9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (2) TMI 305 - AT - Insolvency and BankruptcyLiquidation of Corporate Debtor - no chances of revival of the Corporate Debtor - CoC are related parties in terms of proviso to Section 21(2) of the Insolvency and Bankruptcy Code 2016 or not - assignment of debt - violation of Section 5 of the SARFAESI Act 2002 and Factoring Regulation Act 2011 - constitution of CoC based on submission of claims only - no verification, or admission or rejection of claims. 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? - HELD THAT - Section 5(24) (f) of the Insolvency and Bankruptcy Code 2016 clearly defines related Party in relation to Corporate Debtor that includes anybody corporate whose Board of directors, managing Director or manager, in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager of the corporate debtor - In the instant case undisputedly, Mr Ramesh Ghamanndiram Gowani had a substantial shareholding of 99.74% in Financial Creditor Kamla Mills private limited. He is also Director and Shareholder of the Financial Creditor Fasqua Investment Private Limited. It is also on record that Mr Ramesh Ghamanndiram Gowani, who was in the proposed AGM Dt. 3rd March 2018 seeking the re-appointment, resigned from the Corporate Debtor's Board with effect from 20th November 2019, i.e. much after initiation of the Corporate Insolvency Process against the Corporate Debtor Incab Industries Limited. 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.' Whether assignment of debt in violation of Section 5 of the SARFAESI Act 2002 and Factoring Regulation Act 2011 is valid? - HELD 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. Whether IRP/RP can constitute CoC based on submission of claims only, without verifying and admitting or rejecting the claims? - HELD THAT - Based on the minutes of all the five 'COC' meetings, it is crystal clear that entire CIRP proceedings were conducted completed even without any valuation of the Corporate Debtor. In all the COC meetings, it was informed that no records are available and suspended directors are not cooperating. The Interim Resolution Professional has constituted the Committee of Creditors even without admitting the claims. The Committee of Creditors has been formed based on claims submitted - There was no publication of Form 'G' for inviting expression of interest. One of the Financial Creditors objected to the participation of Financial Creditors, Kamla Mills Ltd and Fasqua Investment Private Limited, as they are related parties. However, this objection was overruled by the Adjudicating Authority while he was issuing directions to the suspended Director to extend cooperation to the IRP for submission of records of the Corporate Debtor. In the instant case, it is found 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 - it is crystal clear that entire CIRP proceedings were conducted completed even without any valuation of the Corporate Debtor. In all the COC meetings, it was informed that no records are available and suspended directors are not cooperating. The Interim Resolution Professional has constituted the Committee of Creditors even without admitting the claims. The Committee of Creditors has been formed based on claims submitted. 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 - 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 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 - 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. The Adjudicating Authority directed initiation of liquidation proceedings against the Corporate Debtor- INCAB Industries Limited is quashed and set aside - Original Application under Section 9 of IBC is restored to the file of the Adjudicating Authority (National Company Law Tribunal, Kolkata Bench, Kolkata) - Appeal allowed.
Issues Involved:
1. Whether 'Kamla Mills Private Limited' and 'Fasqua Investment Private Limited' 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? Issue-Wise Analysis: 1. Related Parties in CoC: The primary issue was whether 'Kamla Mills Private Limited' and 'Fasqua Investment Private Limited' were related parties to the Corporate Debtor, which would affect their participation in the Committee of Creditors (CoC). The Appellant contended that these entities were related parties as Mr. Ramesh Ghamandiram Gowani, who had substantial shareholding and directorship in both companies, was also a Director of the Corporate Debtor until the commencement of the CIRP. The Respondent argued that Mr. Gowani's directorship was invalidated by a High Court order and his resignation was merely a corrective measure. The Tribunal found that Mr. Gowani was indeed a Director of the Corporate Debtor until his resignation on 20th November 2019, thus making 'Kamla Mills Private Limited' and 'Fasqua Investment Private Limited' related parties. Consequently, their inclusion in the CoC was invalid, and they should not have had the right to represent, participate, or vote in the CoC meetings. 2. Validity of Debt Assignment: The Appellant questioned the validity of the debt assignment to 'Kamla Mills Ltd' under Section 5 of the SARFAESI Act 2002 and the Factoring Regulation Act 2011, arguing that Kamla Mills Ltd was not an eligible party for such an assignment. The Respondent countered that the assignment was valid under the Transfer of Property Act, 1882, and that the SARFAESI Act did not apply to proceedings under the Insolvency and Bankruptcy Code 2016. The Tribunal concluded that the assignment's validity could not be questioned in this case as the parties to the assignment deed were not made parties either before the Adjudicating Authority or the Appellate Tribunal. 3. Constitution of CoC Without Verification: The Tribunal examined whether the Interim Resolution Professional (IRP) could constitute the CoC based solely on the submission of claims without verifying and admitting or rejecting them. The Appellant argued that the IRP formed the CoC and assigned voting shares without verifying the claims, which was against the statutory provisions. The Tribunal found that the IRP/RP had indeed formed the CoC based on unverified claims, violating Regulation 12(3) of the CIRP Regulations. The Tribunal noted that the entire CIRP was conducted without proper valuation, preparation of an Information Memorandum, or publication of Form 'G' for inviting expressions of interest. The Tribunal concluded that the Constitution of the CoC was a nullity in the eyes of the law, vitiating the entire CIRP process. Conclusion and Orders: The Tribunal set aside the liquidation order passed by the Adjudicating Authority, directed the appointment of a new IRP/Resolution Professional, and excluded the time spent from the date of the application under Section 33 of the IBC till the date of the Tribunal's order from the CIRP period. The Tribunal also directed the new IRP/Resolution Professional to collate all claims and proceed with the CIRP, excluding the related parties 'Kamla Mills Private Limited' and 'Fasqua Investment Private Limited' from the CoC. The Tribunal emphasized the need for strict adherence to the statutory provisions of the Insolvency and Bankruptcy Code and Regulations.
|
