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TMI Blog2021 (12) TMI 1430X X X X Extracts X X X X X X X X Extracts X X X X ..... r as a going concern in this Liquidation Process. The timelines under Regulation 47 for Liquidation Process, are directory. Procedural law should not be construed as an obstruction but as an aid to Justice. Extension of time under Liquidation may be allowed only on the satisfaction that there exists exceptional circumstances - The Hon ble Supreme Court in RANI KUSUM VERSUS KANCHAN DEVI ORS. [ 2005 (8) TMI 709 - SUPREME COURT ] concurring with the ratio laid down in KAILASH VERSUS NANHKU ORS. [ 2005 (4) TMI 542 - SUPREME COURT ], it was held that A procedural law should not ordinarily be construed as mandatory; the procedural law is always subservient to and is in aid to justice. Any interpretation which eludes or frustrates the recipient of justice is not to be followed. Section 32(A)(4) should be read together with Section 35(1)(e) and Regulation 47. What is mandated in the Code in Section 35(1)(e) is to carry on business for its beneficial Liquidation. The Regulation therefore cannot override the objective of beneficial liquidation provided for in Section 35(1)(e) of the Code - thus, to achieve Beneficial Liquidation provided for under Section 35(1)(e) and maximisation of the val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Learned Adjudicating Authority (National Company Law Tribunal, Mumbai Bench, Special Bench, Court No. II) under Section 61(1) of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as the 'Code'). 2. By the Impugned Order, the Learned Adjudicating Authority has allowed I.A. No. 3702 of 2019 filed by the Liquidator of Bharati Defence Infrastructure, (the 'Corporate Debtor') seeking directions in the Liquidation Process and Sale of the assets of the 'Corporate Debtor' and observed as follows:- "8. An Additional Affidavit filed by the Applicant states that the financial position and deteriorating condition of the assets lying in the shipyards of the CD. The cash flow position of the CD has deteriorated and the Applicant is finding difficult to run the CD as a going concern. The Affidavit also states that there are 250 employees of the CD at Ratnagiri, whose salaries are outstanding for the past 8 months. The salary of the employees needs to be released for protection of the assets of the CD. Manpower is essential to maintain the shipyards and vessels. It is also stated that the Applicant has received threats of suicide from the employees of the CD due to nonp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to provide for its employees. That in turn has affected the maintenance of the assets, which has resulted in depreciation of its value and worth. Thus, it would accordingly be appropriate to order sale of its assets, before they further deteriorate. Hence ordered. ORDER The IA be and the same is allowed. The Applicant is directed to take further appropriate steps for liquidation of the CD, including sale of assets, collectively or in parcels or individually, as per the provisions of the Code and Rules made thereunder. He is directed to complete the process at the earliest." (Emphasis Supplied) 3. Submissions of the Learned Senior Counsel appearing on behalf of the Appellant/Directors - 'Prakash Chandra Kapoor & Vijay Kumar' in Company Appeal (AT) (Insolvency) No. 140 of 2021: * Learned Senior Counsel submitted that in 2014 Edelweiss Asset Reconstruction Company Limited (hereinafter referred to as 'Edelweiss') acquired aggregate debt of Rs.6248.84 Crores/- for Rs.1813.90 Crores/-. A severe haircut was taken by the lenders of approximately 71%. Edelweiss with assignment of debt has about 83% of the total Secured Debt and as such dominates the CoC. On 06.06.2017 Section 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djudicating Authority, which had written to the Liquidator committing 800 Million Dollars approximately on 14.12.2020. However, the Liquidator simply replied on 17.12.2020 that the time was up and rejected the offer. This offer was not brought to the notice of the Bench deliberately by Edelweiss and the Liquidator on the date, the Order was passed i.e. on 18.12.2020. * As the 'Corporate Debtor' has a good reputation in the global market, International Companies are interested in purchasing it as a 'going concern'. 