NCLT Approves Suraksha’s Resolution Plan for Jaypee Infratech: Approval of Resolution Plan under the IBC is a Single Window Clearance
The National Company Law Tribunal (NCLT), Delhi by its division member bench comprising of Justice Ramalingam Sudhakar (President) and Shri. L. N. Gupta (Technical Member) approved the Resolution plan submitted by Suraksha Realty for the Resolution of Jaypee Infratech Limited, with a direction to the Successful Resolution Applicants (SRAs) 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.
The application was filed by the Interim Resolution Professional (IRP) of M/s. Jaypee Infratech Limited (JIL), pursuant to the directions given by Supreme Court of India in the Judgement of Jaypee Kensington Boulevard Apartments Welfare Association and Ors vs. NBCC (India) Ltd and Ors. The application was preferred for approval of the Resolution Plan submitted jointly by a Consortium of M/s. Suraksha Realty Limited and M/s. Lakshdeep Investments and Finance Private Limited in respect of Jaypee Infratech Limited (for brevity, called “JIL/the Corporate Debtor”).
It was submitted by the Applicant/IRP, the members of the Committee of Creditors (CoC) discussed and deliberated upon the revised Resolution Plans along with their respective addendums submitted by NBCC (India) Limited and Suraksha Realty in the 24th CoC meeting convened on 10 June, 2021 and both the plans were put to vote from 14 June, 2021 to 23 June, 2021. The Resolution plan was approved by the CoC by 98.55% votes.
The SRA had 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.
Further, it was submitted that 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. YEIDA (Yamuna Expressway Industrial Development Authority), ICICI Bank and JAL (Jaiprakash Associates Limited) along with Sh. Manoj Gaur filed their objections to the plan. Furthermore, IRP, CoC, SRA, were together referred as Supporter of the Plan by the NCLT.
Objections of ICICI Bank
ICICI Bank was a dissenting Financial Creditor (DFC), who was proposed to be paid in the plan by enforcing Security Interest is respect of land situated at Tappal admeasuring 180 acres. The grievance of the ICICI Bank was:
1. ICICI Bank was not given an opportunity to choose property of its own choice for enforcing security Interest.
2. 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.
3. 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.
The bench observed, “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.”
The bench asserted that 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.
Thus, the NCLT held, 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.
The bench further expressed that 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.
The Application of ICICI bank was rejected by the NCLT.
Objections raised by YEIDA
1. 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 was against the mandate of Hon’ble Supreme Court passed in Para 103 of the Jaypee Kensington Judgement;
2. Provision of Rs. 10 Lakhs in the Resolution Plan for payment to YEIDA towards the Additional Compensation of Rs 1689 Crores violated Para 106 of the Jaypee Kensington Judgement;
3. The Reliefs and Concession sought in the Resolution Plan tinkers with the terms of the Concession Agreement.
The NCLT noted that YEIDA, though an “Authority,” being an “Operational Creditor” was not the part of the CoC of the Corporate Debtor, which alone was 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 was 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.
The NCLT discerned, what YEIDA cannot get directly as an ‘Operational Creditor’, it cannot get it indirectly under the attire of being an Authority.
The bench observed, “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.”
With respect to the objection regarding relief and concession being inconsistent with the Resolution Plan, the NCLT refused to grant such relief and concession, and held that such reliefs would result in tinkering with the Concession Agreement and the same cannot be done without taking the express consent of YEIDA.
Objections of JAL/ Manoj Gaur
1. Resolution Plan failed to maximize the value of Assets.
2. Resolution Plan was violative since it bars the Personal Guarantor to claim dues under the subrogation from the Corporate Debtor.
3. SRA cannot unilaterally cancel the Contracts entered between JAL and JIL.
NCLT dealt with the role of the Adjudicating Authority, regarding maximizing the value of assets, and referred to the observations of the Supreme Court in the Jaypee Kensington (Supra) and concluded that the Adjudicating Authority cannot enter into any quantitative analysis to adjudge as to whether the Resolution Plan results in maximization of the value of assets or not.
Next the bench noted that since the applicant has to re-start functions of the Corporate Debtor on a fresh slate in terms of the Judgement of Supreme Court in Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta, 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 would be contrary to the Judgement of Supreme Court in the matter of Ghanshyam Mishra and Sons vs. Edelweiss Asset Reconstruction Company (2021).
The bench observed, “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.”
The NCLT noted that as per Regulation 39(6) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, it was 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, the NCLT was of the view that the contracts/agreements, to which JAL was referring, will come under the ambit of Regulation 39(6).
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.
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. However, liberty was given to the SRA to proceed in accordance with law.