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TMI Blog2023 (6) TMI 1250X X X X Extracts X X X X X X X X Extracts X X X X ..... solution Applicant : Mr. Rana Mukherjee, Senior Advocate For Mr. Kawsik Raghu Rajaa, and Mr. Anand Selvam, Advocates For the Appellant : Mr. T.K. Bhaskar, Sr. Advocate For Mr. Pranav G, and Mr. Mayan H Jain, Advocates For the Respondent Nos.1, 4 to 8 : Mr. E. Om Prakash, Senior Advocate For Ms. Madhusmita Bora, Advocate For the Respondent Nos.2 & 3/ Resolution Professional : Mr. Sumant Batra, Sr. Advocate For Ms. Sarvapriya Roy and Mr. K. Moorthy, Advocates For the Respondent No.13 : Mr. Yashraj Singh Deora, Advocate For Mr. Abhishek Singh and Mr. Priyesh Mohan Srivastava, Advocates JUDGMENT [ Per : Shreesha Merla , Member ( Technical ) ] 1. The Present Appeals are filed under Section 61 of the 'Insolvency and Bankruptcy Code, 2016', against the Impugned Orders dated 12/06/2019 and 09/07/2019, passed by the 'Adjudicating Authority'/ 'National Company Law Tribunal, Chennai' in MA/179/2019 and MA/120/2019 in CP/39/IB/2018. The Learned Adjudicating Authority, has dismissed MA/120/2019 filed by the Appellant here in, inter alia, seeking for forensic audit of the 'Books of Accounts' of the Corporate Debtor, and not to approve the Resolution Plan till the disposal of the Applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the shareholder of the Corporate Debtor viz., M/s. Tiffins Barytes Asbestos and Paints Ltd., and is the absolute owner of 35,590 shares and upon his father's intestate demise in April 2013, he and his brother viz., Mr. Sriram Vedam, inherited the 12,938 shares a n d therefore has a substantial interest in the Corporate Debtor. The objector has alleged that the Resolution Professional has not shared the documents with him which is in violation of the Principles of Natural Justice. The decision of the Committee of Creditors is not in accordance with law as the constitution of the committee is invalid. The Resolution Professional and other persons will get illegal benefit from the approval of the Resolution Plan. The Objector has also stated that the pending MAs were to be decided first and then the Resolution Plan should have been taken into consideration. He has questioned the quantity of the material lying on the spot and seeks forensic audit of various transactions in relation to the Corporate Debtor. It is also alleged that the Resolution Plan is discriminatory. In connection with the objections noted above, there does not appear any provision in the IBC to prescribe any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Regulation 35 A of the 'Corporate Persons Regulations' read with Section 25(2) (j) and Sections 43, 45, 49, 50 & 66 of the Code to form an opinion on whether the Corporate Debtor has been subjected to any of the Transactions covered therein; that the Resolution Professional is duty bound under Sections 20(1) and 20(2) (a) read with Sections 25(1) and 25(2) of the Code to protect and preserve the value of assets of the Corporate Debtor; that in the 3rd meeting of the CoC held on 23/06/2018, the Resolution Professional stated that he have to file a Certificate regarding the Fraudulent Transactions, Preferential Transactions and Undervalued Transactions and that he would be engaging auditors to conduct the Forensic Audit of the Transactions of the Corporate Debtor; on 24/10/2018, in the 5th CoC Meeting, a proposal for conducting the Forensic Audit was placed before the CoC, which was rejected; that the decision by the CoC on 24/10/2018 was taken by 91.90% voting share, out of which 46.20% voting share was by ineligible persons; that the Resolution Professional gave a Report stating that he was not taking any responsibility about the authenticity of the Financial Transactions th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oobalan was incharge of the day to day affairs of the Corporate Debtor Company and was working hand in glove with the Resolution Professional for their personal benefits and the Resolution Professional was determined to undervalue the Company. The Learned Senior Counsel placed reliance on the following Judgements: a. Dr. B.V.S. Lakshmi v. Geometrix Laser Solutions Private Limited C.A. (AT) (Ins) No. 38 of 2017 (judgment dt. 22.12.2017) (para 29 to 31) b. Sanjay Kewalramani v. Sunil Parmanand Kewalramani & Ors., C.A. (AT) (Ins) No. 57 of 2018 (judgment dt. 12.07.2018) (para 12 & 13) c. Mohinder Singh Gill Vs. Chief Election Commission 1978 AIR 851 d. Committee of Creditors of Essar Steel India v. Sathish Kumar Gupta & Ors. (2020(8) SCC 531) e. Hemant Kanoria v. SREI Infrastructure Finance Limited (IA (IB) No. 75/KB/2022) f. Embassy Property Developments Pvt. Ltd. v. State of Karnataka ((2020) 13 SCC 308) g. Behari Kunj Sahakari Avas Samiti v. State of U.P. ((2008) 12 SCC 306) h. Punjab Merchantile Bank Ltd. v. Kishan Singh & Ors. (AIR 1963 P&H 230) i. Ramachandra Ganpat Shinde & Ors. v. State of Maharashtra ((1993) 4 SCC 216) 8. The Resolution Professional (RP) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of Karnataka challenged the direction issued by the Adjudicating Authority before the Hon'ble High Court of Karnataka in W.P. No. 41029 of 2019 and obtained an Order of Stay, against which 'Special Leave Petitions' ("SLPs") were preferred and the Hon'ble Supreme Court in SLP Nos. 22596/2019, 22684/2019 and in 22724/2019 stayed the Order passed by the Hon'ble High Court of Karnataka. The Resolution Professional has appointed 2 registered valuers under Regulation 35 to determine the Liquidation Value. 