4. Submissions of the Learned Senior Counsel appearing on behalf of 'PGI GmbH - Playglobal International' in Company Appeal (AT) (Insolvency) No. 165 of 2021 (hereinafter referred to as 'M/s. PGI Global'): * Learned Senior Counsel contended that the Appellant is a Company incorporated under the laws of Austria and is a diversified Multibillion Dollar investment and Asset Management Company with significant presence in United Kingdom, Austria, Switzerland, Germany etc. and has successfully executed various projects all over the world. It is strenuously argued that the Appellant had clearly expressed its interest to acquire the 'Corporate Debtor'; that the Appellant ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia) Pvt. Ltd. & Anr.' 2021 SCC OnLine NCLT 6 (Chennai, Division Bench) - The prospective Applicant was allowed to submit a scheme after 1005 days of delay. 5. Submissions of the Learned Senior Counsel appearing on behalf of 'Bhartiya Kamgar Sena Workmen Union of BDIL' in Company Appeal (AT) (Insolvency) No. 243 of 2021: * Learned Senior Counsel submitted that the 'Corporate Debtor' holds licence from Ministry of Defence to build warships and has substantial orders under execution. This matter relates to National Importance attached to the product line of the Company, involving a workforce of 850 employees. * The Liquidator published Expression of Interest dated 12.06.2019 on 16.01.2020 in Business Standard in Mumbai and five other Newspapers in different regional vernacular languages. The Liquidator preferred M.A.3702 of 2019 seeking directions in the Liquidation Process and Sale of Assets of the 'Corporate Debtor', which Application was listed on 02.01.2020, 04.03.2020 and on 23.03.2020, the Adjudicating Authority differed the Application in view of the Orders passed in M.A.3987/2019. The Applicant in M.A.3897/2019 was directed to deposit EMD of Rs.25 Crores/- with a sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Counsel appearing for the Applicant in I.A. 2346 of 2021 are as follows:- * Learned Counsel for the Applicant submitted that the Applicant's 'Terms of Acquisition' is in line with the Appeal preferred by the promoters and workmen in this Tribunal. It is stated that in the present case, the value of the 'Corporate Debtor' has reduced drastically from Rs.615 Crores/- to Rs.340 Crores/- in a span of less than 6 months. The value of the Company has eroded by almost 45% as a whole and various parcels have also reduced drastically. * It is stated that the Applicant has given its proposal for Acquisition of the Company at Rs.405 Crore/- + refurbishment and Working Capital Requirements amounting to approximately Rs.150 Crores/-. Learned Counsel relied on the Judgement of this Tribunal in 'Gaurav Jain' Vs. Sanjay Gupta Liquidator of the Topworth Pipe and Tubes Pvt. Ltd.' and also in 'M/s. Mohan Gems & Jewels Private Limited' Vs. 'Vijay Verma & Anr.' wherein this Tribunal has held that every attempt should be made to revive the Company and continue it as a 'going concern'. * It is for the Liquidator to take a decision about the sale as per Section 35 of the Code and the Liquidator c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dge Investment Limited (CEIL) and no scheme along with the EMD was ever submitted by CEIL. * The Appellant/PGI Global was neither a party to I.A. No. 3702 of 2019 nor did it intervene in the proceedings before the Adjudicating Authority and therefore has no locus standi to file this present Appeal. * M/s. PGI Global first communicated directly with the Liquidator only on 09.03.2021, after the Impugned Order was passed. Apart from not having submitted any scheme during the 6 month window period as per the Order of this Tribunal dated 14.05.2019, despite multiple Public Announcements issued after the Order dated 18.12.2020, no EOI has been submitted by M/s. PGI Global. * Learned Counsel vehemently contended that there is a deliberate misrepresentation of the Liquidation Order dated 14.01.2019 and this Tribunal's Order dated 14.05.2019 whereby this Tribunal has held that on failure to sell the 'Corporate Debtor' as a 'going concern', steps should be taken for outright sale of the 'Corporate Debtor'. Despite sincere efforts and steps followed in terms of Order of this Tribunal dated 14.05.2019, the Liquidator did not receive any compliant scheme under Section 230 of the Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nergy Projects limited). * a long drawn payment schedule of 4 years for the proposed consideration of INR 405 Crores in contravention to the requirement of payment within 15 days from the date when he is invited to provide the same, as per the Liquidation Regulations. * non-submission of an undertaking