Judgments

JAYPEE KENSINGTON BOULEVARD APARTMENTS WELFARE ASSOCIATION VS NBCC (INDIA )  LTD & ORS  : CASE SUMMARY

The Supreme Court in Jaypee Kensington Boulevard Apartments Welfare Association Vs NBCC (India) Ltd & Ors (2022) 1 SCC 401 held inter alia that if the Adjudicating Authority find certain shortcoming in the Resolution Plan within its scope of jurisdiction, the same has to be sent back to the Committee of Creditors for reconsideration.  The Supreme Court also held that dissenting Financial Creditors have to be paid in terms of money.

FACTS OF THE CASE

CIRP in matter of Jaypee Infratech Ltd (JIL) was initiated vide order dated 09.08.2017 passed by NCLT, Allahabad Bench. Some aggrieved home buyers rushed to Supreme Court in the matter of Chitra Sharma Vs Union of India Writ Petition (C) No. 744/2017 wherein the Supreme Court passed orders for deposit of Rs. 750 Crores to holding company of Corporate Debtor JAL. After matter was disposed of, this amount was transferred to NCLT.

During CIRP two Resolution Plans were submitted for consideration of the CoC wherein Resolution Plan submitted by  NBCC (India) Ltd was approved by CoC on 17.12.2019 by vast majority of 97% of voting share of the Financial Creditors.  Resolution Plan was submitted before NCLT which approved the same vide order dated 03.03.2020.

Several Appeals against approval of Resolution Plan reached finally to the Supreme Court.

FINDINGS OF THE SUPREME COURT

Several Issues were framed by the Supreme Court.  Findings of the Supreme Court on each issue are as under.

(A) What are powers and limitation of Adjudicating Authority while dealing with Resolution Plan approved by CoC ?

The Supreme Court relied on K. Shashidhar Vs. Indian Overseas Bank (2019) 12 SCC 150Committee of Creditors of Essar Steel  India Ltd Vs Satish Kumar Gupta (2020) 8 SCC 531  and  held that the Adjudicating Authority has limited jurisdiction in the matter of approval of Resolution Plan which is defined and subscribed by Section 30 (2) and 31 of  IBC. There is no scope for interference with commercial aspects of CoC. If the Adjudicating Authority finds certain shortcoming in the Resolution Plan, the same has to be sent back to Committee of Creditors for re-submission after satisfying the parameters delineated by the Adjudicating Authority.

(B) Whether Resolution Plan is vitiated on account of simultaneous voting by CoC ?

The Supreme Court observed that there is no prohibition under IBC  on simultaneous voting on Resolution Plan by CoC.  Legislature has made the position clear vide  amendment in IBC  by making provision of simultaneous voting over Resolution Plans, which is clarificatory in nature.

(C) (i) Whether the Adjudicating Authority has erred in not approving stipulations in the Resolution Plan for meeting with contingent liability of additional amount of land acquisition compensation and has also erred in modifying these stipulations  ?

(ii) Whether Adjudicating Authority has erred in not approving mechanism provided in the Resolution Plan for transfer of the concessionaire’s right and obligations under the concession agreement with YEIDA to the SPVs proposed to be incorporated and has also erred in modifying the relevant stipulations ?

(iii) Whether the Adjudicating Authority has erred in not approving the reliefs and concessions sought for in the Resolution Plan in relation to YEIDA ?

Rights under the land in question were provided to the original questionnaire under the concession agreement dated 07.02.2003 and later on JIL was recognized as the concessionaire. One chunk of land was provided for constructing expressway and another chunk was provided for commercial exploitation.

In the meantime Allahabad High Court passed order for additional compensation to the land owners whose land had been acquired. YEIDA demanded the amount of additional compensation from JIL. JIL initially filed Writ Petition and later pursued arbitration proceedings which led to arbitral award which held that demand made by YEIDA was not sustainable. Award has been challenged under Section 34 of the Arbitration and Conciliation Act which is pending before District Court, Gautam Budh Nagar.

Resolution Plan provided that in case arbitral award is set aside, YIEDA will collect additional compensation amount directly from home buyers, sub-lessee etc.

The Supreme Court observed that Concessionaire Agreement is not a statutory agreement but nevertheless a contract. Any tinkering with the agreement could not be done without approval of YEIDA, an authority established by State government. Approval of YEIDA will be sine qua non for validity of Resolution Plan qua the terms related with YEIDA.

The Supreme Court held that dealing with YIEDA and terms of concession agreement has righty not been approved by NCLT. But the correct course of action was to send the Plan back to CoC.

(D) Whether the Adjudicating Authority has erred in not approving the treatment of dissenting financial creditor like ICICI Bank Ltd. in the Resolution Plan and directing payment to dissenting Financial Creditors in monetary terms  ?

The Resolution Plan provided that if the dissenting Financial Creditor would be entitled to the some  amount in the nature of liquidation value in terms of Section 30  and Section 53 of IBC , they would be pro vided such liquidation value “in form of proportionate share in the equity of the Expressway SPV and transfer of certain land parcels belonging to the Corporate Debtor” .  NCLT has held that payment to dissenting Financial Creditors has to be made in cash and has itself modified the plan.

The Supreme Court noted that  use of expression “payment” and “amount to be paid” when read in context or on canvass of the objects and purposes of the Code, these expressions convey only their ordinary meaning, as understood in ordinary business parlance, that is, delivery of money alone. There is no reason to construe these expressions to convey the meaning of “delivery of money or its equivalent”.

