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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 ..... d 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 15 crores in addition to the already forfeited amount of 5 crores, in case it fails to deposit an amount of 50 crores within the three months period, from the date of reversal of the liquidation order. A perusal of Section 29A clause of the I B Code (i) indicates that it disqualifies a person if he has been subject to any of disabilities stated in clauses (a) to (h) of Section 29A in any jurisdiction outside India. In reality, Section 29A (i) will have to be read as a disability which corresponds to Section 29A(f) in view of the antecedent conduct on the part of a person applying as a Resolution Applicant in a jurisdiction outside India - Section 29A(f) and (i) of I B Code speaks of persons prohibited by foreign securities market regulator. It is seen from Section 29A(f) of the Code that if any of the individuals mentioned therein is prohibited by SEBI from either trading in securities are ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 about 8 months from the date of approval of the resolution plan. It is alleged that the secretarial compliance documents/returns have not been filed with the RoC. There has been non-compliance and non-implementation of the approved resolution plan. 5. It is submitted that after due deliberations and pursuant to its meeting held o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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: RESOLVED THAT Regulation 2A of IBBI (Liquidation Process) Regulations, it is hereby approved to contribute the excess of the liquidation costs over the liquid assets of the corporate debtor, as estimated by the liquidator, in proportion to the financial debts owed to the lenders by the Corporate Debtor, and the contributions shall be deposited in a designate escrow account to be opened and maintained in a scheduled b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, 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 the I&B Code, which reads as follows:- "33. (3) Where the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor, any person other than the 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding 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 Professional' had engaged two registered valuers as per Regulation 27 of the regulations to decide the 'Fair Value' and liquidation value of the 'Corporate Debtor' in accordance with Regulation, 35. The date of appointment of the registered valuers was on 17.08.2017 and as per 'Average Valuation' the 'Fair Value' was evaluated at ₹ 390.15 crores and the 'Liquidation Value' of the 'Corporate Debtor' was assessed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 ₹ 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 ₹ 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, control and management of the affairs of the 'Corporate Debtor' was never complied with the 1st Respondent thereby depriving the Appellant(s) from the vesting its control and management upon the 'Corporate Debtor' for its implementation of the 'Resolution Plan'. 12. It is the Appellant(s) plea that they never got an opportunity of being heard and project its grievances before the 'Adjudicating Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. However, we cannot forget that the consequence of the chopper falling in a corporate death. The only a reasonable construction of the Code is the balance to be maintained between timely completion of the 'Corporate Insolvency Resolution Process' and the 'Corporate Debtor' otherwise being put into liquidation. We must not forget that the 'Corporate Debtor' consists of several employees and wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Appellant(s) refers to the decision 'Amritsar Swadeshi Woollen Mills Private Limited' V. 'Vinod Krishan Khanna and Ors.' reported in MANU/NL/0127/2019 wherein it is observed that it is a settled law when a matter is before 'NCLT' or before this Appellate Tribunal arising u/s 241 and 242 of new Act read with Rule 11 irrespective of what the parties plead, say or do, the paramount consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tend 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 Creditors' by the 'Resolution Applicant'; v. INR 5 crore of performance security encashed to be kept in a escrow and shall not be used for payment of unpaid CIRP/MC period cost". 23. The Learned Counsel for the Appellant(s) points out that the erstwhile 'Committee of Creditors' Members deliberated on the proposal placed by the representatives of the 'Resolution Applicant' on 25.02.202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 funding from the concerned HNI. 25. The Learned Counsel for the Appellant(s) points out that following were the list of participants as seen from the Minutes of Meeting with erstwhile 'Committee of Creditors' and erstwhile 'Resolution Applicant' that took place on 25.02.2020 and the same is as follows: - Name of Participants Name of Representative Liquidator of Tecpro Sys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 caused the 'Corporate Debtor' a sum of ₹ 5.51 crores due to (which force the client of the 'Corporate Debtor' 'Rashtriya Ispat Nigam Ltd.' to invoke the Bank Guarantee for ₹ 5.51 crores). 