under Section 29A of the I&B Code. Additionally, the Applicant has also suppressed the factum of Divya Mercantile, one of the interested bidders of Corporate Debtor, being a holder of 13.2% shareholding in the Applicant. * The Liquidator had presented the offer before the stakeholders of the 'Corporate Debtor' in the Meeting dated 12.11.2021 and having deliberated upon it at length, out of the 14 Members attending the Meeting, 6 Members were not in favour of the offer and the remaining 8 Members did not offer any view of the proposal. * Allowing this Application by M/s. Goldman Securities Limited would cause grave prejudice to all the interested bidders who had participated and continued to participate in the auction process as per the provisions of the Code and to the interest of all the stakeholders of the 'Corporate Debtor'. 9. I.A. 2484 of 2021: * I.A. 2484 of 2021 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debtor' as a 'going concern'. There were no submissions of EMD by any Applicant since 14.05.2019. * 22 months have lapsed since passing of the Order of the Adjudicating Authority, and the process has been delayed unreasonably. * It is further submitted that even after the passing of the Impugned Order, the Creditors are willing to consider the 'Scheme' to revive the Company at any point subject to observing the bona fide of the Applicants being established by way of deposit of 'Earnest Money'. However, none of the prospective Resolution Applicants who submitted their EoIs furnished any amount in the form of Earnest Money Deposit. * The Order dated 04.03.2020 provided the Resolution Applicant time till 20.03.2021 for deposit of Rs.5 Crores/- and balance Rs.20 Crores/- by 30.03.2021, therefore, the prospective Applicant had plenty of time before imposition of lockdown to gather requisite funds. * The promoters must not be allowed the backdoor entry and prayed for dismissal of the Appeal with costs. Assessment: 11. This Tribunal in Company Appeal (AT) (Insolvency) No. 195 of 2019 arising out of the Order dated 14.01.2019 passed by the Adjudicating Authority (National Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, if any, included in the compromise or arrangement; (c) any scheme of corporate debt restructuring consented to by not less than seventy-five per cent of the secured creditors in value, including-- (i) a creditor's responsibility statement in the prescribed form; (ii) safeguards for the protection of other secured and unsecured creditors; (iii) report by the auditor that the fund requirements of the company after the corporate debt restructuring as approved shall conform to the liquidity test based upon the estimates provided to them by the Board; (iv) where the company proposes to adopt the corporate debt restructuring guidelines specified by the Reserve Bank of India, a statement to that effect; and (v) a valuation report in respect of the shares and the property and all assets, tangible and intangible, movable and immovable, of the company by a registered valuer. (3) Where a meeting is proposed to be called in pursuance of an order of the Tribunal under sub-section (1), a notice of such meeting shall be sent to all the creditors or class of creditors and to all the members or class of members and the debenture-holders of the company, individually at the address ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of receipt of such notice, failing which, it shall be presumed that they have no representations to make on the proposals. (6) Where, at a meeting held in pursuance of sub-section (1), majority of persons representing three-fourths in value of the creditors, or class of creditors or members or class of members, as the case may be, voting in person or by proxy or by postal ballot, agree to any compromise or arrangement and if such compromise or arrangement is sanctioned by the Tribunal by an order, the same shall be binding on the company, all the creditors, or class of creditors or members or class of members, as the case may be, or, in case of a company being wound up, on the liquidator appointed under this Act or under the Insolvency and Bankruptcy Code, 2016, as the case may be, and the contributories of the company. (7) An order made by the Tribunal under sub-section (6) shall provide for all or any of the following matters, namely:-- (a) where the compromise or arrangement provides for conversion of preference shares into equity shares, such preference shareholders shall be given an option to either obtain arrears of dividend in cash or accept equity shares equal to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under this section." 