Partly allowed

In the matter of Maruti Cotex Limited [Ia No. 2114/MB/2020 in Cp (Ib) No. 241/MB/2018]

NCLT9 Mar 2021IA No. 2114/MB/2020 in CP (IB) No. 241/MB/2018

Case brief

AI extract

What is this about?

The applicant, successful resolution applicant of Maruti Cotex Limited, sought to enforce a binding resolution plan against the lessor, MIDC, who demanded additional renewal and transfer fees post-approval. The NCLT held that the resolution plan is binding on all stakeholders. It ruled that delayed fees claimed after plan approval do not qualify as resolution process costs, are not transfer fees as the lessee entity remained the same despite shareholding change, and cannot be fastened on the applicant.

What did the court decide?

Prayers (a), (b), and (d) allowing the declaration that no further dues are payable and the demand is illegal are allowed. Prayer (c) for the NOC is refused.

In the matter of Maruti Cotex Limited [Ia No… — Insolvency and Bankruptcy | NCLT (2021)

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Through Videoconference

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IN THE NATIONAL COMPANY LAW TRIBUNAL MUMBAI BENCH, COURT No. - I

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IA No. 2114/MB/2020

CP (IB) No. 241/MB/2018

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(An Application under Section 60(5) of the Insolvency and Bankruptcy Code, 2016)

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Shree Siddhivinayak Cotspin Private Limited,

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Mr. Pradeep Mehta, Mr. Kiran Mehta, Mr. Rajesh Mehta and Mr. Atul Ganatra, through Authorised Signatory, Mr. Kiran Mehta, having address at 1^st Floor, 4, Anant Niwas Building, Narsee Natha Street, Masjid Bunder, Mumbai City, Maharashtra – 400 009

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… Applicant Versus

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Sujata Chattopadhyay, Resolution Professional, having her address at 404, Cosmos Mayuresh, Plot No. 37, Sector 11, CBD Belapur, Navi Mumbai – 400 614

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J.M. Financial Asset Reconstruction Company Limited, having its address at 7^th Floor, CNERGY, Appasaheb Marathe Marg, Prabhadevi, Mumbai – 400 025

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Maharashtra Industrial Development Corporation, through its Chief Operating Officer, having its address at “UdyogSarathi”, Marol Industrial Area, Mahakali Caves Road, Andheri (East), Mumbai – 400 093

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… Respondents

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NCLT, MUMBAI BENCH, COURT NO. - I IA No. 2114/MB/2020 In CP (IB) No. 241 of 2018

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In the matter of: CP (IB) No. 241/MB/2018

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J. M. Financial Asset Reconstruction Company Ltd. … Petitioner Versus Maruti Cotex Limited … Corporate Debtor Order Dated: 09.03.2021

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CORAM:

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Janab Mohammed Ajmal, Hon’ble Member (Judicial) Shri V. Nallasenapathy, Hon’ble Member (Technical)

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Appearance: For the Applicant: Mr. Mustafa Doctor, Senior Advocate with Mr. Amir Arsiwala & Mr. Shriraj Khambete, Advocates, i/b The Law Point. For Respondent No. 1: Ms Anamika, Advocate i/b Rushabh Thacker. For Respondent No. 2: Mr. Rohit Gupta, Advocate with Mr. Nirav Parmar, i/b Indus Law. For Respondent No. 3: Mr. Shreedharan with Mr. Gopal Machiraju, Ms. Khushbu Marwadi and Ms. Alefiya Mandviwala, Advocates i/b Jay & Co.

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Per: V. Nallasenapathy, Member (Technical)

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ORDER

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The Applicant is the Successful Resolution Applicant of the Corporate Debtor i.e., M/s Maruti Cotex Limited. The first Respondent (R1) is the Resolution Professional of the Corporate Debtor. Second Respondent (R2) is the petitioning creditor in the Company Petition. Third Respondent (R3) is the Maharashtra Industrial Development Corporation (M.I.D.C) against whom reliefs are sought.

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The Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor was initiated by order of this Bench dated 08/05/2019 on a petition

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filed by R2 against the Corporate Debtor. This Bench by an order dated 02/07/2020 approved the Resolution Plan submitted by the Applicant.

