9911796707
TMI Blog2024 (2) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... and verified and admitted by the RP - HELD THAT:- The present is a case where the Financial Creditor has initiated proceedings against the Corporate Debtor after 18 years of invoking the guarantee. Guarantee was invoked on 03.12.2001 and Section 7 Application was filed on 12.03.2019. It is also relevant to notice that Corporate Debtor was in BIFR and it came out of BIFR only on 30.11.2016 and after 20.10.2017, it started earning profit. The Corporate Debtor was MSME and was running for last 54 years and it collapsed after initiation of CIRP by the Financial Creditor. The Financial Creditor was proceeding to recover its dues from Principal Borrower and after one time settlement dated 30.04.2005, the Principal Borrower sold its immovable properties to pay its dues under the Negotiated Settlement and it paid Rs.92.24 lakhs. The proceeding under which the Principal Borrower was selling its assets and repaying its dues was got interrupted by the Financial Creditor itself by filing an Application and obtaining an order dated 09.09.2011 from DRT. Further, the Financial Creditor did not prosecute further proceedings, even after restraining the Principal Borrower to sale its assets. Ult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. The second Form-G was issued since no Resolution Plan was received in pursuance to first EOI. Even the Promoter/ Director did not file any Resolution Plan. The second Form-G was issued to fulfill the object of maximization of value of the Corporate Debtor. It is further incorrect to suggest that the RP and CoC permitted Respondent No.4 to modify the Resolution Plan from time to time. Only change made by Respondent No.4 was to increase the CIRP cost. Side-byside perusal of the Resolution Plan would show that Resolution Plan of Respondent No.4 was better than Plan of Promoter/ Director. More so, it was the commercial wisdom of CoC to approve the Resolution Plan, the Promoter Director cannot seek any direction that CoC should approve the Plan of Promoter/ Director. The approval of Resolution Plan by the CoC cannot be questioned before the Adjudicating Authority, which is a settled law - The allegation made by Promoter/ Director against the RP were all unfounded and complaints were filed before the IBBI, which complaints were closed. The allegation that family of Respondent No.2 is in the business of Plywood is not correct. The father of Respondent No.2 was small retail trader of P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corded its conclusion, paragraphs-13 and 15 cannot be said to contain any reason, on the basis of which the Application was rejected. The conclusion in an order has to follow the reasons for coming to the conclusion. Both the parties have elaborately made their submissions and referred to the various materials in support of their respective submissions. The Adjudicating Authority ought to have adverted to them and thereafter should have recorded its reasons and conclusion. There are substance in the Appellant s submission that order of the Adjudicating Authority does not contain any reason for coming to the conclusions. In the facts of the present case, ends of justice will be served in setting aside the order dated 07.10.2021 and remitting the matter before the Adjudicating Authority for deciding IA No.51 of 2020 afresh. The new RP, who has now been appointed by subsequent order dated 08.04.2022, as noticed above, shall take steps for early disposal of IA No.51 of 2020. Appeal disposed off. - [ Justice Ashok Bhushan ] Chairperson And [ Mr. Barun Mitra ] Member ( Technical ) For the Appellant : Mr. Ritin Rai , Sr. Advocate , Mr. Sidhartha Barua , Ms. Tahira Kathpali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RP from the stage of Second EOI and replacement of the RP Sandeep Khaitan and appointment of new RP Amit Pareek. 6. The above Appeals challenges following three orders passed by the Adjudicating Authority: (i) Order dated 07.10.2021 passed by the Adjudicating Authority in IA no.51 of 2020 filed by RP under Section 43, 44, 45, 46, 48 and 66 of the Code. (ii) Order dated 08.04.2022 passed by the Adjudicating Authority in IA No.27 of 2021 filed by Piyush Periwal, the Promoter of the Corporate Debtor seeking direction for re-examination and reverification of the claim of the Financial Creditor. (iii) Order dated 08.04.2022 passed in IA No.43 of 2021, which IA was filed by Piyush Periwal, the Promoter of the Corporate Debtor, which IA was allowed by the Adjudicating Authority by terminating the CIRP from Second EOI and replacement of RP. 7. The sequence and events giving rise to the present Appeals are: (i) On 27.03.1997, the IDBI Bank sanctioned a loan of Rs.320 lakhs to National Boards Limited ( NBL ). The National Boards Limited (hereinafter referred to as the Principal Borrower ) availed loan amounting to Rs.307.71 lakhs. The Corporate Debtor National Plywoo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying the balance settlement amount. On 24.09.2012, the SASF revoked the Negotiated Settlement. (vii) The SASF did not appear before the DRT in execution proceedings of Recovery Certificate. The DRT passed an order on 16.11.2018 directing Execution Proceeding to be adjourned sine-die due to repeated non-appearance of SASF. (viii) It is relevant to notice here that although the Corporate Debtor was registered as sick industries under the Sick Industrial Companies (Special Provisions) Act, 1985 under reference No.259 of 2003, the IDBI/ SASF filed OA No.36 of 2003 against the