NCLT PB-ND (2022.05.11) in Raj Kumar Ralhan Vs. Mr. Navraj Mittal & Ors. [IA-233(PB)/2021 in (IB)-540(PB)/2017] held that;
- The clause 12 of schedule-I provides for a time-line, but it is subject to the closure of the auction in the manner as specified and the same is provided in the bid process document at para 1.16.7. Therefore, there is no contradiction between the bid process document and clause 12 of schedule-I - mode of sale and therefore, this argument has no basis.
In the result, we hold that, the e-auction was conducted on 12.10.2020 and 14.10.2020 on the reserve price of Rs. 40 crores, and the letter of intent issued in favour of respondent nos. 1 to 4 on 16.10.2020, stands confirmed.
The sale of the Corporate Debtor as a going concern in favour of respondent nos. 1 to 4 stands confirmed. As a result, prayer (A) & (B) of this application stand allowed. In so far as penalty and other issue are concerned it will be dealt with in accordance with law.
Excerpts of the Order;
IA-233(PB)/2021
This is an application filed by the Liquidator of the Corporate Debtor, M/s. Su-Kam Power Systems Limited. The prayers in IA No. 233(PB)/2021 are as follows: -
"(a) Pass an order approving the Acquisition Plan submitted by a consortium of, Mr. Navraj Mittal (lead member), Mr. Vishnu Prakash Goyal, Mr. Ashok Kumar Gupta And Mr. Yajan Bansal in the liquidation proceedings with respect of the Corporate Debtor and declare that the same to be binding on the Corporate Debtor and its stakeholders;
(b) Pass an order setting aside of a corpus of Rs. 1 Crore (Rupees One Crore) from the consideration for any expenses that the Liquidator may incur after the transfer date for liquidation related processes and form filings;
(c) Pass an order waiving all penalties on account of non- compliances that may be sought to be imposed under the GST laws;
(d) To issue direction to the GST authorities to not initiate any coercive or penal action against the Liquidator in relation to any non-compliances;
(e) Pass such other order/orders as it may deem fit and proper in the facts and circumstances of the case."
IA-672(PB)/2021
This is an application filed by Mr. Kunwer Sachdev, the Ex-Promoter of the Corporate Debtor i.e. M/s. Su-Kam Power Systems Limited. The prayers in IA No. 672(PB)/2021 are as follows: -
"a) Pass an order to appoint an independent Forensic Auditor for conducting a forensic audit and to analyze the reduction of value of the assets of the Corporate Debtor from the date of commencement of insolvency till date.
b)Pass an order to direct IBBI to conduct an enquiry into the conduct of the Respondent No.1 (Liquidator) and Respondent No.2 in the said diminution of value of assets of the Corporate Debtor and into the process being adopted by them for liquidating the assets of the Corporate Debtor.
c)Pass an order to stay on any application moved by the Respondent No. 1 requesting approval of the acquisition of the assets of the Corporate Debtor, pending disposal of this Application.
d) Pass any other such further orders as deemed fit in the facts and circumstances of the case."
The Corporate Debtor, M/s. Su-Kam Power Systems Limited, lost its power in the course of business and landed in the Insolvency and Bankruptcy Code, 2016 proceedings which was initiated by State Bank of India, Financial Creditor. The Corporate Insolvency Resolution Process (CIR Process') was initiated against the Corporate Debtor ('CD') vide order dated 05.04.2018, and one Mr. Rajiv Chakraborty was appointed as the Interim Resolution Professional (IRP) and thereafter on approval by the Committee of Creditors ('COC') he was confirmed as Resolution Professional (RP) by this Adjudicating Authority on 07.06.2018. The RP proceeded to issue advertisement on 04.06.2018 inviting Expressions of Interest (EOI). However, the RP issued a request for resolution plans in respect of the CD on 19.07.2018. It is averred that one Mr. Kunwer Sachdev the ex-promoter and one of the directors of the Corporate Debtor, made an attempt to claim the ownership of the brand name "SU - KAM" by illegally including the brand in his net worth certificate submitted along with the EOI. This resulted in the RP approaching the Hon'ble Delhi High Court, to protect and preserve the brand name "SU-KAM" as the brand name of the CD. The said suit was decreed in favour of the RP against which appeal was filed and no stay has been granted.
