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TMI Blog2022 (2) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed by the Adjudicating Authority/National Company Law Tribunal, Kolkata Bench, Kolkata in C.A. (I.B.) No. 1748/K.B./2019 and C.A. (I.B.) 57/K.B./2020 in C.P. (I.B.) No 1684/K.B./2018, whereby the Adjudicating Authority/NCLT initiated liquidation proceedings against the Corporate Debtor 'INCAB Industries Limited', wherein the Appellant of Appeal No.348 of 2020 was employed until the date of passing the order of liquidation. Parties original status in the Company Petition represents them in these Appeals for the sake of convenience. Appellants Averment 2. The Corporate Debtor was admitted into the Corporate Insolvency Resolution Process (in short 'CIRP'), vide order dated 7th August 2019, and Respondent No. 1 was appointed as Interim Resolution Professional (IRP) of the Corporate Debtor. 3. Under the invitation of claims by the IRP, the Appellant and thousands of other employees who were employed with the Corporate Debtor submitted their claim, along with other Operational Creditors and Financial Creditors. 4. Subsequently, after forming the Committee of Creditors ('COC'), the resolution was adopted on 5th December 2019 to liquidate the Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed parties of the Corporate Debtor. These two Financial Creditors together constitute the majority of Financial Creditors with a vote share of 77.20%. 7(b). Under Section 5(24)(a) of the Code, a related party , in relation to the corporate debtor, means a director or partner of the corporate debtor or a relative of a director or Companies Act . A related party about the Corporate Debtor (public company) includes a Director of the Corporate Debtor holding more than 2% of the shares capital. Sub-section (f) of 5(24) states that a body corporate whose board of directors, managing director or manager, in the ordinary course of business, acts on the advice, directions or instructions of the individual. 7(c). Given the provisions above, it is found that 'Kamla Mills Private Limited' and 'Fasqua Investment Private Limited' (both members of COC) were related party as Mr Ramesh Ghamandiram Gowani had a substantial shareholding of 99.74% in the Financial Creditor Kamla Mills Ltd and is also a Director and Shareholder of the Financial Creditor 'Fasqua Investment Private Limited'. He was the Director of the Corporate Debtor 'Incab Industries Ltd' t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent No. 1/Liquidator's reply regarding the inclusion of 'Kamla Mills Private Limited' and 'Fasqua Investment Private Limited in the Committee of Creditors. a. Respondent No. 1/Liquidator contends that Mr Ramesh Gowani claims to be a Director of the Corporate Debtor in terms of the Telefax Communication, dated 4th May 2009, passed by the BIFR in case No. 390 of 1999. In terms of the said order of the BIFR, while approving the Corporate Debtor's change in Directors, Mr Ramesh Gahmandiram Gowani was appointed as an Additional Director of the Corporate Debtor. b. Hon'ble High Court of Delhi, in Writ Petition (Civil) No. 3358/2012, passed an order dated 29th April 2013, set aside the said Telefax Communication of BIFR dated 4th May 2009. Since the said Telefax Communication was set aside by the Hon'ble High Court, therefore, Mr Gowani cannot be said to have been appointed and/or continued as such. c. That even if for the sake of arguments, the stand was taken by the Appellant that Mr Ramesh G. Gowani was appointed and continued as an Additional Director of the Corporate Debtor, is taken as correct, in terms of Section 260 of the Companies Act, 1956 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the expression is defined to mean what is set out in sub-clauses (a) to (m). The expression related party is defined in Section 5(24) as follows: 5. (24) related party , in relation to a corporate debtor, means- (a) a Director or partner of the corporate debtor or a relative of a Director or partner of the corporate debtor; (b) a key managerial personnel of the corporate debtor or a relative of a key managerial personnel of the corporate debtor; (c) a limited liability partnership or a partnership firm in which a Director, partner, or manager of the corporate debtor or his relative is a partner; (d) a private company in which a Director, partner or manager of the corporate debtor is a Director and holds along with his relatives, more than two per cent of its share capital; (e) a public company in which a Director, partner or manager of the corporate debtor is a Director and holds along with relatives, more than two per cent of its paid-up share capital; (f) 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 Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act, 2013 for all corporations. The definition of the expression has also been expanded for listed entities by the Securities Exchange Board of India by amendment to the Equity Listing Agreement to include elements mentioned under applicable accounting standards. However, in the present case, we are assessing its definition only under the IBC, which is exhaustive. The purpose of defining the term separately under different statutes is not to avoid inconsistency but because the purpose of each of them is different. Hence, while understanding the meaning of related party in the context of the IBC, it is important to keep in mind that it was defined to ensure that those entities which are related to the corporate debtor can be identified clearly, since their presence can often negatively affect the insolvency process.