NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI

Company Appeal (AT) (Insolvency) No. 203 of 2019

(Arising out of Order dated 1st February, 2019 passed by the Adjudicating
Authority (National Company Law Tribunal), Single Bench, Chennai in
MA/71/2019 in CP/682/IB/CB/2017)

IN THE MATTER OF:

Saravana Global Holdings Ltd. & Anr. ...Appellants

Vs.

Bafna Pharmaceuticals Ltd. & Ors. ...Respondents

Present: For Appellants: - Mr. Sudhir Makkar, Senior Advocate

with Mr. Jatin Mongia, Mr. Yashvardhan Bandi, Ms. Riya,
Mr. Abhishek Chaudhary, Ms. Sumya Gupta and Mr. N.
Srikanth, Advocates.

For Respondents:- Mr. Basava Prabhu. S Patil, Senior

Advocate with Mr. T.N. Purga Prasad, Mr. Soumik Ghosal,
Mr. Geet Ahuja and Mr. Gaurav Singh, Advocates for
Respondent No. 2.

Mr. Rana Mukherjee, Senior Advocate with Mr. K.V.

Balakrishnan and Mr. R.K. Sharma, Advocates for
Respondent No.3.

Mr. P. V. Dinesh, Ms. Sindhu T.P and Mr. R.S.

Lakashman, Advocates for SBI.

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

Pursuant to an application filed by ‘M/s. Aries’ under Section 9 of

the Insolvency and Bankruptcy Code, 2016 (“I&B Code” for short),
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‘Corporate Insolvency Resolution Process’ was initiated against ‘M/s.

Bafna Pharmaceuticals Limited’- (‘Corporate Debtor’), a Micro, Small &

Medium Enterprises (‘MSME’, for short). The 3rd Respondent- Mr.

Mahaveer Chand Bafna, Promoter of the ‘Corporate Debtor’ filed

improved ‘Resolution Plan’ which was approved by the ‘Committee of

Creditors’ and placed before the Adjudicating Authority (National

Company Law Tribunal). By impugned order dated 1st February, 2019,

the Adjudicating Authority approved the improved plan of the promoter

of the ‘Corporate Debtor’ which is under challenge in this appeal.

2. Learned counsel appearing on behalf of the Appellants submits

that ‘Saravana Global Holdings Ltd.’ along with Mrs. P. Shobha

(Appellants herein) were interested to submit their ‘Resolution Plan’ but

no opportunity was given to them to file the same.

3. According to the Appellants, the impugned order has been passed

approving the ‘Resolution Plan’ without complying the mandatory

provisions of the ‘I&B Code’. It was submitted that as per Section 25 (2)

(h) of the ‘I&B Code’, it is the duty of the ‘Resolution Professional’ to invite

prospective ‘Resolution Applicants’ who fulfil criteria laid down by him

with the approval of the ‘Committee of Creditors’. Once the ‘Expression

of Interest’ has been published under Regulation 36A and prospective

‘Resolution Applicants’ have been invited, the ‘Information Memorandum’

prepared under Section 29 of the ‘I&B Code’ shall be shared with them.

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4. It was submitted that the Respondents have failed to follow the

aforesaid procedure as prescribed under the ‘I&B Code’.

5. It was further submitted that the ‘Information Memorandum’ was

prepared but it was not circulated. 2nd and 4th Respondents decided to

defer the publication of ‘Expression of Interest’ and inviting prospective

‘Resolution Applicants’ which they could not have done away with the

provisions entirely on account of the provisions being mandatory under

the ‘I&B Code’.

6. Learned counsel appearing on behalf of 2nd Respondent-

‘Resolution Professional’ submitted that the ‘Committee of Creditors’ in

its 3rd meeting held on 27th September, 2018, informed the members that

the Draft Invitation for ‘Expression of Interest’ and submission of

‘Resolution Plan’ with eligibility details to be published in newspapers

had been prepared and the same had already been circulated to all the

members of the ‘Committee of Creditors’. The ‘Committee of Creditors’

members have expressed that the publication of ‘Expression of Interest’

may be deferred for the time being as there is an active consideration of

‘Resolution Plan’ with the ‘Corporate Debtor’ itself.

