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TMI Blog2022 (2) TMI 627X X X X Extracts X X X X X X X X Extracts X X X X ..... and Respondent No.1 has admitted claim worth INR 1,525,859,239/-. The Appellant is a stakeholder in the CIRP, its claim having been admitted. The Appellant has come up in this Appeal questioning the order of the NCLT dated 11th June, 2020 by which it has granted approval to the proposal of CoC and RP to sell the subject assets of the Corporate Debtor. The Appellant being stakeholder in the CIRP has interest in the assets of the Corporate Debtor, since it is the value of assets, which will be relevant for determination of its claim either in the Resolution Plan or in the liquidation proceedings - Whether the sale is in accordance with the provisions of the Code or not is a question on merit, which we shall proceed to consider while considering the other issues as noted above. However, insofar as the submission of the Respondent that Appellant is not an aggrieved person, we do not find ourselves in agreement with the submission of learned Counsel for the Respondents. The Appellant has sufficient locus to file this Appeal. The Appellant is a person aggrieved within the meaning of Section 61 of the Code and the Appeal on behalf of the Appellant is fully maintainable. Whether the prohib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inimum sale consideration for the sale of two floors being 3rd and 4th floors of BKC property as INR 490 crores. The CoC although in its Resolution has contemplated for approval of NCLT for carrying out sale transaction. Thus, the condition as contained in Regulations 29, sub-regulation (2) by approval of the CoC and Section 28, sub-section (3) by minimum 66% of vote is satisfied, since the Resolution was passed by CoC with 74.45% of votes. We further notice that under Regulation 29, the jurisdiction has been given to the RP to sell unencumbered assets. Thus, the sale is permissible of only unencumbered assets. In the present case, subject property was under encumbrance, since the Corporate Debtor had taken a loan from HDFC on the security of 2nd, 3rd and 4th floors of the subject property - The prohibition under Section 14(1)(b) thus in transferring the assets of the CD is throughout the currency of CIRP except where statute specifically empowers RP to carry the sale on fulfillment of conditions as laid down in the statute. Whether decision of RP to proceed with the sale of BKC property and approval of CoC of the said proposal by its Resolution in the meeting dated 24th April, 202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in Company Petition (IB) No.2205/MB/2019. 2. The brief facts of the case and sequence of the event, which are necessary to be noticed for deciding this Appeal are: (i) The Appellant is a Registered Trade Union representing aircraft maintenance engineers of the Jet Airways (India) Limited (Corporate Debtor). (ii) On an Application filed by State Bank of India under Section 7 against the Jet Airways (India) Limited, the Adjudicating Authority initiated Corporate Insolvency Resolution Process (CIRP) by order dated 20th June, 2019. By the same order, Moratorium under Section 14 of the Code was declared with the consequential direction. Respondent No.1 was appointed as Interim Resolution Professional (IRP), which was confirmed as Resolution Professional (RP) in the first meeting of the Committee of Creditors (CoC) held on July 16, 2019. The Appellant's Union claim worth INR 1,525,859,239/- was admitted by Respondent No.1. Respondent No.2 was constituted as Committee of Creditors. (iii) In the third Meeting of the Committee of Creditors held on 26th August, 2019, the RP brought into the notice of the CoC that with regard to aircrafts taken on finance lease a finance upto USD 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... davit dated 1st June, 2020 stating that it had no objection to the Application filed by Respondent No.1. The Adjudicating Authority vide its order dated 11th June, 2020 allowed the IA filed by the Resolution Professional. After order of the Adjudicating Authority dated 11th June, 2020, the RP issued notice dated 13th June, 2020 for sale/ transfer of 3rd and 4th floors by way of public auction of the premises. (vii) In pursuance of e-public auction held on 26th June, 2020, Respondent No.4 emerged as a Successful Bidder, whose offer was accepted by the RP at a price of INR 490 crores. Deed of assignment dated 10th July, 2020 and 13th July, 2020 was entered between Corporate Debtor through Respondent No.1 on the one hand and Respondent No.4 on the other, which were registered in the office of Sub-Registrar of Assurances at Bombay. Prior to above assignment Respondent No.3 has executed registered Deed in favour of Company releasing its charge of immovable property after receiving payment of INR 360 crores. (viii) This Appeal has been filed by the Appellant on 17th July, 2020 challenging the order dated 11th June, 2020 passed by the Adjudicating Authority. Notices were issued in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could have been secured at a lesser amount. Only INR 90 crores was to be paid to US Exim against its claims. The value of aircrafts was not USD 881 million. Five out of six aircrafts were already in India and in custody of RP. Three months later, CoC has approved Resolution Plan, which envisaged sale of CD's all 11 aircrafts, which indicate that the distinction between core and non-core assets drawn by RP was artificial. 