**** 88. An issue of interpretation in relation to the first proviso of Section 21(2) is whether the disqualification under the proviso would attach to a financial creditor only in praesenti, or if the disqualification also extends to those financial creditors who were related to the corporate debtor at the time of acquiring the debt.**** 103. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was intending to be part of CoC. 12. The Appellant contends that the corporate debtor was operational and could have been revived had the premature liquidation order not passed. It is submitted that IRP/RP should have made every effort to run the Corporate Debtor as a going concern. The liquidation should have been the last resort in the CIR process. However, the Company was sent into liquidation in the instant case without even publishing the Information Memorandum . The fact that the Company was a going concern could be reflected from the facts that the Pune plant of the Corporate Debtor was in production till the year 2016, which could be clear from the Custom Returns filed by the Corporate Debtor before the Central Board of Excise and Customs. (Copy of the Customs Return is at Vol.III pages 482 for 486). 13. The Appellant contends that the liquidator worked 'hand in gloves' with the 'COC' to liquidate the Corporate Debtor. During the 3rd 'COC' meeting, dated 18th October 2019, the IRP, who is also liquidator, was informed by one of the Members of the 'COC', namely 'Pegasus Assets Reconstruction Private Limited', that Mr Gowani, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable. However, the same would be made available on the receipt of the non-disclosure agreement. 17. Respondent No. 1 /Liquidator states that he had proposed and appointed the valuer in the 4th 'COC' meeting and proposed two registered valuers to determine the fair value and liquidation value under Regulation 35 CIRP regulations. In the 4th COC meeting, he circulated the quotation for valuation of assets of the Corporate Debtor he received by email from three Registered Valuers. After careful deliberation on the same concluded that the 'CoC' would confirm the names of the valuation professional after having consultations among themselves within two days. After that, in the 5th CoC meeting, at the time of discussion for status/steps taken, the CoC members present proposed and discussed for liquidation of the corporate debtor. After that, the Adjudicating Authority allowed Application u/s 33 of the Code, and he was appointed as liquidator of the Corporate Debtor. 18. Respondent No. 1 further contends that the Appellant, an erstwhile workman of the Corporate Debtor and Operational Creditor, has no locus to institute the Appeal and question the Creditors' Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consequence as it has already been established that he was never the Director or be deemed to have vacated much before. We further find force in the contention made of of Mr Gowani that such action was taken as a precautionary measure and to update the MCA records, which were pending for updation since 1999 as no meetings of shareholders, i.e. AGM or EGM, have taken place since then. (Verbatim copy) 23. In the above order, the Adjudicating Authority mentions that in the order dated 19th November 2019, it has been held that Mr Ramesh G Gowani has never been a Director of the Company and that order has attained finality. It is pertinent to mention that IRP/RP filed an Application under Section 19(2) of the Insolvency and Bankruptcy Code 2016 for directions to the respondents to give access to the books of account and other statutory records of the Corporate Debtor, provide all information and handover possession of all assets to resolution professional for a smooth implementation of CIRP. The adjudicating authority, while disposing of the said Application C.A. 1453/K.B./2019, made observations; 3. When the matter came up for hearing, representative of one Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Having stated so, we direct the respondents/directors and officers of the Company to provide all necessary documents, information and handover the possession of the assets of the corporate debtor to resolution professional so that CIRP can be completed smoothly and in timely manner---------. (verbatim copy) 24. We find that the Adjudicating Authority's observation is based on its earlier order dated 19th November 2019 about 'Kamla Mills Ltd' and 'Fasqua Investment Private Limited' being not related parties to the corporate debtor, has attained finality. However, the Adjudicating Authority failed to notice that his earlier order contains a stray observation about the Directorship of Mr Ramesh G Gowani in the corporate debtor company. Because it was not an issue in C.A., 