IN THE NATIONAL COMPANY LAW TRIBUNAL

HYDERABAD BENCH-II

I.A. No.520/2021 in
CP(IB) No.384/7/HDB/2018
U/s. 60 (5) of IB Code, 2016

In the matter of:

Stressed Assets Stabilisation Fund, Mumbai vs. M/s. Galada Power And
Telecommunications Ltd.

In the matter of:

Canara Bank,
Erstwhile Syndicate Bank,
Stressed Asset Management Branch,
112, JC Road,
Bengaluru – 560 002 &

Prime Corporate Branch at

TSR Complex, 2nd Floor,
1-7-1, S.P. Road,
Secunderabad – 500 003
Rep. by its Senior Manager-Law, Shri Yadav P Das

…Applicant
Vs.

1. Sri. Nitin Vishwanath Panchal

Resolution Professional of
M/s. Galada Power and Telecommunication Ltd.,
Admn. Office: Galada Towers, 301, Begumpet
Hyderabad – 500 016

2. The Committee of Creditors

M/s.Galada Power and Telecommunication Limited
3rd Floor, IDBI Tower
WTC Complex, Cuffe Parade
Mumbai – 400 005

3. M/s.Amrutha Constructions Pvt. Ltd.

Resolution Applicant of
M/s.Galada Power and Telecommunication Limited
H.No.6/3/1090/1/A, Flat No.21, Somajiguda
Rajbhavan road, Hyderabad – 500 038
 NCLT – Hyd. Bench-II
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Date of Order: 13.3.2023

4. M/s. Jiva Internet Solutions Pvt. Ltd.

Resolution Applicant of
M/s. Galada Power and Telecommunication Limited
710, 7th Floor, Swapnalok Complex, S.D.Road
Secunderabad – 500 029

5. M/s. Radha Smelters Pvt. Ltd.

Resolution Applicant of
M/s. Galada Power and Telecommunication Limited
Registered Office: 8-2-296/S, Plot No.75 & 76
Sagar Co-operative Society, Road No.2
Near by Banchpan School Lane
Banjara Hills
Hyderabad – 500 034

6. Stressed Assets Stabilisation Fund

3rd Floor, IDBI Towers, WTC Complex, Cuffe Parade
Mumbai – 400 005

7. Edelweiss Assets Reconstruction Company

Edelweiss House
Off CST Road, Kolivery Village, MMRDA Area
Kalina, Santacruz East, Mumbai – 400 098

8. UTI Trustee Company Pvt. Ltd. (UTI Mutal Fund)

UTI Towers, GN Block, Bandra – Kurla Complex
Bandra (East), Mumbai – 400 051
...Respondents
Date of order:13.03.2023
CORAM:
Hon’ble Dr. Venkata Ramakrishna Badarinath Nandula,Member(Judicial)
Hon’ble Sri Satya Ranjan Prasad, Member (Technical)
Counsels present:
For the Applicant : Mr. Dishit Bhattacharjee, Advocate
For the RP/R.1 : Mr. V.V.S.N. Raju, Advocate
For the R2 to R5 : None
For the R6 & R7 : Mr. Raja Shekar Rao Salvaji, Advocate
For the R8 : None

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Date of Order: 13.3.2023

[PER: BENCH]

ORDER

1. Being aggrieved by the decision of CoC in not treating the

secured financial creditors equitably, the Applicant filed this
application seeking;

a. to stay the procedure of voting of CoC on the agenda as

decided in the 25th CoC meeting dated 17.09.2021 and stay
all further proceedings, pending further orders in the
present Application.

b. to direct the Respondent No.3 (being the Resolution

Applicant) to provide 28.63% of the amount to be paid to
the Applicant (in accordance to its voting shares), instead of
12% as was decided in the JLM dated 19.08.2021 &
27.08.2021 and to set aside the resolutions passed by the
Respondent No.2 in 24th & 25th CoC meetings dated
31.08.2021 and 07.09.2021.

