. In fact, it has been the submission on behalf of
JAL that either the entire amount of INR 750 crores with accrued interest
be returned to it or in the alternative, after reconciliation of accounts, its
liability towards JIL be adjusted from this corpus and balance be refunded
to it. In this scenario, we have formulated separate questions regarding
the treatment of this amount of INR 750 crores and accrued interest and
regarding reconciliation of accounts between JAL and JIL but, for being
interlaced, these questions are taken up for determination together.
177. Indisputably, this sum of INR 750 crores was deposited by JAL
pursuant to the orders passed by this Court in the case of Chitra Sharma
(supra). While finally deciding the case of Chitra Sharma by the
judgment dated 09.08.2018, this Court took note of myriad features of the
case and also took note of the claim of some of the homebuyers to allow
this money to be utilised for making refunds but declined such a prayer
and transferred this money to the NCLT.
177.1. In the process taken up thereafter, the relevant facts concerning
this amount were spelt out by IRP in the information memorandum.
Thereafter, in the resolution plan, NBCC rather made the availability of
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this corpus a condition precedent for implementation of the plan in the
very first clause of its ‘reliefs and concessions’ in the following terms: -
“INR 750 Cr was deposited by JAL with the Hon’ble Supreme
Court and which amount (with the interest accrued thereon) was
transferred to the Adjudicating Authority as per directions of the
Hon’ble Supreme Court, with a direction that such monies shall
continue to remain invested and parties shall bide by such
directions as may be issued by the Adjudicating Authority.
This amount of INR 750 Cr along with the interest accrued thereon
will be made available to the Corporate Debtor/Resolution
Applicant. Post receipt by the Corporate Debtor, this amount of
INR 750 Cr will be treated in the books of accounts of the
Corporate Debtor as equity infusion by the Existing Promoters and
the corresponding equity of the Existing Promoters shall
subsequently be extinguished in a manner similar to that adopted
for extinguishment of other equity holding of the Existing
Promoters under this Resolution Plan including by way of Capital
Reduction or selective Capital Reduction. In the event, the said
amount of INR 750 Cr along with the interest accrued is not made
available to the Resolution Applicant/Corporate Debtor then the
Resolution Applicant has the right to withdraw from this process
without any liability of any nature on the Resolution Applicant.”
177.2. The resolution plan was approved by the Committee of Creditors;
meaning thereby that the aforesaid clause was accepted by the
Committee of Creditors. However, the claim towards this amount of INR
750 crores with accrued interest became a bone of contention when the
Adjudicating Authority (NCLT) took up the process of approval of the
resolution plan, particularly for JAL staking its claim over this amount as
being the rightful owner thereof. In this regard, the Adjudicating Authority,
after taking note of the orders passed by this Court in the case of Chitra
Sharma (supra), concluded that the deposit made by JAL was always
meant for the benefit of the homebuyers of JIL and became an asset of
the corporate debtor JIL; and the said amount was to be utilised towards
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securing the interests of homebuyers and fulfilling the obligations made to
them, i.e., offering possession of the residential units after completing
necessary construction or making refunds, as the case may be.
178. While questioning the aforesaid stipulation in the resolution plan
and this part of the order impugned, vast variety of submissions have
been made on behalf of JAL, its institutional financial creditor and its
homebuyers.
178.1. It has been contended on behalf of JAL that the said sum of INR
750 crores undisputedly belongs to JAL, as the same was deposited by it
on the directions of this Court in the order dated 11.09.2017 in Chitra
Sharma (supra). It is submitted that this Court ordered the deposit to be
made by JAL so as to provide an interim workable arrangement and relief
to the homebuyers, who were, at the relevant time, not recognised as
financial creditors of the corporate debtor and had no say in the resolution
process of a company in which, they had made deposits for their future
homes. However, it is submitted, the purpose of this deposit was not
aimed at resolving the insolvency of JIL so as to make it an asset of JIL;
and it was clearly mentioned in the information memorandum that the
sum of INR 750 crores was deposited by JAL and was not an asset of JIL.
Moreover, the interest payable would also accrue to JAL and would be an
asset of JAL.
178.1.1. It has been forcefully contended that the assets belonging to a
third party cannot be utilised towards the resolution of insolvency of a
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corporate debtor, as held by this Court in the case of Embassy Property
(supra). The decision in Anuj Jain (supra) has also been referred to
submit that therein too, this Court disallowed JIL’s assets from being
utilised for securing the dues owed by JAL.
178.1.2. With reference to the proceedings in the case of Chitra
Sharma , it is submitted that the purpose for which this deposit was
ordered has been achieved due to the amendment of IBC and there is no
reason for allowing this amount to be treated as an asset of JIL. It is also
submitted that in Chitra Sharma , this Court directed opening of the web-
portals for the homebuyers of both JIL and JAL; and this makes the
position clear that the said amount was meant for the homebuyers of JAL
too. Hence, the Adjudicating Authority (NCLT) proceeded on an erroneous
premise that the amount was only for the refund of JIL’s homebuyers,
thereby seriously prejudicing the homebuyers of JAL.
178.1.3. It is submitted that JAL is committed to make the pending
homes for its own homebuyers for which it requires funds; and utilisation
of the deposit made by JAL towards the insolvency resolution of JIL would
result in a ‘Domino Effect’ and would expose JAL to the risk of insolvency
and, on the other hand, would result in unjust enrichment of the resolution
applicant (NBCC).
178.1.4. In another limb of arguments, it is submitted that JAL is
conscious of its liability towards JIL, which was INR 195 crores as on
31.03.2020; and since JAL is not in a position to make this payment
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unless the amount of INR 750 crores is refunded to it, in all fairness, JAL
offers that this admitted liability towards JIL could be discharged by
appropriating from the said amount of INR 750 crores and the balance be
refunded to JAL. It is submitted that the said payable amount may be
verified by IRP or by a chartered accountant appointed by him. In this
regard, while referring to the background facts relating to the construction
contracts given to JAL and advance payment on that account made by
JIL, the term in the resolution plan providing for termination of
construction contracts has also been referred and it has been prayed that
the balance due from JAL could be adjusted from the said amount of INR
750 crores, if NBCC makes a formal submission to the effect that it would
be terminating the construction agreements. The written submissions on
behalf of JAL in this regard could be reproduced as under: -
“ G. AMOUNTS DUE FROM JAL TO JIL
26. JIL has entered into various agreement(s)/ work contract(s) for
development of Yamuna Expressway and
development/maintenance of other land parcels located at Noida,
Jaganpur, Mirzapur, Tappal & Agra. Pursuant thereto, at the
request of JAL, JIL has advanced to JAL a sum aggregating to Rs.
716 Crores (as on 31.03.2018) which was recoverable from JAL’s
RA Bill as also when construction work was carried out.
27. The said sum was accordingly been recovered from JAL’s RA
Bill since August 2017 leaving an outstanding of Rs.274 Crores as
on 31.12.2019. This has further reduced to a sum aggregate of
Rs.195 Crores as on 31.03.2020 (as per the audited accounts),
and is likely to be reduced by approx. Rs.165 Crores within a
period of 12 months as per the work plan drawn by the RBSA
(Advisors to the CIRP) [@Pg.143 of JAL’s Additional Affidavit].
28. Therefore, JAL is conscious of the fact that liability towards JIL
now stands to Rs.195 Crores (as on 31.03.2020 and is reducing
per the construction work). Since JAL is not in a position to make
this payment independently unless the Rs.750 Crores is refunded
back to it, hence, in all fairness and bonafide , JAL offers that this
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admitted and undisputed liability towards JIL can be discharged by
appropriating the said liability from the Rs.750 Crores and the
balance may be directed to be refunded. This amount may be
verified by the RP or by a chartered accountant appointed by him.
29. However, it is pertinent to mention herein that NBCC’s
Resolution Plan treats the contracts for construction (between JIL
and JAL) in the following manner [@Pg.47of JAL’s Additional
Affidavit dated 12.05.2020] :
“(vi) Resolution Applicant shall have a right to terminate
the current construction contracts with Jaiprakash
Associates Limited, (“ JAL ”), which are on cost plus
basis and enter into fresh construction contracts with
the vendors as may be selected by the Resolution
Applicant in accordance with its business policies and
such contracts shall be entered into on arms’ length
basis as per the market standard. Provided that JAL
shall not be entitled to terminate such construction
contracts for a period of 12 months from the Approval
Date.” (Emphasis Supplied)
30. The above clearly shows that JAL is at the mercy of NBCC
wherein NBCC is free to terminate the contracts for construction
unilaterally, whereas JAL cannot. Therefore, it is submitted that the
aforementioned balance of Rs.195 Crores (which was to be
appropriated towards the construction of JIL’s Projects) can only
be adjusted/ set off from the sum of Rs.750 Crores if NBCC makes
a formal submission to the effect that it would be terminating the
construction agreements.”
(emphasis is in original)
178.1.5. It has, therefore, been prayed that the said sum of INR 750
crores along with accrued interest be ordered to be refunded to JAL or in
the alternative, the refund may be ordered after appropriating the amount
of liability of JAL towards JIL, in terms of above-quoted paragraph 30 of
the written submissions.
178.2. While supporting the submissions for return of INR 750 crores, the
homebuyers of JAL have contended that the said deposit was not meant
to finance construction, or to grant equity, or loan, or for any charitable
purpose; that the Supreme Court ordered the deposit to be made by JAL
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only to provide an interim workable arrangement and for relief to the
homebuyers, as they were not having the status of a financial creditor
under the Code; that the purpose of the deposit was not for resolving the
insolvency of JIL; and that the information memorandum did not show this
sum of INR 750 crores as an asset of the corporate debtor JIL. With
reference to the condition precedent mentioned in the resolution plan
involving the transfer of INR 750 crores in favour of NBCC, it is submitted
that the question requiring consideration is as to whether NBCC could
have laid a claim over the said sum of INR 750 crores as a condition of its
bid? Further, an unjustified deprivation of the rightful amount to JAL and
deprivation of the right of utilisation of the amount by the developer acts
as a serious prejudice and detriment to the legal rights and interests of
the homebuyers of JAL. It is submitted that the reasoning and findings of
NCLT in the order dated 03.03.2020 are flawed and without any basis.
The amount deposited has not been shown in the books of accounts of
JIL as its asset and the NCLT had no authority to allow the same to be
claimed by NBCC under a conditional resolution plan. It is further
submitted that the order of the NCLT puts the homebuyers of JIL at an
advantageous position at the cost of the interests of the homebuyers of
JAL, which is contrary to the provisions and spirit of the CIRP Regulations
and the Code as a whole. The homebuyers of JAL have prayed that this
amount of INR 750 crores with accrued interest be released to JAL so as
to secure the interests of its homebuyers.
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178.3. An association of homebuyers of JAL has also challenged the said
order of NCLT dated 03.03.2020 directly in this Court and has submitted
that “Knights Court Project” was supposed to be completed by 2015 and
the homebuyers have already paid 95% of the sale consideration to JAL.
