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TMI Blog2020 (9) TMI 385X X X X Extracts X X X X X X X X Extracts X X X X ..... y ordering liquidation of the 'Corporate Debtor', viz. 'Tecpro Systems Ltd.' in the manner laid down in Chapter III of part II of 'I&B' Code, 2016 and issuing necessary directions thereto. 2. Earlier, the Adjudicating Authority, 'National Company Law Tribunal', Principal Bench, New Delhi while passing the impugned order on 16.01.2020 at paragraph 3 to 12, and at paragraph 15 and 16 had observed the following:- "3. Respondent No. 1 M/s Kridhan Infrastructure Private Limited had submitted an updated Resolution Plan in respect of Corporate Debtor, which was approved by the Committee of Creditors in their 15th CoC meeting held on 08.03.2019 with majority vote of 89.92%. Subsequently the Adjudicating Authority also approved the resolution Plan under Section 31 of the Code vide order dated 15.05.2019. 4. It has been alleged that there has been inordinate delay in implementation of the Resolution Plan, as the successful resolution applicant, M/s Kridhan Infrastructures Private Limited has miserably failed to infuse equity funds as per the terms of the Resolution Plan. Besides the successful resolution applicant has not taken over the control of management even after passage of long a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the fee payable to the Liquidator and support team. (Ey Restructuring LLP) shall be as approved by the erstwhile CoC as follows: Months Fees as a % of Receipts from 0-12 12-24 More than 24 Sale of Fixed Assets 1.00% of the amount realized 0.75% of the amount realized 0.50% of the amount realized Return of live BGs 0.50% of the amount returned Months Fees as a % of Receipts from 0-24 24-60 More than 60 Arbitration proceedings/claim s/projects recovery 1.25 % of the amount realized 1.00% of the amount realize d OPE, GST and other taxes as applicable, is not included in the above fee proposal and will be billed in addition to the above. Fee also does not include cost of any External Advisors such as Legal, Valuation, Bid Process Advisory, etc. basis for the provisions of the Code. Fee also does not include employee salaries (Corporate Office & Project Sites) which are required for maintaining Going Concern status of the Company. Resolution for approval of liquidation costs: RESO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... majority of 99.28% voting share. 9. It is pertinent to refer here the provisions of sub- section (3) of Section 33 of the Insolvency and Bankruptcy Code, 2016 which envisages as follows: "(3) Where the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order as referred to in sub-clauses (i),(ii)and (iii) of clause (b) of sub-section (1)." 10. Hon'ble 'NCLAT' in the case of Yavar Dhala Vs JM Financial Asset Reconstruction Company Ltd. & Ors. in Company Appeal (AT)(Ins) No. 13 of 2019 decided on 08.03.2019 has observed that on failure of the Resolution Applicant to implement the terms of the resolution plan, liquidation has to follow. The relevant findings of the Hon'ble Appellate Tribunal runs as under: "3. In the situation where a Resolution Applicant succeeds as Corporate Debtor but it fails to comply its assurances in terms of the resolution plan what step is to be taken has been already been laid down in Sub-Section (3) of Section 33 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the self-same issue, if so advised". and resultantly partly allowed the Company Application by ordering liquidation of the 'Corporate Debtor' viz. 'Tecpro Systems' in the manner laid down in Chapter III of part II of 'I&B' Code, 2016 by issuing necessary directions like appointing Mr. Ramachandran Subramanian as liquidator (proposed by COC) in terms of Section 34(1) of the Code. Summary of Facts 3. According to the Appellant(s) one of the 'Financial Creditors', viz. 'Edelweiss Asset Reconstruction Company Ltd.' had filed an application u/s 7 of the 'I&B' Code for the initiation of 'Corporate Insolvency Resolution Process' against 'Corporate Debtor', viz. 'Tecpro Systems Ltd.' As a matter of fact, the said application came to be admitted on 07.08.2017, imposing a moratorium u/s 14 of the 'I&B' Code and the 1st Respondent/Mr. Venkatesan Sankaranarayan was appointed as an 'Interim Resolution Professional'. 4. In fact, the 1st Meeting of 'Committee of Creditors' took place on 13.09.2017 wherein Mr. Venkatesan Sankaranarayan, the 'Interim Resolution Professional' was appointed as 'Resolution Professional' in accordance with Section 22(3)(a) of the Code. The 'Resolution Profession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rations of the special purpose vehicle' were to initiate only upon approval of the 'Resolution Plan', execution of all documentation and all regulatory approvals. 