Be that as it may, subsequently, the RP filed application against the ex- promoter, which is also pending before this Tribunal. The resolution plan was received from the consortium on 15.11.2018 comprising of M/s. Phoenix ARC Limited and Mr. Kanwer Sachdev, the ex-promoter of the CD. This was the only resolution plan received during the CIR period in relation to the CD. The RP sought approval of the CoC to appoint an entity (M/s. Kirtane and Pandit LLP) for conducting due diligence, to examine the plan for compliance, in accordance with the provisions of Section 29A of the Code. The due diligence report dated 06.12.2018 and the legal opinion clearly stated that, the plan submitted by the Consortium of Ex-Promoter was ineligible in terms of Section 29A(h) of the Code.
The CoC in its meeting held on 13.12.2018 concurred with the decision of the due diligence report and held that the Promoter is ineligible in terms of Section 29A(h) of the Code. The said resolution was conveyed to the ex- promoter by RP on 27.12.2018. The decision of the CoC declaring the ex- promoter as being ineligible under Section 29A (h) of the Code was challenged by the ex-promoter before this Adjudicating Authority which was dismissed on 02.04.2019, subsequently this order was not challenged.
Further, on 23.01.2019, the CoC made another attempt to obtain the resolution plan for the Corporate Debtor and the last date for the submission of the plan was 28.02.2019. However, no resolution plan was received and therefore, on 19.03.2019, the CoC resolved and directed the RP to file an application, seeking liquidation by way of an application before this Tribunal. In that meeting it was proposed to replace Mr. Rajiv Chakraborty and appoint Mr. Raj Kumar Ralhan as the resolution professional of the Corporate Debtor.
It is further stated that, the RP had filed a CA-569 (PB)/2019, under Section 33(1)(a) of the Code, seeking an order for liquidation of the Corporate Debtor on 27.03.2019 and vide order dated 03.04.2019, this Adjudicating Authority, allowed the liquidation application and Mr. Raj Kumar Ralhan was appointed as Liquidator.
However, the liquidation order of this Tribunal dated 03.04.2019 was challenged by some of the employees of the Corporate Debtor in Company Appeal (AT) (Insolvency) No. 451 of 2019 before the Hon'ble NCLAT and the Hon'ble NCLAT vide order dated 29.04.2019, upheld the order of this Adjudicating Authority as follows: -
"19. In view of the observations aforesaid, we hold that the liquidator is required to act in terms of the aforesaid directions of the Appellate Tribunal and take steps under Section 230 of the Companies Act. If the members or the 'Corporate Debtor' or the 'creditors' or a class of creditors like 'Financial Creditor' or 'Operational Creditor' approach the company through the liquidator for compromise or arrangement by making proposal of payment to all the creditor(s), the Liquidator on behalf of the company will move an application under Section 230 of the Companies Act, 2013 before the Adjudicating Authority i.e. National Company Law Tribunal, Chennai Bench, in terms of the observations as made in above. On failure, as observed above, steps should be taken for outright sale of the 'Corporate Debtor' so as to enable the employees to continue."
Further, the 'observations aforesaid' are extracted from the Judgement passed by Hon'ble NCLAT in Y Shivram Prasad Vs. S Dhanpal and Ors., Company Appeal (AT) (Insolvency) No. 224 of 2018, wherein the Hon'ble Appellate Tribunal has set forth the following sequence:
"(a) By Compromise and arrangement with the creditors, or class of creditors or members or class of members in terms of Section 230 of Companies Act, 2013;
(b) On failure, the liquidator is required to take steps to sell the business of the 'Corporate Debtor' as going concern in its totality along with the employees and
(c) The last stage will be death of the 'Corporate Debtor' by liquidation, which should be avoided."
The Liquidator in compliance with the directions of the Hon'ble NCLAT, issued the EOI on 02.08.2019, to invite interested persons to submit their EOI for scheme of compromise/arrangement in terms of Section 230 of the Companies Act, 2013. Accordingly, the EOI's were received from various parties.