It is submitted that the sum of INR 750 crores was deposited by JAL for
the benefit of homebuyers of JAL and JIL and it was stated that 92% of
the homebuyers wanted to obtain possession of the flat, which is possible
only after necessary construction takes place. It is further submitted that
the money of the contributors of JAL ought to be first utilised for the
construction of the flats of “Knights Court Project” and not towards the
resolution plan of JIL or for returning to JAL. This association has stated
its own grievance that in the simultaneously held proceedings under
RERA, JAL has demanded from its members another sum of INR 98
crores and it is submitted that the liability for completion and development
of flats of the aforesaid project was of JAL but there was an unexplained
delay of 5-7 years on the part of JAL; and therefore, it was onerous that
JAL was demanding such an amount from its members.
178.3.1. It has been submitted on behalf of this association of
homebuyers of JAL that only an amount of INR 160 crores is required to
finish the aforesaid project and it has been prayed that the same be made
available from the said INR 750 crores deposited by JAL, for completing
the houses of the members of this association.
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178.4. The institutional financial creditor of JAL has contended that the
deposit of INR 750 crores was made by JAL out of its own money and has
continued to be its asset; and that in the absence of any direction by the
Supreme Court or any legal transfer, the ownership of this deposit would
not change, and this money is required to be returned to JAL. It is
submitted that this Court has consistently laid down that an act of the
Court cannot prejudice any party before it and in case it happens, the
Court is bound to revert the party to the position prior to such an act of the
Court. The decision in the case of ONGC and Anr. v. Association of
Natural Gas Consuming Industries and Ors. : (2001) 6 SCC 627 has
been referred. It is submitted that JAL deposited the money on the
directions of this Court for securing the interests of homebuyers but, since
the Court did not make any direction for the utilisation of this deposit and
simply transferred the fund to NCLT, JAL is entitled to be restored to its
original position with return of this amount. It is reiterated that the IRP
cannot lay a claim over the assets of a third party, held in trust or in
possession of the corporate debtor. It is also re-emphasised that the
directions to JAL for making this deposit was to arrive at an interim
workable arrangement and to protect the interests of the homebuyers; but
when the purpose became moot after the amendment of IBC, the money
is supposed to be returned to its owner, i.e., JAL. It is submitted that JAL
itself is in financial distress and is unable to meet with the obligations
towards its stakeholders and an application under Section 7 of the Code
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for the CIRP of JAL is pending. With these submissions, it has been
prayed that the deposited amount with accrued interest be ordered to be
returned to JAL and be further ordered to be kept in an escrow account
under the control of the lenders of JAL, led by ICICI Bank.
179. The submissions aforesaid, for refund of INR 750 crores with
accrued interest to JAL, have been duly countered by the persons/entities
standing for the resolution plan, while supporting the order passed by the
Adjudicating Authority. We may take note of the leading submissions in
this regard.
179.1. It has been contended on behalf of the resolution applicant NBCC
that the resolution plan introduced by it, which got approved by the CoC
and by the Adjudicating Authority, included this deposit of INR 750 crores
by JAL to be treated in the CIRP of JIL and utilisation of this amount has
been a condition precedent to the implementation of the resolution plan.
179.1.1. NBCC has elaborated on the submissions that the stipulation in
its resolution plan as regards this sum of INR 750 crores was essentially
based on the orders of this Court in the case of Chitra Sharma ; and on
the fact that JAL was directed to deposit this money in the proceedings
which were filed in relation to CIRP of JIL. It is submitted with reference to
various orders passed in the case of Chitra Sharma that this money was
clearly meant for the benefit of homebuyers and though this Court initially
discussed the proposition of pro rata disbursement among the refund
seekers but no such disbursement was ordered after the Court noticed
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that an overwhelming majority of homebuyers was desirous of seeking
possession of flats and disbursement to refund seekers was going to
cause prejudice to others. It is submitted that intention of the Court, that
the aforesaid amount shall inure to the benefit of homebuyers, is also
apparent from the fact that even after amendment of the Code with effect
from 06.06.2018, whereby the homebuyers were included as financial
creditors, this Court deemed it appropriate to retain the deposit for the
benefit of JIL homebuyers and did not pass any modification order in
respect thereof or any order for release of said amount to JAL.
179.1.2. With reference to the contents of the information memorandum
under sub-heading ‘ Unique Investment/financing opportunity for the
Resolution Applicant with adequate value to be unlocked’ in the
‘Investment Highlights’, NBCC would submit that the financial model of
the resolution plan is based on the availability of this sum of INR 750
crores, and if the same is not made available, it would be handicapped in
completing the flats of the homebuyers. NBCC has reiterated that
availability of this amount being a condition precedent, it would have a
right to withdraw from the resolution plan in the event this amount is not
made available to it.
179.1.3. It has also been submitted that the deposit made by JAL
pursuant to the orders of this Court in Chitra Sharma was to secure and
protect the interests of homebuyers of JIL and in order to act on the lines
of the order of this Court, the deposit ought to be permitted to be used to
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achieve the purpose namely, the construction of dwelling units. NBCC
submits that the said sum of INR 750 crores did not remain an asset of
JAL after the same was deposited in this Court.
179.1.4. Apart from the aforesaid submissions and without prejudice,
NBCC has also stated, with reference to the observations made by this
Court during the course of hearing, that if any reconciliation of accounts
has to be carried out before approval of the plan by this Court, NBCC
ought to be involved in such an exercise, for being the successful
resolution applicant and a part of the erstwhile Interim Monitoring
Committee.
179.1.5. NBCC has also referred to paragraph 77 of the impugned order
dated 03.03.2020, wherein the NCLT has recorded an admission on
behalf of JAL about its liability towards JIL to the tune of INR 274 crores
and ordered that JAL shall make this payment to JIL; and regarding the
remaining amount, JAL and JIL shall draft a reconciliation statement and
proceed according to the outcome of such reconciliation.
179.1.6. Long drawn submissions have been made on behalf of NBCC in
regard to the alleged liabilities of JAL towards JIL on various scores.
These aspects of accounting would not, as such, require adjudication
herein but have some bearing on the issues raised before us and hence,
a part of the written submissions on behalf of NBCC in this regard are
reproduced as follows: -
“2.JAL has claimed by way of an additional affidavit filed in the
JAL Appeal claimed that as on 31 March 2020, the amount owed
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by JAL to JIL has reduced to INR 218 Crores. It needs to be
highlighted that under the Resolution Plan, NBCC has reserved its
right to terminate all existing contractual arrangements with JAL.
3. It is submitted that as per the records of JIL provided by the IRP
and seen by NBCC during its presence in the IMC, it has been
observed that:
The Home Buyer of JIL are required to pay amounts in the
nature of Interest Free Maintenance Deposit (“ IFMD ”) towards the
flat units purchased by them, and after the formation of recognized
Residents Welfare Associations (RWAs) this IFMD is required to
be transferred to RWA as per provisions of the UP Apartments Act.
Since JAL is the designated maintenance agency for such flat
units as per the existing contractual arrangement between JIL,
JAL and the Home Buyers, this payment of IFMD was to be paid
by Home buyers to JAL and thereafter the transfer of IFMD was to
be made by JAL to the RWAs.
In the year 2016, on the request of JAL, JIL has paid to JAL an
advance amounting to INR 381 crore towards Interest Free
Maintenance Deposit (IFMD, with the understanding that these
amounts would be later on recovered by JIL form the Home
Buyers at the time of taking over of possession of their flat units by
the Home Buyers and the advance paid will get adjusted.
However, JAL will transfer the IFMD to the RWAs.
i. Accordingly, during course of handing over of the flats, an
amount of approximately INR 115 Crores has been collected from
Home Buyers by JIL and same stands adjusted from the advance
amount of INR 381 Crores but is now payable/transferable to the
RWAs of the Home Buyers by JAL.
ii. Therefore, an amount of INR 266 Crore (INR 381-INR 115 Cr)
is still recoverable by JIL from JAL as per audited accounts of JIL
as on 31 March 2020. Overall, the Amount of Rs 115 Crore
(ultimately to be transferred to RWA) along with 266 crores
(pertaining to JIL) i.e. 381 crores is recoverable from JAL towards
Interest Free Maintenance Deposit (IFMD) of Home Buyers. This
needs to be seen in the context that NBCC may terminate all
existing contractual arrangements with JAL and thus INR 115
Crores which is money belonging to Home Buyers ought to be
paid by JAL to JIL for further transfer to the Home Buyers.
iii. Further, JIL has paid to JAL an advance amounting to INR 450
crore towards special advance in the year 2016, which was being
recovered on pro-rata basis from the JAL running bills. Till 31 Mar
2020, an amount approx. of INR 146 Crores is adjusted from
running bills of JAL and an amount of INR 304 Crore is still
recoverable from JAL as on 31 March 2020 as per audited
accounts of JIL as on 31 March 2020.
iv. Apart from the above, an amount of INR 71 Crore is also
recoverable from JAL in respect of Land Swap Deal with JAL
lenders.
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v. From above details, it is apparent that a cash amount of INR
756 Cr (381 + 304 + 71 Cr) is payable by JAL to JIL as on
31.3.2020.
vi. It is pertinent to mention that the Hon’ble Court by judgment
dated 26.02.2020 in Civil Appeal No. 8512-8527 of 2019 Anuj
Jain vs. Axis Bank Limited etc. etc. (2020 SCC Online SC 237)
(“ 758 Acres Judgment ”) has set aside mortgage created on 758
acres of land belonging to JIL to secure the debts of JAL on the
ground that the same were preferential transactions. However,
apart from the said 758 acres of land, mortgage of 100 acres of
land of JIL to secure JAL’s debts could not be set aside as the
same was beyond the look back period. Thus, at present a
mortgage of 100 acres of land of JIL still exists to secure the debts
of JAL. Hence, an amount equivalent to the market value of the
100 acre mortgaged land (mortgaged against 1500 crore loan)
could be payable by JAL to JIL, subject to JIL exercising the
remedies available to it under the law in this regard. The
equivalent value of the said land as per the valuation taken for the
purpose of the Resolution Plan (land proposed to be transferred
through land SPV) is INR 328 crores.
vii. Hence it is submitted that for effective implementation of the
Resolution Plan and to ensure that the strict timelines prescribed
therein are met, JAL shall pay to JIL immediately upon the
disposal of these appeals and under the aegis of this Hon’ble
Court a total Amount of Rs 1084 Crores (756 crores + 328 Cr).
viii. The same shall be utilised for the construction in terms of the
NBCC Resolution Plan.”
179.1.7. Apart from the above, the resolution applicant NBCC has also
indicated various other aspects of accounting in regard to the defect
liability of JAL as the master developer; and charging of excess profit by
JAL. However, it is also submitted that the suggested amounts are subject
to final reconciliation and verification. With these submissions, the prayer
on behalf of NBCC is stated in the following terms: -
“9.Needless to state that the above amounts are subject to final
reconciliation and verification of accounts. In this regard it is
requested that such reconciliation should be carried out by an
independent third party to be nominated by the Hon’ble Court
which would ensure that the rightful entitlement of JIL is provided
to it and the Resolution Plan is successfully and effectively
implemented.”