1453/K.B./2019 filed under Section 19(2) of the Code. The said Application was filed U/S 19(2) of I B code 2016 by IRP/RP, only on a limited issue involving direction to extend cooperation to the IRP. But it appears that the Adjudicating Authority, instead of deciding the main issue to extend cooperation by the suspended directors of the corporate debtor to the IRP, has travelled be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties are agreed that the telefax communication is set aside as there is no order dated 4th May 2009 passed by the bench as such. It is also specifically stated in the order that the result of this is clearly understood by the parties to mean that the position as existing on 3rd May 2009 would revive as regards the contents of the said telefax communication dated 4th May 2009.****** It is further observed by the Hon'ble High Court that we have consciously not said anything about the merits of the matter because that had the potential for confounding the situation even more . 28. Based on telefax communication dated 4th May 2009 and the Hon'ble High Court order dated 29th April 2013, the position that emerges is that the BIFR never passed such order as stated in telefax communication. 29. The Learned Counsel for the Appellant has placed reliance on the master data of the Corporate Debtor annexed with the appeal paper book as Annexure VI. Photocopy of the master data is as under; 30. The Master data of the Ministry of Corporate Affairs clearly shows that Corporate Debtor 'Incab Industries Limited' was having four directors, and one o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 258 or 259 shall affect any power conferred on the Board of directors by the articles to appoint additional directors: Provided that such additional directors shall hold office only up to the date of the next annual general meeting of the Company: Provided further that the number of the directors and additional directors together shall not exceed the maximum strength fixed for the Board by the articles. 38. The Adjudicating Authority has noted that by implication of Section 260 of the Companies Act 1956, Mr Ramesh Ghamandiram Gowani is deemed to have vacated office, in the event he was found to be Additional Director validly appointed, on 29th September 1999, i.e. much before his resignation on 20th November 2019. 39. The said Finding appears to be incorrect given Section 260 of the Companies Act 1956. Because of the statutory provision, Additional Directors shall hold office only up to the date of the next Annual General Meeting of the Company. The Appellant has filed a copy of the 81st Annual Report of INCAB industries limited, which contain the report from 1st April 1999 to 31st December 1999. Page 7 of this report is the Director's report. Clause 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging corporate debtor on the doors of liquidation cannot be allowed to escape responsibility and liabilities based on provisions of the Companies Act seeking deemed vacation of Director's office. 42. The Adjudicating Authority has observed that Mr Ramesh Ghamandiram Gowani appointment as Director of the corporate debtor was based on telefax communication dated 4th May 2009, set aside by the Hon'ble High Court order Dt. 29th April 2013. From the Hon'ble High Court order, it appears that after noticing that there is no such Order dated 4th May 2009 passed by the Bench, the Hon'ble High Court, without adding anything further set aside the telefax communication dated 4th May 2009. It is also clarified in the order that the position that was existing prior to telefax communication, i.e. that is, on 3rd May 2009, stood revived. Hon'ble High Court has further clarified in the order that that they are not saying anything about the merits of the matter because both parties have agreed that the said telefax communication be either set aside or ignored. Since no order was passed on 4th May 2009, there could not be any impact of the said non-existent order. 43. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am 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. 49. Hon'ble Supreme Court in the case of Phoenix ARC (supra), has laid down the law that the term related Party in the context of IBC is defined to ensure that those entities which are related to the Corporate Debtor can be identified clearly since their presence can often negatively affect the insolvency process. Hon'ble Supreme Court has further propounded that the default rule under the first proviso to Section 21(2) is that only those Financial Creditors that are related parties in praesenti would be barred from the 'COC'. However, the related Party Financial Creditors that seem to be related parties in order to circumvent the exclusion under the first proviso to Section 21(2) should also be considered as being covered by the exclusion thereunder. Therefore Mr Ramesh Ghamanndiram Gowani's resignation from the Board of Directors of the Corporate Debtor 'Incab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liberty to the aggrieved parties to raise all issues, including the assignment's validity. 