5. Shri Arun Kathpalia, learned Senior Counsel appearing for Respondent No.1 refuting the submission of learned Counsel for the Appellant contends that the Corporate Debtor had taken six Boeing 777 long range aircraft on a financial lease from Fleet Ireland entities (Lessor), which thereafter were charged in favour of Export Import Bank of the United States (US Exim). The Corporate Debtor had already paid an amount of approximately 881 million USD and the balance amount of approximately 18.65 million USD was required. Pursuant to concurrence of CoC, negotiations were made with US Exim, who was ready to settle for 13 million USD and in exchange US Exim agreed to transfer title in the aircraft to Corporate Debtor. After all conceivable avenues for raising funds had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e aircrafts were cumulatively valued at over USD 200 million. Accordingly, CoC felt that making residual payment and securing title and ownership to the six aircrafts would add significant value to the estate of the Corporate Debtor. Despite making several efforts, RP could not successfully raise interim finance. Thus, in the absence of any other commercially viable option a decision to sell non-core assets was taken. Transfer/ disposal of the premises was not in violation of Moratorium under Section 14 of the Code. In any event, the Appellant has no right or claim over the proceeds from the sale transaction. Water fall mechanism as laid down in Section 53 of the Code is not applicable in the present case. 7. Shri Janak Dwarkadas, learned Senior Counsel appearing for Respondent No.3 submits that the prohibition under Section 14, sub-section (1)(c) is qua Corporate Debtor. The expression used in Section 14(1)(b) is "transferring, encumbering, alienating or disposing off by the Corporate Debtor any of its assets…." Section 14(1)(b) does not contain any prohibition to RP or CoC to take any decision for sale of any of its assets during the CIRP. It is submitted that when Regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their position, which could not be reversed in the facts of the present case. 9. Shri Krishnendu Datta, learned Senior Counsel appearing for Respondent No.4 submits that Respondent No.4 is a bonafide third-party purchaser without notice. The Respondent No.4 being bonafide purchaser, who has purchased the subject property of a value, which is more than market value. The bid of Respondent No.4 of INR 490 crores was accepted. On 10th July, 2020, entire consideration was paid and Registered Deed of Assignment was executed on 10th to 13th July, 2020. The present Appeal has been filed after entire process was completed. The Resolution Plan having already been approved, the title of Respondent No.4 need not be affected. The Respondent No.4 was not party to the litigation. Reliance on Clause 33 of auction notice does not help the Appellant since Respondent No.4 has no notice of litigation. There is no depletion of the value of the assets of the Corporate Debtor, but more value has been added consequent to the transaction in question. 10. Shri Vikas Mehta, learned Counsel for the Appellant in rejoinder submits that Section 14 imposes a statutory freeze and there is no discretion with any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled in this Appeal, if any? Question No.1 13. The Respondents have challenged the locus of the Appellant to file this Appeal questioning the order dated 11th June, 2020 passed by the Adjudicating Authority. The Appellant is a registered Trade Union representing 95% of the aircraft maintenance engineers of the Corporate Debtor. The Appellant's Union had submitted a claim and Respondent No.1 has admitted claim worth INR 1,525,859,239/-. The Appellant is a stakeholder in the CIRP, its claim having been admitted. The Appellant has come up in this Appeal questioning the order of the NCLT dated 11th June, 2020 by which it has granted approval to the proposal of CoC and RP to sell the subject assets of the Corporate Debtor. The Appellant being stakeholder in the CIRP has interest in the assets of the Corporate Debtor, since it is the value of assets, which will be relevant for determination of its claim either in the Resolution Plan or in the liquidation proceedings. The Appellant has come up with a case that the sale of the subject property was impermissible in view of the Moratorium imposed under Section 14. We do not find any lack of locus in the Appellant to challenge the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license or a similar grant or right during moratorium period; (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. (2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances. (3) The provisions of sub-section (1) shall not apply to - (a) such transactions, agreements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings, including liquidation and reorganization proceedings. The UNCITRAL Guide notes that a moratorium is critical during reorganization proceedings since it "facilitates the continued operation of the business and allows the debtor a breathing space to organize its affairs, time for preparation and approval of a reorganization plan and for other steps such as shedding unprofitable activities and onerous contracts, where appropriate." 8.4. The Committee discussed that by and large, the grants that the corporate debtor enjoys form the substratum of its business. Without these, the business of the corporate debtor would lose its value and it would not be possible to keep the corporate debtor running as a going concern during the CIRP period, or to resolve the corporate debtor as a going concern. Consequently, their termination during the CIRP by relying on ipso facto clauses or on non-payment of dues would be contrary to the purpose of introducing the provision for moratorium itself. Thus, the Committee concluded that the legislative intent behind introducing the provision for moratorium was to bar such termination." 