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TMI Blog2021 (1) TMI 978X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Interest published, the RP, at the instance of the CoC, obtained liquidation order from this Bench. During liquidation, upon publication of E-Auction notice to sell the corporate Debtor as going-concern, the aforesaid person purchased the asset at the rate mentioned above. For the company was sold as going concern, now the liquidator is before this Bench seeking for closure of the liquidation process so that highest bidder, along with another will become directors, paid up capital shall stand reduced to Rs. 4.50 Crores divided into 45,00,00 shares of Rs. 10 each and balance consideration of Rs. 1,99,737 to be treated as unsecured loan. That the redrawn share capital, reserves and share premium, if any, to form balance sheet, shall be in compliance with other provisions of the Companies Act and other applicable laws to properly represent the purchase consideration after nullifying the debit balance of profit and Loss account from the present capital and reserves. 2. For us, this whole process has become mind boggling. We don't know where this arrangement has come from; one thing is for sure it is not compatible with the structural arrangement given under the Companies Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be dissolved from the date of that order and the corporate debtor shall be dissolved accordingly. (3) A copy of an order under sub-section (2) shall within seven days from the date of such order, be forwarded to the authority with which me corporate debtor is registered." 4. By looking at this argument and section 54, it is clear that the mandate u/s 54 is to terminate the life of corporate debtors by dissolving them after liquidation of their assets. As against this statutory mandate, can IBBI pass Regulations directing dispensation of operation of section 54 by devising a concept not present in the Code, stating that to maximize the value of the Corporate Debtor the liquidator may sell the corporate debtor as a going concern or business of the corporate debtor as a going concern and close the liquidation process with the approval of this Adjudicating Authority bypassing dissolution mandate u/s 54? If it is selling business of the corporate debtor, we may not call for scrutiny of the Regulations because business will remain tied up with undertaking. But selling of a company is not envisaged either under IBC or in corporate jurisprudence. It is unknown to law and beyond the disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is Authority is not governed by IBBI, and it is governed by the Code. The Code in section 54 says after completion of liquidation process, the Corporate Debtor shall be dissolved. We must with full responsibility state that so long as Regulations are in conformity with the provisions of the Code, and for implementation of the Code as stated in section 240 (1), this Authority will approve those actions. Now the Regulations not being in conformity with the Code, we must necessarily deal with the issue to come out of this tussle. 9. Before getting into this wrangle, we shall first put it to ourselves as to whether this Adjudicating Authority/Tribunal has competency to deal with this conflict, when IBBI conferred with Regulating Power under the same enactment has regulated liquidation process in a clear mandate (Regulation 45(3)(a)) that the liquidator shall submit an application before this Authority along with final report for closure of liquidation where the corporate debtor is sold as a going concern. But aforesaid regulation is repugnant to the mandate u/s 54, because after liquidation of the assets of the corporate debtor, an application shall be filed for dissolution of the cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to remember is, it is for supplementation, not for supplantation. 14. To know what the relevant statutory provisions are saying, we shall reproduce all those provisions, which are as follows: 'Section 196 Powers and Functions of the Board 196. (1) The Board shall subject to the general direction of the Central Government, perform all or any of the following functions namely:- (a) register insolvency professional agencies, insolvency professionals and information utilities and renew, withdraw, suspend or cancel such registrations; (aa) promote the development of, and regulate, the working and practices of, insolvency professionals, insolvency professional agencies and information utilities and other institutions, in furtherance of the purposes of this Code; (b) specify the minimum eligibility requirements for registration of insolvency professional agencies, insolvency professionals and information utilities; (c) levy fee or other charges for carrying out the purposes of this Code, including fee for registration and renewal of insolvency professional agencies, insolvency professionals and information utilities; (d) specify by regulations standards for the function ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of any regulations; (t) make regulations and guidelines on matters relating to insolvency and bankruptcy as may he required under this Code, including mechanism for time bound disposal of the assets of the corporate debtor or debtor; and (u) perform such other functions as may be prescribed. (2) The Board may make model bye-laws to be to adopted by insolvency professional agencies which may provide for- (a) the minimum standards of professional competence of the members of insolvency professional agencies; (b) the standards for professional and ethical conduct of the members of insolvency professional agencies; (c) requirements for enrolment of persons as members of insolvency professional agencies which shall be non-discriminatory; Explanation.