2019 (2) TMI 1352 - Tri - Insolvency and Bankruptcy

Initiating Corporate Insolvency Resolution Process - Corporate Debtor liquidation as per provisions of Regulation 32(b) & (e) of the IBBI (Liquidation Process) Regulations, 2016 - HELD THAT - We direct that the Corporate Debtor be liquidated as per provisions of Regulation 32(b) & (e) of the IBBI (Liquidation Process) Regulations, 2016 which provides for assets in a slump sale, the corporate debtor as a going concern, in the manner as laid down in Chapter III under Part II of IBC, 2016. Considering the national importance attached to product line of the company, the customers explicitly Ministry of Defence, Indian Coastguard, Customs etc, order book size, advances paid by various Government Departments, the work in progress stalled at various stages of production and huge number of workforce (around 850 employees) we direct that the Liquidator shall endeavour to sell the Corporate Debtor company as a going concern. Given the conflict of interest of the RP as discussed in detail above, we intend to appoint a new Liquidator. We hereby appoint Mr. Vijay Kumar V Iyer having registration no. IBBI/IPA-001/IP-P00261/2017-18/10490, e-mail id. [email protected] and Ph. No. 9821219493. The RP is directed to handover all the documents/records to the liquidator. The Liquidator shall issue a public notice inviting interested investors from across the globe,in National level newspaper having all India circulation, in all the editions, stating that the Corporate Debtor is in liquidation. The maximum period applicable for trying the sale on a going concern basis of the Corporate Debtor will be only six months from the date of the order. In case the efforts to sell the company as a going concern fails during the stipulated period of six months, then the process of the sale of the assets of the company will be undertaken by the liquidator as prescribed under Chapter- III of IBC, 2016 and the relevant regulations of IBBI. The Designated Registrar is directed to send a copy of this order, to RoC under which this Company is registered. All powers of the Board of Directors, key managerial persons and the partners of the Corporate Debtor shall cease to affect and at this moment vest in the Liquidator. The personnel of the Corporate Debtor are directed to extend all co-operation to the Liquidator as may be required by him in managing the affairs of the Corporate Debtor. This liquidation order shall be deemed to be notice of discharge to the officers, employees and workmen of the Corporate Debtor, except to the extent of the business of the Corporate Debtor is continued during the liquidation process by the Liquidator. We direct the CoC/Resolution Professional for initiation of the process of the sale of the corporate debtor unit as a whole, on a going concern basis, i.e. slump sale, to extract maximum value to the assets of the company which may be in the interest of the company and its employee. Since this liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the Corporate Debtor without prior approval of this Adjudicating Authority save and except as mentioned in sub-section 6 of Section 33 of the IBC.

Summary

Issues Involved:
1. Approval of the Resolution Plan
2. Objections to the Resolution Plan
3. Compliance with Section 30(2) of the Insolvency and Bankruptcy Code (IBC)
4. Conflict of Interest
5. Valuation Discrepancies
6. Treatment of Operational Creditors
7. Treatment of Financial Creditors
8. Treatment of Employees and Workmen
9. Statutory Dues
10. Sale of Company as a Going Concern
11. Liquidation Order and Appointment of Liquidator

Detailed Analysis:

Approval of the Resolution Plan:
The Resolution Professional (RP) filed MA No. 170 seeking approval of the Resolution Plan submitted by Edelweiss Asset Reconstruction Co. Ltd (EARC), which was approved by the Committee of Creditors (CoC) with a vote share of 94.3%. The plan was submitted in response to the Corporate Insolvency Resolution Process (CIRP) initiated against the Corporate Debtor.

Objections to the Resolution Plan:
Several stakeholders, including subsidiary companies, operational creditors, and unsuccessful resolution applicants, filed applications opposing the resolution plan approved by the CoC. They raised issues regarding the transparency of the process, the rejection of other resolution plans, and the conduct of the RP. Specific objections included non-disclosure of details, defects in the process, and lack of information provided for preparing resolution plans.

Compliance with Section 30(2) of the Insolvency and Bankruptcy Code (IBC):
The RP confirmed that the resolution plan complied with Section 30(2) of the IBC, which requires the plan to meet specific criteria. However, the tribunal noted discrepancies, especially regarding the treatment of operational creditors and the proposed payments, which did not align with the requirements of Section 30(2)(b).

Conflict of Interest:
The tribunal highlighted a significant conflict of interest involving the RP, who was a partner at E&Y, which also provided support services during the CIRP. Additionally, E&Y was engaged by EARC, the resolution applicant, creating a situation where the RP's impartiality was questioned. This conflict was further compounded by the delegation of RP's duties to another partner from E&Y.

Valuation Discrepancies:
The tribunal observed discrepancies in the valuation reports submitted by different valuers, leading to a significant difference in the estimated liquidation values. The average liquidation value considered by the CoC was ?536 crores, while a more accurate average should have been ?761.50 crores. These discrepancies raised concerns about the accuracy and reliability of the valuation process.

Treatment of Operational Creditors:
The resolution plan proposed a payment of ?9 crores to operational creditors against admitted dues of ?187 crores, which amounted to only 4.81% of their dues. The tribunal noted that this treatment was not in compliance with the IBC's requirement to provide operational creditors with an amount not less than what they would receive in liquidation.

Treatment of Financial Creditors:
Financial creditors with admitted dues of ?11,373 crores were to receive ?1,124 crores in a phased manner, with a significant portion being converted into equity or deferred payments. The tribunal found the proposed haircut of 96.5% and the ambiguous payment schedule to be against the interests of financial creditors.

Treatment of Employees and Workmen:
The resolution plan proposed "right-sizing" the workforce without complying with labor laws, which was vehemently opposed by employees, workmen, and suspended directors. The tribunal found this approach to be inappropriate and prejudicial to the existing employees and workmen.

Statutory Dues:
The plan proposed issuing equity shares to the Government of India for settling statutory dues amounting to ?270 crores, which was not permissible under the law. The tribunal noted that this proposal was an attempt to evade liability and was not acceptable to the concerned departments.

Sale of Company as a Going Concern:
Given the national importance of the company's operations, the tribunal directed the liquidator to attempt to sell the company as a going concern. The tribunal emphasized the need to preserve the company's value, employment, and ongoing contracts with government departments.

Liquidation Order and Appointment of Liquidator:
The tribunal rejected the resolution plan under Section 31(2) of the IBC and ordered the liquidation of the Corporate Debtor under Regulation 32(b) & (e) of the IBBI (Liquidation Process) Regulations, 2016. A new liquidator, Mr. Vijay Kumar V Iyer, was appointed to oversee the liquidation process and attempt to sell the company as a going concern within six months.

Conclusion:
The tribunal's judgment highlights the importance of transparency, compliance with legal requirements, and the need to balance the interests of all stakeholders in the resolution process. The rejection of the resolution plan and the order for liquidation underscore the tribunal's commitment to ensuring a fair and just insolvency resolution process.