17. The object and purpose of Section 14 had also been expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends." 32. Viewed from another point of view, clause (b) of Section 14(1) also makes it clear that during the moratorium period, any transfer, encumbrance, alienation, or disposal by the corporate debtor of any of its assets or any legal right or beneficial interest therein being also interdicted, yet a liability in the form of compensation payable under Section 138 would somehow escape the dragnet of Section 14(1). While Section 14(1)(a) refers to monetary liabilities of the corporate debtor, Section 14(1)(b) refers to the corporate debtor's assets, and together, these two clauses form a scheme which shields the corporate debtor from pecuniary attacks against it in the moratorium period so that the corporate debtor gets breathing space to continue as a going concern in order to ultimately rehabilitate itself. Any crack in this shield is bound to have adverse consequences, given the object of Section 14, and cannot, by any process of interpretation, be allowed to occur." 18. Hon'ble Supreme Court in an earlier judgment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y that there should be no depletion of Corporate Debtor's assets during the CIRP. The assets of the Corporate Debtor have to be preserved, protected and guarded for a successful insolvency resolution, which is the object of engrafting Section 14 in the statute. The submission of learned Counsel for the Appellant relying on the above judgment of Hon'ble Supreme Court is correct that there is statutory freeze when Moratorium is done under Section 14. The question to be answered is as to whether the statutory freeze, which comes into operation has any exception to it, or the prohibition contained in Section 14 is absolute. Section 14 uses various expressions including Corporate Debtor, Resolution Professional, which are defined in Section 3 and Section 5. Section 3, sub-section (8) defines 'Corporate Debtor' in following words: "3(8) "corporate debtor" means a corporate person who owes a debt to any person;" 20. Section 5, sub-section (27) define 'Resolution Professional' in following words: "5(27) "resolution professional", for the purposes of this Part, means an insolvency professional appointed to conduct the corporate insolvency resolution process or the pre-packaged insolvenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor 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." 22. The Code being complete Code, all provisions of the Code have to be looked into to decipher the object a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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." 23. The prohibition under Section 14(1)(b) as noted above is also regarding encumbering the assets of Corporate Debtor. When Section 28(1) expressly provides for approval of Committee of Creditors for creating any security interest over the assets of the Corporate Debtor, this is a clear exception engrafted under the Code itself to Section 14(1)(b). The above scheme of the Code leads us to come to the conclusion that injunction under Section 14(1)(b) is against the Corporate Debtor, which provision does not restrain any other entity authorised under the Code to transfer, encumber or alienate the assets of the Corporate Debtor. Thus, prohibition under Section 14(1)(b) has to be read along with exceptions created in the Code itself. 24. Now we come to Regulation 29 of CIRP Regulations, on which much emphasis has been laid by the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject the submission of the learned Counsel of the Appellant that RP has no jurisdiction to conduct any sale during the pendency of Moratorium under Section 14. 27. There is another expression of limitation of sale of assets by RP under Regulation 29 and Section 28, sub-section (3) that sale of assets requires approval of CoC by vote of sixty-six percent. We need to notice whether in the facts of the present case the above two conditions have been adverted to and complied with or not. The proceedings of the CoC in the 10th Meeting dated 24th April, 2020 are on the record, where RP has specifically stated that minimum sale price is higher than liquidation value given by registered valuers and following is noticed in the CoC meeting dated 24th April, 2020 "The representative from Bank of India enquired if an independent valuation had been obtained for the said price to which the RP informed the members that Liquidation value given by the registered valuers is lower than above mentioned minimum sale price, however the exact value cannot be disclosed to the members as the confidentiality of the same has to be maintained as per the Code and the CIRP Regulations." 