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179.2. The associations of homebuyers of JIL, while supporting the
submissions of the resolution applicant, have contended that returning the
said sum of INR 750 crores deposited by JAL would be contrary to the
orders of this Court, as the intention of the Court in Chitra Sharma was to
safeguard the interests of homebuyers and rehabilitation of JIL. Moreover,
direction by the Court to JAL for making such deposit, even when it was
aware that JAL was not a party to the CIRP of JIL, shows that the refund
shall not be made to JAL. It is submitted that any such refund may cause
reduction of readily available funds to start the construction of unfinished
projects.
179.2.1. It has been prayed that the Court may confirm that the said sum
of INR 750 crores is to protect the interests of the homebuyers and forms
a part of the assets of JIL. Alternatively, it has also been prayed that
reconciliation of accounts between JAL and JIL be done in a time bound
manner; and the refund of leftover funds be not permitted until NBCC
completes the construction of apartments and the homebuyers get the
possession of the flats. The homebuyers have also prayed for an
injunction against NBCC, barring it from withdrawing and for direction to
NBCC to expedite the process of implementation. Yet further prayers
have been made to direct an audit of the quality of construction by NBCC
to make sure that it conforms to the quality agreed upon by the
homebuyers at the time of booking the apartments.
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179.3. The other homebuyers of JIL, while supporting the submissions
aforesaid, have reiterated that the directions of this Court in Chitra
Sharma to JAL for making the said deposit was primarily to safeguard the
interests of the homebuyers and rehabilitation/restitution of JIL; that it was
a conscious decision of this Court keeping the interests of the
homebuyers in mind; that if the intention of this Court was to revert this
deposit to JAL, an express direction would have been made in that behalf
but, despite multiple pleas of JAL, this Court did not do so; that the
application of JAL seeking recall of the directions for depositing INR 2,000
crores was dismissed by the order dated 25.10.2017 and it is against the
principles of res judicata for JAL to seek the same relief in the present
proceedings; that the IRP was conscious of the intention of this Court
regarding the fate of the deposit made by JAL and that is why included
this amount in the information memorandum with a caveat that it is
subject to the order of the NCLT. It is further submitted that any direction
for refund of this money to JAL would cause shortage of readily available
funds to start the construction, which may jeopardise the fate of the entire
project.
179.4. Even those associations of homebuyers of JIL, who have
attempted to project themselves as ‘dissenting’ homebuyers, are ad idem
on this issue that the said sum of INR 750 crores is the property of JIL
and ought not be refunded to JAL. However, it is submitted by them that
NBCC is aiming at profiteering by getting hold of this money without
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corresponding provision in the resolution plan for its use for the benefit of
homebuyers.
179.5. The other persons/entities standing with JIL have also opposed
the submissions made on behalf of JAL for return of this sum of INR 750
crores. It is submitted that even while permitting RBI to allow the banks to
initiate CIRP against JAL, this Court did not issue any direction for refund
of the deposit made by JAL and rather allowed this amount to be utilised
for the CIRP of the corporate debtor JIL. Therefore, this amount has
rightly been taken in the resolution plan for being utilised for the purposes
of JIL.
180. From the long range of submissions aforesaid, two aspects
emerge for determination: one, as regards the treatment of the said
amount of INR 750 crores and accrued interest; and second, as regards
the amount receivable by JIL from JAL and reconciliation of accounts
between these two companies. For dealing with extensive submissions
concerning the said amount of INR 750 crores and accrued interest,
worthwhile it would be to recapitulate the basic facts related with this
deposit.
181. A comprehensive look at what had transpired during the course of
consideration of the matter involved in Chitra Sharma and what had
culminated in the final judgment dated 09.08.2018, a few pertinent
features come to the fore, which essentially relate to the concern of this
Court towards homebuyers of JAL and JIL taken as a whole. As noticed,
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when the proceedings were taken up by this Court in Chitra Sharma in
the month of September, 2017, the homebuyers were facing critical
predicaments inasmuch as, at that point of time, they were not recognised
as financial creditors of the corporate debtor. The matter, of course, arose
from the insolvency proceedings relating to JIL but the submissions
before the Court did not remain limited to the homebuyers of JIL alone;
rather the predicaments were placed before the Court on behalf of the
homebuyers of JAL and JIL as a whole lot and it was submitted that the
interests of the ‘flat purchasers’, who had invested with JAL and JIL, need
to be protected. On 11.09.2017, after noticing several facets of the
matters, including the fact that JAL, the holding company, was not a party
to the insolvency proceedings concerning JIL, this Court issued a slew of
directions, including that for deposit of INR 2,000 crores by JAL.
181.1. JAL made an avid effort to wriggle out of the rigour of the direction
for deposit of INR 2,000 crores while seeking recall of the order passed
by this Court or for a modification that would enable it to transfer the rights
under the Concession Agreement in respect of the Yamuna Expressway.
This attempt on the part of JAL failed after this Court noticed the
submissions in opposition that the rights under the Concession
Agreement belonged to JIL. The directions of this Court, for deposit as
made from time to time in the course of proceedings in Chitra Sharma ,
resulted in JAL depositing INR 750 crores in instalments.
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181.2. The fact of the matter remains, and unfolds from various interim
orders passed in the case of Chitra Sharma , that basic concern of the
Court was regarding the claim of the homebuyers of JAL and JIL taken as
a whole; and it was not stated at any stage by this Court that JAL was to
part with this money exclusively for the purposes of JIL and, for that
matter, for the purposes of the homebuyers of JIL alone. As noticed,
during the course of proceedings, this Court appointed amicus curiae,
who was directed to open web-portal for the homebuyers of JIL and an
independent web-portal for the homebuyers of JAL. As per the order
dated 22.11.2017, the learned counsel appearing for JAL was to provide
the requisite details to the amicus as also the amount for creation of the
portal and for carrying on the consequential activities.
181.3. On 21.03.2018, it was stated on behalf of JAL that an amount of
INR 550 crores had already been deposited and that only about 8% of the
homebuyers were interested in seeking refund while others were desirous
of seeking possession of their flats. This Court indicated that at the given
stage, only the matter in relation to the homebuyers seeking refund was
being examined and other grievances would be examined in the next
phase of proceedings. Since the order for deposit of INR 2,000 crores had
not been fully complied with, the Court issued directions for further
deposit of INR 200 crores in instalments. At that stage, the Court was
informed by the amicus curiae that as per his portal and as per the record
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of JAL , an amount of INR 1,300 crores was required to be refunded by
way of principal alone to the homebuyers who were seeking refunds.
181.4. Thereafter, on 16.05.2018, this Court took note of the fact that a
sum of INR 750 crores was lying in deposit and it was observed that the
same ‘ has to be disbursed on pro rata basis amongst the homebuyers’ .
On that date, it was also directed that ‘ Jaiprakash Associates Ltd. (JAL),
the holding company of Jaypee Infratech Ltd. (JIL), shall deposit a further
sum of Rs. 1000 crores jointly and severally by 15.06.2018’.
181.5. Lastly, on 13.07.2018, this Court, while expressing disinclination to
entertain the proposals advanced on behalf of JAL, posted the matters on
16.07.2018 ‘exclusively for the purpose of considering the issue of the
rights of the homebuyers and the capability of JAL and JIL to construct
the projects’ . Thereafter, the matters were finally heard and decided by
way of the judgment dated 09.08.2018.
181.6. Even at the final consideration of the matter, further proposals
were mooted on behalf of JAL but were rejected by this Court while
explaining that accepting any such proposal on behalf of JAL would cause
serious prejudice to the discipline of IBC; and this Court particularly
observed that clauses ( c ) and ( g ) of Section 29A operated as a bar to the
promoters of JAL/JIL participating in the resolution process. This apart,
after taking note of various grounds urged on behalf of the homebuyers in
opposition to the proposal, this Court was convinced that JAL/JIL were
lacking in financial capacity and resources to complete the unfinished
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projects. The reasons that were stated on behalf of the homebuyers in
opposition to the proposal of JAL were aplenty where it was, inter alia,
alleged that there had been questionable transactions involving mortgage
of around 758 acres of JIL’s land worth INR 5,000 crores in favour of the
lenders of JAL without any consideration and the same were set aside by
87
NCLT ; that the claim by JAL of delivering the flats was also a fractured
one because the flats were delivered incomplete and OOP was being
made without OC; that about 22,000 homebuyers were suffering due to
delays of more than four years in completion of various projects of JAL
and JIL; that under the contracts, JAL and JIL were jointly and severally
liable to deliver the flats; that there were serious doubts about the
credentials of JAL, who had diverted huge funds from JIL towards its
other businesses; JAL had been unable to honour the order of this Court
for depositing INR 2,000 crores, where only INR 750 crores were
deposited after about 10 months from the initial order dated 11.09.2017
and where the instalment of INR 1,000 crores, as ordered on 16.05.2018,
was not forthcoming. The aforesaid and all other facts and factors indeed
formed the basis of the conclusion by this Court that JAL/JIL were lacking
in financial capacity and resources to complete the unfinished projects.
There was, of course, a common refrain that liquidation of the corporate
debtor JIL would not be in the interest of homebuyers.
87 The said order of NCLT was ultimately approved by this Court in the judgment dated
26.02.2020 in the case of Anuj Jain .
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181.7. In Chitra Sharma (supra), having pondered over diverse
propositions, the requirement of balancing the discipline of the Code, to
do complete justice and to secure the interests of all the concerned, this
Court considered it just and proper to revive the CIRP of JIL and to
reconstitute the CoC as per the amended provisions of IBC with recourse
to the powers under Article 142 of the Constitution of India.
181.8. However, before concluding on the matter, this Court also took into
consideration the submissions made on behalf of some of the
homebuyers for issuance of directions to facilitate pro rata disbursement
of the amount of INR 750 crores lying in deposit pursuant to the interim
directions. This Court observed that even when the claim of the refund
seekers was required to be considered with empathy, such a request
could not be acceded to; and specified four major reasons for declining
this prayer, which included the reason that there were other creditors too
and if the amount was utilised only for refund seekers, the homebuyers
who were seeking their flats would have a legitimate grievance. Another
reason was that the insolvency resolution process qua JAL was also
being permitted. This was coupled with the position that this Court was
reviving the CIRP in relation to JIL.
181.9. It is also noteworthy that though the homebuyers were earlier not
recognised as financial creditors, the doubts about their status as financial
creditors were removed with amendment of the statute (IBC) with effect
from 06.06.2018 and that was a major reason that this Court considered it
331
appropriate, while deciding Chitra Sharma on 09.08.2018, to revive the
resolution process but while making it clear that it would follow the
discipline of IBC. However, this Court did not order that the said sum of
INR 750 crores shall stand forfeited to JIL but only transferred the same
together with accrued interest to NCLT, so as to abide by the directions of
NCLT.
182. Taking all the factors and the orders of this Court into account
cumulatively, it is difficult to find if the sum in question was ever ordered
by this Court to be deposited by JAL in discharge of its obligations
towards JIL or towards homebuyers of JIL alone; and equally difficult it is
to accept the submissions made by the resolution applicant and other
persons standing with JIL that this corpus of INR 750 crores together with
accrued interest has become an asset of JIL.
