Gayatri Polyrub Pvt. Ltd. v. Anil Kohli & Anr. - It is well settled that objective of the IBC is to revive the Corporate Debtor and liquidation is the last resort. In view of the aforesaid, we set aside order directing for liquidation and extend the CIRP for a period of 60 days from today to complete the process.

 NCLAT (03.10.2023) In Gayatri Polyrub Pvt. Ltd. v. Anil Kohli & Anr. [Company Appeal (AT) (Insolvency) No.650 & 657 of 2023 , & I.A. No. 2192 of 2023] held that;

• It is well settled that objective of the IBC is to revive the Corporate Debtor and liquidation is the last resort. In view of the aforesaid, we set aside order directing for liquidation and extend the CIRP for a period of 60 days from today to complete the process.

Excerpts of the Order;    

03.10.2023: These two Appeals have been filed against same order passed by the Adjudicating Authority dated 15.03.2023 by which application filed by Resolution Professional for liquidation has been allowed. These Appeals have been filed by both the Appellant stating that they were willing to give a higher offer but without considering their offer liquidation order has been passed.

# 2. When Company Appeal (AT) (Insolvency) No.657 of 2023 was taken on 26.05.2023 following order was passed:

“O R D E R

26.05.2023: Learned Counsel for the Appellant submits that these two appellants are resolution applicants whose plans were not approved and order for liquidation has been passed. The Appellant submits that both the Resolution Applicants were ready to enhance the plan value more than the liquidation value and no reasons have been given by the Committee of Creditors as to why their plans have been rejected.

Learned Counsel appearing for the CoC submits that plans were not approved with 100% votes and now the auction notice has been issued for sale as a going concern. Learned Counsel for the CoC submits that in event the appellants are still ready to offer higher value than the reserve price, instructions shall be obtained from CoC.

Let the Appellants give their offer to the Liquidator.

List these Appeals on 5th July, 2023. Learned Counsel for the Committee of Creditors may bring on record all minutes of the CoC meeting. In view of the above, Liquidator shall not proceed to auction the asset till the next date.”

# 3. In subsequent order passed by this Tribunal on 20.09.2023, Counsel for the CoC informed that Mr. Harish Manocha has submitted a revised offer along with EMD and however, no revised offer has been submitted by Gayatri Polyrub Pvt. Ltd. By order dated 20.09.2023, time was allowed to file an affidavit by CoC. The CoC has now filed an affidavit where it has been stated that the comparison table of both offers have been given and in Para 14 following has been stated:

• “14. After taking into consideration the latest offer dated 04.08.2023 as submitted by the Appellant 1 and offer dated 08.07.2023 as submitted by the Appellant 2 on 10.07.23, the Respondent No.1 finds that offer made by Appellant 1 is acceptable if this Hon’ble Appellate Tribunal permits for the withdrawal of liquidation process and extends the time for CIRP. That once the CIRP is restored, CoC finds the offer made by Appellant 1 shall be acceptable as it will in fact help in maximising the yield out of resolution process initiated against the Corporate Debtor.”

# 4. Learned counsel for the CoC submits that the revised offer submitted by Mr. Harish Manocha needs to be considered by the CoC provided the Court permits withdrawal of the liquidation process and extending the time for CIRP. It is further submitted that the offer given by Mr. Harish Manocha is more than the liquidation value.

# 5. In view of the facts of the present case, we are of the view that ends of justice be served in giving one opportunity to the CoC to consider the Plan/Revised Offer and take decision on the said offer.

# 6. It is well settled that objective of the IBC is to revive the Corporate Debtor and liquidation is the last resort. In view of the aforesaid, we set aside order directing for liquidation and extend the CIRP for a period of 60 days from today to complete the process.

# 7. It is made clear that in event Resolution Plan is approved, an application be filed for approval of the plan before Adjudicating Authority. In event, Resolution Plan is not approved, the Resolution Professional shall immediately file application for liquidation.

# 8. Learned counsel for the CoC submits that only Revised Offer has been submitted by Mr. Harish Manocha and no revised offer has been submitted by Gayatri Polyrub Pvt. Ltd. We, thus, make it clear that CoC shall consider only Revised Offer submitted by Mr. Harish Manocha.

# 9. Both the Appeals are disposed of accordingly.

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Gayatri Polyrub Pvt. Ltd. Vs. Anil Kohli & Anr. - NCLAT rescinded the Liquidation orders as CoC received resolution applicant’s revised offer exceeding the reserve price.

 NCLAT (03.10.2023) In Gayatri Polyrub Pvt. Ltd. Vs. Anil Kohli & Anr. [Company Appeal (AT) (Insolvency) No.650 & 657 of 2023 with  I.A. No. 2192 of 2023] rescinded the Liquidation orders as CoC received  resolution applicant’s revised offer exceeding the reserve price.

Excerpts of the Order;    

03.10.2023: These two Appeals have been filed against same order passed by the Adjudicating Authority dated 15.03.2023 by which application filed by Resolution Professional for liquidation has been allowed. These Appeals have been filed by both the Appellant stating that they were willing to give a higher offer but without considering their offer liquidation order has been passed.