14. This Tribunal while confirming the Order of the Adjudicating Authority, which has approved Liquidation, keeping in view the observations made in 'Y Shivram' (Supra) and 'Meghal Homes Pvt. Ltd.' Vs. 'Shree Niwas Girni K.K. Samiti & Ors.', (2007) 7 SCC 753 observed as follows:- "18. During proceeding under Section 230, if any, objection is raised, it is open to the Adjudicating Authority (National Company Law Tribunal) which has power to pass order under Section 230 to overrule the objections, if the arrangement and scheme is beneficial for revival of the 'Corporate Debtor' (Company). While passing such order, the Adjudicating Authority is to play dual role, one as the Adjudicating Authority in the matter of liquidation and other as a Tribunal for passing order under Section 230 of the Companies Act, 2013. As the liquidation so taken up under the 'I&B Code', the arrangement of scheme should be in consonance with the statement and object of the 'I&B Code'. Meaning thereby, the scheme must ensure maximisation of the assets of the 'Corporate Debtor' and balance the stakeholders such as, the 'Financial Creditors', 'Operational Creditors', 'Secured Creditors' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Tribunal against the Liquidation Order, which was upheld (with the aforenoted directions to the Liquidator as specified in para 13). * 12.06.2019 The Liquidator issued a Public Announcement for submission of EOI in 6 newspapers and also on the official website of the 'Corporate Debtor'. * 28.06.2019 A Notice of extension of time was issued by the Liquidator and the date of submission of EOI was extended till 19.07.2019, the last date for submission of the 'Scheme' was 01.08.2019. * 19.07.2019 The Appellants/Prakash Chandra Kapoor and Vijay Kumar submitted their EOI. On 01.08.2019 a draft 'Scheme' of Compromise and Arrangement was submitted. * 13.08.2019 The Liquidator filed M.A. No. 2803 of 2019 before the Adjudicating Authority seeking an extension of time. A collective view was taken by the stakeholders that if more time is spent on revival, the value of the Assets of the 'Corporate Debtor' might be further deteriorated. * 28.01.2019 The Appellant/Prakash Chandra Kapoor and Vijay Kumar submitted an Additional Document in furtherance of the 'Scheme'. * 23.08.201 SRDIPL submitted a draft 'Scheme' of proposal for Compromise and Arrangement. * 26.08.201 The Adjudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the EMD amount and also to extend the period of submission of proposal. * 02.01.2020 Taking into consideration the request from the Prospective Applicants including SRDIPL, Adjudicating Authority revised the EMD amount from 2% of the 'Scheme' value to Rs.25 Crores/- and once again directed the Liquidator to issue fresh EOI. There was also direction to approach Government of India PSUs, Mazagaon Dock and other Shipyards who are similarly situated like that of the 'Corporate Debtor'. * 06.01.2020 A Public Announcement was issued for inviting EOI and a detail EOI was uploaded on the website of the 'Corporate Debtor'. * 11.01.2020 MSDL vide email dated 20.03.2020 informed that they were not interested in the proposal. * 21.02.2020 Representatives, of GRSE informed the Liquidator that they were not interested in submitting the 'Scheme'. * 24.02.2020 SRDIPL issued a letter stating that they are withdrawing the offer and one of their Associates Companies Sevenstar, M/s. Securities and Services India Private Limited shall submit a bid and SRDIPL will assist them. * 28.02.2020 The Liquidator raised preliminary objection to the 'Scheme' put forth by the sister concern that EMD ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that 2 years has lapsed since initiation of the Liquidation of the 'Corporate Debtor' and in compliance with the Order of this Tribunal dated 14.05.2019 to sell the 'Corporate Debtor' as a whole as a 'going concern', a Public Announcement dated 23.02.2021 and 08.04.2021 was published in the Business Standard (all Editions) Loksatta (all of Maharshtra), Kannada Prabha Mangalore, Dainik Herald Goa, Ajkal Kolkata, Daily Sagar Ratnagiri and also on the website of the 'Corporate Debtor' and invited Expressions of Interest for participation by interested bidders in the e-auction process of the sale of the 'Corporate Debtor' as a whole on a 'going concern basis'. * It is not in dispute that the Liquidator has issued an invitation to each of the persons that has evinced an interest in submitting a 'Scheme' to participate in the bidding process. Pursuant to the Public Announcement dated 23.02.2021, the Liquidator addressed an email on 24.02.2021 informing the Appellant about the e-auction process of the 'Corporate Debtor' as a 'going concern'. 