The Supreme Court held that the Adjudicating Authority has not erred in disapproving the treatment of dissenting Financial Creditors but erred in modifying the related terms of Resolution Plan and not sending the matter back to CoC for consideration.

(E) Whether the Adjudicating Authority has erred in modifying provision regarding fixed deposit holders and in directing the Resolution Applicant to make provision towards dues of unclaimed fixed deposit holders ?

The  Resolution Plan has provision for 100% upfront payment to the fixed deposit holders whose claims had been admitted. NCLT modified the Resolution Plan to provide that Resolution Applicant will make provision for payment to unclaimed fixed deposit holder. Right will remain in force till as long as these deposit holders are entitled to make a claim under Companies Act, 2013.

The Supreme Court observed that it has been specifically held in Essar Steel that a Resolution Applicant cannot be made to suddenly encounter undecided claims after resolution plan submitted by him has been accepted and in scheme of the Code, all claims must be submitted to and decided by Resolution Professional so that Resolution Applicant can start on a fresh slate.

The Supreme Court held that the Adjudicating Authority has erred in issuing directions to Resolution Applicant to make provisions to clear the dues of unclaimed fixed deposit holders.

(F) (i) Whether Resolution Plan unauthorizedly purports to deal with the assets of Jaypee healthcare Ltd ?

(ii) Whether the Adjudicating Authority has erred in assuming that YES Bank Ltd. has agreed for Constitution of Committee to take forward the disinvestment process of Jaypee Healthcare Limited ?

The Corporate Debtor held 100 %   equity shareholding in JHL. Yes Bank, Financial Creditor of JHL, objected that assets of JHL cannot be dealt with in the Resolution Plan. It was contended that Holding Company does not own the subsidiary company.

Supreme Court left the issued to be determined by both parties.

(G) Whether stipulation in the Resolution Plan for cancellation of certain agreements/sub-leases is unfair ?

The Resolution Plan has provision for cancellation of certain instruments without proper agreement and without consideration.  

The NCLT observed that when an agreement is invalid and consideration is not paid, no separate stipulation is required to be made that such agreement could be cancelled.  However,  at the same time NCLT observed that even though such a provision  has been mentioned in the Resolution Plan, that did not mean that the agreement holders have lost their right to seek remedy before competent forum.

The Supreme Court held that stipulation in question does not seem to be unfair and observation of the   Adjudicating Authority remain just and proper.

(H) Whether minority shareholders are entitled to state their claims/objections despite not having approached the Adjudicating Authority and as to whether Resolution Plan does not provide fair treatment to the minority shareholders ?

The minority shareholders had raised grievance that they are not being treated fairly. The Supreme Court observed that Resolution Plan provides an exit option to the existing public shareholders at a price which is higher than the liquidation value. They are being paid an exit price of INR one crore, which is in contrast to the treatment being accorded to promotor shareholder, whose shareholding is being extinguished and cancelled in entirety without any consideration.

The Supreme Court held that Resolution Plan has adequately dealt with interest of minority shareholders.

(I) (i) Whether after approval of Resolution Plan, any individual home buyer or any association of home buyers could maintain a challenge to the Resolution Plan and could be treated as a dissenting Financial Creditor or aggrieved person ?

(ii) Whether stipulation in the Resolution Plan stand in violation of the provisions of Real Estate (Regulation and Development ) Act, 2016 ?

(iii) Whether Resolution Plan is violative of the requirements of CIRP Regulations ?

(iv) Whether housing project which is completed or nearing completion ought to be kept out of the purview of the Resolution Plan ?

The Supreme Court held that homebuyers as class having assented to the Resolution Plan of NBCC, an individual home buyer or an association of home buyers cannot maintain a challenge to Resolution Plan. When the Resolution Plan comprehensively deals with all the assets and liabilities of the Corporate Debtor, no housing project of the Corporate Debtor could be segregated merely for the reason that the same has been competed or is nearing completion.

(J) (i) Whether Rs. 750 Crore deposited by JAL on the direction of Supreme Court is property of JAL and stipulation in Resolution Plan regarding its use by NBCC or JIL is impermissible?

(ii) Whether any amount is receivable by JIL from JAL ?

The amount of Rs. 750 Crore deposited and interest accrued thereon  by JAL is property of JAL . Stipulation in the Resolution Plan concerning its use by JIL or Resolution Applicant cannot approved.

(K) (i) Whether provision in the Resolution Plan providing for extinguishment of security interest of lenders of JAL could have been approved by the Adjudicating Authority ?

(ii) Whether adequate provision is required to be made in Resolution Plan regarding utilization of Land Bank of 758 Acres ?

Whether any amount is receivable by JIL and its home buyers from JAL will be determined by NCLT after reconciliation of accounts.

(L) Whether Appellate Authority was justified in providing for an Interim Monitoring Committee for implementation of Resolution Plan in question during pendency of appeal ?

The Appellate Authority was not justified in providing for interim Monitoring Committee for implementation of Resolution Plan during pendency of appeal.

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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

Mukesh Kumar Suman

Mukesh Kumar Suman

Mukesh Kumar Suman is an advocate based at Delhi. He has rich experience in civil, criminal, commercial, arbitration and corporate insolvency matters. He regularly appears before District Courts, NCLT, NCLAT, High Court and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

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