183. In an overall analysis, it appears that at the relevant time of
consideration of the matter in Chitra Sharma , the grievances that were
projected before this Court were not confined to the homebuyers of JIL
alone but they related to the homebuyers of JAL as well; and the
agreements with the homebuyers were also of a composite nature, with
both JAL and JIL being the parties thereto. It had been in that
hodgepodge of the interwoven transactions that the homebuyers of JAL
and JIL projected their grievances as a whole lot before the Court in
Chitra Sharma . As noticed, at the initial stages, pro rata disbursement to
the refund seekers was under contemplation of the Court (as twice over
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stated in the interim orders) but even those refund seekers were not the
homebuyers of JIL alone. The figure of INR 1,300 crores, as being the
amount required for refund, was stated by the amicus curiae as per his
portal and ‘ as per the record of JAL’ .
183.1. Therefore, it is apparent that at the given stage, the said deposit
was taken for the purpose of the refund seeking homebuyers of JAL and
JIL both; and at the final stage, when this Court found that the interests of
various other stakeholders were to be taken into account, the money was
transferred to NCLT. It is difficult to deduce from the said proceedings and
from the final order of this Court in Chitra Sharma that the corpus
comprising of INR 750 crores with accrued interest is to be treated as the
property of JIL.
183.2. The NCLT essentially proceeded on the considerations that JAL
had indeed received money from the homebuyers of JIL; that JAL was
asked by the Court to deposit the amount towards refund of JIL
homebuyers; and that there was no direction from the Court to return this
money to JAL. It appears that all the relevant facts and background
aspects concerning this deposit did not surface before NCLT, which led it
to draw an inference not standing in conformity with the meaning and
purport of the directions of this Court in the case of Chitra Sharma
(supra).
183.3. While deducing that the money in question became the property of
JIL in view of the directions for deposit to JAL by this Court, the NCLT
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omitted to consider that the directions to JAL by this Court were not
backed by any finding that in law JAL was liable to make good the said
some of money for the purpose of refund seeker homebuyers of JIL
alone. The directions and observations of this Court in the case of Chitra
Sharma when read ad seriatim with their context, it is clear that such
directions for deposit to JAL were that of an attempt by this Court to deal
with the demands of refund seeking homebuyers of JAL and JIL. Even
such a tentative proposition did not reach its finality in Chitra Sharma ;
and after taking note of the other factors and interests of various other
stakeholders, the money was transferred to NCLT. In a comprehensive
view of the matter, the inference drawn by NCLT in its impugned order
dated 03.03.2020, that this money is an asset of the corporate debtor JIL
remains unsustainable.
184. Before switching over to the other leg of discussion in regard to
this sum of INR 750 crores, it may also be observed that the contentions
urged on behalf of the homebuyers of JIL, that this Court having rejected
the application of JAL for recalling the directions for depositing the amount
of INR 2,000 crores, the claim for refund of deposited amount by JAL is
against the principles of res judicata , is also baseless. As noticed, during
the course of consideration of the matter in Chitra Sharma (supra), this
Court not only declined the prayer for recall of the directions for deposit
but, even reiterated such directions on more than one occasion. However,
all such orders and directions were interim in nature and from none of
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those interim orders or from the final judgment in Chitra Sharma , it could
be deduced that the issue concerning entitlement to the deposited
amount was finally decided by this Court against the depositor JAL.
185. Coming to the resolution plan, in our view, NBCC could not have
prepared the same by assuming that this amount was the property of JIL
when it was neither stated so in the orders passed by this Court nor by
IRP in the information memorandum. The overt reliance by NBCC on the
contents of the information memorandum is also misplaced because IRP
never stated in the information memorandum that this amount of INR 750
crores was a part of the assets of JIL. In the relevant heading of
‘Investment/Financing Opportunity’, the IRP stated thus: -
“ Unique investment/financing opportunity for the Resolution
Applicant with adequate value to be unlocked
Unutilized land parcels (mortgaged and unencumbered
land) of 3502 Acres
4,602 units (6.39 Mn sqft) of unsold inventory in LFD 1
(Noida), LFD 3 (Mirzapur), LFD 5 (Agra).
More than INR 3,758 cr receivable (including amount not
due) as at Sep 30, 2018, against sold inventory, further
approximately INR 184.45 cr is due against bulk sale of
land
Rights over the toll fee (along with revenue from road side
facilities and advertisement) to be collected on Yamuna
Expressway over the balance concession period of 30
years as at date
25% CAGR in toll revenue up to H1FY19
Opportunity to exploit 3.4 mn sqft of road side facility area
across express way
100% equity shareholding in Jaypee Healthcare Limited,
having two fully operational hospitals in Noida & Chitta and
one semi operational hospitals in Anoopshahr, UP
Jaypee Hospital, Noida with 525 beds (338 operational
beds) is expandable to 1200 beds
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750 Crores deposited by JAL lying with Hon’ble NCLT,
utilization/ end use of same pending directions and
decisions of Hon’ble NCLT.”
(underlining supplied for emphasis)
185.1. Therefore, even though various aspects relating to other assets
and their potential utilisation were indicated in the information
memorandum but, as regards this sum of INR 750 crores, the information
memorandum made it absolutely clear that the same was deposited by
JAL and was lying with NCLT; and that its end use was pending decision
of NCLT. In the face of such unequivocal expressions, it cannot be
accepted that in the information memorandum, any declaration was made
that this sum of INR 750 crores was readily available to the resolution
applicant. The submissions in this regard as made on behalf of NBCC are
required to be rejected.
186. We may observe that the decisions cited by the parties do not
require much discussion. The principles in the cited decisions including
those in the case of Embassy Property (supra) that the assets belonging
to a third party cannot be utilised towards resolution of a corporate debtor
remain fundamental and beyond cavil. Equally, the reference to the
maxim actus curiae neminem gravabit , and to the decision in ONGC
(supra) has been rather unnecessary because the said principle is
essentially employed for the purpose of restitution and putting a party in
the position where he would have been but for intervention or lapse of the
88
Court. The principle underlying this maxim is also fundamental to all the
88 This principle has been succinctly explained by this Court in the case of South
Eastern Coalfields Ltd. v. State of M.P. & Ors.: (2003) 8 SCC 648 in the following
336
rules of administration of justice and hence, an unintended result of any
act or omission on the part of the Court, which occurs for whatever
reason, is not allowed to operate to the prejudice of any person. However,
this principle would not apply to the present case for the reasons that this
Court consciously directed the holding company JAL to make a deposit
but, added to that were the other conscious decisions where this amount
was not ordered to be forfeited to JIL nor there was any decree that this
amount had become property of JIL or the homebuyers of JIL. For what
has been found and held hereinabove, we do not consider it necessary to
dilate further on these principles.
187. The upshot is that the said amount of INR 750 crores and accrued
interest thereupon, is not the property of JIL. In regard to this amount,
neither the stipulation in the resolution plan could be countenanced nor
the order of NCLT could be approved.
188. Accordingly, we hold that the amount of INR 750 crores, which
was deposited by JAL pursuant to the orders passed by this Court in the
case of Chitra Sharma, and accrued interest thereupon, is the property of
JAL; and stipulation in the resolution plan concerning its usage by the
words: -
“28. That no one shall suffer by an act of the court is not a rule confined to
an erroneous act of the court; the “act of the court” embraces within its sweep all
such acts as to which the court may form an opinion in any legal proceedings
that the court would not have so acted had it been correctly apprised of the facts
and the law. The factor attracting applicability of restitution is not the act of the
court being wrongful or a mistake or error committed by the court; the test is
whether on account of an act of the party persuading the court to pass an order
held at the end as not sustainable, has resulted in one party gaining an
advantage which it would not have otherwise earned, or the other party has
suffered an impoverishment which it would not have suffered but for the order of
the court and the act of such party…….”
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resolution applicant of JIL cannot be approved. The part of the impugned
order dated 03.03.2020 placing this amount in the asset pool of JIL is set
aside.
189. After we have found that the impugned order dated 03.03.2020
placing the said amount of INR 750 crores and accrued interest in the
asset pool of JIL is unsustainable, the question is as to what orders in
sequel be made regarding this money? In ordinary circumstances, the
consequence of the findings in the preceding paragraphs would have
been of direct refund of this money to JAL but the present matter carries
with it several entangled features relating to the amount otherwise
payable by JAL to JIL; and these features cannot be ignored altogether.
189.1. As noticed, even when JAL and JIL are two separate corporate
entities, JIL is an alter ego of JAL, for having been set up as an SPV and
having been substituted as concessionaire in the Concession Agreement
aforesaid. The agreements with homebuyers had also been of such a
nature where JAL and JIL both were signatories thereto. Additionally, JAL
had been extended construction contracts by JIL and, as per the
submissions made before us [ vide paragraph 178.1.4 (supra)], JAL had
been carrying out the construction work and taking steps to reduce the
liability towards JIL that stood at a sum of INR 716 crores as on
31.03.2018 and was purportedly reduced to INR 195 crores as on
31.03.2020. Various homebuyers have allegedly made payments towards
IFMD to JAL. Moreover, JAL has submitted that balance of INR 195
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crores, which was to be appropriated towards the construction of JIL’s
project, could be adjusted from the said sum of INR 750 crores, if the
resolution applicant makes a formal submission of terminating the
construction agreement. NBCC, on the other hand, has suggested
several other amounts to be recoverable from JAL.
189.2. Having comprehensively taken note of the complex and
interwoven features, even while we are not inclined to countenance the
89
other claims against JAL in these proceedings , so far as the admitted
amount towards construction advance is concerned, in our view, the
process had been a continuing one and admittedly an amount of INR 195
crores was due to JIL as on 31.03.2020. In the given circumstances, it
would serve the interests of all stakeholders, if the proposition for
reconciliation of accounts, as stated in the alternative submissions by JAL
as also by the resolution applicant, be partly accepted and after
reconciliation, the payable amount be made over to JIL before refunding
the remainder to JAL.
189.3. On behalf of JAL, it is submitted that verification/reconciliation
could be carried out by IRP or by a chartered accountant appointed by
him, whereas NBCC would submit that such reconciliation should be
carried out by an independent third party to be nominated by this Court.
However, as noticed, the said sum of INR 750 crores stood transferred to
NCLT in terms of the final directions in the case of Chitra Sharma
89 This is because insolvency resolution of JAL itself is looming large and in case of insolvency
resolution or liquidation of JAL, such claims against JAL shall have to stand in the queue as per
the discipline of IBC.
339
(supra). Having regard to all the relevant features of this case, it appears
appropriate that the process of reconciliation of accounts between JAL
and JIL be taken up under the supervision of NCLT.
190. For the aforesaid purpose of reconciliation of accounts between
JAL and JIL, the NCLT shall, within 7 days of receipt of copy of this
judgment, nominate an independent accounting expert; and the
accounting expert so nominated by NCLT shall carry out the process of
reconciliation while involving IRP of JIL and one representative of JAL.
Looking to the underlying urgency, the accounting expert shall complete
the entire process of reconciliation of accounts and submission of his
report to NCLT within 10 days of his nomination. The professional charges
and expenses for the task assigned to the accounting expert shall be
determined by NCLT and shall be borne equally by JAL and JIL.