2. Briefly, the facts as mentioned in the application are as follows:

a. The Applicant submitted that the Respondent No.1 was

appointed as the Resolution Professional of M/s. Galada Power
and Telecommunications Ltd. and the Applicant had submitted
their proof of Claims dated 01.10.2019 in Form C to the

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Respondent No.1 for consideration and the same was admitted

by Respondent No.1.

b. Submitted that with respect to the distribution of

amount/assets amongst the Financial Creditors of the
Company, as was decided in the Joint Lenders Meeting (JLM)
dated 19.08.2021 & 27.08.2021, an inter se sharing ratio for
Secured Financial Creditors of the Company was decided as
88:12 with 88% being shared between the Financial Creditors
who were 1st Charge holder against the fixed assets of the
Corporate Debtor (i.e. M/s. SASF and M/s. Edelweiss Arc) and
12% being shared between the second charge holder against
the fixed assets of the Corporate Debtor (i.e. Applicant herein
and UTI Mutual Fund) for which, the Applicant raised an
objection before the JLM and in the 24th CoC Meeting dated
31.08.2021. But, it was asserted by them that inter se sharing
should be in ratio of voting share of the CoC members, in order
to insure their equitable treatment and the Hon’ble Chairman
of CoC failed to consider the representation, citing that the
decision on inter se sharing was already taken in the JLM.

c. Submitted that the Applicant again raised the same issue in

25th CoC meeting dated 07.09.2021 in Item A-6 on the ground
that distribution pattern is to be adopted in the resolution plan,
must be as per voting share only and was finally decided that

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the said matter shall be put to voting to the CoC members

which is to be held on 17.09.2021.

d. Submitted that Section 30(4) & 53(1) of IBC clearly implies that
Secured Creditors are to be treated equitably and the same
principle of equality in IBC has also been uphold by the Hon’ble
Supreme Court in the case of Committee of Creditors of
Essar Steel India Ltd. Vs. Satish Kumar Gupta and Others
(2020) 8 SCC 531, wherein the Hon’ble Bench had referred to
the Bankruptcy Law Reforms Committee Report of 2015
(formed the basis of enactment of the Code) and it was held that
creditors are to be treated equitably, i.e. creditors of same class
are to be treated equally.

e. Submitted that Section 30(4), IBC read with 53(1) envisages

that Financial Creditors who are placed similarly are to be
treated equally and this principle was cemented by the Hon’ble
Supreme Court in the case of India Resurgence Arc Private
Limited Vs. M/s. Amit Metaliks Limited And Anr in Civil
Appeal No.1700/2021.

f. Submitted that since the Applicant herein has a voting share of

28.63%, the distribution ratio of 88.12 as adopted in JLM is
discriminatory against the Applicant and hence in violation of
the sole basis of IBC and therefore, cannot be finalized in the

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Resolution Plan. Though, the Applicant herein has first charge

on current assets and second charge over the fixed assets, this
solely cannot be a ground to bring the distribution ratio to
88.12.

g. Submitted that in case the Resolution Plan does not observe

equality and fails to treat financial creditors equally,
intervention of Courts, even in CoCs wisdom becomes
necessary, since it would otherwise defeat the spirit of IBC, as
was held in India Resurgence Arc Private Ltd Vs. M/s. Amit
Metaliks Limited And Anor in Civil Appeal No.1700/2021.

COUNTER FILED BY RESPONDENT NO.1

3. The Respondent No.1 herein is the Resolution Professional filed

a reply stating that;

a. The Applicant herein, namely, Canara Bank has second charge

on the fixed assets of the Corporate Debtor and first charge on
the current assets of the Corporate Debtor and there are other
creditors who have first charge over the fixed assets and second
charge on the current assets. In addition to the above two
categories, there is a third category of creditors called as
unsecured creditors and the said three categories together

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constituted CoC and they are collectively called as Financial

Creditors.

b. Submitted that the three categories of Creditors do not enjoy

equal rights over the assets of the Corporate Debtor. Hence,
the contention of the Applicant that it should be treated equally
with the first charge holders is liable to be rejected.

c. Submitted that the voting share of the CoC members is decided

basing on the outstanding dues payable to the said creditors.
The said voting share has nothing to do with the distribution of
payments among the stakeholders as per the provisions of the
IBC.