# 2. When Company Appeal (AT) (Insolvency) No.657 of 2023 was taken on 26.05.2023 following order was passed:

• “O R D E R

• 26.05.2023: Learned Counsel for the Appellant submits that these two appellants are resolution applicants whose plans were not approved and order for liquidation has been passed. The Appellant submits that both the Resolution Applicants were ready to enhance the plan value more than the liquidation value and no reasons have been given by the Committee of Creditors as to why their plans have been rejected.

• Learned Counsel appearing for the CoC submits that plans were not approved with 100% votes and now the auction notice has been issued for sale as a going concern. Learned Counsel for the CoC submits that in event the appellants are still ready to offer higher value than the reserve price, instructions shall be obtained from CoC.

• Let the Appellants give their offer to the Liquidator.

• List these Appeals on 5th July, 2023. Learned Counsel for the Committee of Creditors may bring on record all minutes of the CoC meeting. In view of the above, Liquidator shall not proceed to auction the asset till the next date.”

# 3. In subsequent order passed by this Tribunal on 20.09.2023, Counsel for the CoC informed that Mr. Harish Manocha has submitted a revised offer along with EMD and however, no revised offer has been submitted by Gayatri Polyrub Pvt. Ltd. By order dated 20.09.2023, time was allowed to filed an affidavit by CoC. The CoC has now filed an affidavit where it has been stated that the comparison table of both offers have been given and in Para 14 following has been stated:

• “14. After taking into consideration the latest offer dated 04.08.2023 as submitted by the Appellant 1 and offer dated 08.07.2023 as submitted by the Appellant 2 on 10.07.23, the Respondent No.1 finds that offer made by Appellant 1 is acceptable if this Hon’ble Appellate Tribunal permits for the withdrawal of liquidation process and extends the time for CIRP. That once the CIRP is restored, CoC finds the offer made by Appellant 1 shall be acceptable as it will in fact help in maximising the yield out of resolution process initiated against the Corporate Debtor.”

# 4. Learned counsel for the CoC submits that the revised offer submitted by Mr. Harish Manocha needs to be considered by the CoC provided the Court permits withdrawal of the liquidation process and extending the time for CIRP. It is further sub mitted that the offer given by Mr. Harish Manocha is more than the liquidation value.

# 5. In view of the facts of the present case, we are of the view that ends of justice be served in giving one opportunity to the CoC to consider the Plan/Revised Offer and take decision on the said offer.

# 6. It is well settled that objective of the IBC is to revive the Corporate Debtor and liquidation is the last resort. In view of the aforesaid, we set aside order directing for liquidation and extend the CIRP for a period of 60 days from today to complete the process.

# 7. It is made clear that in event Resolution Plan is approved, an application be filed for approval of the plan before Adjudicating Authority. In event, Resolution Plan is not approved, the Resolution Professional shall immediately file application for liquidation.

# 8. Learned counsel for the CoC submits that only Revised Offer has been submitted by Mr. Harish Manocha and no revised offer has been submitted by Gayatri Polyrub Pvt. Ltd. We, thus, make it clear that CoC shall consider only Revised Offer submitted by Mr. Harish Manocha.

# 9. Both the Appeals are disposed of accordingly.

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Shailaja Vaibhav Patil Vs. CMA Harshad S. Deshpande - After the expiry of the statutory period of 330 days of CIRP, CoC is not empowered to change its opinion for either approval or rejection of the resolution plan.

NCLAT (05.12.2022) in Shailaja Vaibhav Patil Vs. CMA Harshad S. Deshpande [Company Appeal (AT) (Ins) No. 1122 of 2020] held that after the expiry of the statutory period of 330 days of CIRP, CoC is not empowered to change its opinion for either approval or rejection of the resolution plan.

Excerpts of the order;

This order shall dispose of a batch of three appeals bearing CA (AT) (Ins.) No. 1122 of 2020, CA (AT) (Ins.) No. 1123 of 2020 and CA (AT) (Ins.) No. 11 of 2021, as all these appeals have been filed against the same impugned order dated 16.12.2020, by which an application bearing M.A. No. 510 of 2020 filed by the Resolution Professional seeking liquidation of the Corporate Debtor under Section 33 of the Insolvency and Bankruptcy Code, 2016 (in short ‘Code’) has been allowed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench, Court- III).

 

# 2. CA (AT) (Ins.) No. 1123 of 2020 ‘City Co-Operative Credit And Capital Limited Vs. CMA Harshad S. Deshpande & Ors’ has been filed by the secured Financial Creditor. CA (AT) (Ins) No. 11 of 2021 ‘Mr. P.L. Adke Vs. Harshad Deshpande & Ors.’ has been filed by the Resolution Applicant and CA (AT) (Ins.) No. 1122 of 2020 ‘Shailaja Vaibhav Patil & Anr. Vs. CMA Harshad Deshpande & Ors.’ has been filed by the ex-director of the Corporate Debtor. They are all aggrieved against the impugned order dated 16.12.2020, however, for the sake of convenience, the facts are being taken from CA (AT) (Ins.) No. 1123 of 2020 treating it as the lead case.