190.1. After receiving the report from the accounting expert, the NCLT
shall pass appropriate orders in the manner that, if any amount is found
receivable by JIL/homebuyers of JIL, the same shall be made over to JIL
from out of the said amount of INR 750 crores and accrued interest; and
remainder thereof shall be returned to JAL in an appropriate account and
that shall abide by the directions of the competent authority dealing with
the proceedings concerning JAL. The NCLT would be expected to pass
appropriate orders within 2 weeks of submission of report by the
accounting expert.
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190.2. However, we need to make it clear that this process of
reconciliation is not meant for determination of any claim otherwise
sought to be levied against JAL by IRP or homebuyers of JIL or by the
resolution applicant; and only the accounts concerning the amount/s
advanced to JAL by JIL towards construction contracts ( vide paragraph
178.1.4.) are to be examined and reconciled with reference to the extent
of liabilities discharged by JAL and then to find the extent of excessive
amount, if any, available with JAL which is receivable by JIL/homebuyers
of JIL.
191. In regard to the aforesaid directions concerning reconciliation of
accounts and disposal of the said amount of INR 750 crores and accrued
interest, a few more comments and observations appear necessary. We
have taken note of the submissions made on behalf of NBCC as also on
behalf of various homebuyers of JIL that this money is required for
construction of houses and if it goes to JAL, there would be acute
shortage of funds for construction. We are also aware of the facts that
have come on record that JAL is itself in distress and CIRP in its relation
is looming large. We have further taken note of the submissions made by
the financial creditor of JAL to place this sum of money within their control
in an escrow account. However, we have not accepted any of these
submissions in entirety.
191.1. As observed hereinabove, after having found that the said money
is the property of JAL, ordinarily, the consequence would have been of
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directing its refund to JAL but the other entangled features of the case
relating to the amount otherwise payable by JAL to JIL cannot be ignored
altogether, particularly when it was an admitted position on behalf of JAL
before NCLT that an amount of INR 274 crores was payable by it to JIL
and even before this Court, this obligation to pay has been admitted on
behalf of JAL, albeit to the tune of INR 195 crores as on 31.03.2020; and
it appears that JAL has been taking steps (maybe crippled steps) to carry
out construction and to reduce its liability. We are not determining the
extent of amount payable by JAL to JIL because that would be a matter of
reconciliation of accounts but, having regard to the background in which,
and the purpose for which, JAL made the said deposit pursuant to the
orders of this Court and also having regard to the present position of
these two companies, adopting this course appears to be in the balance
of the legal rights of the respective stakeholders as also in the balance of
equities. We would hasten to observe that ordinarily, the equitable
considerations do not directly come into play in corporate insolvency
resolution process but the matter concerning this amount of INR 750
crores and accrued interest thereupon is a convoluted and stand-alone
issue, having the peculiarities of its own and hence, we have adopted the
course as contemplated above. This process is otherwise not of
determination of the claims of individual stakeholders, be it operational
creditors or financial creditors. In the interest of justice, it is also made
clear that disposal of the said sum of INR 750 crores shall otherwise not
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be treated as determinative of the rights and obligations of any
stakeholder in any of these two companies, JAL and JIL.
192. Before closing on this point for determination, we may indicate
that a few of the arguments on this point have gone off on a tangent, as
could be noticed from the submissions made by an association of
homebuyers of JAL, who has directly approached this Court against the
order of NCLT, that INR 160 crores be designated out of the said amount
of INR 750 crores for completing the houses of the members of that
association; and that in RERA proceedings, JAL was demanding money
from its members, though, there was unexplained delay of 5 to 7 years in
completion of project by JAL. We are unable to find any logic in the
submission of this nature against JAL by its homebuyers having been
made in these proceedings. It goes without saying that the dealing
between JAL and its homebuyers is not the subject matter of the present
proceedings. Similarly, the submission by some of the dissatisfied
homebuyers of JIL, that NBCC is aiming at profiteering by getting hold of
this money but without making corresponding provision in the resolution
plan for the appropriate use of this money for the benefit of homebuyers,
also remains baseless and redundant in view of what has already been
discussed hereinbefore. Another block of submissions on behalf of some
of the homebuyers of JIL, like seeking directions against NBCC that it
shall not withdraw and should expedite construction as also seeking audit
over the quality of construction, have gone far too beyond the real issues
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requiring determination in the present litigation. In regard to these and
other submissions of similar nature, we would only leave the parties to
take recourse to appropriate remedies in accordance with law, in case of
any legal grievance existing or arising in future.
Point K
Security interest of the lenders of JAL and effect of judgment dated
26.02.2020
193. Two separate questions formulated in this point for determination
carry their intrinsic correlation and hence are taken up for determination
together.
193.1. The genesis of these questions lies in seven such transactions
whereby, the financial facilities obtained by JAL were secured by way of
mortgages created over various parcels of JIL’s land, aggregating to 858
acres. During the present CIRP proceedings, the IRP questioned these
transactions as being preferential, undervalued and fraudulent within the
meaning of Sections 43, 45 and 66 of the Code. An application moved by
IRP for avoidance of these transactions was accepted in part by the
Adjudicating Authority in its order dated 16.05.2018 and directions were
issued for avoidance of six of these transactions. However, one such
transaction was found by the Adjudicating Authority to be not falling within
relevant time, as provided in Section 43 of the Code and hence, the same
was not avoided. The order so passed by the Adjudicating Authority
(NCLT) was, however, reversed by the Appellate Authority (NCLAT).
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Hence, the matter came in appeal before this Court and was dealt with in
the case of Anuj Jain (supra), decided on 26.02.2020.
194. In the judgment dated 26.02.2020 in Anuj Jain (supra), this Court
took note of all the relevant particulars of the said seven transactions and
the one, which was not found falling within relevant time, was noticed by
this Court as follows: -
“7.5. Yet another transaction was questioned by IRP as being
avoidable but the adjudicating authority held the same to be not
falling within the relevant time as provided under Section 43 of the
Code. The particulars of this transaction are as follows:
Mortgage deed dated 12-5-2014 for 100 acres of
land situated at Village Tappal, Tehsil Khair, District
Aligarh, Uttar Pradesh executed by JIL in favour of
ICICI Bank Ltd. against the facility agreement dated 12-
12-2013 granting term loan of Rs 1500 crores and
overdraft amount of Rs 175 crores to JAL (hereinafter
also referred to as “Property No. 7”) (As regards this
description, it is pointed out on behalf of the respondent
ICICI Bank that it had been of “term loan of Rs 1500
crores under the corporate rupee loan facility
agreement and general conditions dated 12-12-2013
and mortgage deed was dated 10-3-2014”).”
194.1. As noticed, in final determination of the relevant issues, this Court
disapproved the order of NCLAT; and the order of NCLT was upheld in
relation to six of these transactions with the finding that the transactions in
question were hit by Section 43 of the Code and the Adjudicating
Authority (NCLT) was justified in issuing necessary directions in terms of
Section 44 of the Code. However, as noticed, the above-noted seventh
transaction pertaining to the mortgage dated 12.05.2014 and relating to
100 acres of land, remained intact. The property involved in the said
transaction, which was not covered under avoidance provisions is
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referred to as ‘Tappal Property 1’, for being situated at village Tappal for
which, the mortgage was created on 12.05.2014.
194.2. We have also noticed hereinbefore that in the case of Anuj Jain
(supra), this Court had examined another issue, that is, as to whether the
lenders of JAL could be categorised as financial creditors of JIL. In this
regard, this Court though observed that when the transactions in question
were hit by Section 43 of the Code, they were denuded of their value and
worth and the security interest created over the property of JIL involved in
those transactions stood discharged in whole; and, therefore, such
lenders of JAL were not entitled to claim any status as creditors of the
corporate debtor JIL much less as financial creditors but then, this Court
examined the question as regards the status of such lenders of JAL qua
the corporate debtor JIL independent of the findings that the transactions
in question were hit by Section 43 of the Code. Ultimately, on this issue
relating to the status of such lenders of JAL, this Court held that they, on
the strength of the mortgages in question, might fall in the category of
secured creditors but, for the reason that the corporate debtor did not owe
them any financial debt, such lenders of JAL would not fall in the category
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of financial creditors of the corporate debtor JIL.
194.3. The judgment dated 26.02.2020 in the case of Anuj Jain (supra)
was delivered by this Court after the voting by CoC on the resolution plan
90 The relevant conclusions in the case of Anuj Jain have been reproduced in paragraphs 34.1 to
34.3, hereinbefore.
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in question but before passing of the impugned order dated 03.03.2020
by the Adjudicating Authority.
195. In the resolution plan, apart from various stipulations in regard to
the land of JIL and creation of two SPVs with transfer of certain parcels of
land, the resolution applicant stated in Clause 23 of Schedule 3 relating to
‘reliefs and concessions’ as under: -
“23. The JAL Lenders Mortgaged Land shall continue to be vested
in the Corporate Debtor free of any mortgage, charge and
encumbrance.”
196. The Adjudicating Authority, in its impugned order dated
03.03.2020, while noticing the terms of the resolution plan and key reliefs,
summarised the matter relating to the land mortgaged with JAL lenders in
the following part of tabulation: -
| “Sl.<br>No. | Matter | Relief Sought | Remarks | Cross<br>Reference<br>in<br>Resolution<br>Plan |
|---|---|---|---|---|
| 3 | 858 acres of<br>Corporate<br>Debtor’s land<br>was mortgaged<br>with JAL<br>lenders to<br>secure debt of<br>JAL without any<br>consideration or<br>counter<br>guarantee to<br>JIL<br>(Transaction). | NBCC has<br>sought relief<br>that 858 acres<br>of mortgaged<br>land shall<br>continue to be<br>vested in<br>Corporate<br>Debtor free of<br>any mortgage,<br>charge and<br>encumbrance. | RP fli ed an<br>application<br>for<br>avoidance<br>of<br>Transaction<br>which was<br>allowed by<br>that<br>Hon’ble<br>NCLT vide<br>order dated<br>16.05.2018<br>and 758<br>acres out of<br>858 acres<br>was | Page 72<br>clause 1 of<br>Schedule 3<br>of the<br>Resolution<br>Plan” |
347
| avoided.<br>However,<br>appeals<br>were filed<br>against the<br>NCLT order<br>dated<br>16.05.2018<br>and<br>Hon’ble<br>Supreme<br>Court vide<br>order dated<br>26.02.2020<br>has upheld<br>the NCLT<br>order dated<br>16.05.2018<br>. The<br>Hon’ble<br>SC has<br>pronounce<br>d the<br>order with<br>respect to<br>the same<br>on<br>26.02.202<br>0 in Civil<br>Appeal<br>No. 8512-<br>27 of<br>2019. |
|---|
(bold is in original)
196.1. As regards the land under mortgage, the Adjudicating Authority
stated its consideration in paragraph 128 of the order impugned in the
following terms: -
“128. With regard to the objections raised by JAL and other
objectors for inclusion of 858 acres as part of the resolution plan, ₹
for the Hon’ble Supreme Court on 26.02.2020 held that mortgaged
of 858 acres of JIL land to the lenders of JAL is an avoidance ₹
transaction, it can no more be an objection from JAL or from
consortium of ICICI Bank to say that land cannot be part of the
resolution plan for it has been mortgaged to the financial creditors
of JAL.”
