Summary of Jaypee Infratech Limited (JIL) Resolution Plan Judgement
Authored by: Yashraj Singh, Law Research Associate, NCLT, Delhi LL.B, ACS
Summary of findings of the order dated 07.03.2023 passed by the NCLT Delhi, approving the Resolution Plan submitted by Suraksha Realty Limited for the Resolution of Jaypee Infratech Limited
1. On 07.03.2023, a special Bench of NCLT Delhi comprising of Hon’ble President, Justice Ramalingam Sudhakar and Shri. L. N. Gupta, Hon’ble Member, approved the Resolution plan submitted by Suraksha Realty for the Resolution of Jaypee Infratech Limited, with a direction to the SRA to deliver/provide possession of the units to the Home Buyers/Allottees strictly as per the time frame promised in the Resolution Plan and approved by this Authority. NCLT further, directed that the Monitoring Committee will supervise and monitor the progress of construction of units and related infrastructure developments on a day-to-day basis and file the progress report before this Adjudicating Authority on monthly basis.
2. The Resolution plan was approved by the CoC by 98.55% votes (Para 14, Page 11).
3. The SRA has proposed to resolve the defaults of the Corporate Debtor Limiting and resolving the debt obligations of the Corporate Debtor by infusing additional working capital; taking control of all the business activities by terminating concerned related party agreements/contracts; prudent financial planning and transparency in management and utilization of funds; and good corporate governance.
4. The average Liquidation Value of the Corporate Debtor is of Rs. 17,767 Crores and average Fair Market Value is of Rs. 25,602 Crores.
5. YEIDA (Yamuna Expressway Industrial Development Authority), ICICI Bank and JAL (Jaiprakash Associates Limited) along with Sh. Manoj Gaur filed their objections to the plan.
6. NCLT Delhi had dealt with all the objections at of the Objectors. Further, IRP, CoC, SRA, were together referred as Supporter of the Plan by the NCLT.
Objection of ICICI Bank
7. ICICI Bank was a dissenting Financial Creditor, who was proposed to be paid in the plan by enforcing Security Interest is respect of land situated at Tappal admeasuring 180 acres.
8. The grievance of the ICICI Bank was: –
- ICICI Bank was not given an opportunity to choose property of its own choice for enforcing security Interest.
- The proposed Resolution Plan compels the Dissenting Financial Creditor to bear the entire cost of enforcing security interest, which might create a risk for the Dissenting Financial Creditor not to realize even the Minimum Liquidation Value.
- The manner of computation of the Liquidation value of ICICI Bank itself is erroneous as the entitlement of the ICICI Bank for another Rs. 86 Crore over and above Rs.218 Crore under Section 53(1)(d) i.e., as an Unsecured Financial Creditor, was not considered. (Para 29 Page 74).
9. The following was held by the NCLT with respect to the objection of ICICI Bank at Serial 8 (a):
“35. We are aware that the Prospective Resolution Applicants (PRAs) furnish their Resolution Plans based on the Information Memorandum (IM) prepared by the Resolution Professional, where the list of all the Assets of the Corporate Debtor is given. If a DFC is given the option to select an asset for enforcing security interest, then there will be uncertainty, as there will be a surprise loss of that Asset, which formed part of the said Information Memorandum and for which the Prospective Resolution Applicant might have got attracted to submit the Resolution Plan. A prospective Resolution Applicant to a Corporate Debtor having multiple Creditors, cannot anticipate as to which Creditor will dissent to the Resolution Plan. If the plan is approved by the requisite majority, the Successful Resolution Applicant gets the pre-emptive right over the assets of the Corporate Debtor, and as a corollary, it is his prerogative whether it wants to retain or release a particular asset for enforcing security interest.”
