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2024 (2) TMI 568 - AT - Insolvency and BankruptcyDirection for termination of CIRP from the stage of Second EOI and replacement of the RP, Sandeep Khaitan and appointment of new RP, Amit Pareek - seeking direction for re-examination and reverification of the claim of the Financial Creditor - terminating the CIRP from Second EOI and replacement of RP - bone of contention between the parties is regarding the quantum of claim submitted by the Financial Creditor and verified and admitted by the RP - HELD THAT - The present is a case where the Financial Creditor has initiated proceedings against the Corporate Debtor after 18 years of invoking the guarantee. Guarantee was invoked on 03.12.2001 and Section 7 Application was filed on 12.03.2019. It is also relevant to notice that Corporate Debtor was in BIFR and it came out of BIFR only on 30.11.2016 and after 20.10.2017, it started earning profit. The Corporate Debtor was MSME and was running for last 54 years and it collapsed after initiation of CIRP by the Financial Creditor. The Financial Creditor was proceeding to recover its dues from Principal Borrower and after one time settlement dated 30.04.2005, the Principal Borrower sold its immovable properties to pay its dues under the Negotiated Settlement and it paid Rs.92.24 lakhs. The proceeding under which the Principal Borrower was selling its assets and repaying its dues was got interrupted by the Financial Creditor itself by filing an Application and obtaining an order dated 09.09.2011 from DRT. Further, the Financial Creditor did not prosecute further proceedings, even after restraining the Principal Borrower to sale its assets. Ultimately, DRT has adjourned the proceedings sine-die on 16.11.2018 as noted above. Thus, it was due to its own reasons, the Financial Creditor interdicted the proceedings of sale the immovable assets of the Principal Borrower and stopped the midway, due to which the Principal Borrower could not further sell its immovable properties further and clear the entire debt. Filing of Section 7 Application by the Financial Creditor against the Corporate Debtor is nothing but steps towards recovery of dues of the Financial Creditor and not for any insolvency resolution of the Corporate Debtor. The Corporate Debtor after coming out from the BIFR has recovered from its insolvency and started earning profit, which has been noticed by Adjudicating Authority in the order dated 08.04.2022 in IA No.43 of 2021. The facts of the present case and sequence of events clearly indicate that Section 7 Application was nothing but proceedings to recover the dues and was not for any purpose of insolvency resolution of the Corporate Debtor. The present was a fist case where powers under Section 65 of the IBC were to be exercised and proceedings of CIRP required to be closed against the Corporate Debtor. However, in view of the orders passed by this Tribunal, under which the proceedings of CIRP proceeded too far, it is desisted from passing any such order and the CIRP be completed as per the directions issued by the Adjudicating Authority. There is no merit in Company Appeal which deserves to be dismissed and is hereby dismissed. Removal of respondent no.2 as the Resolution Professional - order made setting aside all acts of the RP in which the RP had been instrumental, as unfair, biased, motivated and lacking in transparency - removing the respondent no. 3 in the matter - disqualification of respondent no.4 as a Resolution Applicant - HELD THAT - The Respondent No.5 always appeared for Financial Creditor, which was clearly stated before the Adjudicating Authority. Respondent No.4/ PLBB was fully eligible to submits its Resolution Plan. The mere fact that it was incorporated subsequently, i.e. on 20.07.2020, does not have any effect on its eligibility, since it was mentioned in the Application that Respondent No.4 is in the process of incorporation. The allegation that Respondent No.2 and the CoC rollout second EOI to give backdoor entry to Respondent No.4 is wholly incorrect. The second Form-G was issued since no Resolution Plan was received in pursuance to first EOI. Even the Promoter/ Director did not file any Resolution Plan. The second Form-G was issued to fulfill the object of maximization of value of the Corporate Debtor. It is further incorrect to suggest that the RP and CoC permitted Respondent No.4 to modify the Resolution Plan from time to time. Only change made by Respondent No.4 was to increase the CIRP cost. Side-byside perusal of the Resolution Plan would show that Resolution Plan of Respondent No.4 was better than Plan of Promoter/ Director. More so, it was the commercial wisdom of CoC to approve the Resolution Plan, the Promoter Director cannot seek any direction that CoC should approve the Plan of Promoter/ Director. The approval of Resolution Plan by the CoC cannot be questioned before the Adjudicating Authority, which is a settled law - The allegation made by Promoter/ Director against the RP were all unfounded and complaints were filed before the IBBI, which complaints were closed. The allegation that family of Respondent No.2 is in the business of Plywood is not correct. The father of Respondent No.2 was small retail trader of Plywood. The Adjudicating Authority could not have passed an order removing the RP. The RP can be removed only in accordance with Section 27 of the Code. When the statute provides for a thing to be done in a particular way, it must