 

# 3. In brief, an application under Section 9 of the Code was filed by an Operational Creditor (M/s Ultratech Cement Ltd.) against the Corporate Debtor (Silveroak Commercial Ltd.) which was admitted on 01.05.2019 and Rajendra Kumar Khandelwal was appointed as an Interim Resolution Professional (IRP). However, in the 3rd CoC meeting held on 16.07.2019, Alkesh Rawka was appointed as Resolution Professional (RP) and his appointment was approved by the Adjudicating Authority on 19.08.2019. After the advertisement was published inviting expression of interest (EOI) in Form-G, the RP received four EOI from (a). Nashik Merchant Cooperative Bank Ltd. (CoC Member) (b). Galactico Cooperative Services Ltd. (c). Mr. Prakash Adke (d). Mr. Amar Patil (Suspended Director). Out of the four, only two submitted the resolution plan i.e. M/s Galactico Cooperative Services Ltd. and Prakash Adke. The Prospective Resolution Applicants did not satisfy the eligibility criteria and both were rejected by the CoC, having two members, namely, City Co-Operative Credit And Capital Limited, having 18.55% voting share and Nashik Merchant Cooperative Bank Ltd., having 81.45% voting share. In the 10th CoC meeting held on 21.01.2020, finding no chance of revival of the Corporate Debtor, resolution was passed to the effect that “resolved that, pursuant to Section 33 of the Insolvency and Bankruptcy Code, 2016 the approval of members of committee of creditors be and is hereby accorded for liquidation of Corporate Debtor”

 

# 4. Pursuant to the aforesaid resolution, having been passed in 10th CoC meeting held on 21.01.2020, the RP filed an application under Section 33 of the Code for seeking following two reliefs (a) to pass an order under Section 33 of the Code commencing the liquidation process of the Corporate Debtor, (b) to appoint Mr. Harshad Deshpande as a liquidator of Corporate Debtor. The Adjudicating Authority, after considering the application of the RP, found it to be a fit case to pass the order of liquidation under Section 33 of the Code and after obtaining the consent of Harshad Deshpande, appointed him as a liquidator and passed the formal directions.

 

# 5. It is pertinent to mention that all these three appeals are directed against the same impugned order dated 16.12.2020 but in appeal bearing no. 1123 of 2020 and 1122 of 2020 prayer for stay was declined whereas in appeal bearing 11 of 2021 stay was granted to the effect that “the liquidator may carry on the process but shall not sell the liquidation estate till next date of hearing”.

 

# 6. Counsel for the Appellant in CA (AT) (Ins.) No 1123 of 2020 has submitted that since there was dissenting view of CoC in the 10th Meeting and Nashik Merchant Cooperative Bank Ltd. was having a major voting share, therefore, resolution was passed to appoint liquidator to proceed with the liquidation but after the 10th Meeting of CoC held on 21.01.2020 and passing of the impugned order on 16.12.2020, the Appellant (City Co-Operative Credit And Capital Limited) has purchased the share of Nashik Merchant Cooperative Bank Ltd. by way of an assignment deed dated 05.04.2020 and has thus 100% voting share. It is submitted that with the change of circumstances, the Appellant is now interested in approving the plan submitted by P.L Adke. It is also submitted that the liquidation is the corporate death of the corporate debtor and all the steps should be taken to avoid it. It is also submitted that liquidation is the last resort to be adopted after genuine attempts are made for revival of the Corporate Debtor. In nutshell, it is argued that this Tribunal still can pass an order of turning the clock back even after the CoC has become funcutous officio after the 10th meeting of CoC passing the resolution of liquidation and the application under Section 33 of the Code has been allowed by the Adjudicating Authority, appointing the liquidator to proceed with the liquidation of the asset of the Corporate Debtor. In support of his submissions, he has relied upon a decision of this Court in the case of Mr. Sharad Sangi Vs. Vandana Garg & Ors., CA (AT) (Ins.) No. 461 of 2018 and State of Maharashtra Vs. Videocon Industries Ltd.& Ors., 2022 SCC Online NCLAT 6.

 

# 7. On the other hand, Counsel for the Respondent has argued that the Code has not provided any express power to this Tribunal to set aside the order of liquidation and that the judgments relied upon by the Appellant in the case of Sharad Sangi (Supra) and State of Maharashtra (Supra) are not applicable.

 

# 8. In reply, Counsel for the Appellant has fairly conceded that though there is no provision as such in the Code to deal with such a situation but Rule 11 of the NCLAT Rules, 2016 provides the inherent power which may be invoked.