28. The above thus i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m is declared any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property is prohibited. The object is that assets of Corporate Debtor do not deplete during the currency of CIRP. Realization of recovery or enforcement of any security interest is also prohibited. The Financial Creditors of the Corporate Debtor are Members of CoC and various decisions as enumerated in the Code regarding CIRP have to be taken with the approval of CoC. Commercial wisdom of the Financial Creditors has been given due credence in the scheme of the Code and are of paramount importance in CIRP. Most of the Financial Creditors are also Secured Creditors. The prohibition to foreclose or to recover any security interest is in the interest of Corporate Debtor, so that Secured Creditors do not enforce its security during continuance of CIRP. Law does not permit Secured Creditors to enforce their security, since, if permitted the Secured Creditors will be more than inclined to enforce their securities and realize their debt during the currency of the CIRP, which shall defeat the entire object of the insolvency resolution. We may in this context refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Fabrics Private Limited. In the above case, the High Court has directed for auction of the assets of the properties during the currency of CIRP. Hon'ble Apex Court held that in event the assets of the company are alienated during the pendency of the proceedings, it shall jeopardize the interest of all the stakeholders. In paragraph 9 of the judgment, following has been stated: "9. In view of the provisions of the IBC, the High Court ought not to have proceeded with the auction of the property of the corporate debtor, Respondent 4 herein, once the proceedings under the IBC had commenced, and an order declaring moratorium was passed by NCLT. The High Court passed the impugned interim orders dated 14-8-2019 [Hirakud Industrial v. Varsha Fabrics (P) Ltd., WP (C) No. 7939 of 2011, order dated 14-8-2019 (Ori)] and 5-9-2019 [Hirakud Industrial v. Varsha Fabrics (P) Ltd., WP (C) No. 7939 of 2011, order dated 5-9-2019 (Ori)] after the CIRP had commenced in this case. The moratorium having been declared by NCLT on 4-6-2019, the High Court was not justified in passing the orders dated 14-8-2019 [Hirakud Industrial v. Varsha Fabrics (P) Ltd., WP (C) No. 7939 of 2011, order dated 14-8-201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the question as to whether CoC can take a decision regarding payment to a particular Financial Creditor during CIRP. The question under consideration was noticed in paragraph 16 and same was answered in paragraph 25. This Tribunal held that amounts received by the Corporate Debtor during the currency of the CIRP are assets of the Corporate Debtor, which cannot be transferred to chosen creditor without the process of Resolution Plan. To the similar effect, another judgment of this Tribunal reported in Company Appeal (AT) (Insolvency) No.267 of 2017 in Indian Overseas Bank vs. Mr. Dinkar T. Venkatsubramaniam Resolution Professional for Amtek Auto Ltd., where in paragraph 5 following has been laid down: "5. Having heard learned counsel for the Appellant, we do not accept the submissions made on behalf of the Appellant in view of the fact that after admission of an application under Section 7 of the 'I&B Code', once moratorium has been declared it is not open to any person including 'Financial Creditors' and the appellant bank to recover any amount from the account of the 'Corporate Debtor, nor it can appropriate any amount towards its own dues." 34. The abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he entire process, which has culminated into Successful Resolution, by reverting the consideration received by Respondent No.3 towards its charge on the subject property. At this distance of time, it cannot be said that sale of subject assets on 26th June, 2020 did not increase the valuation of the assets of the Corporate Debtor. Due to sale of assets, title of six aircrafts were acquired by Corporate Debtor and it has been submitted by learned Counsel for the Appellant that in the Resolution Plan all the 11 aircrafts have been sold. The said acquisition and sale of the said property is now stand dealt with in the Resolution Plan. We are of the view that in this Appeal, no pecuniary benefit can be extended to the Appellant, nor any finding can be recorded that by sale of the assets of the Corporate Debtor, its assets have been depleted. We have although held that due to provision under Section 14(1)(c), Respondent No.3 - Secured Creditor could not have realized its due in CIRP, but when the Resolution Plan has been finally approved, we are not inclined to reverse the transaction at this stage, which has been approved by NCLT vide order dated 11th June, 2020. The Successful Resoluti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent No.1 in the nature of construction activities which are at different stages. 64.We remind ourselves of the ultimate object of the Code, which is to put the corporate debtor back on the rails. Incidentally, we also note that no prejudice would be caused to the dissenting creditors as their interests would otherwise be secured by the resolution plan itself, which permits them to get back the liquidation value of their respective credit limits. Thus, on the peculiar facts of the present case, we do not wish to disturb the resolution plan leading to the on-going operation of the Respondent No.1." 37. The Appellant, a stakeholder in the CIRP must have received due consideration in the final Resolution Plan approved on 22nd June, 2021, which Resolution Plan is also under challenge in separate Appeal and one of the Appeal has been filed by Association of Aggrieved Workmen of Jet Airways (India) Limited being Company Appeal (AT) (Insolvency) No.643 of 2021, we see no reason to set-aside the impugned order dated 11th June, 2021 at this stage. 38. We also make it clear that our reference to approval of Resolution Plan on 22nd June, 2021 may not be treated as any expression of our ..... X X X X Extracts X X X X X X X X Extracts X X X X
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