17. The Liquidator has filed in his reply the emails sent to each of the persons who have evinced an interest in submitting a scheme to particip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 Members were not in favour of the offer and the remaining 8 Members did not give their view. It was further submitted that the Applicant has suppressed the factum that Divya Mercantile one of the interested bidders of the 'Corporate Debtor' holds 13.2% shareholding in the proposed Applicant Company. 22. For all the aforenoted reasons we do not find any deficiency in the performance of functions of the Liquidator who has acted in accordance with the directions given by this Tribunal and as per the relevant regulations. 'Going Concern' under Liquidation: 23. A key benefit of selling the 'Corporate Debtor', as a 'going concern' in Liquidation as against other manners of sale is, it can preserve employment while maximising the result of stakeholders. We find merit in admitting sale of the 'Corporate Debtor' as a 'going concern' in this Liquidation Process. 24. The term 'Going Concern' is well understood in legal parlance. The jurisprudence in this regard is fairly well developed out of the Erstwhile Liquidation regime under the Companies Act, 1956. The Insolvency Law Committee in its Report dated 26.03.2016 noted that:- "The phrase as a going concern implies that the CD would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to such compromise or arrangement.] (2) The time taken on compromise or arrangement, not exceeding ninety days, shall not be included in the liquidation period. (3) Any cost incurred by the liquidator in relation to compromise or arrangement shall be borne by the corporate debtor, where such compromise or arrangement is sanctioned by the Tribunal under sub-section (6) of section 230: Provided that such cost shall be borne by the parties who proposed compromise or arrangement, where such compromise or arrangement is not sanctioned by the Tribunal under sub-section (6) of section 230.] (Emphasis Supplied) 27. Regulation 32 & 32-A are being reproduced as hereunder:- 32. Sale of Assets, etc. - The liquidator may sell - (a) an asset on a standalone basis; (b) the assets in a slump sale; (c) a set of assets collectively; (d) the assets in parcels; (e) the corporate debtor as a going concern; or (f) the business(s) of the corporate debtor as a going concern: Provided that where an asset is subject to security interest, it shall not be sold under any of the clauses (a) to (f) unless the security interest therein has been relinquished to the liquidation estate. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract, with power to transfer such property to any person or body corporate, or to sell the same in parcels in such manner as may be specified; [Provided that the liquidator shall not sell the immovable and movable property or actionable claims of the corporate debtor in liquidation to any person who is not eligible to be a resolution applicant.]. (g) to draw, accept, make and endorse any negotiable instruments including bill of exchange, hundi or promissory note in the name and on behalf of the corporate debtor, with the same effect with respect to the liability as if such instruments were drawn, accepted, made or endorsed by or on behalf of the corporate debtor in the ordinary course of its business; (h) to take out, in his official name, letter of administration to any deceased contributory and to do in his official name any other act necessary for obtaining payment of any money due and payable from a contributory or his estate which cannot be ordinarily done in the name of the corporate debtor, and in all such cases, the money due and payable shall, for the purpose of enabling the liquidator to take out the letter of administration or recover the money, be deemed to be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion committee. (4) If the stakeholders of any class fail to nominate their representatives, the required number of stakeholders with the highest claim amount in that class shall be included in the consultation committee. (5) Subject to the provisions of the Code and these regulations, representatives in the consultation committee shall have access to