31. In so far as the 'opportunity of being heard' not granted to the Appellant, it is the submission of Learned Counsel for the 1st Respondent that the applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st 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 ₹ 14.35 lakhs and the Guarantor has no other source of revenue. • The Guarantor has reserves of ₹ 1.31 crores and total assets of ₹ 1.33 crores. 35. The Learned Counsel for the 1st Respondent submits that the instant Appeal is not maintainable since the Appellant(s) had miserably failed to demonstrate before this Tribunal any instance of material irregularity or fraud in the order of liquidation passed by the 'Adjudicating Authority' and an 'Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 21.17 crores and incurred a loss of ₹ 12.11 crores which indicates that the financial position of the 'Resolution Applicant' that it is not in a fit position to implement the plan. Also, that the 1st Appellant / 'Resolution Applicant' is incapable to bring in the required funds as seen from the documents available on public domain and one more Company controlled by the same group - 'Swee Hong Pvt. Ltd.' which is under restructuring in Singapore which is equivalent to 'Corporate Inso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 paid to the Creditors within the time specified. 48. The Learned Counsel for the 'Liquidator' points out that the 'Cash Flow Details' as per the failed 'Resolution Plan' is as follows:- Amount in Crores Qtr Amount Infused Otherwise Amount Infused through Sale of Assets Total Amount 2 3.61 33.25 37.22 3 4.33 42.75 47.08 4 Nil 28. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19) 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 approval of the resolution plan is by a vote of not less than 75%(as in October, 2017) of voting share of the financial creditors. Conversely, the legislative intent is to uphold the opinion or hypothesis of minority dissenting financial creditors. That must prevail, if is not less than the specified percent (25% in October, 2017; and now after the amendme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .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 decisions in respect of the 'Corporate Debtor' and/or the primary stakeholders to receive the payment from liquidation estate liquidated by the liquidator during liquidation. Therefore, the amendments to the liquidation regulations ensure that the stakeholders' consultation committee is constituted and advise of the 'SCC' is to be considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d.' 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 Plans' submitted by the aforesaid 'Resolution Applicants' in their 6th and 7th meetings and on 30.04.2018 the 'Committee of Creditors' in its 8th meeting dated 30.04.2018 approved the 'Resolution Plan' submitted by 'KIPL' (Now Known as Krish Steel and Trading Private Limited) by a majority vote of 88.39%. 64. As a matter of fact, CA 368 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld 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 the Asset'. 67. Time limit specified in 'I&B' Code is the essence of the triggering process and the Insolvency Resolution Process. This is the prime reason behind the enactment of the Code. If an Adjudicating Authority extends the Insolvency Resolution Process beyond the time line mentioned u/s 12(3) of the code, the same w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation 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 Company or of any creditor or member of the Company or in case of company which is being wound up, of the liquidator under this Act or under IBC as the case may be that a meeting may be called for the proposed compromise or arrangements including debt restructuring etc. between company, its creditors and members. In fact, the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elating 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 ₹ 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 ₹ 15 crores in addition to the already forfeited amount of ₹ 5 crores, in case it fails to deposit an amount of ₹ 50 crores within the three months period, from the date of reversal of the liquidation order. 79. At this stage, it is to be relevantly pointed out that the Liquidator (although not arrayed as one of the parties to the present Appeal) was heard through is counsel and the forceful objection on the side of Liquidator is that the 'Resolution Applicant' through its subsidiaries had defaulted to the Union Bank of India, Hongkon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 that the continuation of liquidation proceedings is prima facie prejudicial to the interests of all the stakeholders and further that the revival / resolution of the 'Corporate Debtor' is indeed, the best possible option, during the ongoing times of COVID 19. In fact, the aforesaid interlocutory application i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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