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However, while concluding on Clause 23 of Schedule 3 of the
resolution plan, the Adjudicating Authority observed (in paragraph 134)
thus: -
“Clause No. 23:- This point is not clear as to whether it is referring
to the land of the Corporate Debtor mortgaged to the lenders of
JAL, if that is so, since it has been decided by the Honourable
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Supreme Court, it need not be reiterated.”
196.2. Noteworthy it is that ‘cross-reference’ in the table above-quoted, to
‘ Clause 1 of Schedule 3 of the resolution plan’ as also the figure of extent
of land pertaining to avoidance transactions at ‘ 858 acres’ in paragraph
128 of the impugned order were incorrect and the Adjudicating Authority
corrected these errors in the corrigendum dated 17.03.2020 in the
manner that the cross-reference is to ‘ Clause 23 of Schedule 3 of the
resolution plan ’ and the extent of land held by this Court to be of
avoidance transactions is ‘ 758 acres’ .
197. To put it in clear terms, the net outcome of the propositions,
proceedings and findings noticed in the preceding paragraphs is as
follows: 858 acres of JIL’s land was mortgaged with the lenders of JAL; in
the resolution plan, NBCC sought the relief that such land shall continue
to remain vested in the corporate debtor JIL free from any mortgage,
charge and encumbrance; 758 acres, out of this 858 acres, of land got
released from mortgage in terms of the judgment in Anuj Jain (supra);
100 acres of land, being ‘Tappal Property 1’, however, continued to
The aforesaid observations, as occurring in paragraphs 128 and 134 of the impugned order
91
dated 03.03.2020, have been extracted hereinbefore in the narratives but we have re-extracted
them for continuity of the present discussion.
349
remain under mortgage with ICICI Bank; and, as regards this mortgage,
ICICI Bank was not recognised as a financial creditor of JIL even if falling
in the category of secured creditors; the Adjudicating Authority has not
rendered any specific decision as regards such mortgaged land and as
regards the relief claimed by the resolution applicant while assuming that
the entire matter stands concluded with the judgment of this Court dated
26.02.2020 in Anuj Jain (supra).
198. Now, the aforesaid terms of the resolution plan and the order of
the Adjudicating Authority have given rise to two major issues. The first
one is the grievance of ICICI Bank, who is the mortgagee in the said
mortgage transaction relating to ‘Tappal Property 1’, that was not hit by
Section 43 of the Code for having been entered into beyond the look-back
period.
199. The mortgagee bank would submit that in terms of the judgment of
this Court in Anuj Jain , the said mortgage in relation to ‘Tappal Property
1’ continues to remain in force and thereby, the bank is a secured creditor
of the corporate debtor JIL; and this mortgage cannot be taken away
through a resolution plan without assigning any value. It is submitted that
the stipulations in the resolution plan in regard to this mortgage remain
invalid where the resolution applicant has erroneously assumed that the
effect of implementation of the plan would be that all encumbrances and
charges on the property of the corporate debtor for the loans given to third
party shall stand extinguished. It is contended that a legal right in the
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property cannot be taken away except by due process of law; that the
process under the Code provides for reckoning and accounting of claims
against the corporate debtor; and that only those claims which are
accounted for and dealt with as a part of this process could possibly be
dealt with in a resolution plan but, the claims which have not been
accounted for and reckoned in this process cannot stand extinguished. It
is submitted that this bank, in its capacity as mortgagee of the said
‘Tappal Property 1’, is left to suffer from double whammy where its claim
under the mortgage has not been reckoned in the CIRP and then, the
approved resolution plan proceeds to go ahead and extinguish the
mortgage itself. It is argued that all these aspects have not been
examined by the Adjudicating Authority and hence, its order, in regard to
this issue, cannot be approved. This bank had filed a belated appeal
before NCLAT, being D. No. 21936 of 2020 and has sought transfer of the
same in this Court by way of Transfer Petition - D. No. 20274 of 2020.
200. In response to the aforesaid submissions of ICICI Bank, the
resolution applicant has contended, with reference to the findings and
conclusion of this Court in the case of Anuj Jain (supra), that the said
bank is not a financial creditor of JIL and hence, has no locus in the
matter and cannot claim payment of liquidation value of the debt owed by
JAL. Without prejudice, it is also submitted that the resolution plan
adequately deals with the treatment of the terms of securities,
guarantees, indemnities, pledge, charge or encumbrances of any kind in
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relation to any debt and in this regard, the prescription in the resolution
plan at page 362 of the appeal filed by NBCC has been referred. That part
of the resolution plan pertains to the terms/stipulations under the sub-
heading, ‘ Effects of Settlement of Admitted Financial debt due to
Financial Creditors’ which in turn, occurs under the heading ‘1.2. Proposal
for Financial Creditors’ . The referred term provides for release and
discharge of all liabilities under such securities etc., other than
continuation of guarantee benefits with the institutional financial creditors
as laid down in the resolution plan.
201. Apart from the issue raised by ICICI Bank in relation to the said
mortgaged land of 100 acres, another issue raised by some of the
homebuyers is that adequate provisions have not been made in the
resolution plan in relation to 758 acres of land, that was earlier covered by
the other six mortgage transactions but now stands released from
encumbrance.
202. Having examined the matter in its totality, we find force in the
submissions so made by the mortgagee bank as also by the homebuyers.
203. The resolution applicant has overtly relied upon the fact that the
objector bank was not accepted as a financial creditor of JIL by this Court
in Anuj Jain (supra) and has contended on this basis that the objections
so raised by this bank are required to be rejected. These submissions of
the resolution applicant NBCC suffer from several shortcomings. Even
when the said bank has not been recognised as a financial creditor
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because the mortgage in question was not relating to any financial debt of
the corporate debtor JIL, its capacity as a secured creditor, for being the
holder of security in the form of mortgage which has not been avoided
and which remains existing, cannot be denied; and has not been denied
by this Court in Anuj Jain (supra).
203.1. This bank appears right in its contention that when the security in
question was not even taken up as a part of the resolution process, it
could not have been extinguished on the ipse dixit of the resolution
applicant. Unfortunately, Adjudicating Authority totally missed out the real
issue before it in regard to this mortgage transaction because, in the order
as originally passed on 03.03.2020, the Adjudicating Authority assumed
that all the mortgages in favour of the lenders of JAL (covering the entire
858 acres of JIL land) were annulled by this Court in Anuj Jain (supra) as
avoidance transactions. Of course, in the corrigendum dated 17.03.2020,
the Adjudicating Authority rectified the error of the figure ‘858’, as
occurring in paragraph 128 of the original order dated 03.03.2020, and
corrected it to ‘758’ but, did not examine the consequences thereof. In
other words, while making the correction on 17.03.2020, the Adjudicating
Authority failed to advert to the relevant question as to what would be the
proper order as regards the remaining 100 acres of land, if only 758 acres
was released in terms of the judgment in Anuj Jain (supra).
203.2. The fact that the Adjudicating Authority dealt with this segment
rather cursorily is yet further seen from the part of the table reproduced
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hereinabove where, while making reference to the mortgages in favour of
the lenders of JAL, an incorrect cross-reference was made to Clause 1 of
Schedule 3 of the resolution plan. This error was also corrected in the
order dated 17.03.2020 and correct reference was made to Clause 23 of
Schedule 3 but, again, the implication of this correction totally escaped
the attention of the Adjudicating Authority.
203.3. As noticed, in the said Clause 23, a fleeting suggestion on the part
of the resolution applicant had been that ‘ JAL lenders mortgaged land
shall continue to be vested in the corporate debtor free from any
mortgage, charge and encumbrance ’. The Adjudicating Authority dealt
with the said clause of the resolution plan in an equally cursory manner by
observing that the point was not clear but, if it was referring to the land
mortgaged with the lenders of JAL, the issue had already been decided
by the Supreme Court and need not be reiterated. In this entire process
of mistakes/errors (might be accidental) and corrections as also cursory
observations, the Adjudicating Authority totally missed out that one
transaction relating to 100 acres of land, being ‘Tappal Property 1’,
remained unaffected by the judgment in Anuj Jain (supra); and that the
security creating over this land could not have been annulled in the
manner suggested in the plan.
204. It cannot be denied that the claim of ICICI Bank pertaining to the
said mortgage over 100 acres of land was not reckoned in the CIRP of JIL
and without any specific provision in that regard, the resolution applicant
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merely suggested by way of the Clause 23 of Schedule 3 as if such
mortgage shall stand annulled and the land shall vest in the corporate
debtor free from any encumbrances. To say the least, the said Clause 23
does not appear to be standing in conformity with any principal of law for
discharge of a security interest, particularly of a third party who is not
included in the insolvency resolution process of a corporate debtor. We
would hasten to make it clear that the capacity of ICICI Bank in relation to
the said mortgage of 100 acres of land of ‘Tappal Property 1’ is entirely
different than its status as the dissenting financial creditor of JIL, to the
extent JIL directly owed a financial debt to it. Those aspects pertaining to
its capacity as dissenting financial creditor, to the extent of its share of
financial debt, have already been discussed in Point D hereinbefore.
205. For what has been discussed above, neither the said Clause 23 of
Schedule 3 of the resolution plan relating to ‘reliefs and concessions’
could be approved nor the order of the Adjudicating Authority in this
regard.
206. Similarly, the grievance voiced by some of the homebuyers is also
justified that adequate provisions are required for dealing with the other
chunk of 758 acres of land (that now stands released from mortgage in
consequence of the judgment of this Court in Anuj Jain ). This is another
aspect which is required to be examined by the Committee of Creditors
for ensuring viability of the plan and maximisation of the value of the
assets of the corporate debtor JIL. We need not make much comment in
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this regard but it cannot be gainsaid that availability of this chunk of land
free from encumbrances has its own bearing on the entire gamut of
insolvency resolution of JIL. The other aspects arising from the availability
of this chunk of land shall be dealt with, when examining the
question of final orders to be passed in these matters in Point N infra.
Point L
Other issues requiring clarification/directions
207. In its detailed submissions, NBCC has also raised an issue that in
Clause 7 Schedule 3 of the resolution plan, reduction of share capital is
being sought for the corporate debtor and ‘ not for the companies yet
incorporated ’ but the Adjudicating Authority has erroneously made the
observations in its order that such reduction was not a part of this
resolution. The resolution applicant NBCC has sought clarification in this
regard. The relevant clause in the resolution plan reads as under: -
“7. The approval of this Plan by the Adjudicating Authority shall be
deemed to have waived all the procedural requirements in terms
of Section 66, Section 42, Section 62(1), Section 71 of the CA,
2013 and relevant rules made thereunder, in relation to reduction
of share capital of the Corporate Debtor, issuance of shares by
Expressway SPV, Land Bank SPV, conversion of Admitted
Financial Debt due to the Institutional Financial Creditors to equity,
subscription of debentures by the Corporate Debtor or transfer of
shares of the Land Bank SPV from the Corporate Debtor to
Institutional Financial Creditors.”
208. The observations by the Adjudicating Authority as regards this
clause are that since reduction of the share capital of corporate debtor is
not a part of the resolution plan, the Adjudicating Authority ‘ cannot waive
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the procedure for reduction of share capital in relation to the companies
not yet incorporated’ .