54. The Learned Counsel for the Respondent No.2 submits that Reference under the 8th Schedule could have been made only in cases where proceedings were pending before the BIFR or AAIFR, within 180 days from the commencement of the Insolvency and Bankruptcy Code 2016. Since no proceedings were pending before BIFR or AAIFR, the proceedings before BIFR and AAIFR had attained finality. Further, no reference has been made under the 8th Schedule by any of the aggrieved parties within 180 days from the date of commencement of the Insolvency and Bankruptcy Code, 2016. Hence, the aggrieved parties have wilfully preferred not to address the said issues. Therefore by the principle of estoppel, the parties are barred from raising any such issue, particularly when the proceedings for liquidation of the Corporate Debtor is at such an advanced stage. 55. The Appellant has relied on Section 5 of the SARFAESI Act 2002 and the Factoring Act, 2011. Section 5 of the SARFAESI Act 2002 provides debt assignment only to an Asset Reconstruction Company. However, the SARFAESI Act 2002 does not apply to the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmittee of Creditors even without admitting the claim, i.e. only based on claims submission. It is essential to evaluate the validity of the Committee of Creditors, which was constituted even without verification, admission or rejection of claims. It is essential to evaluate how the Corporate Insolvency Resolution Process can go on without knowing the actual percentage of voting share of a Financial Creditor, based on the Financial Debt owed by that creditor. In this case, we have also noticed that no Information Memorandum was prepared. An order of liquidation is passed on the pretext of the proviso to Section 33 (2) of the Insolvency and Bankruptcy Code. In the instant case, liquidation has been started even without valuation and determination of the liquidation value. 62. Under the Insolvency and Bankruptcy Code 2016, the role assigned to the Committee of Creditors is of paramount importance. Section 28 of the I B code 2016 specifically provides the actions that require the approval of the Committee of Creditors. The success of corporate insolvency resolution entirely depends upon the validly constituted Committee of Creditors. Therefore the legislature has barred the repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t claimed by creditors (amounting to rupees) amount admitted (amounting to rupees) details of security and status 1. Pegasus Assets Reconstruction Private Limited ₹ 1,87,06,37,178. 64 * 2. Kamla Mills Ltd 1,554,72,71,570 (including interest, if any) * 3. Fasqua investment private limited 266,77,66,485.80 (including interest, if any) * Total 1,741,79,08,748.64 * *The verification of claims is under process, and the amount of claims is yet to be determined. 64(b) The Interim Resolution Professional has also received claims in form B (received via email/speed post) from one Operational Creditor other than workers and employees as of 31st August 2019 (date of receipt of claims), i.e., the cut of date per public announcement namely. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... December 1999. After that, accounts were never audited, and regular books of accounts are not maintained. Production -factory at Jamshedpur is closed for a long time, whereas production at Pune was being carried up to 2014 in a minimal manner. However, no records have been given. A list of statutory dues, dues, etc., as available at the Kolkata office, was produced and copies handed over to the COC member. It was informed that no register of assets was available. Accordingly, details of all assets/properties were not available. 65. Status update by IRP in IInd CoC meeting dated 26th September 2019; Chairman informed that no books of accounts and records are available at the registered office of the corporate debtor or Jamshedpur or Pune. Employees have informed that they don't have any statutory records. A detailed list of assets is also unavailable at the registered office. Therefore, the chairman submitted a list of immovable assets that had been prepared. A copy of the said list of assets was given to the COC members with the request that, if any member of COC knows any other assets, then it can be informed to the R.P. in the next COC meeti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld on 5th December 2019; 68(a). Appellant has filed the minutes of the fifth COC meeting held on 5th December 2019 containing details of Financial Creditor, percentage of their vote share. In the same meeting, the CoC members voted for liquidation of the Corporate Debtor. Further, it was decided that there is no need for an Information Memorandum, no requirement for the Transaction and Forensic Audit, and no provision of publication of form G for inviting Expression of Interest as the Committee of Creditors has already resolved to liquidate the corporate debtor. It was also resolved that due to the non-availability of information, an Information Memorandum could not be prepared. Further, in the light of the resolution to liquidate the Corporate Debtor, the decision was taken that there is no requirement of an Information Memorandum . It was also agreed that for valuation purposes of the assets for valuing the Corporate Debtor's assets, a proper valuer suggested by COC might be appointed. 