7. In the 4th ‘Committee of Creditors’ meeting which was held on 30th

November, 2018, the reasons for deferring the issue of ‘Expression of

Interest’ was discussed by the ‘Committee of Creditors’ members with

reasoning and the issue pertaining to extension application before the

Adjudicating Authority was discussed.

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8. In the 5th ‘Committee of Creditors’ meeting held on 20th December,

2018, the ‘Resolution Professional’ was asked by the ‘Committee of

Creditors’ members regarding the eligibility of the ‘Resolution Applicant’

(promoter of the ‘Corporate Debtor’). The ‘Resolution Professional’

confirmed the eligibility of the ‘Resolution Applicant’ being an MSME and

eligible under 29 A of the ‘I&B Code’. The ‘Resolution Applicant’ (3rd

Respondent) presented his plan to the ‘Committee of Creditors’, which

was discussed in the meeting and unanimous decision was taken by the

‘Committee of Creditors’, relevant of which reproduced below:

“…..(1) CD (Resolution Applicant) to submit the full set

of resolution plan again by 26th December, 2018

incorporating the further details required by the CoC

members points.

(2) The Resolution Plan to be presented to the CoC

again by the RP if the plan is in order incorporating

the changes proposed as per (1) above.

(3) In case details are not adequate or resolution plan

if presented is not approved, then the RP to seek for

‘Expression of Interest.”

9. It was submitted that all the requirements under the ‘I&B Code’

have been complied with by the ‘Interim Resolution Professional’ and

‘Resolution Professional’, more specifically the ‘Information

Memorandum’ was prepared in compliance with section 25(2) (g) and

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the same were furnished to the members of ‘Committee of Creditors’ on

obtaining the Non-Disclosure Agreement.

10. It is informed that the revised ‘Resolution Plan’ submitted by the

3rd Respondent was discussed and put to vote which was approved by

74.84 % votes in favour of the resolution plan. A monitoring committee

was constituted in order to successful implementation of the ‘Resolution

Plan’.

11. It was also informed that 3rd Respondent in the initial stages also

tried for settlement under 12(A) of the ‘I&B Code’. The ‘Resolution

Applicant's’ plan was under active consideration in at least three

‘Committee of Creditors’ meetings.

12. It was informed that the ‘Resolution Plan’ provides for payment to

‘Operational Creditors’ who had submitted their claim and which was

admitted by the ‘Interim Resolution Professional’/’Resolution

Professional’ and the statutory dues, employee's and workmen dues. The

financial creditors have been provided for to the tune of 70% of the

admitted claims. Thus the ‘Resolution Plan’ has taken care of all the

stakeholders and there is no discrimination of any kind whatsoever

amongst the same set of creditors.

13. Similar plea has been taken by the ‘State Bank of India’ on behalf

of lead Bank of the ‘Committee of Creditors’. They have also taken plea

that in terms of Section 25(2) (h), the ‘Resolution Professional’ shall

invite prospective ‘Resolution Applicants’, who fulfil such criteria as

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may be laid down by him with the approval of ‘Committee of Creditors’,

having regard to the complexity and scale of the operations of the

business of the ‘Corporate Debtor’.

14. The 3rd Respondent has been in the pharmaceutical business for

close to 40 years, the ‘Resolution Plan’ having filed by 3 rd Respondent

being viable and feasible and fulfils all other financial matrix has been

accepted.