209. When the resolution plan with all its reliefs and concessions was
approved by CoC and the plan was otherwise being approved by the
Adjudicating Authority (albeit with modifications), the aforesaid
observations in regard to Clause 7 of ‘reliefs and concessions’ cannot be
said to be of apt dealing with the relief sought. Be that as it may, having
regard to the purport and purpose of the said Clause 7 and its approval by
CoC, we find no reason as to why the same may not be approved. Hence,
the impugned order of the Adjudicating Authority dated 03.03.2020 shall
be read as modified and in approval of the said Clause 7 of ‘reliefs and
concessions’.
210. In the last, NBCC has also prayed for directions to JAL and its
sub-contractors or any other person having control over the project
sites/lands of JIL to immediately hand over possession/control thereof to
JIL and has also prayed for directions to the local administration for
necessary support in that regard. We do not find any reason to make any
such generalised observations or directions but would leave it open for
the resolution applicant to take recourse to the appropriate proceedings in
accordance with law, whenever occasion so arise.
Point M
Modified mechanism for implementation by the Appellate Authority
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211. We have formulated this point for determination only in view of the
fact that the interim order dated 22.04.2020, as passed by NCLAT while
dealing with the appeal filed by NBCC against the said order dated
03.03.2020, has been challenged by the associations and individual
homebuyers before this Court. Although in view of what has been
discussed and held hereinbefore, all the issues related with the resolution
plan and the impugned order of NCLT dated 03.03.2020 stand
determined comprehensively and the related appeals before NCLAT,
already withdrawn to this Court, shall also come to an end. Therefore, not
much of discussion is required on this point but, a few comments in
regard to the proposition adopted by the Appellate Authority appear
necessary.
212. It appears that the proposition, of providing for Interim Monitoring
Committee comprising of the representatives of three institutional
financial creditors and the resolution applicant as also the resolution
professional, was picked up by the Appellate Authority with reference to
the stipulation in Point No. 2(a) of Part A of the resolution plan, where it
was provided under the heading ‘ Management Team’ and sub-heading
‘ Appointment of Monitoring Agency ’ that on and from the approval date
and until the transfer date, the corporate debtor will be managed by a
monitoring agency or any other person appointed by the resolution
applicant in consultation with a Steering Committee comprising of three
major institutional financial creditors.
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212.1. In our view, even if the resolution plan carried such a management
framework, the Appellate Authority, while dealing with the appeal against
approval of the resolution plan, could not have provided for such a
mechanism which is not envisaged by the Code.
213. The Code lays down detailed procedure for corporate insolvency
resolution process and such a proposition, for constitution of any Interim
Monitoring Committee during the pendency of appeal before the Appellate
Authority (NCLAT) is neither envisaged by law nor appears justified. It is
apparent on a bare perusal of sub-section (3) of Section 61 of the Code
that any challenge to the order approving a resolution plan under Section
31 could be maintained only on the grounds specified therein. Obviously,
while dealing with such appeals, the Appellate Authority is required to
remain within the confines of the boundaries delineated by the Code
rather than seeking to provide for a mechanism, for implementation of the
plan.
214. Moreover, looking to the peculiar features of this resolution
process, which has its own complications, constitution of such a
Committee, consisting only of the resolution professional, the resolution
applicant and the institutional financial creditors while leaving aside the
biggest chunk of stakeholders i.e., the homebuyers (having more than
57% of the voting share in the CoC), would have caused more difficulties
in implementation of the resolution plan rather than serving any purpose.
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215. While entertaining the captioned appeals and directing transfer of
the related cases pending before NCLAT to this Court by our order dated
06.08.2020, we had stayed the operation of the impugned order dated
22.04.2020 while allowing the IRP to continue with the management of
the affairs of the corporate debtor. While concluding on these matters, it
appears appropriate and necessary that the said order dated 22.04.2020
by NCLAT be disapproved and set aside.
Point N
Summation of findings; final order and conclusion
216. For what has been discussed and held on the relevant points for
determination, our findings and conclusions are as follows:
A . The Adjudicating Authority has limited jurisdiction in the matter
of approval of a resolution plan, which is well-defined and
circumscribed by Sections 30(2) and 31 of the Code. In the
adjudicatory process concerning a resolution plan under IBC, there
is no scope for interference with the commercial aspects of the
decision of the CoC; and there is no scope for substituting any
commercial term of the resolution plan approved by Committee of
Creditors. If, within its limited jurisdiction, the Adjudicating Authority
finds any shortcoming in the resolution plan vis-à-vis the specified
parameters, it would only send the resolution plan back to the
Committee of Creditors, for re-submission after satisfying the
parameters delineated by the Code and exposited by this Court.
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B . The process of simultaneous voting over two plans for electing
one of them cannot be faulted in the present case; and approval of
the resolution plan of NBCC is not vitiated because of simultaneous
consideration and voting over two resolution plans by the Committee
of Creditors.
C . The stipulations in the resolution plan, as regards dealings with
YEIDA and with the terms of Concession Agreement, have rightly not
been approved by the Adjudicating Authority but, for the stipulations
which have not been approved, the only correct course for the
Adjudicating Authority was to send the plan back to the Committee of
Creditors for reconsideration.
D . The Adjudicating Authority has not erred in disapproving the
proposed treatment of dissenting financial creditor like ICICI Bank
Limited in the resolution plan; but has erred in modifying the related
terms of the resolution plan and in not sending the matter back to the
Committee of Creditors for reconsideration.
E . The Adjudicating Authority has erred in issuing directions to the
resolution applicant to make provision to clear the dues of unclaimed
fixed deposit holders. Paragraph 125 of the impugned order dated
03.03.2020 is set aside.
F . The issues related with the objections of YES Bank Limited and
pertaining to JHL, the subsidiary of the corporate debtor JIL, are left
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for resolution by the parties concerned, who will work out a viable
solution in terms of paragraphs 141 and 142 of this judgment.
G . In the overall scheme of the resolution plan, the stipulation in
Clause 21 of Schedule 3 thereof cannot be said to be unfair; and the
observations in paragraphs 132 and 133 of the order dated
03.03.2020 justly take care of the right of any aggrieved party
(agreement holder) to seek remedy in accordance with law and
ensures viability of the resolution plan.
H . It cannot be said that the resolution plan does not adequately
deal with the interests of minority shareholders. The grievances as
suggested by the minority shareholders cannot be recognised as
legal grievances. Their objections stand rejected.
I . The homebuyers as a class having assented to the resolution
plan of NBCC, any individual homebuyer or any association of
homebuyers cannot maintain a challenge to the resolution plan and
cannot be treated as a dissenting financial creditor or an aggrieved
person; the question of violation of the provisions of the RERA does
not arise; the resolution plan in question is not violative of the
mandatory requirements of the CIRP Regulations; and when the
resolution plan comprehensively deals with all the assets and
liabilities of the corporate debtor, no housing project of the corporate
debtor could be segregated merely for the reason that same has
been completed or is nearing completion.
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J . (i) The amount of INR 750 crores (which was deposited by JAL
pursuant to the orders passed by this Court in the case of Chitra
Sharma ) and accrued interest thereupon, is the property of JAL and
stipulation in the resolution plan concerning its usage by JIL or the
resolution applicant cannot be approved. The part of the order of
NCLT placing this amount in the asset pool of JIL is set aside.
(ii) The question as to whether any amount is receivable by JIL
and/or its homebuyers from JAL, against advance towards
construction and with reference to the admitted liability to the tune of
INR 195 crores as on 31.03.2020, shall be determined by NCLT after
reconciliation of accounts in terms of the directions contained in
paragraphs 189 to 191.1 of this judgment. The amount, if found
receivable by JIL, be made over to JIL and the remaining amount
together with accrued interest be refunded to JAL in an appropriate
account. It is made clear that the present matter being related to
CIRP of JIL, no other orders are passed in relation to the amount
that would be refunded to JAL because treatment of the said amount
in the asset pool of JAL shall remain subject to such orders as may
be passed by the competent authority dealing with the affairs of JAL.
K . (i) Clause 23 of Schedule 3 of the resolution plan, providing for
extinguishment of security interest of the lenders of JAL could not
have been approved by the Adjudicating Authority, particularly in
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relation to the security interest that has not been discharged. This
part of the order dated 03.03.2020 is set aside.
(ii) Adequate provision is required to be made in the resolution
plan as regards utilisation of the land bank of 758 acres, that has
become available to JIL free from encumbrance, in terms of the
judgment dated 26.02.2020 of this Court in the case of Anuj Jain
(supra).
L . (i) The impugned order dated 03.03.2020 shall be read as
modified in relation to Clause 7 of Schedule 3 of the resolution plan;
and the said clause shall stand approved.
(ii) As regards possession/control over the project sites/lands of
JIL, it is left open for the resolution applicant to take recourse to the
appropriate proceedings in accordance with law, whenever occasion
so arise.
M . The Appellate Authority was not justified in providing for an
Interim Monitoring Committee for implementation of the resolution
plan in question during the pendency of appeals. The impugned
order dated 22.04.2020 passed by NCLAT is set aside.
217. The net result of the discussion and findings hitherto is that some
of the terms and stipulations of the resolution plan of NBCC, which was
voted for approval by 97.36% of the voting share of the Committee of
Creditors, do not meet with approval. Although, barring such terms and
stipulations, all other terms and propositions of the resolution plan stand
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approved. To be specific, the terms and stipulations in the resolution plan
which do not meet with approval are those concerning: (a) the land
providing agency [as held in Point C (supra)]; (b) the dissenting financial
creditor [as held in Point D (supra)]; (c) the undischarged security interest
of the lender of JAL [as held in Point K (i) (supra)].
217.1. Apart from the above, we have also disapproved the decision of
the Adjudicating Authority in relation to the said amount of INR 750 crores
with accrued interest and have held that this amount is the property of
JAL and the stipulations in the resolution plan concerning its usage by JIL
or the resolution applicant cannot be approved [as held in Point J (i)
(supra)]. However, the final treatment of the said amount of INR 750
crores with accrued interest shall be determined by NCLT after the
reconciliation of accounts between JAL and JIL and in terms of the
directions contained in this judgment.
217.2. The added feature of the matter is that adequate provision is
required to be made by the resolution applicant for utilisation of the land
bank of 758 acres on which, security interest of the lenders of JAL stands
discharged in terms of the judgment of this Court in Anuj Jain (supra).
217.3. The matters aforesaid, one way or the other, relate to the
commercial terms of the resolution plan and carry their own financial
implications.
218. For what we have held hereinabove, when several shortcomings
are found in the resolution plan approved by the Committee of Creditors
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vis-à-vis the specified parameters, the plan cannot be approved and the
matter is required to be sent back to the Committee of Creditors. But the
course to be adopted in the present matter carries its own share of
complications.
219. We have anxiously pondered over all the peculiarities and
complications involved in this matter where twice over in the past, this
Court had to invoke its plenary powers under Article 142 of the
Constitution of India, so that the insolvency resolution process concerning
JIL could be taken to its logical fruition but within the discipline of IBC.
Having regard to the circumstances, this Court had provided windows for
completion of CIRP while essentially discounting on the time spent in the
course of litigations.