However, at the 6th meeting of the Secured Stakeholders Committee, held on 04.09.2019, the EOI which was primarily submitted by the ex-promoter was not accepted as he was ineligible in terms of Section 29A(h) of the Code. Accordingly, the EOI of the ex-promoter was rejected by the Secured Stakeholders Committee in the same meeting,
Further, the CA-2335(PB)/2019 was filed by the ex-promoter before this Tribunal seeking to participate in the compromise and arrangement proceedings and the request for the same was declined by this Tribunal vide order dated 31.10.2019, was further appealed before the Hon'ble NCLAT which upheld the order of this Tribunal dismissing the claim of the ex- promoter in its order dated 19.12.2019 and the further the Ex-Promoter filed an appeal against the same order, before the Hon'ble Supreme Court, which was also dismissed on 15.03.2021 in Civil Appeal No. 2719/2020. Therefore, it was clearly held that, the ex-promoter had become ineligible, both in terms of Section 29A(h) of the Code, and also ineligible to participate in the liquidation proceeding in terms of Regulation 2B of IBBI (Liquidator Process) Regulations, 2016 for proposing the scheme under Section 230-232 of the Companies Act, 2013.
Be that as it may, the Secured Stakeholders Committee considered the EOI submitted by one Mr. Deepak Amin on 12.11.2019 and in their deliberation they found that the proposed scheme was not viable and therefore, decide to not proceed further.
In this scenario, on 27.12.2019 the Liquidator in absence of any viable scheme under Section 230 of the Companies Act 2013, issued a fresh public announcement inviting EOI's for
(a) acquisition of the Corporate Debtor as a going concern;
(b) acquisition Corporate Debtor's business as a going concern;
(c) block of assets of the Corporate Debtor and
(d) acquisition of the assets of the Corporate Debtor.
This was in terms of Regulation 32 and 33 read with Schedule-I of the Liquidation Regulations. This apparently is the first auction after the scheme under Section 230 of the Companies Act, 2013 did not fructify. This auction however did not fructify and therefore, the Liquidator was called upon to issue another public announcement on 04.05.2020 & 25.06.2020 by way of publication in the newspapers, seeking to invite bidders for
(a) acquisition of the Corporate Debtor, Su-Kam as a going concern;
(b) acquisition of Sukam's business(es) as a going concern;
(c) shares held by Sukam's various entities;
(d) immovable fixed assets of Sukam; and
(e) other tangible assets of Sukam, including plant, machinery equipment, furniture, inventory, stores & spares, art and artefacts, vehicles, etc., whether on an individual basis or as a block of assets.
In furtherance of this public announcement, the key document required for the purpose of proceeding with the auction (the process document) was issued on 31.08.2020 (placed at Pg. 281-340 as Annexure A-28, Vol. II of this application). The contents of this process document will be very relevant for the purpose of adjudicating this issue raised by way of objection by the ex-promoter more particularly the clause 1.16.7 which reads as under:
"1.16.7 Step VII: Transfer of the Company as a going or the Assets With respect to the acquisition of the Assets, the Successful Bidder(s) shall ensure that the Transfer Date occurs within 90 days of the issuance of the Letter of Intent to the Successful Bidder (s). The Liquidator shall issue Certificate of Sale (countersigned by the Liquidator or any authorized Representative of the Liquidator) to the Successful Bidder(s) for the relevant Asset. It is hereby clarified that upon the issuance of Certificate of Sale, the risk and title to the Asset shall stand transferred to the Successful Bidder(s). It shall be the responsibility of the Successful Bidder(s) to take the delivery of the Assets. The delivery of the Assets by the Liquidator to the Successful Bidder(s) shall be evidenced by a delivery receipt signed by the Liquidator or any authorized Representative of the Liquidator and acknowledged by the Successful Bidder(s).
With respect to acquisition of the Company as a going concern, the Successful Bidder shall ensure that the Transfer Date occurs within 90 days of the approval by the Adjudicating Authority of the Bid of the Successful Bidder.