68(b). It is stated in the minutes of 5th COC that the chairman further informed that an application under section 19 (2) Of the Insolvency and Bankruptcy Code, 2016 was filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rations for the previous two years; (ii) financial and operational payments for the previous two years; (iii) list of assets and liabilities as on the initiation date; and (iv) such other matters as may be specified; (b) receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under Sections 13 and 15; (c) constitute a committee of creditors; (d) monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the committee of creditors; (e) file information collected with the information utility, if necessary; and ( f) take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including- (i) assets over which the corporate debtor has ownership rights which may be located in a foreign country; (ii) assets that may or may not be in possession of the corporate debtor; (iii) tangible assets, whether movab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son shall be a financial creditor to the extent of the financial debt owed by the corporate debtor, and shall be included in the committee of creditors, with voting share proportionate to the extent of financial debts owed to such creditor; (b) such person shall be considered to be an operational creditor to the extent of the operational debt owed by the corporate debtor to such creditor. (5) Where an operational creditor has assigned or legally transferred any operational debt to a financial creditor, the assignee or transferee shall be considered as an operational creditor to the extent of such assignment or legal transfer. (6) Where the terms of the financial debt extended as part of a consortium arrangement or syndicated facility [* * *] provide for a single trustee or agent to act for all financial creditors, each financial creditor may- (a) authorise the trustee or agent to act on his behalf in the committee of creditors to the extent of his voting share; (b) represent himself in the committee of creditors to the extent of his voting share; (c) appoint an insolvency professional (other than the resolution professional) at his own cost to rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (9) The committee of creditors shall have the right to require the resolution professional to furnish any financial information in relation to the corporate debtor at any time during the corporate insolvency resolution process. (10) The resolution professional shall make available any financial information so required by the committee of creditors under sub-section (9) within a period of seven days of such requisition. 17. Restriction on participation .-The proviso to Section 21(2) clarifies that a Director who is also a financial creditor who is a related party of the corporate debtor shall not have any right of representation or participation or voting in a meeting of the Committee of Creditors. Further, Directors simpliciter, are not the subject-matter of the proviso to Section 21(2), but only Directors who are related parties of the corporate debtor, and it is only such persons who do not have any right of representation, participation, or voting in a meeting of the Committee of Creditors, Vijay Kumar Jain v. Standard Chartered Bank, (2019) 20 SCC 455. 24. Meeting of committee of creditors .-(1) The members of the committee of creditors may meet in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings; (c) raise interim finances subject to the approval of the committee of creditors under Section 28; (d) appoint accountants, legal or other professionals in the manner as specified by Board; (e) maintain an updated list of claims; (f) convene and attend all meetings of the committee of creditors; (g) prepare the information memorandum in accordance with Section 29; [(h) invite prospective resolution applicants, who fulfil such criteria as may be laid down by him with the approval of committee of creditors, having regard to the complexity and scale of operations of the business of the corporate debtor and such other conditions as may be specified by the Board, to submit a resolution plan or plans;] (i) present all resolution plans at the meetings of the committee of creditors; (j) file application for avoidance of transactions in accordance with Chapter III, if any; and (k) such other actions as may be specified by the Board. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itutional documents of the corporate debtor; (h) delegate its authority to any other person; (i) dispose of or permit the disposal of shares of any shareholder of the corporate debtor or their nominees to third parties; (j) make any change in the management of the corporate debtor or its subsidiary; (k) transfer rights or financial debts or operational debts under material contracts otherwise than in the ordinary course of business; (l) make changes in the appointment or terms of contract of such personnel as specified by the committee of creditors; or (m) make changes in the appointment or terms of contract of statutory auditors or internal auditors of the corporate debtor. (2) The resolution professional shall convene a meeting of the committee of creditors and seek the vote of the creditors prior to taking any of the actions under sub-section (1). (3) No action under sub-section (1) shall be approved by the committee of creditors unless approved by a vote of 63[sixty-six] per cent of the voting shares. (4) Where any action under sub-section (1) is taken by the resolution professional without seeking the approval of the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m as and when the claim is satisfied, partly or fully, from any source in any manner, after the insolvency commencement date.] 13. Verification of claims.