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R3 is a Government of Maharashtra undertaking which is established under the provisions of the Maharashtra Industrial Development Act, 1961 (MID Act, 1961) with the objective of ensuring planned and accelerated industrial development in the State of Maharashtra. R3 allotted Plot Nos. T-17 and T-17 (Part) respectively admeasuring 2,64,966 square meters and 57,143 square meters of land, in favour of the Corporate Debtor vide agreement of lease dated 29/03/2007. Subsequently, vide pre-determined lease deed dated 31/12/2007, R3 granted lease of the said lands/plots in favour of the Corporate Debtor for a term of 95 years. Clause 2(b) of the lease deed provided that the Corporate Debtor had to complete at least 20% of the intended construction of building and other structures on or before 15/06/2009. R3 had given consent to mortgage the leased properties in favour of the Financial Creditor of the Corporate Debtor vide letters dated 17/01/2008 and 12/02/2009, on the basis of which tripartite agreements dated 28/01/2008 and 06/03/2009 to that effect were executed.

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On the date of Application for Building Completion Certificate (BCC), the plot holder (Corporate Debtor) had to have completed at least 20% of the construction of the total plot area, upon which BCC was to be processed without applying for further extension.

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The plot holder failed to complete the construction within the prescribed time (15/06/2009) and on 07/11/2014, R3 issued show cause notice to the Corporate Debtor asking as to why action for termination of lease and repossession of plot would not be initiated against it. When the plot holder failed to repay the bank loan, the possession of the plot was taken over by the

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Creditor Bank. Thereafter the Insolvency and Bankruptcy petition was admitted by this Tribunal.

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It is submitted by the Applicant that R3 filed claim before R1 for sum of Rs.2.92 Crores pertaining to certain arrears payable by the Corporate Debtor. The Resolution Plan provided for the payment of Rs. 50 Lakhs towards debt due to Operational Creditors. It is submitted that the R3’s claim of Rs.2,92,42,128/- claimed as an Operational Debt was paid and settled for Rs.2,67,226/- in the Resolution Plan which has been approved by this Adjudicating Authority and it is submitted that the payment of Rs. 2,67,226/was made to R3 on 29/09/2020.

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The Applicant vide letter dated 17/09/2020 requested R3 to issue ‘No Due Certificate’ and ‘No Objection Certificate’ for creation of security interest over the factory premises of the Corporate Debtor, in view of the fact that the Applicant emerged as the Successful Resolution Applicant and had taken over the assets and liabilities of the Corporate Debtor as mentioned in the Resolution Plan.

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The Applicant submits that, on 29/10/2020, HDFC Bank had issued sanction letter to the Applicant sanctioning loans enabling the Applicant to infuse funds for implementing the Resolution Plan approved on 02/07/2020. Since R3 has not issued ‘No Objection Certificate’ to mortgage the leased land, the Applicant is not in a position to avail the loan sanctioned by HDFC and to further implement the Resolution Plan.

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R3 on 02/11/2020, issued the following letter to the Applicant:

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“Maharashtra Industrial Development Corporation (Adopted enterprise of the Government of Maharashtra)

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Date:- 02/11/2020

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Ref: C80846

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To, M/s Maruti Cotex Limited, 405, Maker Chamber – V, Nariman Point, Mumbai 400021.

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Sub:- Kagal-Hatkanangale 5 Star Industrial Area

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( Regarding Transfer of Plot No. T-17 and T-17 Part, area admeasuring 3,22,109 Square Meters)

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Sir,

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This is to inform you that the Plot No. T-17 and T-17 Part admeasuring 3,22,109 Square meters in Kagal – Hatkanangale 5 Star Industrial Area is in the name of M/s Maruti Cotex Ltd.

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J.M. Financial Asset Reconstruction Co. Pvt. Ltd. has filed a petition before the National Company Law Tribunal (NCLT), Mumbai as the land owner M/s Maruti Cotex Ltd. has been unable to pay off its debts to several financial institutions; and an order under the said petition has been passed on 02/07/2020. Vide the said order, the resolution plan made by M/s Shree Siddhivinayak Cotspin Pvt. Ltd. in the amount of Rs. 77.11 Crores has been approved and it is observed that the amount due to Maharashtra Industrial Development Corporation (Amount due to Operational Creditors) has been capped at Rs. 1,97,874/-

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However, the total amount due for the subject plot being Rs. 19,47,81,700/-has been informed to the concerned by Maharashtra Industrial Development Corporation on 30/09/2019. The original land holder of the subject plot is Maharashtra Industrial Development Corporation and according to the Corporation’s Policy, its debts ought to be first paid off from amounts recovered.