-For the purposes of this clause, the term "non-discriminatory" means lack of discrimination on the grounds of religion, caste, gender or place of birth and such other grounds as may be specified; (d) the manner of granting membership; (e) setting up of a governing board for internal governance and management of insolvency professional agency in accordance with the regulations specified by the Board; (f) the informati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under sub-clause (a) of clause (9) of section 3; (b) the persons to whom access to information stored with the information utility may be provided under sub-clause (d) of clause (9) of section 3; (c) the other information under sub-clause (f) of clause (13) of section 3; (d) the other costs under clause (e) of sub-section (13) of section 5; (e) the cost incurred by the liquidator during the period of liquidation which shall be liquidation cost under sub-section (16) of section 5; (f) the other record or evidence of default under clause (a), and any other information under clause (c), of sub-section (3) of section 7; [(g) * * * ] (h) the period under clause (a) of sub-section (3) of section 10; (i) the supply of essential goods or services to the corporate debtor under sub-section (2) of section 14; [(ia) circumstances in which supply of critical goods or services may be terminated, suspended or interrupted during the period of moratorium under sub-section (2A) of section 14;] (j) the manner of making public announcement under sub-section (2) of section 15; 3 [(ja) the last date for submission of claims under clause (c) of sub-section (1) of section 15;] (k) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the assets and property of the corporate debtor under clause (c), the manner of selling property in parcels under clause (f), the manner of reporting progress of the liquidation process under clause (n), and the other functions to be performed under clause (o), of sub-section (1) of section 35; (z) the manner of making the records available to other stakeholders under sub-section (2) of section 35; (za) the other means under clause (a) of sub-section (3) of section 36; (zb) the other assets under clause (e) of sub-section (4) of section 36; (zc) the other source under clause (g) of sub-section (1) of section 37; (zd) the manner of providing financial information relating to the corporate debtor under sub-section (2) of section 37; (ze) the form, the manner and the supporting documents to be submitted by operational creditor to prove the claim under sub-section (3) of section 38; (zf) the time within which the liquidator shall verify the claims under sub-section (1) of section 39; (zg) the manner of determining the value of claims under section 41; (zh) the manner of relinquishing security interest to the liquidation estate and receiving proceeds from the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 201; (zzb) the manner of renewal of the certificate of registration and the fee therefor, under sub-section (4) of section 201; (zzc) the other ground under clause (d) of sub-section (5) of section 201; (zzd) the form of appeal to the National Company Law Appellate Tribunal, the period within which it shall be filed under section 202; (zze) the other information under clause (g) of section 204; (zzf) the other grounds under Explanation to section 196; (zzg) the setting up of a governing board for its internal governance and management under clause (e), the curriculum under clause (l), the manner of conducting examination under clause (m), of section 196; (zzh) the time within which, the manner in which, and the fee for registration of 148 insolvency professional under sub-section (1) of section 207; (zzi) the categories of professionals or persons, the qualifications and experience and the fields under sub-section (2) of section 207; (zzj) the manner and the conditions subject to which the insolvency professional shall perform his function under clause (f) of sub-section (2) of section 208; (zzk) the farm and manner in which, and the fee for registration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-section 2) to regulate the areas mentioned in sub-section-2. If section 240 (2) regulating powers are read along with other provisions of the Code, it is evident that in whichever Section it has been mentioned as "as specified by the Board or in such manner as may be specified or prescribed", over those sections alone, regulating power is conferred upon IBBI in sub-section 2 of section 240. 16. Of course implicit overriding effect is given in section 240 (1) of the Code stating that regulating power over particular sections will not cause prejudice to the general regulating power of sub-section 1, which is as follows: "(1). The Board may, by notification, make regulations consistent with this Code and the rules made there under, to carry out the provisions of this Code" 17. By reading this sub section, it is understandable that IBBI is given discretion to notify regulations. But those regulations are qualified by later-part of the sub-section above. 18. Those regulations shall be not only consistent with the Code but shall also be consistent with Rules issued u/s 239. So these Regulations shall be subordinate and supplemental to the Code as well as Rules. 