Corporate Debtor for recovery of certain dues pertaining to certain Financial Facilities extended by IDBI to the Corporate Debtor. The IDBI also obtained a Decree on 05.08.2004. After the CD was registered in BIFR, the IDBI/ SASF entered into Negotiated Settlement with CD and entire payment under Negotiated Settlement were paid by the Corporate Debtor and No Due Certificate was issued on 15.07.2016 by SASF. (ix) The SASF did not pursue proceedings before DRT and after 18 years of invoking of the corporate guarantee, SASF filed Section 7 Application against the Corporate Debtor on 12.03.2019 being CP (IB) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Creditors ( CoC ) on 06.11.2020 (xiv) Piyush Periwal filed an IA No.05 of 2021 praying for direction from the Adjudicating Authority to permit the Promoter/ Management of the Corporate Debtor to submit a Resolution Plan. On 10.02.2021, the Adjudicating Authority disposed of IA No.05 of 2021 allowing the Suspended Management to submit a Resolution Plan. Resolution Plan was also submitted by Piyush Periwal, Promoter of the Corporate Debtor. (xv) On 09.04.2021, Piyush Periwal filed an IA No.27 of 2021, seeking direction to RP to re-examine and reverify the claim of SASF in view of the facts and grounds as pleaded in IA No.27 of 2021. (xvi) On 01.06.2021, Resolution Plan submitted by the PLBB was approved by the CoC. RP filed IA No.31 of 2021 before the Adjudicating Authority for approval of the Resolution Plan. (xvii) Piyush Periwal, the Promoter/ Director, filed IA No.43 of 2021 seeking a direction for removal of RP. Further direction was also sought for setting aside all acts of RP in which RP has been instrumental. (xviii) On 18.09.2020, RP has filed an IA No.51 of 2020 under Section 43, 45, 49 r/w Section 44, 48, 66 of the Code. IA No.51 of 2020 came to be reject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the parties in the above Group of Appeals, it is relevant to notice that Respondent No.1 in all these Appeals, i.e., Piyush Periwal, the Promoter and Director of the Corporate Debtor died on 15.07.2023, during the pendency of these Appeals. I.A. Nos. 5654 of 2023, 5649 of 2023, 5651 of 2023 and 5656 of 2023 were filed by Madhulika Periwal claiming to be substituted in place of Respondent No.1, which Applications were allowed by order dated 09.01.2024, permitting Madhulika Periwal to prosecute the Appeal in place of Respondent No.1. 11. We have heard Madahvi Diwan, learned ASG; Shri Ritin Rai, learned Senior Counsel with Sidharth Barua and Praful Jindal, learned Counsel appearing for Financial Creditor SASF; Shri Jayant Mehta, learned Senior Counsel appeared for the Resolution Professional; Shri Abhijeet Sinha, learned Senior Counsel appeared for the PLBB Products Pvt. Ltd.; Shri Jishnu Saha, learned Senior Counsel and Shri Abhijeet Sarkar, learned Counsel has appeared for Respondent No.1, the Promoter/ Director. 12. It is relevant to notice that learned Counsel for the Appellants had submitted that no right to sue survives after death of Respondent No.1 Piyush P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order dated 08.04.2022 passed by National Company Law Tribunal Guwahati Bench, Guwahati in IA No.27 OF 2021. In IA no.27 of 2021, following prayers have been made: i. An order be made directing the Resolution Professional (Respondent No. 5) to revise the claim of SASF (Respondent No. 1) from Rs. 16,12,23,210.00 to a sum not exceeding Rs. 1,23,65,000.00 ii. To draw a proceeding under section 65 and 75 against the respondent no. 2 to 4 for filing a malicious application and making false statements before this Honble Tribunal and also be individually held financially liable under Section 75 of the IBC. iii. To pass such other and further reliefs that this Honble Tribunal may deem fit and proper in the facts and circumstances of this case. iv. Pending the determination of the true financial entitlement of Respondent No. 1 against the Corporate Debtor, an order be made restraining the Respondent No. 1 from participating or voting in any other proceeding of the Committee of Creditors and in any event restraining it from overriding the decision of the other members of the same; v. To pass such other and further reliefs that this Hon'ble Tribunal may deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Promoter/ Director to set aside the claim lodged by Financial Creditor was rejected. After the above order passed by the Adjudicating Authority, the RP filed a Compliance Report on 24.12.2020 verifying the same amount of claim, which was admitted by RP, i.e. Rs.16.12 Crores. After the Compliance Report submitted by the RP, the Promoter/ Director filed the IA No.27 of 2021, which came to be decided on 08.04.2022 by the impugned order. IA No.89 of 2020 as well as IA No.27 of 2021 relates to the claim, which was submitted by the Financial Creditor. The Promoter/ Director has raised objection to the claim admitted by the RP of the Financial Creditor. 20. The amount of claim, which is admitted by the RP in the CIRP is one of the most important factors on which whole CIRP is built up. The admitted claim of the Financial Creditor is the basis on which Resolution Plan is submitted in the CIRP and is also basis of any Promoter/ Director of MSME to submit a Plan for revival of the Corporate Debtor. In these two Applications, Respondent No.1 has objected to the admission of inflated and incorrect claim by the RP, whereas on the other side the Appellant/ Financial Creditors as well a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Corporate Debtor being in BIFR till 30.11.2016. The liability of guarantor is co-extensive and co-terminus with that of the Principal Borrower. There was no error in admitting the claim of the Financial Creditor by the RP. The Adjudicating Authority committed error in issuing direction in IA 27 of 2021 to the new RP to reverify the claim. The new RP in pursuance of the order has now substantially reduced the claim of the Financial Creditor and the voting share has also been substantially reduced. 