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As such the amounts due to the Maharashtra Industrial Development Corporation for the subject Plot No. T-17 and T-17 Part, admeasuring 3,22,109 square meters are as follows:-

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1. Renewal Fees – Rs. 12,33,85,400/-

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2. Transfer Fees – Rs. 07,05,41,900/-

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3. Water Bill and Service Tax – Rs. 3,49,59,777/-

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Pursuant to the above, the total amount due is Rs. 22,88,87,077/- and the same should be paid to the Maharashtra Industrial Development Corporation.

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This letter has been sent with the approval of the Joint Chief Executive Officer.

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Yours Faithfully,

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Farogh Mukadam,

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Deputy CEO (2), MIDC, Mumbai

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CC: Smt. Sujata Chattopadhyay, Insolvency Resolution Professional for information and necessary action.”

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Aggrieved by the action of R3, the Applicant is before us with the following reliefs:

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a. Declare that no amount is due and payable to the Respondent No. 3 over and above the amount of Rs. 2,67,226/-as set out in the Resolution Plan sanctioned by this Hon’ble Tribunal by way of its order dated the 2^nd of July, 2020;

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b. Declare that the demand raised by the Respondent No. 3 under cover of its letter dated the 2^nd of November, 2020 is illegal, unlawful and contrary to the provisions of the Insolvency and Bankruptcy Code, 2016;

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c. Direct the Respondent No. 3 to provide to the Applicant a no-dues certificate and no-objection certificate of the creation of security interest over the leasehold rights of the Corporate Debtor as well as its factory;

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d. Declare that any charge/fee raised by the Respondent No. 3 with regard to the building completion certificate is illegal, unlawful and contrary to the provisions of the Insolvency and Bankruptcy Code, 2016 and no such charge can be raised today or in the future;

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e. Pending the hearing and final disposal of the present application, extend the period of implementation of the sanctioned resolution plan;

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f. For costs of this application.

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The Applicant pleaded the following in support of the prayers:

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A. On the initiation of CIRP and on approval of the Resolution Plan, the Applicant has already pumped in money to the extent of Rs. 24.50 Crores and arranged for performance guarantee of Rs. 7.50 Crores. The balance to be infused is Rs. 45.11 Crores.

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B. Due to unexpected Covid-19 pandemic there is delay in the implementation of the Resolution Plan and this Tribunal by an order dated 07/09/2020 extended the time for compliance of the terms of the approved Resolution Plan until 26/11/2020.

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C. R3 filed claim of Rs. 2.92 Crores in the CIRP. Enquiries revealed that R3 was raising an additional demand for Rs. 16.6 Crores approximately towards transfer charges, penalty for late submission of Building Completion Certificate, etc. However, no claim was filed by R3 in respect of these dues during CIRP.

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D. The Resolution Plan provides for Rs. 50 Lakhs towards the debt of Operational Creditors out of which Rs. 2,67,226/- was paid to R3 as per the Resolution Plan.

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E. Letter dated 02/11/2020 (supra) issued by R3 in response to the request for no due certificate and no objection certificate for creating charge is illegal, unlawful and contrary to the provisions of the Code.

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F. The penalty for non-submission of Building Completion Certificate to the extent of Rs. 12,33,85,400/- pertains to the pre-CIRP period from 2012 onwards. However, R3 has not filed any claim in respect of this claim.

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G. R3’s claim of transfer charges of Rs. 7,05,41,900/- arising out of implementation of the approved Resolution Plan is completely misplaced as there is no transfer of leasehold rights in the land and factory premises of the Corporate Debtor.

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H. The Corporate Debtor which was the lessee of the land and factory building, continues to be the lessee. It is only the shareholding of the Corporate Debtor which has undergone a change.

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I. In response to the MIDC Circular No. 2633 dated 12/05/1998 the Applicant submits that for a formal transfer which include all voluntary transfers including amalgamation, demergers, etc., under the direction of the competent authority/tribunal or government body, a standard minimum transfer fee or no fee could be payable for the transfer of plot. But this transfer is not due to voluntary transfer and is on account of operation of law that has the binding effect under the Code. This change in shareholding has taken place due to such operation of law.