d. Submitted that the Applicant has wrongly interpreted Section

30(4) and failed to appreciate the dictum of the Apex Court in
cases cited by them. The Section 30(4) of the Code envisages
that the CoC has to take into account the order of priority
among its creditors as laid down in Section 53 of the Code
including the priority and value of security interest of a secured
creditor and such other requirements as may be specified by
the Board, while examining the Resolution Plan, for taking a
decision. As of now, only fixed assets of the Corporate Debtor
are valuable and the value of the current assets available is
merely pittance and hence the consideration offered in the

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Resolution Plans mainly/substantially constitutes vale placed

on the existing Fixed Assets.

e. Submitted that the Fixed Assets of the Corporate Debtor were

created by funding from the Term Lenders who are having first
charge on the said assets and it is also necessary for the CoC to
consider the feasibility and viability of the plan before arriving
at a decision. The legal position settled is that equals should be
treated equally and unequals should not be treated equally.

f. Submitted that in reply to the contentions of the Applicant in

Paras 5 & 6, the Applicant acted on the directions given by the
majority of CoC members at 24th CoC meeting held on
31.08.2021 based on the decision taken by JLM. In the instant
case, the Applicant has only second charge on the fixed assets
and first charge on the current assets, the CoC while taking a
decision on the Resolution Plan, obviously takes into account
availability and value of current assets as well as value of fixed
assets. While it is so, the claim of the Applicant for equal
treatment and distribution of amounts as per the voting share
of the members is totally untenable and bad in law.

g. Submitted that in reply to Paras 12 & 13, the Applicant has

incorrectly interpreted Section 30(4) and failed to appreciate the
dictum of the Apex Court in the cases cited by them in the I.A.

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It is clearly envisaged in Section 30(4) that the CoC has to take

into account the order of priority among its creditors as laid
down in Section 53 of the code including the priority and
security interest of a secured creditor and such other
requirements as may be specified by the board while examining
the Resolution Plan submitted to it, for taking a decision. It is
also necessary for the CoC to consider the feasibility and
viability of the plan before arriving at a decision. The
distribution of proceeds as envisaged in JLM is based on settled
legal position and prior existing inter se arrangements and
charges, thus it does not require intervention by this Hon’ble
Tribunal.

h. Submitted that equity law has no place as far as CIRP

proceedings under the Code are concerned. Since IBC in itself
is a self-contained Code, Equity Law cannot be applied.
Therefore, NCLT have no powers to exercise equity jurisdiction
as was iterated by the Apex Court in Pratap Technocrats (P)
Ltd. & Ors. Vs. Monitoring Committee of Reliance Infratel
Limited & Anrs. (Civil Appeal No.676 of 2021). Hence, the
Applicant’s prayer for such equitable treatment with respect to
the first charge holders is untenable. Hence, pleased to dismiss
this application

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Date of Order: 13.3.2023

4. The Respondents No.6 & 7 submitted their reply on the same

lines of, the submissions made by the Respondent No.1.

MEMO FILED BY THE RESOLUTION PROFESSIONAL

5. The Resolution Professional filed a Memo dated 12.01.2023
stating that;

a. The Applicant placed reliance on the judgment dated

21.01.2022 passed by the Hon’ble NCLAT, New Delhi in the
matter of IDBI Bank Vs. Mamta Binani and Others, 2022
SCC Online NCLAT 541 to buttress the argument that all
secured financial creditors irrespective of the kind of charge,
first or second are equally placed and therefore ought to be
treated equally in the Resolution Plan.

b. Submitted that as the Applicant’s Hyderabad Branch was

aggrieved by the aforesaid judgement of the Hon’ble NCLAT,
filed a Civil Appeal No.2094 of 2022 before the Hon’ble Supreme
Court whereby the Hon’ble Supreme Court on 10.05.2022 set
aside the judgement of the Hon’ble NCLAT and restored the
Company Appeal No.553 of 2019 to the file of the Hon’ble
NCLAT. Thereafter, the Hon’ble NCLAT reheard the Company
Appeal No.553 of 2019 and passed the final Order dated
02.09.2022 whereby it was held that the Hon’ble Tribunal does
not have power of judicial review, when the decision taken by

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CoC in compliance of Section 30(2) and Regulations 37 and 38.