10. The version of the Appellant(s) is that by virtue of the order dated 15.05.2019 passed by the Adjudicating Authority, the approval of 'Resolution Plan' would confer the change in the management and ownership of the 'Corporate Debtor' and the control of the 'Corporate Debtor' shall vest with the new Management. Further, the said order had directed the Appellant to submit a performance bank guarantee of an amount of Rs. 5/- crores within 30 days from the date of receipt of order. In due compliance of the order of the Adjudicating Authority ('NCLT'), Principal Bench, New Delhi an amount of Rs. 5/- crores was transferred by the Appellants in favour of the 'Corporate Debtor' which was deposited in an 'Escrow Account'' of the 'Corporate Debtor' which is in control of the Financial Credit Edelweiss. 11. The specific case of the Appellant(s) is that they have duly complied with the conditions to be followed by them, as per order dated 15.05.2019, but the direction in the said order of the vesting of the ownership, contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s interpreted to be wide enough to include 'National Company Law Appellate Tribunal' also and the Hon'ble Supreme Court had observed at paragraph 82 and 83 as under:- "82. One thing that must be made clear at this stage is that one Section 33 speaks of the 'Adjudicating Authority' in sub-section (1) it is referring to both the Adjudicating Authority as well as the Appellate Authority. An Adjudicating Authority may decide in favour of a 'Resolution Plan' which order may then be set aside by the Appellate Authority. This order of the Appellate Authority, setting aside the order of the Adjudicating Authority, would then be the order which rejects the 'Resolution Plan' for the purposes of Section 33. The same would apply to an ultimate order of rejection by the Supreme Court under Section 62. This is on the principle, that, as stated in 'Lachmeshwar Prasad Shukul and Ors.' V. 'Keshwarlal Chaudhury and Ors.' AIR, 1941 FC 5 and followed in our judgements, an appeal is a continuation of the original proceedings'. "83. It is also true that the time taken by a Tribunal should not set at naught the time limits within which the 'Corporate Insolvency Resolution Process' must take place. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal'. 'Committee of Creditors'/'Monitoring Committee'/'Resolution Professional' stand discharged." 18. The Learned Counsel for the Appellant(s) contends that Rule 11 of 'NCLAT' Rules specifically provides wide powers to this Tribunal to pass orders in upholding the principles laid down by the 'Hon'ble Supreme Court' in making all efforts to save the 'Corporate Debtor' from a corporate death of liquidation and in this regard refers to the decision 'Vijaykumar vs. Gopalsamy Ganesh Babu and Ors.' reported in (MANU/NL/0150/2020) whereby and whereunder this Tribunal while invoking the powers under Rule 11 had observed the following: - "7. Considering the object of IBC which is the resolution and that effort should be made to revive the 'Corporate Debtor' rather than to eliminate the same, we find that this is a fit case to revive the 'Corporate Debtor' rather than to eliminate the same, we find that this is a fit case for us to exercise inherent powers under Rule 11 of 'National Company Law Appellate Tribunal Rules, 2016('NCLAT', Rules, 2016-in short) to do justice. It is necessary to set aside the liquidation order as well as the CIRP proceedings". 19. The Learned Counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms Ltd.) from one Mr. Gautam Joginderlal Suri claiming to be the authorized signatory of the 'Kridhan Infrastructure Pvt. Ltd.' (Resolution Applicant/RA) the meeting was called by the liquidator on 25.02.2020 at 'Edelweiss House, Mumbai and discussions took place in the said meeting and that the representatives of the 'Resolution Applicant' inform the erstwhile COC members that they intend to implement the 'Resolution Plan', given a chance by the erstwhile COC members and the plan was presented was under:- "i. RA will infuse equity of INR 15 crore within seven working days from the date of order passed by 'NCLAT' in the appeal filed by RA; ii. Upon infusion of this equity, RA would like to assume 100% control of the operations of the Corporate Debtor by appointing the new Board of Directors; iii. Upfront payment of INR 50 crore to the 'Financial Creditors' will be paid within three months from the date of order passed by the 'NCLAT' in the appeal filed by 'Resolution Applicant'; iv. INR 15 crore of equity infusion will be kept in escrow lien-marked to the representative of erstwhile COC till such time by which the upfront payment of INR 50 crore is paid to the 'Financial Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the liquidator for the payment of unpaid CIRP /MC period costs (incurred prior to liquidation commencement date) which shall be recouped from the upfront funds infused (Rs. 15 crores + Rs. 50 crore) and held in fixed deposit as per order of NCLT; g. All other terms of the approved Resolution Plan remain unchanged and the Resolution Applicant shall strictly adhere to and complied with all other terms and conditions of the approved Resolution Plan." 24. The Learned Counsel for the Appellant(s) submits that the representatives of the 'Resolution Applicant' had confirmed the erstwhile 'Committee of Creditors' that there were no changes to the shareholding pattern, but there were some changes in the 'Directorship' and further that the representatives of the 'Resolution Applicant' had informed the COC members that there would not be any issues on the section 29A compliance check. Besides this, the representatives of the 'Resolution Applicant' had informed the erstwhile COC members that they had secured funding from a High Net Worth Individual (HNI) and that erstwhile COC members had advised the representatives of the 'Resolution Applicant' to share this letter of confirmation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Resolution Plan' by failing to infuse Rs. 15 crores of upfront equity within a week and a payment of Rs. 50 crores within three months thereafter. 29. The Learned Counsel for the 1st Respondent points out that numerous extensions to infuse capital were given and the last one was given on 19.10.2019, when a 5th extension seeking time till 15.11.2019 was sought by the Appellant and further the 1st Appellant or its Representative did not attend the 'Committee of Creditors' meetings or the 'Monitoring Committee's meeting' after 04.10.2019. 30. The Learned Counsel for the 1st Respondent contends that even if it is presumed that the Appellant has source of finances and is permitted by this Tribunal to comply with the terms of the 'Resolution Plan', thus, giving charge of the affairs of the 'Corporate Debtor' to the Appellant, then also, there is no guarantee that the Appellant would not be indulging in the same act that has brought the 'Corporate Debtor' to the current stage and again not fail to comply with the 'Resolution Plan'. Apart from that, the Appellant was part of the management through the representative in the Monitoring Committee whose lack of clarity in decision making has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) committing to infuse equity of Rs. 15 crores along with its associates, towards the source of equity infusion of Rs. 15 crores has been submitted by the Appellant. However, the following points are noteworthy to point out:- * The Guarantor has reported turnover of Rs. 3,38,000/- and a net loss of Rs. 5,455/- for the year ended 31st March, 2019. * The financial status of the guarantor for the last 5 years is as follows:- For the YE Particulars (inINR) 31-Mar-19 31-Mar-18 31-Mar-17 31-Mar-16 31-Mar-15 Total Revenue 5,83,753 4,61,352 14,35,000 6,55,167 9,26,255 Total expenses 4,66,037 3,21,590 13,44,472 4,76,489 8,68,337 Tax expenses 1,23,171 970 23,774 55,213 17,797 Profit/(Loss) After tax (5,455) 1,38,792 66,754 1,23,465 40,021 Total Assets 1,33,06,030 1,32,19,466 1,21,35,673 1,21,59,410 1,19,48,150 Total Liabilities 1,74,060 82,041 37,041 1,27,532 39,737 Equity 1,31,31,970 1,31,37,425 1,20,98,632 1,20,31,878 1,19,08,413 * The Guarantor's highest revenue in its last 5 years is Rs. 14.35 lakhs and the Guarantor has no other source of revenue. * The Guarant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant that decision of the lenders to liquidate the Company after the failure of the Appellant(s) to implement the 'Resolution Plan' despite several opportunities provided to them is an irreversible one. Moreover, the claim of Edelweiss Asset Reconstruction Pvt. Ltd. (one of the lenders) that the Appellant is financially viable is a malafide one and conveniently ignores the huge default of the subsidiaries of the Appellant. 39. The Learned Counsel for the Liquidator points out that the 'Lenders' have no locus-standi before this Tribunal, at this stage, since there is no 'Committee of Creditors' and that the stakeholders 'Consultation Committee' under the Liquidation process, unlike 'Committee of Creditors' under resolution process does not have any power to determine. In fact, such a Committee is formed for consultation only and none of the consultations is binding on the 'Liquidator'. 40. The Learned Counsel for the Liquidator brings it to the notice of this Tribunal that as on 31.03.2020 (quarterly result) the 'Resolution Applicant' had reported a turnover of Rs. 21.17 crores and incurred a loss of Rs. 12.11 crores which indicates that the financial position of the 'Resolution Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch reads "the liquidation process is an irreversible process from within a fixed period after the liquidation order is passed. An appeal to stay the liquidation will not be considered by the Adjudicator". 