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J. Hence the charging of exorbitant transfer fee of more than Rs. 7 Crores is contrary to the provisions of the Code. It is further submitted that the transfer charges were never originally envisaged in the plan and the entire feasibility and viability of the Resolution Plan is based on the total outlay of Rs. 77.11 Crores which has been approved by this Authority.

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K. It is submitted that the water bill of Rs. 3,49,59,777/- also pertains to pre-CIRP for which the claim was made by R3 in Form B for Rs.2,92,42,128/- and hence no further claim can be made in this aspect.

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L. It is submitted that R3 has been illegally keeping on increasing its various claims without any basis. Since no dues certificate and no objection certificate was not issued by R3, the Applicant is not in a position to avail loan from HDFC Bank which has affected the implementation of the Resolution Plan.

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M. As per Section 31 of the Code, plan sanctioned by this Authority is binding on all stakeholders including R3.

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Respondent Nos. 1 & 2 did not file any reply to the Application, no relief is claimed against them however, they took part in the hearing.

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Reply of R3:

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Respondent No. 3 filed reply to the Application and submitted as below:

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A) Upon the completion of CIRP, which came to an end on the approval of the Resolution Plan, this Application filed under section 60(5)(c) of the Code, cannot be decided by this Tribunal and this Tribunal does not have jurisdiction to decide the questions raised by the Applicant. The Code itself is not applicable and only the general law is applicable.

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B) R3’s dues as enunciated in the letter dated 02/11/2020 are squarely covered under Regulation 31(b) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) and were required to be paid to R3 under the Resolution Plan.

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C) R3 was precluded from re-entering and retaking possession of the leased plots in view of Section 14(1)(d) of the Code. Hence R3 could not lease the plot to other potential lessee(s) and the rights of R3 has been prejudicially affected.

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D) Since the Resolution Plan does not provide for proper payment of CIRP cost as mandated under Section 30(2)(a) of the Code, the entire Resolution Plan is void and is liable to be set aside and the Corporate Debtor ought to be liquidated. Alternatively, the dues of R3 are required to be discharged in full in terms of Regulation 31(b) of the CIRP Regulations.

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E) Without prejudice to the above and strictly in the alternative, it is submitted that the dues prior to the Insolvency Commencement Date i.e. 08/05/2019 may stand satisfied as per the approved plan, but for the period from 08/05/2019 till the approval of the Resolution Plan i.e. 02/07/2020, the demand of Rs. 2,92,42,128/- towards water and service tax, Rs. 9,50,39.800/- towards non-refundable additional premium for granting extension for obtaining BCC and Rs. 7,05,41,900/- towards transfer charges, which are remaining unpaid, have to be either

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incurred by the Resolution Professional as Resolution Process Costs or are to be paid in full from the funds of the Corporate Debtor.

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F) R3 is entitled to charge transfer fees in the event of change of shareholding of the lessee entity, in view of the MID Act, 1961 and various circulars issued there under.

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G) The levy of such fee has been upheld by the Hon’ble Supreme Court in the Case of UP Street Industrial Development Corporation...V/s...Monsanta Manufacturers Private Limited: ((2015) 12 SCC 501) which was followed by the Hon’ble Bombay High Court in the case of Aurangabad Carbon Producers Private Limited...V/s... State of Maharashtra and Others (WP No. 8499 of 2014 Aurangabad Bench dated 06/07/2015).

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H) The question of levy of transfer fee is not a question that remotely relates to the Insolvency of the Corporate Debtor. It gets attracted when change of shareholding of the lessee entity is effected. There is a change of shareholding of the Corporate Debtor while the Resolution Plan is implemented. Hence the levy of transfer fee is in order. The levy of transfer fee does not arise prior to the Insolvency Commencement Date, for it to be regarded as an Operational Debt and does not stand dealt with under Resolution Plan. The Applicant’s reliance on the Judgment of the Hon’ble Supreme Court in the Essar’s Case stating that the Successful Resolution Applicant cannot be faced with any undecided claim is thoroughly misconceived and contrary position would lead to manifest and irreconcilable absurdity. Therefore, the Tribunal does not have jurisdiction under Section 60(5) of the Code and is not a forum to determine the validity of the levy by R3 which necessarily arises after completion of CIRP of the Corporate Debtor.

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I) The Applicant’s submission that the applicability of transfer fee is attracted only when there is transfer of shareholding and not when

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there is fresh issue of share is wholly misconceived and opposed to the R3’s circulars.