10. The Learned Senior Counsel for R2 (Resolution Professional) contended that there was no material irregularity in the conduct and exercise of powers by the Resolution Professional and that the revised Form (H) in terms of the Orders passed in MA/573/2018, dated 27/03/2019 were taken on record by the Adjudicating Authority and the question on reconstitution of the CoC does not arise, since 270 days time has already expired as on 07/03/2019 and the Order in MA/573/2018, was passed on 27/03/2019. The CoC in the 5th Meeting voted against any Forensic Audit as it would consume a lot of time and the 'CIRP' process would be delayed. The Valuation of the Stocks was arrived at based on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncial Creditor, who had filed the Section 7 Application, that the Corporate Debtor had given a cheque to the Financial Creditor for an amount of Rs. 8,82,68,439/-, on 03/04/2014, which was dishonoured due to lack of funds. Therefore, CC No. 1687/2014 was filed by the Financial Creditor before the Learned Judicial First Class Magistrate, Bellari, under Section 138 of the 'Negotiable Instruments Act, 1881' and a 'Joint Memorandum of Compromise' as mentioned in the MoU was filed before the Court in CC No. 1687/2014, based on which the Company was acquitted of the offence. The Learned Senior Counsel Mr. E. Om Prakash, contended that the Corporate Debtor had raised all the issues through its Managing Director and also preferred an Appeal, which was dismissed by this Tribunal. 15. It is also brought to our Notice that when 'EOI' was published, the Appellant had approached the Resolution Professional, stating that he was intending submitting a Resolution Plan, and stepped in when the CoC was finalising the Plan. 16. The Learned Counsel drew our attention to a few dates for better understanding of the case, on 19/02/2019, an MA was filed by the Resolution Professional for clarity of two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s' based on the established 'Principles of Creditors' in the control framework. The Court provides the 'shareholders' right to file a 'Claim' only in the Liquidation Process as 'stakeholders' and the advances of stakeholders as stated in Regulation 2(k) includes shareholders only because unlike 'CIRP', in Liquidation, distribution to stakeholders is in accordance with the waterfall mechanism. Shareholders are excluded from representation, participation or voting in the CoC and are represented in the CoC only through the Directors and can speak only through the Directors. 19. The Learned Counsel for the Appellant relied on the Judgment of the Hon'ble Supreme Court in the matter of 'Vijaykumar Jain Vs. Standard Chartered Bank', reported in [(2019) 20 SCC 455], in support of his Submission that 'shareholder' has 'locus' as he is an 'affected Party' and hence can challenge the Resolution Plan, and drew our attention to Para 20 of the afore noted Judgment, which reads as follows: " 20. It is also important to note that every participant is entitled to a notice of every meeting of the Committee of Creditors. Such notice of meeting must contain an agenda of the meeting, together with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he event of a liquidation of the corporate debtor. Explanation 1. - For removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors. Explanation 2. - For the purpose of this clause, it is hereby declared that on and from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, the provisions of this clause shall also apply to the corporate insolvency resolution process of a corporate debtor- (i) where a resolution plan has not been approved or rejected by the Adjudicating Authority; (ii) where an appeal has been preferred under section 61 or section 62 or such an appeal is not time barred under any provision of law for the time being in force; or (iii) where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan;] (c) provides for the management of the affairs of the Corporate debtor after approval of the resolution plan; (d) The implementation and supervision of the resolution plan; (e) does not contravene any of the provisions of the law for the time being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or otherwise and to agitate their views only through the Directors. 