Hence, the judgement on which reliance was placed by the
Applicant (Canara Bank) is no longer good law. This judgment
was set aside by the Hon’ble Supreme Court and was remanded
to the Hon’ble NCLAT such that the Hon’ble NCLAT in no
uncertain terms dismissed the Appeal of IDBI and upheld the
Order approving the Resolution Plan. The Hon’ble NCLAT has
categorically held that this issue is not open for judicial review.

c. Submitted that the Hon’ble Supreme Court in the matter of

SIDCO Leathers has already held that there is a difference
between first charge holder and second charge holder. Section
529 of the Companies Act which is pari material to Section 53
of the Code will not override the inter se priority of the
creditors. Section 30 of the Code also takes into account inter
se priority of the creditors. The distribution per se is within the
jurisdiction of CoC and it is within the commercial wisdom of
CoC and hence cannot be interfered. Hence, this Application
deserves to be dismissed.

6. Point:
Whether the resolutions of the COC dated 31.08.2021 and
07.09.2021 can be interfered with and the 3rd Respondent
be directed to provide for payment of the sum claimed by
the Applicant in the Resolution Plan?

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7. We have heard the Learned Counsel for the Applicant, Mr.

Dishit Bhattacharjee, Learned Counsel for the 1st Respondent,
Mr. VVSN Raju and Learned Counsel for the Respondents 6 &
7, Mr. Raja Shekar Rao Salvaji, perused the record and case
laws.

8. The principal grievance of the Applicant appears to be that,

allocation of Resolution Fund among the financial creditors is
discriminatory among the same class of financial creditors,
hence unsustainable. According to the Learned Counsel for
Applicant, the decision as to distribution of amount/assets
amongst the Financial Creditors of the Corporate Debtors,
taken in the Joint Lenders Meeting (JLM) dated 19.08.2021 &
27.08.2021 fixing the inter se, sharing ratio for Secured
Financial Creditors as 88:12 with 88% being shared between
the Financial Creditors who were 1st Charge holders against the
fixed assets of the Corporate Debtor (i.e. M/s. SASF and M/s.
Edelweiss Arc) and 12% between the second charge holders
against the fixed assets of the Corporate Debtors (i.e. Applicant
herein and UTI Mutual Fund) has been objected to by the
Applicant before the JLM and also in the 24th CoC Meeting
dated 31.08.2021. However, it was asserted by the COC, that
inter se, sharing should be in ratio of voting share of the CoC
members and the Chairman of CoC failed to consider the

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objection of the Applicant citing that the decision on inter se,

sharing has been already taken in the JLM.

9. It is further contended that the Applicant once again raised the

same issue in 25th meeting of the COC dated 07.09.2021
contending that the distribution pattern is to be adopted in the
resolution plan, must be as per voting share only and hence, it
was finally decided that the said matter shall be put to voting to
the CoC members which is to be held on 17.09.2021 and the
following resolution has been passed on 07.09.2021 by the
COC, which is the subject matter of challenge in the
application:

“Item No.A-6
To take note email received from Canara Bank and discuss
on the future course of action.

The Chairperson informed the COC Members that he had received an

email on 02.09.2021 after the conclusion of the Adjourned 24 th COC
Meeting from the representative of Canara Bank (erstwhile Syndicate
Bank) requesting him to include an agenda item for discussion on
distribution matrix. A copy of the said email was circulated with the
notice of this meeting.

Accordingly, the Chairperson requested the COC Members to discuss

and decide on the future course of action.