23. Learned Counsel for the Promoter/ Director submits that Corporate Debtor was not party to Decree dated 03.01.2005 passed by the DRT in Application filed by the Financial Creditor against the Principal Borrower. The Corporate Debtor has given guarantee to the loan obtained by Principal Borrower from the from the Financial Creditor of Rs.3.2 Crores. The Financial Creditor invoked the corporate guarantee on 03.12.2001, but had not initiated any proceedings. It is submitted that there being no Decree against the Corporate Debtor, no amount can be realised as per the Decree from the Corporate Debtor. It is submitted that Negotiated Settlement was entered between Financial Creditor a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a recovery measure, which is clearly against the intent and purpose of IBC. The admission of inflated claim of Financial Creditor has adversely affected the entire CIRP and the Financial Creditor having assigned the voting share of 71 and subsequently 87%, carried the CIRP proceedings having requisite majority according to its wish and objects. In the balance sheet of Principal Borrower as on 31.03.2019, which is a relevant document and is prior to initiation of filing of Section 7 Application, the liability of Principal Borrower was mentioned as of only Rs.123.65 lakhs, which balance sheet available with the RP has been ignored. The admission of inflated claim by RP is wholly erroneous and Promoter/ Director has immediately challenged the said admission by filing IA No.89 of 2020 and when a Compliance Report was submitted by RP, immediately IA No.27 of 2021 was filed, which remained pending and only decided on 08.04.2022. Thus, entire process undertaken by CoC and the RP are illegal and nullity and deserved to be set aside. 24. The learned Counsel for Respondent No.1 further submits that as per Negotiated Settlement the time was not the essence of the contract, since as per N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Interest on above amount November 01, 2001 D Date of Admission of CIRP application at NCLT August 26, 2019 E D-C [In days] 6,507 F Interest Amount [A*B/365*E] (Rs.) 11,61,52,341.72 G Total of Adjudicated Amount and Interest Amount [A+F] (Rs.) 17,04,47,209.72 H Amount received in the past (Rs.) 92,24,000.00 I Total Amount to be claimed as on August 26, 2019 [G-H] (Rs.) 16,12,23,209.72 26. Now, we have to look into as to whether the aforesaid claim could have been rightly admitted by the RP in the CIRP of the Corporate Debtor. As noted above, the OA No.27 of 2002 was filed by the IDBI, in which Decree was passed on 03.01.2005. It is useful to extract the operative portion of the Decree at paragraph 13, which is to the following effect: 13. The applicant is entitled to put t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . There is material on record that after the Negotiated Settlement, the Principal Borrower sought consent of the Financial Creditor to sell the assets to pay the amount to the Financial Creditor, which fact was also noticed by the DRT and Principal Borrower was permitted to sale his immovable property. The Principal Borrower sold the immovable assets and deposited the amount of Rs.92 lakhs with the Financial Creditor towards the Negotiated Settlement amount. 29. When we look into the claim Form filed by the Financial Creditor, which has been admitted by the RP, the interest has been charged @ 12% from 01.11.2001 till 26.08.2019. The charging of interest from 01.11.2001 as per the Decree dated 03.01.2005 is unsustainable, due to Negotiated Settlement entered between the parties on 30.04.2005, which according to the Appellant remained in operation till 24.09.2012, thus, the charging of the interest on the face of it is unsustainable. The Financial Creditor has claimed interest from 01.11.2001 till 26.08.2019, i.e., for 18 years, which is clearly unsustainable. The RP inspite of direction from the Adjudicating Authority to reverify the claim minutely and transact the proceedings ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Financial Creditor at best was entitled for compensation @ 10.25%, which was contemplated in the Negotiated Settlement. The contract did not remain voidable at the option of the Financial Creditor in view of the provision for payment of 10.25% interest on delayed payment. Thus, we are of the view that the Financial Creditor was entitled for payment of interest @ 10.25% on unpaid amount as per the Negotiated Settlement. It is admitted case of the parties that after the Negotiated Settlement, the Principal Borrower sold its assets and paid Rs.92.24 lakhs. Hence, total amount due was only Rs.123.65 lakhs. 