all relevant records and information as may be required to provide advice to the liquidator under sub-regulation (1). (6) The liquidator shall convene a meeting of the consultation committee when he considers it necessary and shall convene a meeting of the consultation committee when a request is received from at least fifty-one percent of representatives in the consultation committee. (7) The liquidator shall chair the meetings of consultation committee and record deliberations of the meeting. (8) The liquidator shall place the recommendation of committee of creditors made under sub-regulation (1) of regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, before the consultation committee for its information. (9) The consultation committee shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffer of 'Pyrotech' before the stakeholders of the 'Corporate Debtor' for their views during the meeting held on 25.11.2021. It is submitted that out of the 11 Members who had attended the meeting, 4 Members expressed their views to carry out preliminary requirements and consider the proposal of 'M/s. Pyrotech' subject to 'due diligence' whereas the remaining 7 Members did not give any concrete view. It is submitted by the Liquidator that the Members of the stakeholders has neither approved nor accepted the proposal of the Applicant. 32. "47. [Model time-line for liquidation process. The following Table presents a model timeline of liquidation process of a corporate debtor from the liquidation commencement date, assuming that the process does not include compromise or arrangement under section 230 of the Companies Act, 2013 (18 of 2013) or sale under regulation 32-A: Model Timeline for Liquidation Process Sl. No. Section/ Regulation Description Norm Latest Time-line (Days) (1) (2) (3) (4) (5) 1 Section 33 and 34 Commencement of liquidation and appointment of liquidator LCD 0 = T 2 Section 33 (1) (b) (ii)/Reg. 12 (1, 2, 3) Public announcement in Form B Within 5 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin one year T + 365 20 Reg. 46 Deposit the amount of unclaimed dividends and undistributed proceeds Before submission of application under sub-regulation (3) of regulation 45 21 Sch-1 Sl. No 12 Time period to H1 bidder to provide balance sale consideration Within 90 days of the date of invitation to provide the balance amount.] [AA: Adjudicating Authority, LCD: Liquidation Commencement Date, SCC: Stakeholders' Consultation Committee]] (Emphasis in bold supplied) 47-A. Exclusion of period of lockdown.-Subject to the provisions of the Code, the period of lockdown imposed by the Central Government in the wake of Covid-19 outbreak shall not be counted for the purposes of computation of the time-line for any task that could not be completed due to such lockdown, in relation to any liquidation process.]" 33. The aforenoted timelines under Regulation 47 for Liquidation Process, are directory. Procedural law should not be construed as an obstruction but as an aid to Justice. Extension of time under Liquidation may be allowed only on the satisfaction that there exists exceptional circumstances. The Hon'ble Supreme Court in 'Smt. Rani Kusum' Vs. 'Smt. Kanchan Devi', reported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Adjudicating Authority, which Order has been confirmed by this Tribunal. * Several extensions were given to try for a 'Scheme' under Section 230 of the Companies Act, 2013, but despite several efforts, the same did not materialize. * The Counsel for the Liquidator submitted that he is still on Stage II of Regulation 32-A and seeks to sell the Company as a 'going concern' in compliance of the Orders of this Tribunal. * M/s. Edelweiss/'Financial Creditor' constituting 83% of the CoC seek that the proposal given by M/s. Pyrotech be placed before the Stakeholders Committee for deliberations and further negotiations. * Section 35(1)(e) of the code provides for carrying on the business of the 'Corporate Debtor' for its 'Beneficial Liquidation' as the Liquidator considers necessary. * Regulation 47 deals with only model timelines which are directory and not mandatory. * Regulation 47-A specifies that the time lost during lockdown may not be included in this period. * Keeping in view that the last two Meetings took place as recently as on 12.11.2021 and on 25.11.2021 and the auction on 24.11.2021, we are of the considered view that a total period of six weeks finally be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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