Here, we refer to the Judgement of the Hon’ble Supreme Court in the matter of Ram Kishun and Ors. vs. State of U.P Civil Appeal No. 6204 of 2009 dated 24.05.2012, wherein the following is observed:
“8. Undoubtedly, public money should be recovered and recovery should be made expeditiously. But it does not mean that the financial institutions which are concerned only with the recovery of their loans, may be permitted to behave like property dealers and be permitted further to dispose of the secured assets in any unreasonable or arbitrary manner in flagrant violation of statutory provisions.
Thus, in our considered view, as long as the minimum Liquidation Value is paid by the Resolution Applicant to the Dissenting Financial Creditor(s), the latter cannot seek any replacement or ask for an alternate property, as a matter of right, for enforcing its Security Interest.
10. With respect to objection at Serial 8(b), the following was held by the NCLT:
“40. Whereas, the Liquidation value of the ICICI Bank has been stated to be Rs. 218 Crores only, the Liquidation value for the 180 Acres of land parcel at Tappal aggregates to (Ac. 180 x Rs. 1.30 Crore per acre) Rs. 234 Crores, which is clearly higher than the liquidation value entitlement of the ICICI Bank. We further observe that the Resolution Applicant has given the “Shortfall Undertaking” in the Plan, as per which it has undertaken to provide additional 2594 Acres of land parcel for enforcing security interest, in the event of any shortfall. Moreover, the fair market value (FMV) of the land is still higher especially, in the backdrop of the ever-rising trend in land prices. In view of the above, we are of the view that the SRA has made sufficient arrangements to enable the Dissenting Financial Creditor/ICICI Bank to achieve its Liquidation value and cover expenses of enforcing security interest. Hence, this objection raised by the Applicant ICICI Bank and other objectors does not merit consideration and therefore, is rejected.
11. With respect to objection at Serial 8(c) the following was held by NCLT:
“48. In our considered view, the DFC/ICICI Bank cannot sail in two boats, either it can be treated as a Secured Financial Creditor or as an Unsecured Financial Creditor. The wording under Section 53(1)(b)(ii) regarding “Relinquished security” will not make the Secured Creditor as an Unsecured Creditor. Since in the context of a Resolution plan, Section 53(1)(b)(ii) has a limited role i.e., only for calculation of minimum entitlement of a DFC in terms of Liquidation value, it does not mean that relinquishment of Security Interest in actual has taken place by the Secured Creditor, the requirement of which only arises when the Corporate Debtor is under Liquidation. Hence, a Secured Creditor cannot be treated as an Unsecured Creditor and will not be entitled to both the benefits under Section 53(1)(b)(ii) and Section 53(1)(d) both simultaneously.
49. On perusing Section 53(1)(e)(ii), it is observed that the unpaid entitlement of a Secured Creditor is only recognized below in priority to the payment to an Unsecured Creditor 53(1)(d), which in the present case turns out to be “Nil”. Hence, we find that no error has been committed by the IRP of JIL, while calculating the Liquidation value of the Dissenting Financial Creditor/ ICICI Bank.
