Mr. Pawan Kumar Goyal, IRP Vs. Alchemist XXXVII. - We are of the prima facie opinion that the present IA for the Liquidation of CD has been filed with malicious intent, and it is a fit case for issuance of show cause notice (U/s. 65) to the Assenting CoC members jointly, who voted in favour of the Liquidation of the CD without even exploring the possibility of resolution of the Corporate Debtor,

 NCLT New Delhi-II (16.03.2023) In Mr. Pawan Kumar Goyal, IRP Vs. Alchemist XXXVII. [IA. No. 3818/ND/2021 in Company Petition No. (IB)-684(ND)/2020] held that;

• Without publishing Form-G, CoC could not have been in a position to formulate an opinion that there were no prospective buyers available for the CD. The scheme of IBC gives every Corporate Debtor a fair chance to stand on their own feet and to come out of financial distress. That is why every Corporate Debtormust go through the IBC-mandated CIR process before facing the liquidationproceedings.

• Judicial review of the decision of the CoC in a particular case is not precluded. In Sreedhar Tripathy, it has been clearly held that judicial review of the decision of the CoC is not precluded and it depends on facts of each case.”

• We are of the prima facie opinion that the present IA for the Liquidation of CD has been filed with malicious intent, and it is a fit case for issuance of show cause notice (U/s. 65) to the Assenting CoC members jointly, who voted in favour of the Liquidation of the CD without even exploring the possibility of resolution of the Corporate Debtor,

Excerpts of the order; 

The present IA No. 3818 of 2021 has been filed by Mr. Pawan Kumar Goyal (hereinafter, referred to as the ‘Applicant’), the IRP of the Corporate Debtor M/s. SARE Realty Projects Private Limited under Section 33(2) of IBC, 2016 seeking the following reliefs:

•  “a) Allow the present application. 

• b) Pass an order for Liquidation of the Corporate Debtor under Section 33(2) read with explanation and in terms of subclauses (i), (ii) and (iii) of clause (b) of sub-section (1) of Section 33 of the Insolvency and Bankruptcy Code, 2016. 

• c) Pass an order to appoint the Interim Resolution Professional Pawan Kumar Goyal, IBBI Registration No. IBBI/IPA001/IP-P00875/2017-18/11473 as Liquidator of the Corporate Debtor. 

• d) Pass any other or further order(s) as this Hon’ble Tribunal deem fit and proper in the facts and circumstances of the matter.” 

# 2. To put it succinctly, the facts of the case are that the Operational Creditor, Mr. Dharam Vir Gupta filed an application bearing no (IB)- 684(ND)/2020 under Section 9 of IBC 2016 for initiation of the CIR Process against the Corporate Debtor M/s. SARE Realty Projects Private Limited. This Adjudicating Authority, vide order dated 05.03.2021, had initiated the CIR process against the Corporate Debtor and appointed Sh. Pawan Kumar Goyal as an IRP. 

# 3. The list and dates of events, which transpired during the CIR process, as submitted by the Applicant in the application are reproduced below: 

# 4. On perusal of the “Dates and Events” as given above, it is observed that Form-G (Expression of Interest) although prepared by the IRP and placed before the CoC in its 2nd Meeting, was never approved by it and published. Rather, the CoC proposed an early liquidation of the Corporate Debtor and approved the same in its 5th Meeting. 

# 5. The Applicant/IRP has averred in the application as well, that it prepared the Information Memorandum (IM), and the same was shared with the CoC. It is reiterated that Form G was prepared and detailed Expression of Interest (EOI) documents including proposed eligibility criteria for Prospective Resolution Applicants were prepared. The draft Form-G as prepared by the IRP for consideration of the CoC and annexed with the present application is reproduced below for convenience: 

# 6. Even during the course of the hearing on 21.04.2022, this Adjudicating Authority observed that CoC has straight away recommended liquidation of the Corporate Debtor without publishing Form-G. Accordingly, vide order dated 21.04.2022, this Adjudicating Authority directed the IRP to file the reasons for not publishing Form-G. 

# 7. Thereafter, IRP in compliance with the aforesaid direction, filed its affidavit dated 19.05.2022 stating the following: 

# 8. Further, when we refer to the averments made by the Applicant, we clearly find that the agenda of early liquidation was first approached in the 2nd Meeting of CoC dated 27.05.2021. The relevant extracts of the minutes of the 2nd CoC meeting relating to the recommendation regarding early liquidation of the CD and reasons thereof are reproduced overleaf, for the sake of convenience: 

# 9. From the above-said minutes of CoC, we find that one Mr. Stuti Mitra representing India Real Estate 2021, stated that “…… they have tried to sell the projects to the prospective buyer but could not succeed and therefore, they intend to propose for the earlier Liquidation of the Corporate Debtor ….”. It is further observed from the records that Mr. Stuti Mitra of Acre India reiterated the same proposal of early Liquidation of the Corporate Debtor vide his email dated 12.08.2021 on the ground that there are no liquid assets and there are no prospective buyers available. The copy of the said email is reproduced overleaf, for the sake of immediate reference: 

# 10. We further notice that finally, the CoC in its 5th meeting held on 13.08.2021, approved the proposal of liquidation of the Corporate Debtor by 88.48% of votes, as evident from the voting sheet reproduced overleaf: 

# 11. From the records, it is also seen that during the course of the hearing on 02.09.2021, this Adjudicating Authority directed the Applicant/IRP to implead all the members of CoC as a party to the present application. Accordingly, the amended memo of parties was filed by the IRP and during the hearing on 18.11.2021, ACRE, one of the members of the CoC appeared. Accordingly, this Adjudicating Authority directed CoC to be represented in the matter. 