be done in that manner alone, or not at all. The allegations of collusion against Respondent No.2 are all incorrect. There can be no doubt to the scheme of the Code for removal of the RP by the CoC which has to pass a Resolution. The Adjudicating Authority, who has appointed the RP cannot be said to lack jurisdiction to take a decision to replace the RP, when the facts and circumstances of a particular case warrants. In the present case, where serious allegations were made against the RP, regarding not conducting the CIRP transparently, the Adjudicating Authority did not lack jurisdiction to pass an order for replacement of the RP. The observations made against RP be not treated regarding integrity of RP and the observations will be confined and treated as observation for the purpose of case only and the said observations shall not be made basis for initiating any proceedings against RP in any Forum. The order of Adjudicating Authority to the extent it terminates the CIRP from the stage of Second EOI as well as replacement of the RP is upheld - adverse observations made by the Adjudicating Authority against Respondent No.5 in the impugned order, i.e., Counsel who was appearing for Financial Creditor are deleted - Observations made by the Adjudicating Authority against the RP shall not to be treated as adverse to the integrity of RP and not be made basis for initiating any proceeding or action against the RP in any Forum - The new RP, who has been appointed under the impugned order shall conclude the entire CIRP process within 90 days from today, under the supervision and control of Committee of Creditors. Preferential, undervalued and fraudulent transactions undertaken by suspended Director of the Corporate Debtor - Section 43, 45, 49, 44, 48 and 66 of the IBC - Contention raised by Suspended Director that transactions referred to in the Application were taken in ordinary course of business or transfer/ sales made for securing new value of the CD, has been accepted. Aggrieved by the said order, RP as well as Financial Creditor has come up in this Appeal - HELD THAT - It is clear that Adjudicating Authority has only recorded its conclusion, paragraphs-13 and 15 cannot be said to contain any reason, on the basis of which the Application was rejected. The conclusion in an order has to follow the reasons for coming to the conclusion. Both the parties have elaborately made their submissions and referred to the various materials in support of their respective submissions. The Adjudicating Authority ought to have adverted to them and thereafter should have recorded its reasons and conclusion. There are substance in the Appellant s submission that order of the Adjudicating Authority does not contain any reason for coming to the conclusions. In the facts of the present case, ends of justice will be served in setting aside the order dated 07.10.2021 and remitting the matter before the Adjudicating Authority for deciding IA No.51 of 2020 afresh. The new RP, who has now been appointed by subsequent order dated 08.04.2022, as noticed above, shall take steps for early disposal of IA No.51 of 2020. Appeal disposed off.
Issues Involved:
1. Challenge to the order dated 07.10.2021 in IA No.51 of 2020. 2. Challenge to the order dated 08.04.2022 in IA No.27 of 2021. 3. Challenge to the order dated 08.04.2022 in IA No.43 of 2021. Summary: Issue 1: Challenge to the order dated 07.10.2021 in IA No.51 of 2020 The RP filed IA No.51 of 2020 alleging preferential, undervalued, and fraudulent transactions by the suspended Director of the Corporate Debtor. The Adjudicating Authority rejected the application, concluding that the transactions were undertaken in the ordinary course of business. The Appellate Tribunal found that the Adjudicating Authority's order lacked detailed reasoning and remitted the matter back to the Adjudicating Authority for fresh consideration. Issue 2: Challenge to the order dated 08.04.2022 in IA No.27 of 2021 The Financial Creditor, SASF, filed an appeal against the order directing the RP to reverify the claim of Rs.16.12 Crores. The Appellate Tribunal upheld the Adjudicating Authority's order, noting that the RP had admitted an inflated claim and failed to correct it despite directions. The Tribunal emphasized that the erroneous admission of the claim had a significant impact on the CIRP, affecting the voting share and decision-making in the CoC. Issue 3: Challenge to the order dated 08.04.2022 in IA No.43 of 2021 The appeals challenged the order terminating the CIRP from the stage of the second EOI and replacing the RP. The Appellate Tribunal upheld the Adjudicating Authority's decision, citing lack of transparency, conflict of interest, and non-compliance with the provisions of the IBC. The Tribunal found that the process was tainted from the stage of the second EOI and that the RP had not conducted the CIRP fairly. The Tribunal also noted that the inflated claim of the Financial Creditor had a detrimental effect on the CIRP. Conclusion: 1. The order dated 07.10.2021 in IA No.51 of 2020 is set aside and remitted for fresh consideration. 2. The order dated 08.04.2022 in IA No.27 of 2021 is upheld. 3. The order dated 08.04.2022 in IA No.43 of 2021 is upheld, with the CIRP to be concluded within 90 days under the new RP. The adverse observations against Respondent No.5 are deleted, and the observations against the RP are not to be treated as adverse to the RP's integrity.
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