 

# 9. We have heard Counsel for the parties and perused the record with their able assistance.

 

# 10. The facts are not in dispute as these are borne out from the record. The resolution plan submitted by M/s Galactico Cooperative Services Ltd. and P.L. Adke were strongly opposed by Nashik Merchant Cooperative Bank Ltd. having 81.45% voting share and a decision was taken in the 10th CoC meeting held on 21.01.2020 for initiation of liquidation proceedings. The RP filed the application under Section 33 of the Code which was allowed on 16.12.2020. It was during the pendency of these appeals, the assignment deed dated 05.04.2022 has come into being as per which the Appellant (City Co-Operative Credit And Capital Limited) has acquired the voting share of Nashik Merchant Cooperative Bank Ltd. and has acquired 100 % voting share. In these circumstances, it is sought to be argued that despite the fact that CoC has become funcutous officio, the order passed under Section 33 of the Code by the Adjudicating Authority be set aside and the matter be remanded back to the CoC for considering the resolution plan of P.L Adke. The Appellant has tried to take support from an earlier decision of this Tribunal in the case of Sharad Sangi (Supra). We have gone through the decision of the coordinate bench. In this case the order was passed by the Adjudicating Authority on two grounds, namely, total period of 270 days had lapsed by the time last voting took place on 02.04.2018 and secondly, as on 26 & 27.03.2018 the voting percentage was 62.66% which is less than 75%. It was noticed as to whether a member who had already opined, can change its opinion or not? It is the matter which can be decided by the CoC which may extend the period and allow for a fresh voting and that Regulation 26(2) being directory cannot override the power of the CoC which can take the final decision accepting or rejecting the resolution plan. It was held in Para 24 of Sharad Sangi (Supra) “in view of the aforesaid findings and as we have already held that the resolution process took place within 270 days and the CoC had the jurisdiction to change its opinion in favour of the resolution plan to make it a success and Regulation 26(2) being directory which also stands deleted, we set aside the impugned order and hold that the resolution plan being in conformity with Section 30(2) warranted approval by the Adjudicating Authority”. With utmost respect, the ratio in the case of Sharad Sangi (Supra) is not applicable to the facts and circumstances of the present case because there is a change in the voting share in the present case that takes place after the order of liquidation. Similarly, the decision in the case of State of Maharashtra (Supra) is also not applicable to the facts and circumstances of the present case. Moreover, the said decision is under challenge before the Hon’ble Apex Court.

 

# 11. It is also pertinent to mention that it has been time and again held by the Hon’ble Apex Court that the Code is complete in itself and since there is no provision to deal with such a situation as we have one in hand, we do not find it to be a fit case to apply Rule 11 of the NCLAT Rules 2016 which operate in altogether different sphere.

 

# 12. Thus, looking from any angle, we could not persuade ourselves to accept the contention raised by the Appellants in the present three appeals for setting aside the impugned order and to set the clock back on the asking of the Appellant (City Co-Operative Credit And Capital Limited). Hence, all the three appeals are found devoid of merits and the same are hereby dismissed, though without any order as to costs.

 

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Lotus City Plot Buyers Welfare Association Vs. Three C Homes Pvt. Ltd & Ors. - Certain reconciliation are required that what is the actual realisable value which the homebuyers are getting whether it is below liquidation value or above liquidation value.

NCLAT (08.07.2021) in Lotus City Plot Buyers Welfare Association Vs. Three C Homes Pvt. Ltd & Ors. (Company Appeal(AT) (Insolvency) No. 151 of 2021) held that; 

• While the Resolution Plan will generally provide a higher value than the liquidation value but in case of Real Estate Project may not be always feasible and homebuyers are in dire need of getting their homes at the earliest. However, in this case certain reconciliation are required that what is the actual realisable value which the homebuyers are getting whether it is below liquidation value or above liquidation value.

• Liquidation is the last resort and this programme of homebuyers needs some calibration and proper evaluation. 

 

Excerpts of the order;

# 1. These appeals are filed under Section 61 of the ‘Insolvency and Bankruptcy Code, 2016’ (in short ‘Code’) against the impugned order dated 08.02.2021 passed by the ‘Adjudicating Authority’ (National Company Law Tribunal, Division Bench New Delhi Bench –III), in C.A. No. 3840 of 2020 and I.A No.3385 (ND) of 2020 in company petition I.B No. 432/ND/2019.

 

# 2. Since all these appeals have been filed against the common order dated 08.02.2021 passed by the ‘Adjudicating Authority’ and accordingly, all the appeals have been clubbed for disposal. It is also observed that the three appeals as enumerated above are seeking the common reliefs of setting aside the impugned order dated 08.02.202 passed by the ‘Adjudicating Authority’ and connected consequential reliefs.

 

# 3. The ‘Adjudicating Authority’ has rejected the ‘Resolution Plan’ and has directed the ‘Resolution Professional’ (RP) to file appropriate application for seeking liquidation order of the Corporate Debtor namely- M/s. Three C Homes Pvt. Ltd. The Adjudicating Authority logic for rejection of ‘Resolution Plan’ is based on the following factors apart from other reasons explained in the impugned order:

• i. ‘Liquidation value ‘of Corporate Debtor is Rs.480.70 Crore while Resolution Plan involves infusion of only Rs.95 crore by the Resolution Applicant and that too over a period of two years

• ii. ‘Resolution Plan’ provided by Resolution Applicant assumes that the farmers will forgo their claim of Rs.71.66  Crores in exchange of the Resolution Applicant promised to spend a sum of Rs. 15 Crore towards the development of village Salarpur is an amateurish.