-(1) The interim resolution professional or the resolution professional, as the case may be, shall verify every claim, as on the insolvency commencement date, within seven days from the last date of the receipt of the claims, and thereupon maintain a list of creditors containing names of creditors along with the amount claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims, and update it. (2) The list of creditors shall be- (a) available for inspection by the persons who submitted proofs of claim; (b) available for inspection by members, partners, directors and guarantors of the corporate debtor; (c) displayed on the website, if any, of the corporate debtor; [(ca) filed on the electronic platform of the Board for dissemination on its website: Provided that this clause shall apply to every corporate insolvency resolution process ongoing and commencing on or after the date of commencement of the Insolvency and Bankruptcy Board of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al creditors and its members, as the case may be. [ 17. Constitution of committee .-(1) The interim resolution professional shall file a report certifying constitution of the committee to the Adjudicating Authority within two days of the verification of claims received under sub-regulation (1) of Regulation 12. (2) The interim resolution professional shall hold the first meeting of the committee within seven days of filing the report under this regulation. (3) Where the appointment of resolution professional is delayed, the interim resolution professional shall perform the functions of the resolution professional from the fortieth day of the insolvency commencement date till a resolution professional is appointed under Section 22.] [27. Appointment of registered valuers .-The resolution professional shall within [seven days of his appointment, but not later than forty-seventh day from the insolvency commencement date], appoint two registered valuers to determine the fair value and the liquidation value of the corporate debtor in accordance with Regulation 35: Provided that the following persons shall not be appointed as registered valuers, namely- (a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... generally necessary for ascertaining their values. Explanation- Description includes the details such as date of acquisition, cost of acquisition, remaining useful life, identification number, depreciation charged, book value, and any other relevant details.] (b) the latest annual financial statements; (c) audited financial statements of the corporate debtor for the last two financial years and provisional financial statements for the current financial year made up to a date not earlier than fourteen days from the date of the application; (d) a list of creditors containing the names of creditors, the amounts claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims; (e) particulars of a debt due from or to the corporate debtor with respect to related parties; (f) details of guarantees that have been given in relation to the debts of the corporate debtor by other persons, specifying which of the guarantors is a related party; (g) the names and addresses of the members or partners holding at least one per cent stake in the corporate debtor along with the size of stake; (h) details of all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-regulation (3) shall- (a) specify the criteria for prospective resolution applicants, as approved by the committee in accordance with clause (h) of sub-section (2) of Section 25; (b) state the ineligibility norms under Section 29-A to the extent applicable for prospective resolution applicants; (c) provide such basic information about the corporate debtor as may be required by a prospective resolution applicant for expression of interest; and (d) not require payment of any fee or any non-refundable deposit for submission of expression of interest. (5) A prospective resolution applicant, who meet the requirements of the invitation for expression of interest, may submit expression of interest within the time specified in the invitation under clause (b) of sub-regulation (3). (6) The expression of interest received after the time specified in the invitation under clause (b) of sub-regulation (3) shall be rejected. (7) An expression of interest shall be unconditional and be accompanied by- (a) an undertaking by the prospective resolution applicant that it meets the criteria specified by the committee under clause (h) of sub-section (2) of Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under sub-regulation (11), the resolution professional shall issue the final list of prospective resolution applicants within ten days of the last date for receipt of objections, to the committee.] 