32. The learned Counsel for the Appellant has referred to the balance sheet of the Principal Borrower as on 31.03.2018 where according to the learned Counsel for the Appellant indebtedness of Rs.450.70 lakhs was noticed. The balance sheet of the Principal Borrower as on 31.03.2019 was the relevant balance sheet, which was the balance sheet prior to filing of Section 7 Application, in which balance sheet total debt of the Financial Creditor was mentioned as Rs.123.65 lakhs, which has been ignored by the RP. The Corporate Debtor was the corporate guarantor and the guarantee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he DRT were adjourned sine-die by the DRT noticing that the Financial Creditor is not appearing in the matter. It is useful to extract, following from the order dated 16.11.2018: As per record, SASF has not appeared in the proceeding for more than two years. There are numbers of writ pending before the Hon ble Gauhati High Court related to the mortgage property. SASF has not filed any report regarding status of the pending writs. It is clearly evident that SASF is not interested to proceed in this case. As a result this Tribunal is unable to take any step for recover of certificate amount due to noncooperation of SASF. Hence, the matter is adjourned sine die, till such date SASF made its appearance and file proper affidavit to cooperate with the Tribunal in this matter. Nodal Officer of CHB is directed to hand over a copy of the day s order to the Zonal Head/Regional Head of CHB . 34. The above facts indicate that it was the Financial Creditor, who did not permit the Principal Borrower to pay the balance amount under the Negotiated Settlement by creating a restraint on the sale by the Principal Borrower, which proceeding was ultimately adjourned by DRT. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid movable and immovable property which was mortgaged to IDBI in 1997, in order to realize the balance outstanding amount of Rs.61.65 lacs under the negotiated settlement. The prayer in the application was allowed by the order dated 24.03.2009 and the present respondent was allowed to attach the aforesaid property, Subsequent thereto, in 2011, the respondent again approached the DRT and sought permission to revalue the land which stood mortgaged in favour of the respondent and restraining the principal borrower from selling the properties (the sale proceeds of which were to be used to repay the respondent No.1 ), thereby vitiating the process of selling of the assets to repay the respondent No.1. However, till 2018 the respondent has not taken any step to revalue the property and realise the aforesaid outstanding amount. In this context it is relevant to point out that the last order passed by the DR,.T in the aforesaid OA No.27/2002. The DRT by its order dated 16.11.2018 noted as under:- ''As per record, SASF has not appeared in the proceeding for more than two years. There are numbers of writ pending before the Hon'ble Gauhati High Court related to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declared as a sick company and a moratorium order under Section of The Sick Industrial Companies (Special Provisions) Act, 1985 was passed by BIFR with respect to the CD-NPIL directing that the operation of all or any of the contracts, assurance of property, agreements, settlements, awards, standing orders or other instruments in force, to which the CD-NPIL is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any of the rights, privileges, obligations and liabilities accruing or arising thereunder before the said date, shall remain suspended or shall be enforceable with such adoptions and in such manner as may be specified by the Board. 1.6. It is stated that the respondent No.2 without verifying the books of account of the Principal Borrowers (NBL) and the CD - NPIL and other available documents, accepted the impugned claim of Rs.16,12,23,210.00 of the respondent NO.1 arbitrarily and mechanically, violating the Regulation 14 of CIRP Regulations. 1.7 It is further submitted that the present application is being filed under Section 60(5) of the IBC Code, 2016 seeking to chal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Appellant that the order dated 09.12.2020 operates as re-judicata cannot be accepted. 38. The second submission of the learned Counsel for the Appellant that there was huge delay in filing IA No.27 of 2021, also cannot be countenanced. The Financial Creditor filed its claim of Rs.16.12 crores with RP on 09.09.2019, which was immediately challenged by filing IA No.89 of 2020 on 20.11.2019 by the Promoter/ Director and the said IA was disposed of by the Adjudicating Authority on 09.12.2020. In pursuance of the order the RP filed a Compliance Report on 24.12.2020, reiterating its admission of claim of Rs.16.12 Crore, on which Application was filed immediately by the Promoter/ Director being IA No.27 of 2021. Thus, the submission that there was delay in filing the Application cannot be entertained. It is to be noted that IA No.27 of 2021 was pending for consideration, during which the CIRP proceeded and the IA No.27 of 2021 could be decided only on 08.04.2022. The fact that Application was decided on 08.04.2022 cannot be treated to any adverse to the challenge of the admission of the claim of the Financial Creditor, which was put to challenge by filing Application by Promot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insolvency process in the instant case is totally in disregard of the provision of the Code and Regulations thereunder. The formation of the Committee of Creditors in the instant case is a nullity in the eyes of the law. Since the illegally constituted committee of creditors took the decisions at every stage of CIRP. Therefore, the entire corporate insolvency resolution process of the Corporate Debtor is found to be vitiated. Therefore the impugned order of liquidation passed by the Adjudicating Authority deserves to be set aside. 