• iii. ‘Resolution Plan’ approved by the ‘Committee of Creditors’ (CoC) is not in compliance of the provisions of the Code and the ‘CIRP Regulations 4th Amendment 2020’ which came into force on 07.08.2020.

 

# 4. The Adjudicating Authority has also seen the implication of Hon’ble Supreme Court Judgment rendered in the case of Maharashtra Seamless limited. Vs. Padambhan Venkatesh as stated below:

• “i. the Creditors in Maharashtra Seamless Ltd’s case supra was normal Financial Creditor i.e. Indian Bank and no Home Buyers were involved whereas the Financial Creditors is present petition are home Buyers, a category in class.

• ii. in the said case, basic issue arose before Hon’ble Supreme Court stemmed out of the fact that in the said matter, the Successful Resolution Applicant was asked to pay an additional amount of Rs.120.54 Crores over and above upfront payment of Rs.477 Crores to financial creditors therein as against Liquidation Value of Rs.597.54 crores. In other words, the upfront amount in comparison to Liquidation Value and shorter by around 20 per cent only.”

 

# 5. The Adjudicating Authority based on above analysis has come to the conclusion that ‘Resolution Plan’ does not have any potential to fulfil the dreams of homebuyers which is at just 19.77 % of the liquidation value of Corporate Debtor

 

# 6. The Appellant has submitted that the Adjudicating Authority has not considered the impact of following calculations while considering Rs.95 Crores being released by ‘Resolution Applicant’:

• i. Did not include Rs.211 Crores i.e. the quantum of debt due to allottees as after giving the possession of plots to allottees, the debt due to allottees would stand satisfied;

• ii. Did not include the quantum of Rs.50.70 Crore which shall be paid by Resolution Applicant to Ex-management. Since, the settlement was done after filing of approved resolution plan. Hence, the aforesaid table also did not include the payment of debt due to ex-management;

• iii. Did not include discounts of Rs.8.18 Crores, as it will reduce the inflow of Rs.95 Crores;

• iv. Did not include quantum of Rs.1.75 Crores as amount shall be payable to five allottees whose plots are not on maps and layout;

• v. Did not include quantum of Rs.38.75 Crores waived off in satisfaction of interest due to the allottees (i.e. interest on delay payment);

• vi. Did not include quantum of Rs.5.47 lakhs i.e. payment proposed to the operational creditors.

 

# 7. The Appellant has also submitted that the notification purportedly dated 07.08.2020 came into existence only on 08.08.2020 at 10:42 PM whereas CoC meeting e-voting commenced on 08.08.2020 at 3:00PM. As far as the issue of farmers are concerned, these are not contractual obligations.

 

# 8. The Appellant has also stated that the Resolution Plan had been approved with 62.9% voting share which would be considered as 100% as per Section 25A (3A) of the Code in favour of the ‘Resolution Plan’. They have also raised the issue that the decision of the CoC in respect of commercial issues cannot be challenged by the Adjudicating Authority.

 

# 9. While hearing the appeal on 11.06.2021 certain Respondents have withdrawn their objections raised in these appeals as per the instructions of their clients and the same is stated hereunder: “11.06.2021- Learned Counsel appearing in CA(AT)(Ins.) No. 151 of 2021and CA(AT)(Ins.) No. 205 of 2021 for Respondent Nos. 3 to 10, 12,13,15 to 23 and in CA(AT)(Ins.) No. 193-194 of 2021for Respondent Nos. 1-8, 10, 11, 13 to 21 submit that as per the instructions of their client they have withdrawn the objections raised in these Appeals.”

 

# 10. While limited Respondents in these three appeals have stated that there are no infirmity in the impugned order passed by the Adjudicating Authority. It was also stated that the RP has not submitted the ‘compliance certificate’ as required under the Code. The RP in the 3rd CoC meeting has requested for the formation of sub-committee to appraise and validate the Resolution Plan which is contrary to the provisions of the Code. Section 25(2)(i) mandates that the RP shall represent all the plans at the meeting of the CoC. They have also stated certain infirmity in not providing priority to ‘Operational Creditor’ over ‘Financial Creditor’ as required under the Regulations 38 of IBBI (Insolvency Resolution Process for Corporate Person) Regulation 2016. It was also stated by them that the Form H submitted by the RP is not in compliance of the provisions of the Code and related Regulations. They have also alleged that the Resolution Applicant is acquiring the Corporate Debtor is less than 1/5th of the Liquidation value of the Corporate Debtor.

 

# 11. We have carefully gone through the submissions made by the Appellants and concerned Respondents. There is a difference of CoC where they are ‘Banks’ and ‘Institutional lenders ‘as members, while the CoC in the Homebuyers are not so expert in finance and related valuations. Hence, CoC in case of the commercial organisations will have a different perspective and expertise while in case of Real Estate projects where the CoC are totally comprising of homebuyers may not have the same expertise and perspective. Although, in case of Homebuyers provisions exists for Authorised Representatives but even he cannot be equated with the expertise with the banking professional will have. We are not passing any comments on specific Authorised Representatives.

