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TMI Blog2024 (2) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... on Process ("CIRP") of the Corporate Debtor - National Plywood Industries Ltd., have been heard together and are being decided by this common judgment. 2. The Company Appeal (AT) (Insolvency) No. 947 of 2021, 499 of 2022 and 526 of 2022 have been filed by Financial Creditor - Stressed Assets Stabilization Fund ("SASF"). The Company Appeal (AT) (Insolvency) No. 1001 of 2021 has been filed by Sandeep Khaitan, Resolution Professional ("RP"); The Company Appeal (AT) (Insolvency) No. 612 of 2022 has been filed by Sandeep Khaitan, erstwhile RP; and The Company Appeal (AT) (Insolvency) No. 525 of 2022 has been filed by PLBB Products Pvt. Ltd., the Resolution Applicant, who has filed the Resolution Plan in the CIRP of the Corporate Debtor. 3. The Company Appeal (AT) (Insolvency) No. 947 of 2021, filed by the Financial Creditor - SASF and Company Appeal (AT) (Insolvency) No. 1001 of 2021 filed by Sandeep Khaitan, RP challenges the order dated 07.10.2021 passed in IA No.51 of 2020 filed by RP under Section 43, 44, 45, 48, 66 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the "Code"), which Application has been rejected by the Adjudicating Authority by the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Agreement. (ii) The Principal Borrower committed default in the payment of the loan. The IDBI Bank by letter dated 09.11.2001 recalled the Loan Facility. On 03.12.2001, the IDBI invoked the corporate guarantee and raised demand of Rs.5,42,94,868/- on the Corporate Debtor. (iii) On 08.01.2002, the IDBI filed OA No.27 of 2002 before the Debts Recovery Tribunal ("DRT") Guwahati against the Principal Borrower for recovery of its dues. In OA No.27 of 2002, the Corporate Debtor was not made the party, although, the corporate guarantee was invoked on 03.12.2001. (iv) The Corporate Debtor, who was in plywood industry also suffered loss due to ban imposed by Hon'ble Supreme Court on felling of any kind of trees in the forest areas of the North- Eastern region of India. The Corporate Debtor became a sick unit and registered with BIFR under Reference Case No.259 of 2003 and IDBI was appointed as Operating Agency under the BIFR. (v) The IDBI by its Assignment Deed dated 30.09.2004, assigned the debt of NBL - Principal Borrower to the Appellant SASF. (vi) The DRT vide its judgment and order dated 03.01.2005, granted a Decree of Rs.5,42,94,868/- along with 12% interest against the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debtor filed an Appeal being Company Appeal (AT) (Insolvency) No.932 of 2019 challenging the order of admission in CIRP of the Corporate Debtor. The SASF filed a claim of Rs.16.12 Crores in CIRP under Form-C on 07.09.2019. The IRP admitted the claim of SASF. (x) An IA No.89 of 2020 was filed by Piyush Periwal, the Promoter of the Corporate Debtor, challenging the admitted claim of Rs.16.12 Crores. On 09.12.2020, the Adjudicating Authority disposed of the IA directing the RP to minutely verify the claim and reverify the claim of SASF. The RP submitted a compliance Report dated 24.12.2020 again verifying the claim as Rs.16.12 crores. (xi) This Appellate Tribunal in Company Appeal (AT) (Insolvency) No.932 of 2019 vide order dated 25.11.2019 upheld the order of admission passed by the Adjudicating Authority. Piyush Periwal filed Civil Appeal No.9142/2019 before the Hon'ble Supreme Court, challenging order of the Appellate Tribunal. On 20.01.2020, the Hon'ble Supreme Court set-aside the order of NCLAT and remanded the matter to the Appellate Tribunal to consider afresh. (xii) On 24.11.2020, this Appellate Tribunal held that Section 7 Application filed by the SASF is not barred by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed. The Adjudicating Authority by the impugned order dated 08.04.2021 removed the RP, citing the lack of transparency, conflict of interest and non-compliance of provisions of the Code. CIRP of the Corporate Debtor was directed to be terminated from the Second EOI stage and new RP was appointed. Direction was issued to start the process from stage of Invitation of EOI publishing in widely circulated newspaper of Assam, West Bengal and Tamil Nadu. Direction was also issued to RP to ensure that unit may start production within 45 days. Certain other directions were also issued to the new RP by the impugned order dated 08.04.2021. Apart from deciding IA Nos.27 and 43 of 2021, several other IAs were also disposed of by the order of the same date. We however, in the present Appeal are only concerned with the order passed by the Adjudicating Authority in IA Nos.27 and 43 of 2021 and IA No.51 of 2020. 