Without prejudice to the above mentioned timeline, the Company and the Successful Bidder shall enter into suitable definitive documents to the satisfaction of the Liquidator to give effect to the acquisition of the Company as a going concern or the Assets, as the case may be. The Successful Bidder shall make payment of the balance consideration within 30 days of the demand raised by the Liquidator and any amount received after the said period will attract interest @ 12 % p.a."
On 03.09.2020, the Liquidator in consultation with the Secured Stakeholders Committee issued an amendment to the public announcement dated 04.05.2020 and 25.06.2020 including the brand name "SU-KAM” as an intangible asset and intellectual property right which will be also sold along with the Corporate Debtor. The 2nd auction as proposed, was conducted on 12.10.2020 and 14.10.2020. It will be pertinent to point out that in the first auction dated 27.12.2019, the reserve price was of Rs. 51 Crores and in respect of this 2nd auction which was notified on 04.05.2020 & 25.06.2020, the reserve price was reduced from 51 crores to Rs. 40 crores in terms of para 4A of Schedule-I of the Liquidation Regulations.
In the 2nd e-auction, as informed by Ld. Sr. Counsel for the Liquidator, 12 EOI's were received in which three participated and one consortium of four individuals was declared as highest and successful bidder and they are now respondent nos. 1 to 4. The successful bidder, respondent nos. 1 to 4 offered the bid of Rs. 49.95 Crores (Rupees Forty-Nine Crore Ninety-Five Lakhs). The declaration of the successful bidders was issued by the liquidator in the form of letter of intent dated 16.10.2020 is annexed as Annexure A-31, at pg. 387, of Vol. II of the application). In accordance with the bid process document and the letter of intent, 10% of the bid amount was submitted by the respondent nos. 1 to 4, by way of RTGS on 19.10.2020, and 15% of the bid amount was furnished by way of bank guarantees on 19.10.2020 and 20.10.2020, in all 25% of the bid amount has been submitted, to comply with the requirement of the bid process document. Thereafter, immediately on 14.12.2020, the present application has been filed by the Liquidator for the relief as stated above.
Mr. Abhinav Vasisht, Ld. Sr. Counsel, appearing for the Liquidator explained that the various steps are taken by the RP during the CIR process and in absence of the acceptable plan, the steps were taken for initiating liquidation proceedings and further steps were taken by the Liquidator to provide for a scheme of arrangement which also failed and consequently they had to proceed to sell the Corporate Debtor as a going concern, resulting in two (02) auctions and the 2nd e-auction concluded in favour of the respondent nos. 1 to 4, who are the successful bidders. He also pointed out that the first reserve price was based on valuation, that was taken at the initial stage and in the absence of the valid bid, they had to revise the valuation to Rs. 40 crores, where they have also complied with the statutory requirement. Therefore, in view of the bid submitted by respondent nos. 1 to 4, which is far above to the reserve price, the same has to be confirmed.
Mr. Arun Kathpalia, Ld. Sr. Counsel and Mr. K. Dutta, Ld. Sr. Counsel appearing for the successful bidder, respondent nos. 1 to 4, emphasized that the objection which is now made by the ex-promoter on the price is totally misconceived. The valuation which done is correct, as would be evident from the so-called offer made by the ex-promoter, which however was found not feasible or acceptable. The valuation as projected by the ex-promoter as proposed was rightly rejected because the projection given by the ex-promoter in their offer, is in the form of the term loan to be given by the Bank, which did not even fructify from the side of the Bank (i.e. M/s. IDBI Bank). In fact, IDBI Bank which is one of the stakeholders has not even given its stamp of approval, to such a proposal, and the other Bankers have also rejected such a hypothetical offer made by the Ex-Promoter.
Ld. Senior Counsel for the Liquidator has also emphasized the fact that, the long drawn legal battle at the behest of the ex-promoter before this Tribunal, Hon'ble NCLAT and Hon'ble Supreme Court at different stages, reduced the value of the Corporate Debtor, to a great extent and therefore, the price at which the bid has been declared at the 1st instance is correct. Therefore, the valuation is justified. We find no error in the valuation of the asset to be sold as a going concern.