12. The Application of ICICI Bank was rejected by the NCLT.
13. The objections taken by YEIDA are summarized below:
- provision of Rs. 10 Lakhs in the Resolution Plan for payment to YEIDA towards the claim of External Development Charges results in tinkering with the terms of the Concession Agreement, which is against the mandate of Hon’ble Supreme Court passed in Para 103 of the Jaypee Kensington Judgement;
- Provision of Rs. 10 Lakhs in the Resolution Plan for payment to YEIDA towards the Additional Compensation of Rs 1689 Crores violates Para 106 of the Jaypee Kensington Judgement;
- The Reliefs and Concession sought in the Resolution Plan tinkers with the terms of the Concession Agreement;
14. The following was observed by NCLT with respect to objection at Serial 13(a):
“72. It is a matter of fact that YEIDA, though an “Authority”, being an “Operational Creditor” is not the part of the CoC of the Corporate Debtor, which alone is empowered under law to consider and approve or reject a Resolution Plan on commercial terms. However, under the provisions contained in Regulation 37(l) of IBBI (CIRP) Regulations, 2016, approval of YEIDA is still required as an Authority, if any of the proposals in the Resolution Plan seeks to alter the term of the Concession Agreement. However, this does not give any right to the Authority (i.e., YEIDA) to negotiate with the Successful Resolution Applicant, that if its claim is not fully discharged, it shall object to the Resolution plan. In our considered view, what YEIDA cannot get directly as an “Operational Creditor”, it cannot get it indirectly under the attire of being an “Authority”
73. In the instant case, if we ignore the reliefs and concessions sought in the Resolution Plan for a moment, then in our view, we find no such provision in the Suraksha’s Resolution Plan, which is in violation of the terms of the Concession Agreement (CA) under reference. Further, the proposal regarding extinguishment of claim of YEIDA in the Resolution Plan, because of it being the Operational Creditor, does not amount to violation of the Concession Agreement by the Successful Resolution Applicant, as the same is being effected due to operation of law.
15. With respect to objection of YEIDA at Serial No. 13(b) the following was held by the NCLT:
“80. Further, we are conscious of the fact that under the provisions of IBC 2016, NCLT has no ‘equity jurisdiction’. It can neither interfere with the commercial wisdom of CoC nor it can go beyond the provisions of the Code. Since YEIDA itself had filed its claim as an “Operational Creditor” and the Liquidation value owed to the Operational Creditors in the proposed Resolution Plan is ‘Nil’, and the SRA/Suraksha has still provided an amount of Rs. 10 Lakh for this contingency in its Resolution Plan, we find no illegality committed by the SRA/Suraksha by treating the claim of YEIDA as an Operational Debt and making a provision towards its payment in accordance with the provisions of IBC, 2016
90….. On perusal of column 9 of Form B of YEIDA reproduced above, it is observed that there is no retention of title in respect of any property to which the claim of YEIDA refers. Therefore, while going through the claim Form B (ibid), we find that in respect of the claim, no security interest is found to have been created by YEIDA and therefore, we are of the view that YEIDA cannot be termed as a ‘Secured Creditor’. Further, even during the course of the hearing, YEIDA was unable to explain that as to how it has created any security interest, in the light of the Judgement of the Hon’ble Supreme Court in the Rainbow Papers Limited (Supra).
91. Since, in the instant case, YEIDA has not been able to show any creation of security interest, we find that the Judgement of the Rainbow Papers Limited (Supra) is not applicable to the instant case.”.
16. With respect to the objection regarding relief and concession being inconsistent with the Resolution Plan, at Para 13(c). The NCLT had refused to grant such relief and concession, mentioned at Clause 37 pertaining to YEIDA. The extracts of the order are reproduced below:
“168. ……. YEIDA has strongly objected to the grant of such reliefs and concessions on the ground that such reliefs would result in tinkering with the Concession Agreement and the same cannot be done without taking the express consent of YEIDA. We agree with the submissions made by YEIDA. Accordingly, reliefs and concessions sought at 37(a) to 37(g) are declined.”
17. NCLT held that YEIDA is not a Secured Creditor and the Judgement of Hon’ble Supreme Court in State Tax Officer v. Rainbow Papers Limited reported as 2022 SCC OnLine SC 1162, is not applicable to the facts of YEIDA ( Para 90-91 )
18. Objections of JAL/ Manoj Gaur, were raised on the following grounds
- Resolution Plan fails to maximize the value of Assets.
- Resolution Plan is violative since it bars the Personal Guarantor to claim dues under the subrogation from the Corporate Debtor.
- SRA cannot unilaterally cancel the Contracts entered between JAL and JIL.
19. NCLT had delt with all the objections of JAL and had held the following with respect to the objection at Serial 18(a)
97. As regards the role of the Adjudicating Authority, in regard to maximizing the value of assets, we refer to the following observations of the Hon’ble Supreme Court in the Jaypee Kensington (Supra):
“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.”