# 12. The IRP has filed its written submissions and stated that the CoC in its commercial wisdom has passed the resolution for recommending the liquidation of the Corporate Debtor. The IRP has relied upon the Judgment of Hon’ble NCLAT in the matter of Sunil S. Kakkad v. Atrium Infocom Private Limited & Ors. in Company Appeal (AT) (Insolvency) No. 194 of 2020, dated 10.08.2020 to demonstrate that CoC can directly pass a resolution for Liquidation of the Corporate Debtor even without publication of Form-G.

#13. We have heard the Ld. Counsel appearing for the Applicant/IRP, perused the application and considered the averments therein. From the record before us, it is observed that the CoC has not taken any steps for the resolution of the Corporate Debtor. Rather, the CoC right from its second meeting held on 27.05.2021 started considering the proposal for an early Liquidation of the CD at the instance of Mr. Stuti Mitra of ACRE. It is further noticed that the IRP was never confirmed as RP despite the CoC having 05 meetings, for reasons which are not available on record. These events show that the CoC was being driven in a particular direction with a pre-set mind. 

# 14. From the minutes of the 2nd meeting of CoC held on 27.05.2021 and the subsequent email dated 21.08.2021, it is observed that the early liquidation was proposed due to the non-availability of any prospective buyer for the CD. In our view, until EOI in FORM-G is published, there is no mechanism under the regime of IBC to discover Prospective Resolution Applicants for a Corporate Debtor. Without publishing Form-G, CoC could not have been in a position to formulate an opinion that there were no prospective buyers available for the CD. The scheme of IBC gives every Corporate Debtor a fair chance to stand on their own feet and to come out of financial distress. That is why every Corporate Debtor must go through the IBC-mandated CIR process before facing the liquidation proceedings. Hence, in our considered view, without taking any steps for seeking resolution of the Corporate Debtor, the CoC has acted contrary to the Scheme of IBC. 

# 15. At this juncture, we consider it appropriate to refer to the Judgement of Hon'ble Supreme Court in the matter of Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors. in Writ Petition (Civil) No. 99 of 2018 dated 25th January, 2019, in which the Hon’ble Apex Court observed that: 

• “11. .........What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern.” (Emphasis placed) 

# 16. We are fully aware that the CoC in its commercial wisdom has approved the liquidation of the CD. However, in the background and context of the present matter, we refer to the Judgment of Hon’ble NCLAT passed in the matter of Hero Fincorp Limited vs. M/s Hema Automotive Private Limited in Company Appeal (AT) (Insolvency) No.1540 of 2022 dated 06.01.2023, which, reads thus: 

• “13. There is no doubt that in Section 33, sub-sections (1) and (2) legislature has used the expression “shall”. However, the obligation of the Adjudicating Authority to direct for liquidation shall rise only when decision of the CoC is in accordance with the Code. Judicial review of the decision of the CoC in a particular case is not precluded. In Sreedhar Tripathy, it has been clearly held that judicial review of the decision of the CoC is not precluded and it depends on facts of each case.” (Emphasis placed) 

# 17. Had the Corporate Debtor was not having any Assets; it would be justified that CoC had recommended early Liquidation of the Corporate Debtor. However, in the instant case, the Corporate Debtor is a real estate company having projects and assets, by not taking any steps for the Resolution of the Corporate Debtor on the premise that there are no bids available for the Corporate Debtor, without actually publishing the FormG, in our view, is arbitrary and unsustainable. Further, non-cooperation from the suspended board of management, which as per the submissions of the IRP have resigned en masse, is no ground for recommending an early liquidation of the Corporate Debtor. 

# 18. In view of the aforesaid discussion, we are of the prima facie opinion that the present IA for the Liquidation of CD has been filed with malicious intent, and it is a fit case for issuance of show cause notice to the Assenting CoC members jointly, who voted in favour of the Liquidation of the CD without even exploring the possibility of resolution of the Corporate Debtor, that as to why the penalty stipulated under Section 65 of IBC, 2016 shall not be imposed on them. Let the Assenting members of the CoC file a joint reply to the show cause notice within 2 weeks from the passing of this order. 

# 19. Simultaneously, the IRP is also directed to bring on record the Valuation reports of the Corporate Debtor, 

• b) the list of both movable and immovable assets of the Corporate Debtor along with Fair Market Value and Liquidation value of the CD, 

• c) the date on which the security interest was created in the assets of the Corporate Debtor,

• d) who is presently having possession over those assets /projects of the Corporate Debtor; whether they are in possession of IRP, or in the possession of the Creditors of the Corporate Debtor. 

Let a response to these queries be filed by the IRP by filing a Separate Affidavit within 2 weeks from the passing of this order. 

# 20. It is made clear that we have not finally adjudicated the liquidation Application, the fate of which would depend upon the outcome of the Section 65 proceedings initiated against the Assenting CoC members. 

# 21. List the matter before the Regular Bench for further hearing on 17.04.2023.

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