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2020 (5) TMI 709 - Tri - Insolvency and BankruptcyApproval of closure of liquidation process of K.T.C. Foods Pvt. Ltd. - Regulation 45 (3)(a) read with Regulation 32A and 33(1) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (Liquidation Process Regulations 2016) - HELD THAT - In the present case, the application is filed under Regulation 45(3)(a) read with Regulation 32A and 33(1) of the Liquidation Process Regulations 2016. Regulation 32A relating to selling as a going concern was inserted by the Liquidation Process Amendment Regulations 2019 and inter alia requires the Liquidator to identify and group the assets and liabilities to be sold as a going concern, in consultation with the Consultation Committee. Therefore, the response given in Column 2 Sr. No. 16 does not appear to be correct. In view of the reliance in the application on the Regulations of the Liquidation Process Regulations 2016 as amended by the Liquidation Process Amendment Regulations 2019, Regulation 31A of the Liquidation Process Regulations 2016 as inserted by the Liquidation Process Amendment Regulations 2019 was required to be complied with and stakeholders' Consultation Committee constituted. It is noted that as per Regulation 31A(9), the advice of the Consultation Committee is not binding on the Liquidator and there is a proviso that where the Liquidator takes a decision different from the advice given by the Consultation Committee he shall record the reasons for the same in writing. The sole financial creditor is Oriental Bank of Commerce which has relinquished its security interest all the assets by e-mail dated 05.10.2019. However, there is no representation before us by Oriental Bank of Commerce that the stakeholders' Consultation Committee was not constituted and that this is prejudicial to the interest of Oriental Bank of Commerce. Similar representation has also not been made by any of the operational creditors. Therefore, no adverse inference is being drawn regarding non-constitution of the stakeholders' Consultation Committee. Regulation 44(1) of the Liquidation Process Regulations 2016 is as substituted by the Liquidation Process Amendment Regulations 2019 dated 25.07.2019. It would not be in the interest of justice to keep the liquidation process of the corporate debtor ongoing, till the time the application for avoidance of transactions is finally decided, especially since KTC Foods is not being directed to be dissolved. Thus, even though the amendment of Regulation 44(1) is through the Liquidation Process Amendment Regulations 2019, the same be applied in the present case and notwithstanding the pendency of the Application No. 510/2019, the closure of liquidation process of the corporate debtor be directed. In the application, the Liquidator has prayed for approval of the sale of the corporate debtor as a going concern to Shiv Shakti the highest bidder without any liabilities including contingent liabilities and with immunity from existing litigation if any against the corporate debtor. Reference has been made to Regulation 45 (3)(a) of the Liquidation Process Regulations 2016. Reference is also made to Regulation 32A and 33(1) of the Liquidation Process Regulations 2016. However, none of these provisions provides for any approval by the Tribunal of the sale as a going concern to the highest bidder. Therefore, the directions sought for cannot be granted. In view of the provisions of Section 54 of the Code and Regulations 44 and 45 of the Liquidation Process Regulations 2016, it is directed that since the corporate debtor K.T.C. foods is sold as a going concern, the liquidation process of the corporate debtor K.T.C. Foods Private Limited be closed without dissolution of K.T.C Foods Private Limited and that Application 510/2019 for avoidance of transactions under Chapter III/ VI of Part II of the Code shall continue to be adjudicated upon by the Adjudicating Authority. Application disposed off.
Issues Involved:
1. Approval of the closure of liquidation process. 2. Sale of the corporate debtor as a going concern. 3. Distribution of proceeds from the sale. 4. Pending avoidance application. 5. Claims and liabilities of operational creditors. 6. Compliance with Liquidation Process Regulations. Detailed Analysis: 1. Approval of the Closure of Liquidation Process: The application was filed by the Liquidator to approve the closure of the liquidation process of K.T.C. Foods Pvt. Ltd. under Regulation 45(3)(a) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. The Tribunal noted that the liquidation process commenced on 31.05.2019, and the assets were sold as a going concern to Shiv Shakti Inter Globe Exports Private Limited. The Tribunal directed the closure of the liquidation process without the dissolution of K.T.C. Foods Pvt. Ltd. 2. Sale of the Corporate Debtor as a Going Concern: The Liquidator sold K.T.C. Foods as a going concern through an e-auction, with Shiv Shakti being the highest bidder at ?18,45,86,646/-. The sale notice was issued on 05.11.2019, and the sale was completed on 26.11.2019. The Tribunal noted that Regulation 32(e) allows the sale of the corporate debtor as a going concern, and the closure of the liquidation process was directed without dissolution. 3. Distribution of Proceeds from the Sale: The proceeds from the sale were distributed as per Section 53 of the Insolvency and Bankruptcy Code, 2016. The Tribunal noted that the financial creditor Oriental Bank of Commerce received only 13.17% of the admitted amount, and the operational creditors received no distribution. The Tribunal directed that any amount recovered from the pending avoidance application (CA 510/2019) be distributed to the financial creditors and, if excess, to the operational creditors. 4. Pending Avoidance Application: The Tribunal addressed the issue of whether the liquidation process can be closed pending the avoidance application (CA 510/2019). It was noted that Regulation 44(1) allows the liquidation process to be completed notwithstanding the pendency of any avoidance application. The Tribunal directed the Liquidator to diligently pursue the pending application and that any amount recovered be distributed as per the directions. 5. Claims and Liabilities of Operational Creditors: IA No. 132/2020 was filed by an operational creditor seeking payment of claims from Shiv Shakti, the purchaser of K.T.C. Foods. The Tribunal rejected the application, stating that the purchaser is not liable for claims that accrued before the e-auction date. The Tribunal referenced the judgment in IA No. 1038/2019, which held that the purchaser is relieved of liabilities arising prior to the e-auction date. 6. Compliance with Liquidation Process Regulations: The Tribunal noted the compliance with the Liquidation Process Regulations, 2016. The Liquidator submitted Form H, showing no deviations or non-compliance. The Tribunal highlighted that the stakeholders' Consultation Committee was not constituted due to the commencement date of the liquidation process being before the amendment regulations. However, no adverse inference was drawn as there were no objections from stakeholders. Conclusion: The Tribunal approved the closure of the liquidation process of K.T.C. Foods Pvt. Ltd. without its dissolution. The sale of the corporate debtor as a going concern to Shiv Shakti was acknowledged, and the distribution of proceeds was directed as per Section 53. The pending avoidance application was to be pursued by the Liquidator, and any recovered amount was to be distributed to the financial and operational creditors. The Tribunal also rejected the claims of operational creditors against the purchaser, Shiv Shakti.
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