40. This Tribunal also in the above case held that when the constitution of the Committee of Creditors itself is found to be tainted, then the decision of that of CoC cannot be validated. To the same effect there is another judgment of this Tribunal passed in Company Appeal (AT) (Insolvency) No.583 of 2022 Edelweiss Asset Reconstruction Company Ltd. vs. Mohit Goyal, where this Tribunal laid down following in paragraphs 19 and 20 : 19. The need to have a properly constituted CoC needs no special emphasis for the CoC plays a pivotal role in the insolvency regime being the supreme decision making body in the CIRP of the Corporate Debtor. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claims has to form the CoC from among the financial creditors and each creditor has to be assigned the voting share on the financial debts owed to such creditor. Section 21(2) of the IBC provides that the CoC shall comprise all financial creditors of the Corporate Debtor. In the present case, the non-inclusion of the Appellant/Financial Creditor on the CoC before holding the first meeting was thus an infraction of the IBC. The CoC, therefore not having been validly constituted, the logical corollary is that decisions taken in the first meeting of the CoC stood vitiated. 41. Further in Bimalesh Bhardwaj and Ors. vs. Value Infratech India Pvt. Ltd. Company Appeal (AT) (Insolvency) No.112 of 2021, this Tribunal in paragraph 27 and 28 laid down following: 27. Thus we find that the CoC was not constituted in accordance with the provisions of IBC. In the matter, the CIRP was not pursued with fairness and due diligence by the Resolution Professional and the resolution for liquidation of the Corporate Debtor was taken in a meeting with an improper voting share ascribed to Respondent No. 4 and taken in unseemly haste. These are actions of omissions and commissions, which we can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l wisdom. 43. The above judgments clearly indicate that if the vote share is wrongly allocated to the Financial Creditor in the CoC, it gravely affects in carrying out the process of CIRP, as in the present case, inflated admission of claim of the Financial Creditor, resulted in serious consequences in the CIRP. In view of the aforesaid, we are of the view that Adjudicating Authority did not commit any error in issuing directions in IA No.27 of 2021, directing the new RP to again verify the claim and take further proceedings in accordance with the verified claim. 44. There is one more aspect of the matter, which cannot be lost sight of. The present is a case where the Financial Creditor has initiated proceedings against the Corporate Debtor after 18 years of invoking the guarantee. Guarantee was invoked on 03.12.2001 and Section 7 Application was filed on 12.03.2019. It is also relevant to notice that Corporate Debtor was in BIFR and it came out of BIFR only on 30.11.2016 and after 20.10.2017, it started earning profit. The Corporate Debtor was MSME and was running for last 54 years and it collapsed after initiation of CIRP by the Financial Creditor. We have already notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ASF) were repaid by 2016 and No Dues Certificates (NDCs) were issued. Since then, the CD had no institutional/ secured lender. Funds thereafter have been reportedly brought in through the promoter group, associates and well-wishers of the CD. Due to the upward growth of the CD after coming out from under the BIFR, the CD was re-listed on the BSE in 2018 after 15 years of suspension. Balance Sheet shows that the investors, including NBFCs, HNI investors, and public shareholders have invested funds in equity capital. iv. The reported performance of the CD from 2017- 2019 (in Rs. Lakhs) Year Turnover Profit after Tax 2016-2017 4870.86 23.07 2017-2018 4436.72 43.59 2018-2019 4114.07 71.97 v. Liabilities of the CD were reduced during 2017-2019 and Net Worth of the CD improved by 3284.42 lakhs from FY 2017-FY 2019. With the capital infusion and financial support, the CD survived the rigors of financial sickness under BIFR, rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B 50. These group of Appeals include - Company Appeal (AT) (Insolvency) No. 499 of 2022 filed by Financial Creditor; Company Appeal (AT) (Insolvency) No. 612 of 2022, filed by Sandeep Khaitan, erstwhile RP; and Company Appeal (AT) (Insolvency) No. 525 of 2022, filed by PLBB Products Pvt. Ltd. ( PLBB ). All the Appeals having been filed challenging the same order, they are decided by this common judgment. 51. IA No.43 of 2021 was filed before the Adjudicating Authority by the Promoter/ Director, where following prayers were made: 7.1 An order be made removing the respondent no.2 as the Resolution Professional in the matter. 7.2 An order be made setting aside all acts of the RP in which the RP had been instrumental, as unfair, biased, motivated and lacking in transparency. 7.3 An order be made removing the respondent no. 3 in the matter. 7.4 An order be made disqualifying the respondent no.4 as a Resolution Applicant in this matter. 7.5 Such further or other order or orders be made and/or direction or directions be given as to this Hon ble Court may seem fit and proper. 7.6 To grant any further relief that this Hon ble Court may deem fit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emanded to the new RP today to look afresh the prayer made in the IA in reference to the amount claimed by the R1. 