 

# 12. While the Resolution Plan will generally provide a higher value than the liquidation value but in case of Real Estate Project may not be always feasible and homebuyers are in dire need of getting their homes at the earliest. However, in this case certain reconciliation are required that what is the actual realisable value which the homebuyers are getting whether it is below liquidation value or above liquidation value.

 

# 13. There is also a need to look at the CIRP Regulations (4th Amendment) 2020 notified on 07.08.2020 and 5th CoC meeting circulated on 04.08.2020 and held on 08.08.2020.

 

# 14. There is a need for impleading Yamuna Expressway Industrial Development Authority (YEIDA) to ascertain status of dispute with farmers and its consequential impact, if any, on this projects.

 

# 15. Liquidation is the last resort and this programme of homebuyers needs some calibration and proper evaluation. 

 

# 16. In view of the aforesaid observations, we are remanding back the matter to the Adjudicating Authority and setting aside their liquidation order with a direction to review the programme in full alongwith the relevant provisions of the code and Regulations and then the Adjudicating Authority is free to pass appropriate order as they think fit and proper in accordance with law. Pending IAs, if any, stands disposed of. Any interim order(s) passed by this Appellate Tribunal stands vacated. No orders as to costs.

 

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Jayanta Banerjee & Anr. Vs Shashi Agarwal Liquidator of INCAB Industries Ltd & Ors. - Liquidation order rescinded, which was based on the recommendations of illegally constituted CoC.

NCLAT (04.06.2021) in Jayanta Banerjee & Anr. Vs  Shashi Agarwal Liquidator of INCAB Industries Ltd & Ors. [Company Appeal (AT) (Insolvency) No. 348 & 720 of 2020] held that; 

• that the default rule under the first proviso to Section 21(2) is that only those Financial Creditors that are related parties in praesenti would be barred from the 'COC'. However, the related Party Financial Creditors that seem to be related parties in order to circumvent the exclusion under the first proviso to Section 21(2) should also be considered as being covered by the exclusion thereunder.

• The formation of the Committee of Creditors in the instant case is a nullity in the eyes of the law. Since the illegally constituted committee of creditors took the decisions at every stage of CIRP. Therefore, the entire corporate insolvency resolution process of the Corporate Debtor is found to be vitiated. Therefore the impugned order of liquidation passed by the Adjudicating Authority deserves to be set aside.

 

Excerpts of the order;

These two Appeals emanate from the Common Order dated 7th February 2020 passed by the Adjudicating Authority/National Company Law Tribunal, Kolkata Bench, Kolkata in C.A. (I.B.) No. 1748/K.B./2019 and C.A. (I.B.) 57/K.B./2020 in C.P. (I.B.) No 1684/K.B./2018, whereby the Adjudicating Authority/NCLT initiated liquidation proceedings against the Corporate Debtor 'INCAB Industries Limited', wherein the Appellant of Appeal No.348 of 2020 was employed until the date of passing the order of liquidation. Parties original status in the Company Petition represents them in these Appeals for the sake of convenience.

Appellants Averment

# 2. The Corporate Debtor was admitted into the Corporate Insolvency Resolution Process (in short 'CIRP'), vide order dated 7th August 2019, and Respondent No. 1 was appointed as Interim Resolution Professional (IRP) of the Corporate Debtor.

# 3. Under the invitation of claims by the IRP, the Appellant and thousands of other employees who were employed with the Corporate Debtor submitted their claim, along with other Operational Creditors and Financial Creditors.

# 4. Subsequently, after forming the Committee of Creditors ('COC'), the resolution was adopted on 5th December 2019 to liquidate the Corporate Debtor, thereby sabotaging the chances of revival of the Corporate Debtor and pushing the Corporate Debtor employee's into an abyss with an uncertain future.

# 5. The liquidation order came into the Appellant's knowledge when the Application under Section 33 of the Insolvency and Bankruptcy Code, 2016, the Respondent filed C.A.(I.B.) No. 17/K.B./2019 before the Adjudicating Authority/NCLT Kolkata Bench. The Appellant intervened in the said matter and filed its opposition in the same. The Appellant also filed an Application under Section 60 (5) of the Insolvency and Bankruptcy Code 2016 being C.A. (I.B.) No. 57/K.B./2024 to remove the Respondent as the Resolution Professional working connivance with the majority of the creditors of theCorporate Debtor.

# 6. The Committee of Creditors (from now on referred to as CoC) also consist of 'Kamla Mills Private Limited' and 'Fasqua Investment Private Limited', both were managed and owned by one of the Directors of the Corporate Debtor, Mr Ramesh Ghamandiram Gowani, resigned from the management of the Corporate Debtor after the initiation of the Corporate Insolvency Resolution Process. 

# 7. We have heard the arguments of the Learned Counsel for the parties and perused the record. The following issue arises in these appeals for our consideration.

• 1. Whether 'Kamla Mills Private Limited' and 'Fasqua Investment Private Limited' who were made part of CoC are related parties in terms of proviso to Section 21(2) of the Insolvency and Bankruptcy Code 2016?

• 2. Whether assignment of debt in violation of Section 5 of the SARFAESI Act 2002 and Factoring Regulation Act 2011 is valid? 