20. NCLT had held the following with respect to the objections at serial 18(b):
“103. Since the Resolution Applicant has to re-start the functions of the Corporate Debtor on a fresh slate in terms of the Judgement of Hon’ble Supreme Court in Essar Steel (Supra), any fresh proceedings by virtue of subrogation on the Corporate Debtor managed by SRA are contrary to the scheme of IBC. Further, if such a right of subrogation is crystalized after the approval of the Resolution Plan, then recovery from the Corporate Debtor managed by SRA under the such right of subrogation is contrary to the Judgement of Hon’ble Supreme Court in the matter of Ghanshyam Mishra and Sons Vs Edelweiss Asset Reconstruction Company, CIVIL APPEAL NO.8129 2019, dated 13.04.2021, which reads thus:
“95. In the result, we answer the questions framed by us as under: i) That once a resolution plan is duly approved by the Adjudicating Authority under sub section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan; …..”
“104. Hence, in terms of the Judgement (Supra), we find that the Personal Guarantor has no right to subrogation, and to recover its dues from the Corporate Debtor, after approval of the Resolution plan. Hence, we find no illegality in Clause 34.50 of Suraksha’s Resolution Plan.”
21. NCLT has held the following with respect to the objection at Serial (c):
“124. On perusal of Regulation 39(6) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, it is evident that inter alia, lack of consent of shareholders/members of JIL i.e., JAL (being the holding company) for joint venture agreement or other document of a similar nature cannot create any hindrance in approval of the Resolution plan. Therefore, we are of the view that the contracts/agreements, to which JAL is referring, will come under the ambit of Regulation 39(6). A similar observation was given by the Hon’ble NCLT Principal Bench in the matter of State Bank of India Vs. Bhushan Steel Limited dated, (2018) ibclaw.in 274 NCLT, dated 15.05.2018, which reads as under:
“67. A perusal of Regulation 38 would clearly show that by virtue of mandatory contents of the resolution plan discussed under Section 30 and 31 of the Code the requirement of Regulation 38 stand fulfilled. However, the objections raised under Section 29A (a) and (d) of the Code which are discussed separately. Even the requirement of Regulation 39 stand fulfilled as the RP has submitted the resolution plan of H1 resolution applicant as approved by the CoC to this Tribunal with the certification that the contents of the resolution plan meet all requirements of the Code and the CIRP Regulations and that the resolution plan has been duly approved by the CoC. There is no scope for argument left that shareholder, or parties to joint venture agreement or anyone holding similar document need to accord sanction in view of the provisions of Regulation 39(6) of the CIRP Regulations. Regulation 39 (6) clarifies that the resolution plan as approved by the CoC must take effect notwithstanding the requirement of consent of the members or partners of the Corporate Debtor under the terms of the constitutional documents of the Corporate Debtor, shareholders’ agreement, joint venture agreement or other document of a similar nature.”
22. SRA had sought 38 reliefs and concessions under the Resolution Plan. It was observed by the NCLT that SRA had undertaken under Clause 12 of the Resolution Plan that even if no reliefs and concessions are granted it will still implement the plan. NCLT had granted only 7 reliefs and concessions. The Reliefs and Concession with respect to waiver of stamp duty and provide Taxation Benefits were declined by the NCLT on the ground that Taxation Benefits are contrary to the Income Tax Act ( Para 149-150). Even the Relief and concession sought against YEIDA was declined by the NCLT (Para 168).
23. Most of the reliefs and concessions were directly or indirectly in nature of seeking termination of the proceedings initiated prior to CIR Process before various Forums including proceedings initiated by the Income Tax Department. The NCLT declined to grant any blanket relief to SRA and refused to interfere with the jurisdiction of other forums. ( Para 136,145). However, liberty was given to the SRA to proceed in accordance with law.
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