15.2 Submission of the Petitioner that Respondent No. 1 approved of M/s PLBB Products Private Limited (Respondent No.4) as a Resolution Applicant of the CD in the second roll-out of EOI s despite Respondent No.4 being ineligible to file a Resolution Plan on several fronts, such as the fact that Respondent No.4 was not an entity at the time of submission of EOI s on 12.07.2020 and was only incorporated on 20.07.2020. The Petitioner further submits that R1 has allowed the R2 to take so many decisions, which are not permitted under the IBC, for its own interest including the decision of the initiation of the second EOI, not publishing the Form G in widely circulated newspapers, filing of false FIR, allowing modification in Resolution Plan after the submission for approval, filing of applications for change in Trade mark of the CD during CIRP Period etc. 15.3 As per the records available from both the sides, the R1 has not acted as per the provision of the IBC as the CoC Member having voting share of 87.76%. They have mostly concentrated on the point of Commerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and not in the first. The entire second roll-out, with this new inclusion, was done purely to allow PLBB Products Pvt Ltd (PLBB), Respondent No.4 (R4) to file a resolution plan for the CD. Respondent No.4, at the time of filing the EOI, was not even an entity, not an SPV, SPC or Consortium, and neither Respondent No.4 nor its promoters had any prior experience in the industry in which the CD operates. All norms of propriety were violated, and rules bent by the Respondent No. 2 to allow the Respondent No.4 to file their EOI as an entity which had not even come into existence. Even the Articles and Memorandum of Association of the Respondent No.4 (a non-entity at the time of submission of EOI) does not include the SPV/SPC criteria. Norms were blatantly flouted by the Respondent Nos 1 to 3 in collusion to camouflage the deviation permitted by them to allow the Respondent No.4 to become a successful Resolution Applicant. vi. Records made available to us confirm that the Respondent No.4 was not an entity at the time of submission of EOI s on 12.07.2020 and it was only incorporated on 20.07.2020. 53. The Adjudicating Authority also has noted the submissions of the Promoter/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the R1, R2, R3, R4 were entirely focusing on one point in their submissions, pleadings and arguments during the entire proceedings that the jurisdiction of the Hon ble Adjudicating Authority is limited to the statutory provisions of the Code, which does not vest the Hon ble Adjudicating Authority with any equity jurisdiction to entertain a challenge against a CoC approved resolution plan. We are well aware of the provisions of IBC and judgements of the Hon ble Supreme Court in the matter but the fact is that the process of CIRP is tainted from the second roll-out of EOI, then the stages of Commercial wisdom of the CoC and the approval of the Resolution Plan by the CoC do not arise. 20.3 Hence, considering the points mentioned above including the observations made in the points no points no 14 to 20.2 We are of the considered view that the provisions of the I B Code and Regulations made thereunder have not been complied from the stage of the second EoI. Transparency, Confidentiality and fairness have not been maintained. Conflicts of interests have been established. 20.4 In the interests of all stakeholders with transparency in the resolution process and in order to ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter/ Director to increase the Plan value, which is reflected in the Minutes of 15th CoC and equal opportunity was provided to Respondent No.4 to revise its Resolution Plan and Resolution Plan which was revised by Respondent No.4, was only with regard to CIRP costs, which increased due to prolonging of the proceedings. After evaluating the Resolution Plan, the CoC approved the Resolution Plan of Respondent No.4 in its commercial wisdom, which cannot be allowed to question before the Adjudicating Authority. The Adjudicating Authority had no jurisdiction to pass the impugned order in IA 43 of 2021. 56. The learned Counsel for the RP, challenging the impugned order submits that the allegations made by the Promoter/ Director that there was collusion between Respondents SASF, RP and PLBB has not been substantiated. There was no conflict of interest with Respondents - SASF, RP and PLBB. The mere fact that RP has given his consent to act as IRP in an Application filed by the Damayanti Tea Industries, which had common Promoter with PLBB, is not a proof of any collusion. More so, subsequently, the consent given by RP was withdrawn. It is further submitted that allegation that Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 12 of the Code. The allegation that Respondent No.4 was not eligible to submit a Resolution Plan is incorrect. There was no collusion with Respondent Nos.2 and 4 and allegation in respect of the same are without any basis. Allegation that second Form-G was not published in several newspapers, as was done in the first Form-G, has no consequence, since even in response to second Form-G, apart from Respondent No.4, three more entities had submitted their EOI, but those EOI having been submitted after the last date, under the advice of CoC, they were not considered. The allegation made by Promoter/ Director against the RP were all unfounded and complaints were filed before the IBBI, which complaints were closed. The allegation that family of Respondent No.2 is in the business of Plywood is not correct. The father of Respondent No.2 was small retail trader of Plywood. The Adjudicating Authority could not have passed an order removing the RP. The RP can be removed only in accordance with Section 27 of the Code. When the statute provides