45. The Learned Counsel for the Liquidator submits that Rule 11 of 'NCLAT' Rules cannot be invoked for setting aside the liquidation order when there is a specific provision under Section 61(4) of the 'I&B' Code. 46. In this connection, the Learned Counsel for the Liquidator contends that 'Inherent Powers' cannot be invoked or utilised in violation of the statutory provisions of the Code and refers to the decision of Hon'ble Supreme Court 'Govt. of Andhra Pradesh' V. 'P. Laxmi Devi (Smt.) 2008 reported in 2008 4 SCC at page 720 wherein it is observed and held that Rules are delegated forms of legislation, hence, the invocation cannot be done in the face of statutory provisions. 47. The Learned Counsel for the Liquidator submits that the upfront payment' which the 'Resolution Applicant' is offering to the Creditors is subjective in nature and, therefore, there is no certainty that the balance amount of 50 crores as promised by the 1st Appellant / 'Resolution Applicant' will be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial wisdom of the 'Approved Resolution Plan' dissecting the present revolution plan by the liquidator or for that matter any authority. In this regard, the Learned Counsel for the Appellant(s) refers to the decision of Hon'ble Supreme Court in Committee of Creditors of 'Essar Steel Ltd.' Vs. 'Satish Kumar Gupta and Others' (reported in MANU/SC/1577/2019) while quoting 'K.Sashidhar' V. 'Indian Overseas Bank and Ors.'(MANU/SC/0189/2019) whereby and whereunder it is observed as follows:- "46. In our view, neither the Adjudicating Authority (NCLT) nor the appellate authority (NCLAT) has been endowed with a jurisdiction to reverse the commercial wisdom of the dissenting financial creditors and that too on the specious ground that it is only an opinion of the minority financial creditors. The fact that substantial or majority percent of financial creditors have accorded approval to the resolution plan would be of no avail, unless approval is by a vote of not less than 75% (after amendment of 2018 w.e.f. 6.6.2018, 66% of voting share of the financial creditors. To put it differently the action of liquidation process postulated in chapter III of the 'I&B' Code is avoidable, only if appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 'Resolution Applicant' does not have any holdings in the Singapore entities as mentioned. In fact, 'Kridhan Infra Limited' is not a subsidiary of the resolution applicant. Lenders' Pleas 56. The Learned Counsel for the Lenders contends that the Members of the erstwhile COC(in exercise of the commercial wisdom) in the meeting held on 25.02.20 and on 24.08.2020 had decided to give an opportunity to the Appellant(s) to implement the Resolution Plan with an object to achieve the value maximization of the assets of the 'Corporate Debtor' and to save it from the death knell of liquidation. In fact, the liquidation is to be only a last resort. 57. The Learned Counsel for the Lenders refers to the decision of 'Hon'ble Supreme Court' 'Swiss Ribbon' Vs. 'Union of India', 2019 (4SCC page 17) wherein it is among other things observed that the code is thus a beneficial legislation which puts the 'Corporate Debtor', back on its feet, not being a recovery legislation for creditors.... 58. The Learned Counsel for the Lenders contends that the intent of the 'I&B' Code is clear to have lenders as a consultative body all through out liquidation process as they are better equipped to take deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the prospect of achieving resolution of the 'Corporate Debtor', when the members of the erstwhile 'Committee of Creditors' have decided to provide the Appellant an opportunity to implement the 'Resolution Plan'. 63. Appraisal At the outset, it is pertinently pointed out by this Tribunal that the 'Corporate Debtor' 'Tecpro Systems Ltd.' was admitted on 07.08.2017 for initiation of 'Corporate Insolvency Resolution Process' based on the application (under Section 7 of the 'I&B' Code) filed by 'Edelweiss Asset Reconstruction Company Ltd.' - one of the 'Financial Creditors' and that the 1st Respondent was appointed as an 'Interim Resolution Professional'. It is evident that the 'Resolution Professional' had received the 'Resolution Plan' from i) 'Kridhan Infrastructure Private Ltd.' (Now Known as Krish Steel and Trading Private Limited) ii) 'Eight Finance Pvt. Ltd.' (EFPL) iii) Employees of the 'Corporate Debtor'. In fact, the 'Resolution Professional' verified the 'Resolution Plan' as per Section 30(2) of the 'I&B' Code and presented the same before the 'Committee of Creditors' for their consideration. The 'Committee of Creditors' after deliberating and discussing the 'Resolution P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50 crores within the period of three months from the date of reversal of liquidation order dated 16.01.2020. Also that on behalf of the Appellant(s) it is fairly submitted that one of the lands owned by the 'Corporate Debtor' which had a market value of INR 5 crore and valued by the registered valuer @ INR 4.25 crores was sold by the Respondent for a consideration of INR 2.63 crores and in respect of the same the Appellant(s) are not claiming any relief. 