220. As noticed, in the judgment dated 09.08.2018 in Chitra Sharma
(supra), this Court revived the CIRP after taking note of the peculiarities of
the case and later amendment to IBC whereby, the doubts about the
status of homebuyers were removed and they were duly accorded the
recognition as financial creditors. Then, in the judgment dated 06.11.2019
in Jaiprakash Associates Ltd. (supra), this Court provided another
period of 90 days for completion of the CIRP from the date of judgment,
after observing that delay in completion of CIRP was attributable to the
process of law and neither the homebuyers nor any other financial
creditor was to be blamed for pendency of the proceedings. This Court
also observed that extraordinary situation had arisen because of constant
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experimentation at different levels due to lack of clarity on the matters
crucial to the decision making process of CoC and besides, there had
been further legislative changes whereby, the scope of resolution plan
was expanded. This Court also took note of the fact that there was
unanimity amongst all the parties appearing before the Court that
liquidation of JIL must be eschewed and an attempt be made to salvage
the situation by finding out some viable arrangement which could
subserve the interests of all concerned. The Court further took into
account the third proviso to Section 12(3) of the Code whereby, another
period of 90 days was provided in relation to the pending insolvency
resolution process. All these factors led this Court to issue directions
under Article 142 of the Constitution of India for the second time in this
matter, to do substantial and complete justice to the parties and in the
interest of all the stakeholders.
221. Taking up the present position, it appears that the resolution
applicant, as also a large number of homebuyers of JIL having substantial
voting share in CoC, carried a misplaced notion that the said amount of
INR 750 crores and accrued interest has become an asset of JIL. At the
same time, it appears that there had been lack of clarity as regards the
treatment of contingent liability of the additional amount of compensation.
The lack of clarity percolated in the decision of the Adjudicating Authority
too, where it was assumed by the Adjudicating Authority that some of the
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questionable terms/stipulations of the resolution plan could be
modified/modulated by it.
221.1. The consequence and impact of the judgment of this Court in
Anuj Jain (supra) dated 26.02.2020 was also not properly taken in
comprehension by the Adjudicating Authority and, as noticed, it was
assumed by the Adjudicating Authority in its order dated 03.03.2020 that
the entire ‘858’ acres of land stood discharged from the burden of
security. Although the so-called correction of errors was carried out by the
Adjudicating Authority on 17.03.2020 and the figure was corrected to
‘758’ acres but the consequences of such a material correction were not
examined.
221.2. Nevertheless, it gets reiterated that encumbrance over 758 acres
of land (which is said to be carrying a valuation of over INR 5000 crores)
is removed; and availability of the said land parcel has a substantial
impact on the position of assets and liquidity of the corporate debtor JIL.
222. For all the features we have noticed hereinabove, it is at once
clear that the entire substratum of the corporate insolvency resolution
concerning JIL has undergone a sea of change. The added features in the
continuing processes had been that JAL asserts to have carried out
several works to reduce its liability towards JIL and on the other hand, IRP
has asserted to have carried out further construction works and having
made Offers of Possession to several homebuyers.
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223. Taking all the facts and circumstances into account and in keeping
with the spirit and purport of the orders passed in the past, we are
inclined to again exercise the powers under Article 142 of the Constitution
of India and to enlarge the time for completion of CIRP concerning JIL
while extending opportunity to the said resolution applicants Suraksha
Realty and NBCC to submit modified/fresh resolution plans, which are
compliant with the requirements of the Code and the CIRP Regulations
and are in accord with the observations and findings in this judgment.
223.1. We are conscious of the requirements of the discipline of IBC and
would hasten to observe that the course which is being adopted is in the
complex and peculiar features of this case but, this repeat exercise
concerning the CIRP of JIL cannot be an unending process and needs to
be taken to its logical conclusion. As regards the time frame, we are
inclined to proceed on the theme and spirit of the judgment dated
06.11.2019 wherein, first 45 days were allowed for invitation of resolution
plan and consideration by CoC. The later part of the extended time was
provided for removing any difficulty and for passing appropriate orders by
the Adjudicating Authority.
223.2. Having regard to the circumstances, we deem it just and proper to
provide further time of 45 days from the date of this judgment for
submission of the modified/fresh resolution plans by the resolution
applicants, for their consideration by CoC and for submission of report by
IRP to the Adjudicating Authority. This extended time includes the
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reconciliation of accounts of JIL and JAL referred to in Point J . The
process of reconciliation of accounts may go on alongside the processing
of the resolution plans.
224. We also deem it appropriate to clarify that the processing of the
modified/fresh resolution plans, as permitted and envisaged by this
judgment, is required to be completed within the extended time and for
that matter, the other aspects like reconciliation of accounts between JAL
and JIL or resolution of the issues related with the financial creditor of the
subsidiary of the corporate debtor shall be the matters to be dealt with
separately and decision on the resolution plan by the Committee of
92
Creditors need not wait the resolution of those issues.
225. Accordingly, while once again exercising our powers under Article
142 of the Constitution of India to do substantial and complete justice to
the parties and in the interest of all the stakeholders of JIL, we conclude
on these matters with the following order:
225.1. The matter regarding approval of the resolution plan stands
remitted to the Committee of Creditors of JIL and the time for
92 In the passing, we may also observe that intrinsically interwoven transactions between JAL
and JIL cover another aspect of arrangements whereby certain land parcels were transferred
from JIL to JAL. The resolution plan in question, in clause 19 of Schedule 3, provided for
termination of such arrangements where title and ownership was lying with the corporate debtor
JIL. The Adjudicating Authority approved the said proposition while observing that the resolution
applicant would be at liberty to proceed in accordance with law. The erstwhile director of the
corporate debtor has raised questions over this arrangement in his written submissions while
submitting that such terminations may create unprecedented crises and would cause prejudice
to JAL’s homebuyers. We have not commented on this aspect in the judgment essentially for the
reason that the same did not form the core of the principal issues involved in this matter.
However, when the matter is to be reconsidered, all the relevant aspects are left open for
consideration of the Committee of Creditors.
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completion of the process relating to CIRP of JIL is extended by
another period of 45 days from the date of this judgment.
225.2. We direct the IRP to complete the CIRP within the
extended time of 45 days from today. For this purpose, it will be
open to the IRP to invite modified/fresh resolution plans only from
93
Suraksha Realty and NBCC respectively, giving them time to
submit the same within 2 weeks from the date of this judgment.
225.3. It is made clear that the IRP shall not entertain any
expression of interest by any other person nor shall be required to
issue any new information memorandum. The said resolution
applicants shall be expected to proceed on the basis of the
information memorandum already issued by IRP and shall also
take into account the facts noticed and findings recorded in this
judgment.
225.4. After receiving the resolution plans as aforementioned,
the IRP shall take all further steps in the manner that the
processes of voting by the Committee of Creditors and his
submission of report to the Adjudicating Authority (NCLT) are
accomplished in all respects within the extended period of 45 days
from the date of this judgment. The Adjudicating Authority shall
93 Only these resolution applicants were permitted to submit the revised plans in the judgment
dated 06.11.2019 .
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take final decision in terms of Section 31 of the Code expeditiously
upon submission of report by the IRP.
225.5. These directions, particularly for enlargement of time to
complete the process of CIRP, are being issued in exceptional
circumstances of the present case and shall not be treated as a
precedent.
225.6. As noticed in paragraphs 4.5 and 38.3 hereinabove, the
proceedings relating to CIRP of JIL were initiated by the Allahabad
Bench of National Company Law Tribunal but, later on, the same
were transferred to its Principal Bench at New Delhi. Therefore,
the proceedings contemplated by this judgment shall be taken up
by the Principal Bench of the National Company Law Tribunal at
New Delhi.
226. All the appeals, transferred cases, transfer petitions and
interlocutory applications in this batch stand disposed of.
227. A copy of this order be forwarded to the NCLT, New Delhi and IRP
through email forthwith for compliance.
Acknowledgement
228. While closing, we owe a duty to put on record our thanks and
compliments to the learned counsel for the respective parties, their
associates and their research assistants who all, despite challenging
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circumstances due to the pandemic and virtual hearing, have rendered
invaluable assistance to the Court in dealing with vast variety of questions
involved in these matters, by way of neatly articulated oral submissions
as also meticulously drawn written submissions.
..………………………….J.
(A.M. KHANWILKAR) 1
……..…………………….J.
(DINESH MAHESHWARI)
..………………………….J.
(SANJIV KHANNA) 1
New Delhi
th
Dated: 24 March, 2021
373
Table of Contents
| S.<br>No. | Particulars | Paragraphs |
| 1. | Introductory | 1-3 |
| 2. | Brief outline and sketch | 4-5 |
| 3. | The parties and their respective roles<br>and interests in the matter | 6-14.5 |
| 4. | Points for determination | 15(A to N) |
| 5. | Relevant factual and background<br>aspects | 16-19.1 |
| 6. | Orders and directions in the case<br>of Chitra Sharma | 20-23 |
| 7. | Another round in this Court and further<br>enlargement of time for CIRP in<br>question | 24-32 |
| 8. | Yet another litigation in this Court<br>relating to preferential transactions<br>and lenders of JAL | 33-37 |
| 9. | The Resolution Plan | 38-40 |
| 10. | Order dated 03.03.2020 by the<br>Adjudicating Authority in approval of<br>the resolution plan with modifications | 41-52 |
| 11. | Order dated 22.04.2020 by NCLAT<br>making interim arrangement | 53-54 |
| 12. | The relevant statutory provisions | 55-60 |
| 13 | JIL’s CIRP: Chronicle of complications | 61-62 |
| 14. | The objectives and scheme of IBC | 63-64.1 |
| 15. | Approval of resolution plan: Crucial<br>steps and role players<br>Committee of Creditors: the<br>protagonist of CIRP | 65-66.2<br>67-70 |
| 16. | Point A: Contours of the<br>jurisdiction of Adjudicating<br>Authority in dealing with a<br>resolution plan | 71-79 |
| 17. | Point B: Simultaneous voting<br>over two resolution plans by CoC | 80-85 |
| 18. | Point C: Matters related with the<br>land providing agency YEIDA | 86-109 |
| 19. | Point D: Treatment of the debt of | 110-130 |
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| dissenting financial creditor ICICI<br>Bank Limited | ||
|---|---|---|
| 20. | Point E: Matters related with<br>fixed deposit holders | 131-136 |
| 21. | Point F: Objections of the<br>financial creditor of subsidiary of<br>the corporate debtor | 137-142 |
| 22. | Point G: Grievance of agreement<br>holders | 143-148 |
| 23. | Point H: Grievance of minority<br>shareholders | 149-154 |
| 24. | Point I: Matters related with<br>dissatisfied homebuyers of JIL | 155-175 |
| 25. | Point J: INR 750 crores and<br>accounting between JAL and JIL | 176-192 |
| 26. | Point K: Security interest of the<br>lenders of JAL and effect of<br>judgment dated 26.02.2020 | 193-206 |
| 27. | Point L: Other issues requiring<br>clarification/directions | 207-210 |
| 28. | Point M: Modified mechanism for<br>implementation by the Appellate<br>Authority | 211-215 |
| 29. | Point N: Summation of findings;<br>final order and conclusion | 216-227 |
| 30. | Acknowledgement | 228 |
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