The representation of Canara Bank stated that the distribution pattern

should be as per the voting share only. The representative further
added that Section 53(2) of the Insolvency and Bankruptcy Code,
2016 (IBC) disregards any contractual agreements between creditors
of equal ranking and under CIRP there ought not to be a

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differentiation among the first and second charge holders. The

representative of SASF referring to the discussions held in Joint
Lenders Meeting (JLMs) held on 19.08.2021 & 27.08.2021 stated the
provisions of Section 30(4) of IBC as under:

“The Committee of Creditors may approve a Resolution Plan by a note

of not less than sixty six percent of voting share of the financial
creditors, after considering its feasibility and viability, the manner of
distribution proposed, which may take into account the order of
priority amongst creditors as laid down in sub-section (1) of section
53, including the priority and value of the security interest of a
secured creditor and such other requirements as may be specified by
the Board:.

Therefore, Section 30(4) enables the COC members to decide on the

inter se manner of distribution taking into account the order of priority
amongst the creditors including the priority and value of the security
interest of secured creditors. The representative further stated that
the COC Members at the said JLMs had discussed and agreed on an
inter se sharing ratio among the Secured Financial Creditors. The
ratio of 88:12 was decided, with 88% being shared between SASF &
Edelweiss ARC, the first charge holders on fixed assets and 12%
being shared between UTI Mutual Fund and Canara Bank (erstwhile
Syndicate Bank), the second charge holders, which received an in-
principle approval from SASF, Edelweiss ARC and UTI Mutual Fund
comprising 72% of the total voting share in the COC and which was
also discussed in the 24th Meeting. The representative of Edelweiss
ARC placing reliance on the decisions of the Courts in the matters of
Amit Metalics and Essar Steel stated that the judiciary had time and
again confirmed that a decision taken by the majority of COC
members will prevail and courts cannot adjudicate or interfere with
the commercial wisdom of the COC members in case the same is
challenged. The representative of UTI Mutual Fund seconded the
views expressed by the representative of SASF and Edelweiss ARC.

The representative of Canara Bank inquired with the Chairperson

whether the Resolution Applicants (RAs) have incorporated the above
mentioned distribution pattern in their Resolution Plans. The
Chairperson informed that vide their email dated 31.08.2021, the
COC members had directed the Chairperson to communicate the

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distribution pattern to the RAs as per the decision taken in the 24 th

COC Meeting held on 31.08.2021. Accordingly, the distribution
pattern was informed to the RAs via email dated 01.09.2021
alongwith the procedure to be followed for the final bidding. The
Chairperson thereafter confirmed that all the RAs had incorporated
the said distribution pattern in the revised resolution plans submitted
post 24th COC Meeting.

After discussion it was decided to put this matter for voting as per
Agenda Item C-1”.

10. Therefore, it is required to see whether the decision of the COC

as to payment to different classes or sub-classes of creditors
under the Resolution Plan can be interfered with, especially on
the ground of alleged discrimination among the purportedly
same class of financial creditors.

11. At the outset, we must say that the legal perspective, in so far
as the order of priority amongst creditors, including the priority
and value of the security interest of a secured creditor in
distribution of the cash and receivables of the Corporate Debtor
undergoing CIRP, post 2019 amendment to Section 30 of the IB
Code, 2016, is as clear as crystal, as can be traced not only
from Section 30 of the IB Code, 2016, but also from several
rulings of Hon’ble Supreme Court, as such, the same is no
longer res integra.

12. Hon’ble Supreme Court of India, in Essar Steel, supra, having

reiterated that “existence of certain intrinsic assumptions

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relating to the COC on which the principle of “commercial

wisdom” has been recognised, the assumptions are that the
COC has the requisite expertise to assess the viability of the
Corporate Debtor and verify the commercial feasibility of the
proposed resolution plan, that their actions are a consequence
of a thorough examination and assessment of the proposed
Resolution Plan, and that their decisions are a result of
deliberations and voting in the COC meetings”, further, held
that “subject to Section 30(2), the mechanism of distributing
payments to the creditors falls within the exclusive commercial
realm of the COC’.

13. In the very same ruling, Hon’ble Supreme Court of India,

upheld the constitutional validity of the amendment made in
the year 2019, to Section 30 of the IB Code, 2016, and the said
reads as under:

30(4) The Committee of Creditors may approve a Resolution

Plan by a vote of note less than sixty six percent of voting share
of the financial creditors, after considering its feasibility and
viability the manner of distribution proposed, which may take
into account the order of priority amongst creditors as laid
down in sub-section (1) of Section 53, including the priority and
value of the security interest of a secured creditors, and such
other requirements as may be specified by the Board.