• 3. Whether IRP/RP can constitute CoC based on submission of claims only, without verifying and admitting or rejecting the claims?

1. Whether 'Kamla Mills Private Limited' and 'Fasqua Investment Private Limited' who were made part of CoC are related parties in terms of proviso to Section 21(2) of the Insolvency and Bankruptcy Code 2016?

# 49. Hon'ble Supreme Court in the case of Phoenix ARC Pvt. Ltd. v. Spade Financial Services Ltd., (2021) 3 SCC 475 : (2021) 2 SCC (Civ) 1: 2021 SCC OnLine SC 51, has laid down the law that the term related Party in the context of IBC is defined to ensure that those entities which are related to the Corporate Debtor can be identified clearly since their presence can often negatively affect the insolvency process. Hon'ble Supreme Court has further propounded that the default rule under the first proviso to Section 21(2) is that only those Financial Creditors that are related parties in praesenti would be barred from the 'COC'. However, the related Party Financial Creditors that seem to be related parties in order to circumvent the exclusion under the first proviso to Section 21(2) should also be considered as being covered by the exclusion thereunder. Therefore Mr Ramesh Ghamanndiram Gowani's resignation from the Board of Directors of the Corporate Debtor 'Incab Industries Limited' after initiation of the Corporate Insolvency Process will not circumvent the exclusion under the first proviso to Section 21 (2) of the Code. Thus Financial Creditors' Fasqua Investment Private Limited' & 'Kamla Mills Ltd' are the related Party of the Corporate Debtor 'Incab Industries Ltd' in terms of Section 5 (24)(f) of Insolvency and Bankruptcy Code 2016 and terms of Ist proviso to Sec 21(2) of I & B Code; they are not entitled to represent, participate and vote in the CoC of the corporate debtor 'Incab Industries Ltd.'

2. Whether assignment of debt in violation of section 5 of the SARFAESI Act 2002 and Factoring Act 2011 is valid?

# 56. The deed of assignment derives its source from Section 130 of the Transfer of Property Act, 1882, that was executed in compliance with the said provisions. Therefore, there exists no violation of any of the provisions of the Insolvency and Bankruptcy Code 2016.

Finding

# 60. Based on the above discussion, we believe that because the parties to the assignment deed were not made Party either before the Adjudicating Authority or before this Appellate Tribunal, the assignment in question can not be raised on this ground.

Point No 3. Whether IRP/RP can constitute CoC based on submission of claims only, without verifying and admitting or rejecting the claims?

# 61. In the instant case, we have noticed that the Committee of Creditors decided to liquidate the Corporate Debtor even without the valuation of the Corporate Debtor. We have also seen that the IRP/RP has formed the Committee of Creditors even without admitting the claim, i.e. only based on claims submission. It is essential to evaluate the validity of the Committee of Creditors, which was constituted even without verification, admission or rejection of claims. It is essential to evaluate how the Corporate Insolvency Resolution Process can go on without knowing the actual percentage of voting share of a Financial Creditor, based on the Financial Debt owed by that creditor. In this case, we have also noticed that no Information Memorandum was prepared. An order of liquidation is passed on the pretext of the proviso to Section 33 (2) of the Insolvency and Bankruptcy Code. In the instant case, liquidation has been started even without valuation and determination of the liquidation value.

# 62. Under the Insolvency and Bankruptcy Code 2016, the role assigned to the Committee of Creditors is of paramount importance. Section 28 of the I & B code 2016 specifically provides the actions that require the approval of the Committee of Creditors. The success of corporate insolvency resolution entirely depends upon the validly constituted Committee of Creditors. Therefore the legislature has barred the representation, participation and voting by related parties in a meeting of Committee of creditors under the proviso to section 21 (2) of the I.B. code 2016.

# 81. In the instant case, we find that the IRP/RP had formed the Committee of Creditors based on the Financial Creditors' submission of claims even without verification, despite that one of the financial creditors had explicitly requested to defer the e-voting on the resolution of the 5th CoC dated 5th December 2019, till the verification of voting percentage and compliance of CIRP process. The IRP/RP has formed the Committee of Creditors without admitting the claims of the Financial Creditors, which violate Regulation 12 (3) of the CIRP Regulations.

# 82. We also find that during CIRP, five meetings of the Committee of Creditors took place. Still, till the end of CIRP, IRP did not verify the claims submitted by the Financial Creditors but allotted the voting share to the Financial Creditors, based on the submission of claims. The procedure adopted by the IRP/RP was against the statutory provision of the Code despite the fact that compliance with the statutory requirements of the Code was mandatory.

# 83. We have also noticed that the IRP/RP has not prepared the Information  Memorandum. In the Minutes of the fourth COC meeting dated 11 November 2019, it is stated that verification of claims is under process, and the amount of claims is to be determined. The Information Memorandum, as specified under Regulation 36, will be ready by 22 November 2019. However, in the fifth CoC meeting, i.e. the last meeting, it was decided that there is no need for an Information Memorandum. It was also decided that there is no requirement of Transaction and Forensic Audit and also no need for publication of Form-G for the invitation of expression of interest. The COC also decided to liquidate the corporate debtor. Therefore, there is no need to prepare Information Memorandum.