71. Section 18 is relating to the duties of an Interim Resolution Professional. Section 18(1)(b) mandates the IRP to receive and collate all the claims submitted by the creditors under the public announcement made under Section 13 and 15. Section 18(1)(c) authorises IRP to constitute a Committee of Creditors. Section 21(1) imposes a precondition for the collation of all claims received to determine the financial position of a Corporate Debtor . The word 'collation used in Sub-section 21(1) means verification of claims. The literal meaning of the word 'collation' is the comparison of a copy with its original to ascertain its correctness. Section 21 (7) mandates for determination of the voting share to be assigned to each creditor . Section 24 is about the meeting of the Committee of Creditors. Section 24(6) provides that each creditor shall vote by the voting share assigned to him based on the financial debts owed to such creditor. Section 24 (7) imposes a du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t conducted the Corporate Insolvency Resolution Process as per the CIRP Regulations. 76. It is pertinent to mention the contents of paragraph 22 of the application filed by the Resolution Professional under section 33 of the Code for liquidation of the corporate debtor, which relates to the objection of the Financial Creditor Pegasus Assets Reconstruction Company about voting percentage assigned to the members of COC without the verification of their claims . The copy of the said application is Annexure III (pages 45 - 156 of the appeal paper book). Para 22 reads as under; The applicant states that an email was received from [email protected] on Wed, 11 December 2019 18:09:12 inter alia it was stated that; we refer to the e-voting called for by you today pursuant to the circulation of minutes of 5th COC meeting conducted on 5th of December 2019 and request you to defer the voting till the issues raised by us with regards to verification of voting percentage, compliance of CIRP process, and other issues raised by us are addressed by you . (verbatim copy) 77. The Appellant's Learned Counsel further drew our attention towards the ema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... py of our letter addressed to the RP taking necessary compliance under the IBC and action is appellant herewith. Request you to take on record the same and do the needful. 79. Based on the above-mentioned letters issued by the financial creditor Pegasus assets reconstruction company to the resolution professional, it is clear that the financial creditor was regularly sending his objections to the resolution professional about the determination of the voting percentage of the COC members. However, despite reminders, Resolution Professional, without even admitting/rejecting the claims of the financial creditors, had constituted the committee of creditors and determined their voting percentage. It is also clear that in the 5th COC meeting, there was no such an agenda regarding the deliberation on the liquidation of the corporate debtor. But, by permitting the financial creditor/related parties, Kamla Mills Ltd and Fasqua investment private limited, to represent, participate and vote in the COC, the decision was taken to liquidate the corporate debtor. 80. It is important to mention that all the statutory provisions for the conduct of CIRP are interlinked; it doesn t leave any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G for the invitation of expression of interest. The COC also decided to liquidate the corporate debtor. Therefore, there is no need to prepare Information Memorandum. 84. 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. In the column of a status report, It is everywhere mentioned that verification of claims is under process. But the said verification process never came to an end, and the committee of creditors resolved to liquidate the corporate debtor ignoring mandatory requirements of determination of fair market value, liquidation value and preparation of information memorandum. There was no publication of Form 'G' for inviting expression of interest. One of the Financial Creditors objected to the participation of Financial Creditors, K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 8th December 2019, which is within 122 days, decided to liquidate the Corporate Debtor. The CoC had two entities holding the majority of the voting rights of 77.20%. However, their claims were not even admitted and were also related parties and thus, the whole process before CoC has got vitiated. In view of the extraordinary facts of the present matter and the disputes being raised by so many workers through the Appellants, the interest of justice requires certain directions to do justice in the matter. 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. 87. We further observe that the corporate inso ..... X X X X Extracts X X X X X X X X Extracts X X X X
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