19. The purpose an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (2) of Section 29 are indicative of the heads under which the statutory framework should ordinarily be worked out. ** ** ** 43. The submission of Mr. Iyer that there exists a distinction between carrying out the provisions of the Act and the purpose of the Act, is not relevant for our purpose. The power of delegated legislation cannot be exercised for the purpose of framing a new policy. The power can be exercised only to give effect to the provisions of the Act and not dehors the same. While considering the carrying out of the provisions of the Act, the court must see to it that the rule framed therefore is in conformity with the provisions thereof. ** ** ** 46. In Hotel Balaji and Others v. State of A.P. and Others [1993 Supp (4) SCC 536], whereupon Mr. Iyer placed reliance, it is stated: "The necessity and significance of the delegated legislation is well accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the corporate debtor and under clause (u), IBBI can perform such other functions as specified in the section. In this clause (t), whatever mechanism framed for sale of assets shall be as required under the Code, in this clause the word "corporate debtor" related to liquidation, the word "debtor" related to bankruptcy. The manner of sale of assets cannot be misunderstood that corporate Debtor could also be sold in addition to sale of assets of the Corporate Debtor. 26. With regard to present relief asked for closure of liquidation process skipping dissolution, under section 35 (powers and duties of the liquidator) of the Code, in clause (c) and (f), the liquidator will evaluate the assets and sell the assets as directed by IBBI. The jurisdiction given to the liquidator and regulating power to IBBI is limited as to how to assess the assets and the manner of selling the assets. What is to be sold here is assets, selling as a going concern means the assets on 'as is where is basis', may be the unit in functioning condition. The discretion to the liquidator and IBBI Regulating power is confined to sell the assets, not the Corporate Debtor. 27. In section 240 (2) (y) also, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be only relating to realization of assets alone. Initially when these Regulations came into existence in the year 2016, heading to Regulation 32 was rightly given as Manner of Sale; it is right because IBBI can only decide the manner of sale of assets. But by amendment on 22-10-2018, the heading Manner of sale has become Sale of assets. May be realizing the incongruity lying in this Regulation to sell the corporate debtor as well, to reconcile heading with items for sale, IBBI changed it to sale of assets. To bring it in sync with the concept of sale set out in Regulation 32, Regulation 32A has brought into existence on 25-7-2019 with heading "Sale as a going concern", which is as follows: [32A. Sale as a going concern. (Inserted on 25-07-2019) (1) Where the committee of creditors has recommended sale under clause (e) or (f) of regulation 32 or where the liquidator is of the opinion that sale under clause (e) or (f) of regulation 32 shall maximize the value of the corporate debtor, he shall endeavor to first sell under the said clauses. (2) For the purpose of sale under sub-regulation (1), the group of assets and liabilities of the corporate debtor, as identified by the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he resolution professional shall submit the recommendation of the committee under sub-regulations (1) and (2) to the Adjudicating Authority while filing the approval or decision of the committee under section 30 or 33, as the case may be.". 32. On reading this CIRP Regulation, it appears at the outset, an effort has been strenuously made to rewrite IBC without amendment to the Code - the reasons for saying so is - 1. Foremost hurdle is, this Regulation is a new concept not backed by any provision of law in IBC. The Regulating Authority cannot stretch its muscle beyond its strength, if it does so, it is exercising jurisdiction not contemplated under IBC. No mention about this arrangement either in section 28 or section 30 or any other section of the Code. 2. The CIRP process is separate and the liquidation process is separate. Separate yardsticks have been set up by the Code. 3. How CoC, which would not remain in existence after liquidation order, will issue its dictum to be followed without any other recourse to the liquidator despite liquidator is to act independently during liquidation process. 4. CoC has not been endowed with powers to give mandate over the progress of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as- a going concern? If this is permitted, tomorrow somebody may suggest something else. Where is the end for it? It is a policy decision - which cannot be taken by IBBI particularly when no such concept is contemplated under the Code and more particularly when section explicitly given a mandate for dissolution. 11. In most of the cases, these companies remain as going concerns on the records of RoC, but if ground situation is taken into account, these companies are gone cases, companies where only two computers, or companies with one landed property. Not really any business, except in a few companies. 12. The benefit in these liquidation cases mostly go to the buyer, because real value of the asset will not come out, only distress value will come out in the form of liquidation value, this value in most cases will be far less than real market value or entrepreneur value. 13. Today what is the yardstick to categorize which corporate debtor is a going concern and which one is not a going concern? 14. Let us assume purchaser come forward to take the corporate debtor as going concern for a value less than liquidation value, as per this Regulation unless the liquidator has fail ..... X X X X Extracts X X X X X X X X Extracts X X X X
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