# 85. Based on the above discussion, we are the considered opinion that the Constitution of the Committee of Creditors violates the proviso to Section 21 (2) of the I & B code 2016 read with 12(3) of CIRP Regulations. Therefore, the Constitution of the creditors' committee is a nullity in the eye of law that vitiates the entire CIRP. Liquidation is like a death knell for the corporate entity/corporate person. Liquidation based on the resolution of the CoC, which consists of related party Financial Creditors having 77.20 % vote share, is a matter of grave concern. Hon'ble Supreme Court in the case of Phonix ARC (supra) has described the entering of such related party Financial Creditors in the Committee of Creditors as an act of commercial contrivances through which these entities sought to enter the COC, which could affect the other independent Financial Creditors. An order for liquidation of corporate debtor based on the sole decision of related parties Financial Creditors could be fatal for the existence of the corporate debtor, cannot be sustained. It is also pertinent to mention that when the Constitution of the Committee of Creditors itself is found to be tainted, then the decision of that COC cannot be validated on the pretext of exercise of commercial wisdom.

# 86. We have also noticed that the role of IRP/RP/liquidator was not impartial in the conduct of the corporate insolvency resolution process; therefore, we think it proper to change the Resolution Professional. The above discussions show that the Resolution Professional failed to discharge duties and responsibilities cast on the Resolution Professional under the IBC and Regulations' provisions. ‘Kamla Mills Private Limited’ and ‘Fasqua Investment Private Limited’ are related parties that were made part of this CoC and were in a commanding position to rush through the decision to liquidate the Corporate Debtor. Facts show that the Corporate Insolvency Resolution Process was initiated in view of Section 9 of the IBC. The petition was admitted on 7th August 2019, and the 5th CoC meeting held on 8th December 2019, which is within 122 days, decided to liquidate the Corporate Debtor. The CoC had two entities holding the majority of the voting rights of 77.20%. However, their claims were not even admitted and were also related parties and thus, the whole process before CoC has got vitiated. In view of the extraordinary facts of the present matter and the disputes being raised by so many workers through the Appellants, the interest of justice requires certain directions to do justice in the matter. The impugned order dated 7th February 2020 was passed within 184 days of the petition being admitted on 7th August, 2019. The Application under Section 33 of the IBC appears to have been filed on 17th December, 2019. It appears in the interest of justice that the time spent before the Adjudicating Authority when the application under Section 33 of the IBC was filed, till now should be excluded from calculating the period under Section 12 (1), (2) & (3) of the IBC. Parties and Corporate Debtor need not suffer for time spent during this period before Adjudicating Authority and  in Appeal, as an effort at Resolution needs to be made. 

# 87. We further observe that the corporate insolvency process in the instant case is totally in disregard of the provision of the Code and Regulations thereunder. The formation of the Committee of Creditors in the instant case is a nullity in the eyes of the law. Since the illegally constituted committee of creditors took the decisions at every stage of CIRP. Therefore, the entire corporate insolvency resolution process of the Corporate Debtor is found to be vitiated. Therefore the impugned order of liquidation passed by the Adjudicating Authority deserves to be set aside. 

# 88. For the reasons mentioned above, we order that:-

• (i) The Company Appeal (AT) (Insolvency) Nos. 348 of 2020 and 720 of 2020 are allowed with the following directions:-

• (a) The impugned order passed in C.A. (I.B.) No. 1748/K.B./2019 and C.A. (I.B.) 57/K.B./2020 in C.P. (I.B.) No 1684/K.B./2018 whereby the Adjudicating Authority directed initiation of liquidation proceedings against the Corporate Debtor- ‘INCAB Industries Limited’ is quashed and set aside. Actions taken pursuant to impugned order are also quashed and set aside and shall not be binding on the corporate debtor. The Original Application under Section 9 of IBC is restored to the file of the Adjudicating Authority (National Company Law Tribunal, Kolkata Bench, Kolkata).

• (b) The Adjudicating Authority is directed to appoint another IRP/ Resolution Professional in place of Respondent No.1- Shashi Agarwal, at the earliest, preferably within seven days (from the list, if any, maintained by the Adjudicating Authority or urgently getting names from IBBI).

• (c) The time spent from the date of earlier filing of the application under Section 33 of the IBC, i.e. 17th December 2019, till date is excluded from the period of CIRP.

• (d) Respondent No.1- Shashi Agarwal will immediately hand over the complete charge of the Corporate Debtor to the new IRP/ Resolution Professional as the Adjudicating Authority may appoint.

• (e) The new IRP/ Resolution Professional will collate all the claims submitted by Creditors before the earlier IRP/ Resolution Professional and, depending on the claims admitted from CoC excluding ‘Kamla Mills Private Limited’ and ‘Fasqua Investment Private Limited’ and proceed further with the CIRP.

• (f) Parties to appear before Adjudicating Authority on 09th June 2021.

• (g) Copy of the present order may be sent to IBBI for further action(s), which may be deemed fit, if any, against the earlier Resolution Professional.

• (h) Appeals are disposed accordingly. No costs.

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