26. The High Court of Delhi in the matter of 'ICP Investments (Mauritius Ltd.) Vs. Uppal Housing Pvt. Ltd. & Ors.' reported in [(2019) SCC Online Del 12371] has held as follows: "20. It is felt that once the affairs of the Umang are taken over by an IRP, the Directors of Umang can no longer be blamed for not taking the requisite steps to seek redress for the wrong if any done to Umang, and a derivative action by plaintiff, as a majority shareholder, for the benefit of Umang would not be maintainable. The plaintiff now has to approach the IRP for taking action against Uppal and it is me IRP who has to, if finds any merit in the grievance of the plaintiff, take appropriate remedy on behalf of Umang. Moreover, if the plaintiff remains dissatisfied with the decision of IRP, has remedy before the NCLT. 21. I find the question to be not res integra, as far as foreign jurisdictions are concerned. Reference in this regard may be made to: (i) Fargro v. Godfroy, [1986] 3 All ER 279, which was a case of derivative action on behalf of a "deadlock company" i.e. Articles of Association whereof did not provide a casting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower to manage is usually vested in the Board; however when a company enters into liquidation, the board is effectively functus officio and the liquidator is in the driver seat and the directors have no power to react to any notice, whether to prosecute, defend or discontinue an action on the company's behalf. 22. I must however note that the aforesaid cases involved a company which was at the stage of liquidation, as distinct from Umang in the present case, against which only the insolvency process has begun. However, considering the duties and role of the IRP under the IBC as discussed hereinabove, the principle in each of the aforesaid cases i.e. of the management of the company, on whose fraud/mismanagement a derivative action becomes maintainable, being no longer in power/control, and consequently a derivative action being no longer maintainable, also applies to the present case." 23. I also find a Single Judge of the High Court of Madras in Jai Rajkumar v. Stanbic Bank Ghana Ltd., 2018 CC OnLine Mad 10472 to have held a suit by way of a derivative action to be not maintainable when the company, for whose benefit derivative action was initiated, was under insolvency. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find force in the Contention of the Learned Senior Counsel Mr. E. Om Prakash, that these issues were never raised earlier, no action was taken and that there are other remedies in Law for any of these grievances. 31. The Hon'ble Supreme Court in the matter of 'Arunkumar Jagatramka V. Jindal Steel & Power Ltd. & Anr.', reported in [(2021) 7 SCC 474] in Para 95 has observed as follows: " 95. At this juncture, it is important to remember that the explicit recognition of the schemes under Section 230 into the liquidation process under the IBC was through the judicial intervention of Nclat in Y. Shivram Prasad [Y. Shivram Prasad v. S. Dhanapal, 2019 SCC OnLine NCLAT 172]. Since the efficacy of this arrangement is not challenged before us in this case, we cannot comment on its merits. However, we do take this opportunity to offer a note of caution for NCLT and Nclat, functioning as the adjudicatory authority and appellate authority under the IBC respectively, from judicially interfering in the framework envisaged under the IBC. As we have noted earlier in the judgment, the IBC was introduced in order to overhaul the insolvency and bankruptcy regime in India. As such, it is a carefully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Authority, the record shows that the 5th CoC Meeting on 24/10/2018, deliberated on the financial statements, rejected the draft audit report and decided to appoint another auditor to conduct the Corporate Debtor. The CoC has rejected the conduction of a forensic audit by a vote of an overwhelming majority of 91.9% . In the 6th CoC meeting held on 15/12/2018, 'Chartered Accountants' were appointed to complete the audit of the Corporate Debtor. 34. The minutes of the 10th CoC meeting held on 27/02/2019 shows that two sets of voting were conducted by the RP are with all CoC Members and are without the Members whose 'Membership status' is disputed and both sets had approved the Resolution Plan by a Majority. Therefore, we see no grounds to hold that had the Applications seeking forensic audit been allowed, the Resolution Plan would not have been approved. 