15. With regard to Appellant- ‘Saravana Global Holdings Ltd.’, it is

stated that Mr. Padam J Challani is also a Director, had a NPA account

with the answering Respondent, State Bank of India, for a debt

amounting to INR 48.33 Crores. This account was declared NPA on

29th March, 2012. Even restructuring attempts had failed as the

borrower could not repay any amount. Finally, the bank was

constrained to settle the account by taking a painful haircut of close

to 50% in March, 2018. The sacrifice made by the bank in this

settlement was INR 23.14 crores. It may be noted that the Appellants,

belonging to the same group companies, is making tall claims of

proposing a plan worth 100 Crores. However, before this Appellate

Tribunal, learned counsel for the Appellant submitted that the

Appellant is ready to pay total amount of Rs. 81.57 Crores.

16. The Statement of Objects and Reasons of the ‘I&B Code’

specifically states the objective of the ‘I&B Code’ is to consolidate and

amend the laws relating to reorganization and insolvency resolution of

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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 the

interests of all the stakeholders including alteration in the priority of

payment of Government dues and to establish an Insolvency and

Bankruptcy Fund, and matters connected therewith or incidental

thereto. An effective legal framework for timely resolution of Insolvency

and Bankruptcy would support development of credit markets and

encourage entrepreneurship. It would also improve ease of doing

business, and facilitate more investments leading to higher economic

growth and development.

17. In “Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors.─

2019 SCC OnLine SC 73”, the Hon’ble Supreme Court while deal with

preamble observed:

“20. 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

reorganization and insolvency resolution of corporate

debtors. Unless such reorganization is effected in a

time-bound manner, the value of the assets of such

persons will deplete. Therefore, maximization 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

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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 maximize 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 the

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corporate debtor as a going concern. [See

ArcelorMittal (supra) at paragraph 83, footnote 3].”

18. Therefore, it is clear that ‘I&B Code’ envisages maximization of

value of the assets of the ‘Corporate Debtor’ so that they are efficiently

run as going concerns and in turn, will promote entrepreneurship. 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 Plan’s submitted are not up to the mark.

19. Admittedly, the ‘Corporate Debtor’ is a ‘MSME’ and the promoters

are not ineligible in terms of Section 29A of the ‘I&B Code’. Therefore, it

is not necessary for the ‘Committee of Creditors’ to find out whether the

‘Resolution Applicant’ is ineligible in terms of Section 29A or not.

20. The ‘Committee of Creditors’ is to consider the feasibility, viability

and such other requirements as has been specified by the Board. If it

proposes maximisation of the assets and is found to be feasible, viable

and fulfil all other requirements as specified by the Board, the company

being MSME, it is not necessary for the ‘Committee of Creditors’ to follow

all the procedures under the ‘Corporate Insolvency Resolution Process’.

For example, if case is settled before the constitution of the ‘Committee

of Creditors’ or in terms of Section 12A on the basis of offer given by

Promoter, in such case, all other procedure for calling of application of

‘Resolution Applicant’ etc. are not followed. If the Promoter satisfy all the

creditors and is in a position to keep the ‘Corporate Debtor’ as a going

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concern, it is always open to ‘Committee of Creditors’ to accept the terms

of settlement and approve it by 90% of the voting shares. The same

principle can be followed in the case of MSME.

21. The Parliament with specific intention amended the provisions of

the ‘I&B Code’ by allowing the Promoters of ‘MSME’ to file ‘Resolution

Plan’. The intention of the legislature shows that the Promoters of ‘MSME’

should be encouraged to pay back the amount with the satisfaction of the

‘Committee of Creditors’ to regain the control of the ‘Corporate Debtor’

and entrepreneurship by filing ‘Resolution Plan’ which is viable, feasible

and fulfils other criteria as laid down by the ‘Insolvency and Bankruptcy

Board of India’.

22. Therefore, we hold that in exceptional circumstances, if the

‘Corporate Debtor’ is MSME, it is not necessary for the Promoters to

compete with other ‘Resolution Applicants’ to regain the control of the

‘Corporate Debtor’.