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J) Further the question whether the levy is attracted only upon the transfer and not upon the issue of shares effecting a change in shareholding cannot be decided by NCLT.

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K) The Applicant’s contention that the change in shareholding is effected by the operation of law and is binding on R3 as provided under Section 31 of the Code is hopelessly flawed and misconceived. Change in shareholding is pursuant to the voluntary acquisition of shareholding of the Corporate Debtor by the Applicant. Such acquisition is not mandatory under any law. The consequent change is also not due to operation of any law but it is pursuant to the act of parties i.e., the Corporate Debtor issuing shares to the Resolution Applicant under the Resolution Plan which is a contract.

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L) The binding nature of Resolution Plan on the statutory authorities such as R3 under Section 31(1) of the Code is applicable only to the extent that such authorities are creditors of the Corporate Debtor whose claims were dealt with under the Resolution Plan and no more. Section 31(1) of the Code cannot be used to suggest either that the statutory authority cannot levy or recover dues that arises after the insolvency commencement date much less those that arise upon the implementation of the Resolution Plan or the statutory authorities are bound to grant approvals, sanctions, etc., that are required for such implementation. Such a suggestion would amount to misuse of Section 31(1) and also militates against Section 31(4) of the Code.

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M) In levying the transfer fee, there is no conflict or inconsistency between the MID Act and the Code, and in any event, Code cannot override any law which is under exclusive purview of the State under List 2 of Schedule VII of the Constitution of India.

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N) Due to non-payment of transfer fee, which is completely outside the realm of the Code, entitles R3 to terminate the lease deed and resume possession of the leased plots.

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O) Leased plots are owned by R3 and creation of encumbrances over the leasehold interest by the Applicant is subject to its approval in its sole discretion. Any encumbrance created without the approval of R3 will entitle R3 to terminate the lease deed and resume possession of the Leased plots.

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P) There is no provision in the Code which provides that approval required under applicable law for the implementation of the Resolution Plan must mandatorily be granted by statutory authorities. Unless and otherwise R3’s dues in relation to the transfer fees is discharged, the Applicant has no right to compel R3 to issue no due certificate.

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Q) R3 in view of the above submissions seeks for the dismissal of the application.

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We have heard the counsel for the parties at length and have perused the pleadings, basing on the same the following are our observations and findings.

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Section 60(5) of the Code provides as below:

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“Notwithstanding anything to the contrary contained in any other law for the time being in force, the NCLT shall have jurisdiction to entertain or dispose of —

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(a) Any application or proceeding by or against the corporate debtor or corporate person.

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(b) Any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India, and

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(c) Any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code.”

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R3 submitted its claims after the approval of Resolution Plan. R3 was aware of the CIRP and had filed the claim of Rs. 2.92 Crores as an Operational Creditor before the Resolution Professional. The claim has been dealt with in the Resolution Plan.

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Presently the R3 has made a claim of Rs. 3.50 crores approximately, after the approval of Resolution Plan without giving any details thereof. It should have claimed the same before the Resolution Professional as an operational debt if it related to the pre-CIRP or as CIRP costs if it was incurred during the CIRP. No explanation is forthcoming for not claiming the same as indicated. In any case, since no claim has been made at the appropriate stage, this cannot be fastened to the Applicant after the approval of Resolution Plan.

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The Resolution Plan has been approved by the Committee of Creditors under Section 30(4) of the Code. Upon its approval by this Authority under section 31(1) of the Code, the same becomes binding on all the stakeholders of the Corporate Debtor. R3 is also a stakeholder being the lessor of the Corporate Debtor and had also filed claim in the CIRP as an Operation Creditor.

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In this circumstance, as provided under Section 60(5)(c) of the Code, any question of priorities or any question of law or facts, arising out of in relation to the insolvency resolution or liquidation proceedings of the Corporate Debtor, this Authority shall have the jurisdiction to decide the issues such as claims made, belated claims and CIRP cost.

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Clause 2(d) of the lease deed stipulates that on or before 15.06.2009, the Corporate Debtor has to complete at least 20% of the construction in the leased land. The Corporate Debtor has not complied with the stipulation and R3 issued show cause notice on 17.11.2014 to the Corporate Debtor for

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termination of the lease. But no further action was taken by it, till the notice dated 02.11.2020 as above.