for a thing to be done in a particular way, it must be done in that manner alone, or not at all. The allegations of collusion against Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter for M/s Damayanti Tea Industries, a related party, which was being run by the Promoters of PLBB, clearly shows the collusion between RP and PLBB. The MSME unit of the Promoter/ Director, which was running for last 58 years and after coming out from the BIFR was earning profit in 2016-17, 2017-18 and 2018-19 was suddenly put to closure. After the first approval of Plan of Respondent No.4, the Promoters of Respondent No.4 visited the factory premises of the Corporate Debtor and had communicated that they want number of staff to be reduced. The said visit of Promoter was in December 2020 and immediately the RP issued a lay off notice in January 2021. Infact, RP was acting to benefit Respondent No.4 and there was clear nexus between SASF and RP. The entire CIRP was conducted by RP in the manner, which shows lack of transparency and collusion and Adjudicating Authority has rightly taken a decision to scrap the CIRP from Second EOI and replace the RP. Replacement of RP cannot be faulted, since the Adjudicating Authority was satisfied about the allegations made by the Promoter/ Director and in view of the findings returned by the Adjudicating Authority in paragraph 20, it is clear tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Creditor was wrongly accepted for Rs.16.12 Crores, which was not corrected, even after the directions given by the Adjudicating Authority. Further, the fact that RP has not correctly verified the claim of the Financial Creditor and inspite of directions of Adjudicating Authority, did not amend its opinion, is sufficient enough to replace the RP. We are, thus, of the view that in view of our reasons and conclusions given while deciding Company Appeal (AT) (Insolvency) No. 526 of 2022, the decision of the Adjudicating Authority to terminate the CIRP process from the stage of Second EOI and replacement of RP can be sustained. 60. The learned Counsel for the parties have made elaborate submissions with regard to findings recorded by the Adjudicating Authority in the impugned order regarding lack of transparency, conflict of interest and non-compliance of provisions of the Code. 61. The learned Counsel for the RP has emphatically submitted that Adjudicating Authority had no jurisdiction to pass an order replacing the RP. He submits that RP can be replaced only in accordance with Section 27 of the Code, when a Resolution is passed by the CoC for such replacement. There can be n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by Anand Varma, Advocate challenging adverse observations made against him, which Appeal was decided on 04.11.2022. We are also of the view that the plea taken on behalf of Respondent No.5/ Praful Jindal, who was an Advocate, appearing for Financial Creditor was correct that Respondent No.5 never appeared for the RP and he always appeared for the Financial Creditor. Thus, there is no question of any conflict of interest with regard to Respondent No.5 with other Respondents. We thus are of the view that adverse observations made against Respondent No.5, Praful Jindal in the above order also deserves to be set aside and ordered accordingly. 64. Insofar as observation made in the impugned order by the Adjudicating Authority regarding and RP are concerned, we are of the view that said observations were made only for the purposes of deciding the Application and the observations cannot furnish any foundation for initiating any action against RP in any Forum. We, thus, observe and clarify that observations made against RP be not treated regarding integrity of RP and the observations will be confined and treated as observation for the purpose of case only and the said observations sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal in Group C 68. These Group of Appeals are Company Appeal (AT) (Insolvency) No. 947 of 2021 filed by SASF and Company Appeal (AT) (Insolvency) No. 1001 of 2021 filed by Sandeep Khaitan, RP. In these Appeals, the order passed by the Adjudicating Authority dated 07.10.2021 in IA No.51 of 2020 filed by the RP has been challenged. By the impugned order, the Adjudicating Authority has rejected IA No.51 of 2020. Aggrieved by the said order, both the Appeals have been filed. 69. The Application IA No.51 of 2020 was filed by the RP alleging preferential, undervalued and fraudulent transactions undertaken by suspended Director of the Corporate Debtor. The RP in the Application has questioned 13 transactions as preferential, undervalued and fraudulent. The RP placed reliance on Report of Forensic Auditor BDO India LLP dated 26.08.2020. The IA No.51 of 2020 was contested by Respondent No.1 Promoter/ Director by filing a detailed reply. Both, the RP as well as Suspended Director filed the written submissions and brief in support of their respective submissions. The Adjudicating Authority after considering the submission of both the parties, by the impugned order held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd submissions raised by the Appellant, rejected the Application, which order is unsustainable. The reasoning applied by Adjudicating Authority that CD was profit making concern before initiation of the CIRP is completely irrelevant and does not find any mention in Section 43, 44, 45, 46, 48 and 49. Further, the said consideration is factually incorrect. The reliance of Adjudicating Authority on the judgment of this Appellate Tribunal dated 07.09.2021, as quoted in the impugned order was not any finding of the Adjudicating Authority, but only recording of submission. It is submitted that transaction conducted by the CD with related parties and transactions questioned by the RP were within the lookback period as provided under Code. The transactions undertaken by the Ex-Management were with the sole object to divert the assets and funds of CD, fall within the parameter identified by Hon ble Supreme Court in Anuj Jain IRP for Jaypee Infratech Ltd. v. Axis Bank Ltd. (2020) 8 SCC 401. 