NCLT Ahmedabad Rejects Resolution Plan For Failing To Address Issues Of Cash Flow, Value Of Assets And Statutory Dues

The National Company Law Tribunal (“NCLT”), Ahmedabad Bench, comprising of Mrs. Chitra Hankare (Judicial Member) and Dr. Velamur G Venkata Chalapathy (Technical Member), has declined to approve a resolution plan which failed to address the issue of cash flows, value of assets, statutory dues and proposed payment of merely Rs. 1,000/- towards employees’ dues. “The Resolution Plan does not address the cash flows and value of the Assets enumerated and the Operational Debt claims received from Statutory Authorities. The valuation report (only a summary is submitted) of the assets is not satisfactory. The Resolution Plan presupposes approval and ignores the claim that has been received from the Income Tax Department of dues to be paid. It also proposes to pay only Rs 1000 to employees in 90 days after the approval of the Plan. The Resolution Plan is rejected as it does not satisfy the provisions of Section 31(2) of IBC 2016 and Regulations 36 of the Act of the Code.” Background Facts On 22.02.2022, Gajanand Corporation Pvt. Ltd. (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the NCLT. M/s. Thakurji International Pvt. Ltd. (“Successful Resolution Applicant/SRA”) submitted a Resolution Plan for the Corporate Debtor, which was approved by the Committee of Creditors (“CoC”) with a majority voting share of 67.88%. The claims submitted by the Corporate Debtor’s creditors were admitted by the Resolution Professional to the extent of Rs. 30.9 Crores. The Resolution Plan of SRA is valued at Rs. 22 Lakhs, including the CIRP Cost. The resolution plan proposed to pay the Financial Creditors (Secured and Unsecured) an amount of Rs. 11.93 Lakhs as against an admitted claim of Rs. 9.4 Crores. The Operational Creditors are to be paid Rs. 5,000/- against their admitted claim of Rs. 21 Crores. The admitted claims of Employees and Government are 3.18 Lakhs against which the SRA has proposed to pay Rs. 1,000/-. The statutory dues were Rs. 36,000/- against which the SRA proposed to pay Rs. 1,000/-. The Resolution Professional filed an application under Section 30(6) of IBC before the NCLT, seeking approval of the Resolution Plan. Section 30(2) of IBC states that a resolution plan must provide for insolvency resolution cost and payment of debts of operational creditors which should not be less than (i) the amount to be paid to such creditors in liquidation of the corporate debtor under Section 53; or (ii) the amount payable to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in Section 53(1) of IBC. Section 31(1) states that the NCLT may approve a resolution plan if it conforms to the requirements given under Section 30(2). The Section 31(2) of IBC empowers the NCLT to reject a resolution plan if the same does not conform to the requirements given under Section 31(1). NCLT Verdict The Bench noted that the Resolution Plan of SRA fails to address the issue of cash flow, value of assets and operational debt claims received from Statutory Authorities. Mere submission of summary of the valuation report is unsatisfactory. Further, the claims received by Income Tax Department have been ignored in the plan and the employees are to be paid merely Rs. 1,000 against their admitted claims. “The Resolution Plan does not address the cash flows and value of the Assets enumerated and the Operational Debt claims received from Statutory Authorities. The valuation report (only a summary is submitted) of the assets is not satisfactory. The Resolution Plan presupposes approval and ignores the claim that has been received from the Income Tax Department of dues to be paid. It also proposes to pay only Rs 1000 to employees in 90 days after the approval of the Plan. The Resolution Plan is rejected as it does not satisfy the provisions of Section 31(2) of IBC 2016 and Regulations 36 of the Act of the Code.” The Bench held that the SRA’s resolution plan is incompliant of Section 31(2) of IBC and Regulation 36 of CIRP Regulations. Accordingly, the resolution plan has been rejected and the application has been dismissed. Case Title: Eco Green Products Private Limited v Gajanand Corporation Pvt. Ltd. Case No.: CP(IB)/70(AHM)2021 Counsel for Applicant: Mr. Atul Sharma a.w. Mr. Arjun Padhiyar Adv. Counsel for Respondents: Ms. Kinjal Trivedi Adv. for Maithali Mehta, Adv., Ms. Aditi Sharma, Adv. Click Here To Read/Download Order

NCLT Ahmedabad Rejects Resolution Plan For Failing To Address Issues Of Cash Flow, Value Of Assets And Statutory Dues

Pallavi Mishra

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