66. Be it noted, that 'speed' is the essence of the 'I&B' Code. A timely resolution of insolvency can always be preferred and it is improper for a court to stand over a winding up petition presented by a 'Creditor' for a very long and indefinite period of time, as per decision 'Re Boston Timber Fabrication Ltd.' (1984) BCLC 328(CA). In fact, the Legislature had made specific provisions in 'public interest' and to facilitate good 'Corporate governance'. It cannot be forgotten that the 'Bankruptcy Law Reforms Committee' elected certain principles within which 'I&B' Code would function and one such principle is that the 'I&B' code specifies the time bound process, which will not be extended, to better preserve the 'Economic Value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction. Moreover, the failure of some business plan is an integral part of the process of 'market economy'. 71. It is to be pointed out that an administrator is in control of the affairs of the Company and is in a position to offer an independent and detached view of company affairs as per decision 'Re Newport County Association Football Club Ltd.' (1987) BCLC 582(ChD). It is to be remembered that the 'Liquidation Proceedings' cannot proceed incessantly, affecting / damaging the interests of 'stakeholders'. 72. It is significant to point out that pre-occupation of 'I&B' Code with 'timely resolution of insolvency' is an important factor. In so far as 'Liquidation' is concerned it destroys the organisational capital etc. 'I&B' Code allows 'Liquidation' only on failure of 'CIRP' and it facilitates / encourages resolution in several manner. Undoubtedly, a liquidation order shall also be a 'notice of discharge' to the offices, employees and workmen of the 'Corporate Debtor' except when the business of the 'Corporate Debtor' is continued. 73. It is to be pointed out that Section 230 of the Companies Act, 2013 deals with Tribunal's power to make an order on the application of the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction, this Tribunal worth recalls and recollects the decision of Hon'ble Supreme Court in 'Durgesh Sharma' V. 'Jayshree' reported in Air 2009 Supreme Court at page 285 wherein it is observed and held that the inherent power cannot be exercised in contravention or in conflict or ignoring express provision of Law, since law relating to transfer is contained in Section 22 to Section 25 of the Code and they are exhaustive in nature. 78. In the instant case, the 1st Appellant / 'Resolution Applicant' had deposited Rs. 15 crores in the 'Escrow account' was permitted as per order of this Tribunal on 29.07.2020 and further this Tribunal had directed that the said amount so deposited in 'Escrow Account' shall not be appropriated without prior approval of this Tribunal. Also, that the 1st Appellant / 'Resolution Applicant' had averred in the Affidavit in compliance of order dated 18.08.2020 at paragraph 7 that it is agreeable for forfeiture of an amount of Rs. 15 crores in addition to the already forfeited amount of Rs. 5 crores, in case it fails to deposit an amount of Rs. 50 crores within the three months period, from the date of reversal of the liquidation order. 79. At this stage, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were provided to them before the Adjudicating Authority. 83. In so far as the 'stakeholders' consultation committee under the Liquidation process, unlike 'Committee of Creditors' under 'Resolution process' they do not have any power to determine and even their consultation is not binding on the liquidator, in the considered opinion of this Tribunal. 84. No wonder, timely Resolution of 'stressed Asset' is a key factor in the successful functioning of the 'I&B' Code. As regards, the 'Liquidator' he has to act in the interests of the 'collective Body of creditors' and there must be sufficient and adequate grounds must exist before he is removed by the Competent Authority. In so far as the conduct of 'Resolution Professional' is concerned, in terms of Section 27 of the 'I&B' Code, a 'stakeholder' aggrieved by the conduct of 'Resolution Professional' may file a complaint as per IBBI (grievance and complaint handling procedure) Regulation, 2017. 85. In the present Appeal, in an unnumbered interlocutory application (vide Diary No(s). 34419 and 20770 of 2020 dated 23.07.2020) an 'Intervenor' / 'Operational Creditor' (Skyline Engineering Contracts (India) Pvt. Limited has taken a stance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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