72. Learned Counsel for Respondent No.1 refuting the submission of learned Counsel for the Appellant submits that Promoter/ Director had filed a detailed reply to all allegations pertaining to 13 tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objections were raised at the time for preparing the balance sheet signed by the RP, and were looked into by RP and his expert team. It is submitted that neither the Forensic Auditor nor the Appellant looked into the materials and reply, which was submitted by Respondent No.1. The Forensic Auditor chose to ignore the evidence submitted in compliance of their query, which address the transactions elaborately in the Forensic Audit Report dated 26.08.2020. The Appellant as well as the Forensic Auditor has deliberately only selected the outflow of funds while ignoring the inflow of funds from the same party, both of which were done in regular course of business. It is submitted Section 43, sub-section (3) itself contain an exclusion for transactions done in ordinary course of business and are not covered in preferential transactions. The Respondent No.1 has successfully proved before the Adjudicating Authority that transaction was done in ordinary course of business with the related party, who has supplied the materials. It is submitted that the Corporate Debtor was in BIFR and has taken funds from various individuals and related parties, which after coming from the BIFR, as soon as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the resolution professional, as the case may be, is of the opinion that the corporate debtor has, at a relevant time, given a preference in such transactions and in such manner as specified in subsection (2), to any person/persons as referred to in subsection (4), he is required to apply to the adjudicating authority for avoidance of preferential transactions and for one or more of the orders referred to in Section 44. If twin conditions specified in sub-section (2) of Section 43 are satisfied, the transaction would be deemed to be of preference. As per clause (a) of sub-section (2) of Section 43, the transaction, of transfer of property or an interest thereof of the corporate debtor, ought to be for the benefit [ It may be intended benefit or may even be unintended benefit.] of a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor; and as per clause (b) thereof, such transfer ought to be of the effect of putting such creditor or surety or guarantor in beneficial position than it would have been in the event of distribution of assets under Section 53. [ Section 53 IBC makes provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of. The meaning of the expression new value has also been explained in this provision. 77. There can be no quarrel to the proposition laid down by the Hon ble Supreme Court in the above case regarding the requirement to be fulfilled for holding transaction to be undervalued transaction. The Hon ble Supreme Court has also noticed that even if a transaction of transfer otherwise answers to and comes within the scope of sub-section (4) and (2) of Section 43 of the Code, it will remain outside the ambit of sub-section (2) of Section 43, if it is covered by exclusion in Section 43 (3). 78. One of the submission, which has been advanced by learned Counsel for the Appellant is that the fact that Corporate Debtor was earning profit before the initiation of CIRP, is irrelevant for deciding an Application under Section 43 and 44. As noted above, the transactions, which are covered by Section 43, sub-section (3) are to be excluded, even if they fall in the definition of Section 43(2) and (4) as held by Hon ble Supreme Court in Anuj Jain s case, whether a transaction is done in the ordinary course of business can be considered taking into consideration overall facts and circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice will be served in setting aside the order dated 07.10.2021 and remitting the matter before the Adjudicating Authority for deciding IA No.51 of 2020 afresh. The new RP, who has now been appointed by subsequent order dated 08.04.2022, as noticed above, shall take steps for early disposal of IA No.51 of 2020. 82. In view of the above, Company Appeal (AT) (Insolvency) No. 947 of 2021 and Company Appeal (AT) (Insolvency) No. 1001 of 2021 are allowed. The order dated 07.10.2021 is set aside. IA No.51 of 2020 is revived to be heard by Adjudicating Authority afresh. We also request the Adjudicating Authority to decide the Application at an early date. In result all the above Appeal are decided in following manner: (I) Company Appeal (AT) (Insolvency) No. 526 of 2022: There is no merit in the Appeal. The Appeal is dismissed. (II) Company Appeal (AT) (Insolvency) Nos. 499 of 2022, 525 of 2022 and 612 of 2022. The Appeals are disposed of in following manner: (i) The order of Adjudicating Authority dated 08.04.2022 passed in IA No.43 of 2021 to the extent it terminates the CIRP from the stage of Second EOI as well as replacement of the RP is upheld. (ii) The ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