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R3 cannot say that the Resolution Plan is void since it does not provide for proper payment of CIRP costs and the Corporate Debtor is to be liquidated. The Resolution Plan was approved on 02/07/2020. R3 by its letter dated 02/11/2020 demanded this payment from the Applicant, hence there is no question of treating this amount as CIRP costs.

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Let us examine the contention of R3 that the claim now made by R3 have to be considered as CIRP cost. Section 5(13) of the Code provides as below:

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“Insolvency resolution process costs” means —

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(a) The amount of any interim finance and the costs incurred in raising such finance;

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(b) The fees payable to any person acting as a resolution professional;

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(c) Any costs incurred by the resolution professional in running the business corporate debtor as a going concern;

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(d) Any costs incurred at the expense of the Government to facilitate the insolvency resolution process, and

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(e) Any other costs as may be specified by the Board.”

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Regulation 31 of the CIRP Regulations provides as below:

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“31. Insolvency resolution process costs” under Section 5(13)(e) shall mean —

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(a) amounts due to suppliers of essential goods and services under Regulation 32;

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(aa) fee payable to authorised representative under [subregulation (8)] of regulation 16A;

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(ab) out of pocket expenses of authorised representative for discharge of his functions under [section 25A];

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(b) amounts due to a person whose rights are prejudicially affected on account of the moratorium imposed under section 14(1)(d);

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(c) expenses incurred on or by the interim resolution professional to the extent ratified under Regulation 33;

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(d) expenses incurred on or by the resolution professional fixed under Regulation 34; and

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(e) other costs directly relating to the corporate insolvency resolution process and approved by the committee.”

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An ordinary scanning of the above Section and Regulations demonstrates that by no stretch of imagination, the above claim by R3 in its letter dated 02/11/2020, in response to the request made by the Applicant for the issue of ‘no dues certificate’ and ‘no objection certificate’ for creating charge, can be classified as Corporate Insolvency Resolution Process costs. The discussion regarding the nature of the claims in the following paras will also contribute to the above proposition.

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R3 claimed Rs.12,32,85,400/- and Rs.7,05,41,900/- as Renewal fees and Transfer Fees respectively. The contention of the R3 is that, since there is a change in management and shareholding of the Corporate Debtor on the approval of the resolution plan by this Adjudicating Authority, the Applicant has to bear these fees. It has to be noted that the right in the leasehold property has not been transferred to any other third party. Only the shareholding is changed and the Corporate Debtor Company remains as it is. The company is a separate legal entity distinct from the shareholders. The shareholders may come and go but the company as a separate legal entity remains the same even after the approval of the plan. The leasehold right is held by the very same Corporate Debtor company. Before Corporate Insolvency Resolution Process and after Corporate Insolvency Resolution Process the status of the lessee does not change. The Lessee is the same person. The change in shareholders of the Corporate Debtor on approval of plan by virtue of the provisions of the Code cannot be termed as transfer of leasehold right. In view of this legal position we hold that there is no transfer of leasehold rights to anybody and fees claimed is wholly untenable. Since

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we are holding that there is no transfer at all, the judgements relied by R3 are of no avail. Another contention that charging of these fees has arisen only upon implementation of the Plan also fails. The contention of the R3 that NCLT does not have jurisdiction to decide the question whether the levy is attracted upon transfer and not upon change in shareholding, is untenable in view of section 60(5)(c).

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The submission of R3 that section 31(1) cannot be used to suggest either that the a statutory authority cannot levy or recover dues that arise after the insolvency commencement date, much less those that arise upon implementation of the Resolution Plan or that the statutory authorities are bound to grant approval / sanction / no due certificate, etc., cannot be accepted, in view of the fact that R3 issued show cause notice for noncompliance of construction in the year 2014, but did not take any action till the approval of the Resolution Plan.

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The submission of R3 that the Resolution Plan is binding on the statutory authority only to the extent of such authorities are creditors of the Corporate Debtor, as dealt in the Resolution Plan is correct, but R3 cannot be a creditor in waiting to make a claim from the Successful Resolution Applicant.

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R3 submitted that there is no conflict or inconsistency between the MID Act and the Code. It is also submitted that the Code cannot override any other law listed under exclusive purview of the State under List 2 of Schedule VII of the Constitution of India. This is not an issue here. The issue here is, whether the action of R3 in making delayed claim with the Successful Resolution Applicant is in order or not. The answer would have to be an emphatic no. Hence there is no necessity to analyse whether Code overrides MID Act or not.