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14. A bare perusal of the language used by the Legislature in the

amended Section 30(4), with respect to considering the security
interest, shows that the word used being “may”, the same is
directory and not mandatory. That apart, the said provisions is
only an enabling provision and does not impose any mandate
on the COC to distribute payments to creditors based on the
value of security held by them. Section 30(4) of the IB Code
only says that the COC may take into account the order of
priority amongst creditors as laid down in sub-section (1) of
Section 53 of the IB Code, including priority and value of
security interest of secured creditors, while approving the
resolution plan, so much so, the argument that, as the COC
failed to take into the account the pre-CIRP preferential
financial bargains made by the Applicants with the Corporate
Debtor, as such, the impugned decisions are liable to be set
aside, is untenable.

15. An identical issue had cropped up in the matter of India

Resurgence ARC Private Limited vs. Amit Metalika Limited
and Another [2021 SCC OnLine SC 409], supra, wherein it
was similarly contended by the Appellant therein that the COC
could not have approved the Resolution Plan which failed to
consider the priority and value of security interest of the
creditors while deciding the manner of distribution to each
creditor even though the legislature in its wisdom has amended

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Section 30(4) of the IB Code, 2016, requiring the COC to take

into account the order of priority amongst creditors as laid
down in Section 53(1) of the IB Code, 2016, including the
priority and value of the security interest of a secured creditor,
and Hon’ble Supreme Court, held that “it needs hardly any
elaboration that financial proposal in the Resolution Plan forms
the core of the business decision of Committee of Creditors.
Once it is found that all the mandatory requirements have been
duly complied with and take care of, the process of judicial
review cannot be stretched to carry out quantitative analysis
qua a particular creditor or any stakeholder, who may carry his
own dissatisfaction’. Thus, it is noteworthy from the ruling
above, that in the Scheme of the IB Code, 2016, every
dissatisfaction like that of the Applicants herein, does not
partake the character of a legal grievance and cannot be taken
up as a ground of appeal.

16. The Hon’ble Supreme Court of India in the matter of Essar

Steel India Limited vs. Satish Kumar Gupta & Ors. [(2020) 8
SCC 531], went on record that the submissions on behalf of the
Appellant therein with reference to the value of its security
interest neither carry any meaning nor any substance, and
held that ‘what amount is to be paid to different cases or sub-
classes of creditors in accordance with the provisions of the IB
Code, 2016 and the related Regulations, is essentially the

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commercial wisdom of the Committee of Creditors, and a

dissenting secured creditor like the Appellant therein cannot
suggest a higher amount to be paid to it with reference to the
value of the Security Interest – a finding which is squarely
applicable to the facts of the case at hand.

17. Therefore, the well settled legal position in so far as the priority
in payment amongst different classes of creditors, essentially
being the commercial wisdom of the Committee of Creditors,
and a dissenting secured creditor like the Applicants herein
cannot seek a higher amount to be paid to them on the basis of
the value of their security interest by pleading dissatisfaction.

18. That apart, in the matter between IDBI Bank vs. Mamata
Binani and Ors. wherein the Applicant is also a party, the
Applicant raised a similar plea, which was accepted by the
Hon’ble NCLAT. However, the order of the NCLAT has been set
aside by the Hon’ble Supreme Court with a direction for fresh
enquiry and thereafter, the Hon’ble NCLAT heard afresh and
dismissed the application. As the said finding has attained
finality, the Applicant is bound by the said Ruling.

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19. Therefore, for the aforesaid reasons, we find no merit, as such,

the same deserves to be dismissed. Accordingly, we hereby
dismiss the application IA 520/2021 in 384/7/HDB/2018. No
costs.
Sd/- Sd/-
SATYA RANJAN PRASAD Dr.N.V.RAMA KRISHNA BADARINATH
MEMBER (TECHNICAL) MEMBER (JUDICIAL)

VL/Syamala

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