35. IA No. 112 & 113 of 2023 have been filed by Mr. Vishnu Vedam, son of the Former Managing Director, seeking to be impleaded, praying for directions to permit him to represent the Corporate Debtor before appropriate forums. This impleadment Application was strongly contested by the Appellant on the ground that as the Applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s) Regulations, 2016 notes that 'a Resolution Plan shall include a statement as to how it has to be dealt with the interest of all stakeholders, including Financial Creditors and Operational Creditors of the Corporate Debtor'. The necessary and requisite condition was that the Resolution Plan has been adhered to by the 'Successful Resolution Applicant' and approved by the Adjudicating Authority. It is significant to mention that the Appellant/ Shareholder of the Corporate Debtor has challenged the decision of the Adjudicating Authority approving the Resolution Plan, at a belated stage. At this juncture, we find it relevant to place reliance on the Judgment of the Hon'ble Apex Court in the matter of 'Kalparaj Dharamshi v. Kotak Investment Advisors Ltd.' reported in [(2021) 10 SCC 401], in which the Hon'ble Apex Court has clearly laid down that the Commercial wisdom of the CoC cannot be set aside unless there is a 'material irregularity' as defined under Section 30(2) of the Code. 39. From these decisions rendered by the Hon'ble Supreme Court, it is crystal clear that the 'discretion of the Tribunals', is circumscribed by Section 31 limited to scrutiny of the Resolution Plan, if it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows : Financial Creditor Voting % EPDPL VITPL Indian Overseas Bank 6.80 % Favour Against AASAAN Global Trade 0.60% Against Against Jayashree Agencies 22.80% (e-voting) JSW Steels 22.80 % Against Against Palak HR 0.90 % Against Against Mr. Poobalan 7.30% Favour Against Udhayaman Investments 13.10% Favour Against D & D Enterprises 24.30% Favour Against DP Exports 19.10% Favour Against Elite Exports 2.80% Favour Against Sujathaa Mehta 0.40% Against Against Total 100% Votes in Favour Votes Against 75.20% 1.90% - 77.20% Note: Voting result subject to the e-voting of JSW Steels. RP informed the CoC Members the results of the Voting (subject to the e-voting of JSW) and the following resolution has been passed in the CoC." 42. The Hon'ble Supreme Court in the matter of 'Kalparaj Dharamshi & Anr. v. Kotak Investment Advisors Ltd. & Anr.' reported in 2021 (10 SCC 401) has held as follows: "164. It will be further relevant to refer to the following observations of this Court in K. Sashidhar [K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150 : (2019) 4 SCC (C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Committee of Creditors [Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta, (2020) 8 SCC 531 : (2021) 2 SCC (Civ) 443] after reproducing certain paragraphs in K. Sashidhar [K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150 : (2019) 4 SCC (Civ) 222] observed thus : (Essar Steel India case [Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta, (2020) 8 SCC 531 : (2021) 2 SCC (Civ) 443] , SCC p. 589, para 67) "67. ... Thus, it is clear that the limited judicial review available, which can in no circumstance trespass upon a business decision of the majority of the Committee of Creditors, has to be within the four corners of Section 30(2) of the Code, insofar as the adjudicating authority is concerned, and Section 32 read with Section 61(3) of the Code, insofar as the Appellate Tribunal is concerned, the parameters of such review having been clearly laid down in K. Sashidhar [K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150 : (2019) 4 SCC (Civ) 222] ." 168. It can thus be seen, that this Court has clarified, that the limited judicial review, which is available, can in no circumstance trespass upon a business decision arrived at by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n their appeal is that they want to run the company and infuse more funds. In such circumstances, we do not think the appellate authority ought to have interfered with the order of the adjudicating authority in directing the successful resolution applicant to enhance their fund inflow upfront." 170. This Court observed, that the Court ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis. This Court clearly held, that the appellate authority ought not to have interfered with the order of the adjudicating authority by directing the successful resolution applicant to enhance their fund inflow upfront. 171. It would thus be clear, that the legislative scheme, as interpreted by various decisions of this Court, is unambiguous. The commercial wisdom of CoC is not to be interfered with, excepting the limited scope as provided under Sections 30 and 31 of the I&B Code. (Emphasis Supplied) 43. It is clear from the aforenoted Judgment of the Hon'ble Apex Court that the Commercial Wisdom of the CoC has been given paramount importance and that there can be judicial intervention only when there is any ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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