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It is also not in doubt that required approvals have to be given by the concerned authorities under the relevant laws and rules framed thereunder. However, no authority can deny the renewal of licence or lease, on the ground that past dues are not paid, even without making a claim (water charges) during CIRP. In respect of Transfer and Renewal fees, we have adduced reasons how the belated claim made is not in consonance with the provisions of the Code.

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In this regard it is apt to refer the judgement of the Hon’ble Supreme Court in the case of Committee of Creditors of Essar Steel India Limited V/s Satish Kumar Gupta (MANU/SC/1577/2019), which comes to the aid of the Applicant , wherein at Para Nos. 66 & 67 it was held as below:

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“66. Section 31(1) of the Code makes it clear that once a resolution plan is approved by the Committee of Creditors it shall be binding on all stakeholders, including guarantors. This is for the reason that this provision ensures that the successful resolution Applicant starts running the business of the corporate debtor on a fresh slate as it were. In State Bank of India v. Ramakrishnan, MANU/SC/0849/2018: 2018 (9) SCALE 597, this Court relying upon Section 31 of the Code has held:

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22. Section 31 of the Act was also strongly relied upon by the Respondents. This Section only states that once a Resolution Plan, as approved by the Committee of Creditors, takes effect, it shall be binding on the corporate debtor as well as the guarantor. This is for the reason that otherwise, Under Section 133 of the Indian Contract Act, 1872, any change made to the debt owed by the corporate debtor, without the surety's consent, would relieve the guarantor from payment. Section 31(1), in fact, makes it clear that the guarantor cannot escape payment as the Resolution Plan, which has been approved, may well include provisions as to payments to be made by such guarantor. This is perhaps the reason that Annexure VI(e) to Form 6 contained in the Rules and Regulation 36(2) referred to above, require information as to personal guarantees that have been given in relation to the debts of

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NCLT, MUMBAI BENCH, COURT NO. - I IA No. 2114/MB/2020 In CP (IB) No. 241 of 2018

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the corporate debtor. Far from supporting the stand of the Respondents, it is clear that in point of fact, Section 31 is one more factor in favour of a personal guarantor having to pay for debts due without any moratorium applying to save him.

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Following this judgment, it is difficult to accept Shri Rohatgi's argument that that part of the resolution plan which states that the claims of the guarantor on account of subrogation shall be extinguished, cannot be applied to the guarantees furnished by the erstwhile directors of the corporate debtor. So far as the present case is concerned, we hasten to add that we are saying nothing which may affect the pending litigation on account of invocation of these guarantees. However, the NCLAT judgment being contrary to Section 31(1) of the Code and this Court's judgment in State Bank of India (supra), is set aside.

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67. For the same reason, the impugned NCLAT 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 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, the NCLAT judgment must also be set aside on this count.”

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In the light of the above discussions the Application is allowed in part on contest. Prayers (a), (b) and (d) are allowed as prayed for.

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NCLT, MUMBAI BENCH, COURT NO. - I IA No. 2114/MB/2020 In CP (IB) No. 241 of 2018

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As for as the prayer for issue of ‘no objection certificate’ and ‘no dues certificate’ for creation of mortgage by the Applicant, since R3 is the owner of the property, it is purely within its prerogative to decide on the issue. We are conscious that jurisdiction under 60(5) of the Code is not so elastic to grant this relief sought for by the Applicant. We may refer to Para 23 of the order in MA No. 422/2019 dated 02/07/2020, wherein the Resolution Plan was approved by this Bench, it was observed-

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“ The Resolution Applicant has sought certain reliefs and concessions in the resolution plan. This bench is not inclined to allow any of the said reliefs and concessions prayed by the Resolution Applicant. Therefore, the resolution applicant may apply to the relevant regulatory authorities for said reliefs and concessions and the relevant authorities may consider it as per relevant applicable laws ”.

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Accordingly, prayer (c) is refused. Prayer (e) being an interim prayer no orders thereof need be passed.

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Sd/Sd/V. Nallasenapathy Janab Mohammed Ajmal Member (Technical) Member (Judicial)

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In the matter of Maruti Cotex Limited [Ia No. 2114/MB/2020 in Cp (Ib) No. 241/MB/2018]

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In the matter of Maruti Cotex Limited [Ia No. 2114/MB/2020 in Cp (Ib) No. 241/MB/2018]

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