Mr. Gopal Jain, Ld. Sr. Counsel appearing for the ex-promoter, during the course of hearing, has raised three objections.
The first one was with reference to order dated 05.05.2021, where the earlier Bench has flagged the issue of high CIRP cost. To rebut this argument, Mr. Vashisth, Ld. Sr. Counsel was able to point out, from pg. 212 and 213 of the additional affidavit dated 29.05.2021, by way of a detail chart showing the CIRP cost. It primarily was in relation to payment of wages, salary etc. When this was pointed out, Shri Gopal Jain, Sr. Counsel fairly conceded that this issue now has become irrelevant.
The next issue that was raised by Mr. Gopal Jain, Ld. Sr. Counsel was that they have made an offer by way of settlement proposal dated 03.04.2022, which was submitted before the stakeholders. Hence, the same should be considered first. The said contention was rebutted by Mr. Abhinav Vashisht, Ld. Sr. Counsel, stating that the stakeholders have already rejected that proposal, so that proposal has become academic.
In any event, we find that the ex-promoter has no locus standi to participate or agitate in this proceeding or submit a settlement proposal at this stage, in view of the finding of this Adjudicating Authority, Hon'ble NCLAT and Hon'ble Supreme Court, wherein it was held that, the ex-promoter has become ineligible in terms of Section 29A(h) of the Code as well as proviso to sub section (f) of Section 35 of the Code.
The third objection was that, the e-auction is dated 12.10.2020 and 14.10.2020. The letter of intent was issued on 16.10.2020 and therefore, in terms of the bid process document the entire amount should have been paid within 90 days i.e. before 15.01.2021. Since this amount has not been paid, the sale cannot be termed as confirmed. As a result, the ex-promoter is entitled to participate and make an offer. This contention appears to be a misconception of the bid process document para 1.16.7, which has already been extracted above.
It has been clearly indicated in the bid process document, that the acquisition of the Company as a going concern, will happen only after successful bidder gets the approval of the Adjudicating Authority, meaning thereby, on or from the date of approval of the e-auction, where respondent nos. 1 to 4 have been declared as the successful bidder, they have time upto 90 days, to make the balance payment over and above the deposited 25% of the bid amount already made. He relied upon proviso to clause 12 of the schedule-I i.e. mode of sale under the Liquidation Regulation. The clause 12 of schedule-I provides for a time-line, but it is subject to the closure of the auction in the manner as specified and the same is provided in the bid process document at para 1.16.7. Therefore, there is no contradiction between the bid process document and clause 12 of schedule-I - mode of sale and therefore, this argument has no basis.
In the result, we hold that, the e-auction was conducted on 12.10.2020 and 14.10.2020 on the reserve price of Rs. 40 crores, and the letter of intent issued in favour of respondent nos. 1 to 4 on 16.10.2020, stands confirmed. The sale of the Corporate Debtor as a going concern in favour of respondent nos. 1 to 4 stands confirmed. As a result, prayer (A) & (B) of this application stand allowed. In so far as penalty and other issue are concerned it will be
dealt with in accordance with law.
Mr. Arun Kathpalia, Ld. Sr. Counsel and Mr. K. Dutta, Ld. Sr. Counsel for the successful bidder made a statement that the balance bid amount will be paid by 10.06.2022.
In view of the order passed today in IA-233 (PB)/2021, IA-672/2021 filed on behalf of the ex-promoter is liable to be dismissed as infructuous.
Accordingly, IA No. 233 (PB)/2021 is disposed of and IA No. 672(PB)/2021 is hereby dismissed.
IA-1546(PB)/2022 and IA-2339(PB)/2021
In view of the order passed today in IA-233 (PB)/2021, both applications IA Nos. 1546(PB)/2022 and IA-2339(PB)/2021 have become infructuous and accordingly stand closed.
At the request of the Ld. Counsels, all the other applications, CA(s) & IA(s) namely CA-1090/2019, CA-2178/2019, CA-782/2020, CA-809/2018, IA-4432/2020, IA-4128/2021 & IA-5243/2021 be listed on 10.06.2022.
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