23. In the present case, the Adjudicating Authority on perusal of the

‘Resolution Plan’ observed as follows:

“7. The perusal of the ‘Resolution Plan’

shows that it provides for the Resolution for all the

Financial Creditors, out of the total claim of

Rs.49.23 Crores, the payment proposed is

Rs.34.46 Crores. It further provides that 70% of

the admitted claims of all the Financial Creditors

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shall be paid within three months from the

'Approval Date' as full and final settlement of the

dues and personal guarantees. In relation to the

Workmen dues, it provides for total payment of

Rs. 0.24 Crores, as far as the Employees' dues

are concerned, the Plan provides for total

payment of Rs.0.32 Crores. The Plan also

provides for payment of Insolvency Resolution

Process Costs, the dues for PP and ESI. A

provision has also been made for payments of

Rs.6.53 Crores to other Operational Creditors

and Rs.0.13 Crores towards statutory liabilities.

In essence, the Plan provides to settle the claim

of various stakeholders.

8. The Plan provides that to balance the

interest of all stakeholders, a capital reduction

is proposed and the capital of all the fully paid

up equity shareholders as on 30.06.2018 shall

be reduced to 10% and consequently, the

existing 2.36 Crores number of shares shall be

reduced to 0.236 number of shares.

9. The Resolution Plan provides that upon its

approval the Resolution Applicant shall have

authority to reconstitute the Board of Director

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and the Board shall have the authority to act

and execute in the name and on behalf of the

Corporate Debtor all deeds, receipts, and other

documents, as may be required. However, the

Resolution Applicant shall be responsible for

the proper implementation of the proposed

Resolution Plan from the date of its approval.

Further, the Resolution Plan provides that the

Resolution Applicant will appoint a Chartered

Accountant or a Resolution Prof essional

qualified and registered under the IBBI as the

supervisor ("supervisor") for the supervision of

the approved Resolution Plan, a representative

from Corporate Debtor and other two

representatives from the Financial Creditors. The

supervisor shall be appointed for a period till the

payment of all the liabilities mentioned in the

Resolution Plan. Therefore, the Resolution Plan

provides suitable arrangement for management

of the Corporate Debtor and the implementation

of the same (Plan).

10. Thus, the ‘Resolution Plan’ filed with the

Application meets the requirements of Section

30(2) of the I&B Code, 2016 and Regulations

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37, 38, 38(1A) and 39 (4) of IBBI (CIRP)

Regulations, 2016. The ‘Resolution Plan’ is also not

in contravention of any of the provisions of Section

29A. The Resolution Professional has also certified

that the “Resolution Plan” approved by the CoCs

does not contravene any of the provisions of the

law for the time being in force. The Compliance

Certificate is placed at pages 7 to 11 of the typed

set filed with the Application. The ‘Resolution Plan’

stands approved by the CoCs with 74.84% voting

share.”

24. In view of the fact that the ‘Resolution Applicant’ is the Promoter of

the ‘M/s. Bafna Pharmaceuticals Limited’- (‘Corporate Debtor’), ‘MSME’,

we hold that it is open to the ‘Committee of Creditors’ to defer the process

of issuance of ‘Information Memorandum’, if the Promoter of MSME offers

a viable and feasible plan maximising the assets of the ‘Corporate Debtor’

and balancing all the stakeholders. For such purpose, it is not required

to follow all the procedure as the case for accepting the proposal under

Section 12A of the ‘I&B Code’.

25. This apart, one of the Director of the Appellant having declared

‘NPA’ by the ‘State Bank of India’, lead Bank of the ‘Committee of

Creditors’, at this stage, we are not inclined to give opportunity to the

Appellant to file its offer.

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26. We find no merit in this appeal. It is accordingly, dismissed. No

costs.

(Justice S.J. Mukhopadhaya)

Chairperson

(Justice A.I.S. Cheema)

Member(Judicial)

NEW DELHI
4th July, 2019

AR

Company Appeal (AT) (Insol.) No. 203 of 2019