8. As noted above against IA No.27 of 2021 Company Appeal (AT) (Insolvency) No.526 of 2022 has been filed by SASF, which need to be considered first. Against the order passed in IA No.43 of 2021, Company Appeal (AT) (Insolvency) No.499 of 2022 has been filed by SASF and against order in IA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submissions contend that Respondent No.1 has filed various Applications as well as Resolution Plan in the CIRP of the Corporate Debtor as Promoter and Suspended Director of the Corporate Debtor. Madhulika Periwal also being Director and shareholder and Promoter of the Corporate Debtor is entitled to prosecute the Appeals. In the Application filed by Madhulika Periwal, relevant facts regarding the shareholding has been pleaded. It was pleaded that Madhulika Periwal is single largest shareholder and owns 40.43% shareholding of the Corporate Debtor. It was further pleaded that Madhulika Periwal was always the shareholder and Promoter of the Corporate Debtor, which fact is already on the record. 13. Piyush Periwal admittedly Promoter/ Director of the Corporate Debtor has filed the Resolution Plan as Promoter/ Director of the Corporate Debtor, the Corporate Debtor being MSME Company. The learned Counsel for the Applicant has relied on the Declaration at Annexure-A-D. given by Piyush Periwal in support of the Resolution Plan, in para-1 of the Declaration, following was stated "I am submitting the Expression of Interest for Resolution Plan as a Promoter of National Plywood Industrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2019. The Petitioner and the Respondent No. 1 are at the liberty to file any additional/relevant documents, if any, in support of their claim with the new RP within 10 days from the date the order is uploaded on the e-portal/website. The RP is also given 7 days' time thereafter to examine and finalise their claim in accordance with the provisions of Insolvency & Bankruptcy Code, 2016, Rules and Regulations. 3. Hence, IA No. 27 of 2021 in C.P. (IB)No. 09/GB/2019 is disposed of with the above observations." 18. We have noticed above the background facts giving rise to IA No.27 of 2021. Prior to IA No.27 of 2021, Respondent No.1 had filed another IA No.89 of 2020. We may recapitulate the sequence of events in the above reference. Section 7 Application against the Corporate Debtor filed by the Financial Creditor was admitted by order dated 26.08.2019. In pursuance of the publication issued by the IRP, the Financial Creditor filed its claim of Rs.16.12 Crores. The RP admitted the claim of Rs.16.12 Crores field by the Financial Creditor. Respondent No.1 filed an IA No.89 of 2020 on 30.11.2019 seeking rejection of SASF claim as admitted by RP. It is useful to notice the prayers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Creditor admitted by RP. 22. Learned Counsel for the Appellant challenging the order of Adjudicating Authority dated 08.04.2022 in IA no.27 of 2021 submits that the Adjudicating Authority committed error in issuing direction to the RP to reverify the claim of the Financial Creditor. It is submitted that Adjudicating Authority has earlier passed an order in IA No.89 of 2020 on 09.12.2020 by which the prayer of the Promoter/ Director to reject the claim of the Financial Creditor was rejected. The order passed on 09.12.2020 operated as res-judicata for any further consideration to the challenge of the admission of the claim of the Financial Creditor. It is submitted that IA No.27 of 2021 was filed with the delay and ought not to have been entertained by the Adjudicating Authority. It is submitted that the claim filed by the Financial Creditor of Rs.16.12 Crores was in accordance with the Decree passed by the DRT dated 03.01.2005. It is submitted that Negotiated Settlement having been revoked by the Financial Creditor on 24.09.2012, the Financial Creditor was entitled to claim amount, i.e., Decretal amount plus interest as per the Decree dated 03.01.2005. It is submitted that calcu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and mortgaged assets and the Financial Creditor proceeded to recover the amount by permitting sale of the assets of the Principal Borrower and amount of Rs.92 lakhs were paid by the Principal Borrower by sale of the assets. The Negotiated Settlement was revoked by the Financial Creditor on 24.09.2012. There is no occasion for claiming any amount from Corporate Debtor on the basis of Decree dated 03.01.2005, nor any interest liability will run against the Corporate Debtor from the date of Decree. The amount due against the Principal Borrower as per OTS was only Rs.123.65 lakhs, which remained unpaid and at best, the liability of the Corporate Debtor was to the aforesaid amount. The RP incorrectly calculated the liability of interest from the date of the Decree from 03.01.2005 against the Corporate Debtor. Whereas, after invocation of the guarantee, no steps was taken against the Corporate Debtor and Negotiated Settlement was entered with Principal Borrower and certain amounts were also realised from Principal Borrower. The RP admitted the inflated claim of the Financial Creditor to unduly help the Financial Creditor. The admission of the liability of interest against the Corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire amount within the time, the Negotiated Settlement could not have been avoided by the Financial Creditor and Financial Creditor at best was entitled to claim @ 10.25% as provided in Negotiated Settlement. The Negotiated Settlement clearly contained a waiver that interest and other liabilities, which cannot be now revived. The calculation by the RP of the claim of the Financial Creditor of interest from the date of filing of Application as per Decree dated 03.01.2005 was wholly incorrect. No interest could have been levied from the date of filing of the Application, in view of the Negotiated Settlement dated 30.04.2005. By incorrect admission of the claim of the Financial Creditor, whole CIRP is vitiated. The Financial Creditor as per the admission of its claim has been allocated initially 71.37% voting share, which was subsequently increased to 87.76%. The RP appointed by the impugned order dated 08.04.2022 reverified the claim and only allocated 24.68% voting share to the Financial Creditor. The above clearly indicate that whole CIRP was proceeded contrary to the provisions of the Code. 25. The bone of contention between the parties is regarding the quantum of claim submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ix-I, which are as follows: "1. In case NBL fails to honor its commitments in accordance with the agreed NS arrangement as per the envisaged time frame, the SASF shall have the absolute right to revoke the arrangement and reappropriate the amount received as per existing loan documents. 2. The company shall undertake to suitably increase the NS amount of SASF in case it agrees to pay higher pro rata amount to any other lender. 3. All the loan and security documents will remain in full force till such time the arrangement is satisfactorily concluded/ implemented in full on the envisaged lines. 4. In case of default on the due date as per NS, the same would attract interest at the rate of 10.25% p.a." 28. The Negotiated Settlement was revoked by the Financial Creditor on 24.09.2012. The question to be considered is as to whether in view of Negotiated Settlement entered between the Principal Borrower and Financial Creditor on 30.04.2005, which was revoked only on 24.09.2012, according to the Financial Creditor, whether any interest liability shall run against the Principal Borrower as per the Decree dated 03.01.2005. When the Negotiated Settlement intervened, the liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies was that time should be of the essence of the contract. Effect of such failure when time is not essential.- If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do such thing at or before the specified time; but the promisee is entitled to compensation from the promisor for any loss occasioned to him by such failure. Effect of acceptance of performance at time other than that agreed upon.- If, in case of a contract voidable on account of the promisor's failure to perform his promise at the time agreed, the promisee accepts performance of such promise at any time other than that agreed, the promisee cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of such acceptance he gives notice to the promisor of his intention to do so." 31. The submission is that in view of there being Clause for payment of interest @ 10.25% on delayed payments, the time was not essence of the contract. Further the Financial Creditor accepted the amount of Rs.92 lakhs deposited by the Principal Borrower by sale of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recover its dues and received the entire amount as per the Negotiated Settlement and issued a No Due Certificate to the Corporate Debtor. 33. The Financial Creditor did not initiate any proceedings against the corporate guarantor for last 18 years and now after 18 years, it wants to recover the amount due to the Principal Borrower along with interest as per Decree dated 03.01.2005. The interest on the amount for last 18 years is being charged, although the Financial Creditor did not take any action against the Corporate Debtor and now seeking to recover the amount from the Corporate Debtor. It is also relevant to notice that in the proceeding before the DRT, where the DRT granted permission to sale the assets of the Principal Borrower and pay the amount, an Application was filed by the Financial Creditor, praying that the assets of the Principal Borrower will be re-valued and till revaluation is done, the sale of the assets be stopped . The DRT noticed the prayers of the Financial Creditor in order dated 09.09.2011 that now the Financial Creditor is praying for restraining the Principal Borrower from further sale of mortgaged assets. Thus, it was the Financial Creditor, who filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s disposed of by Adjudicating Authority by order dated 09.12.2020. In order dated 09.12.2020, the Adjudicating Authority has noticed the grounds taken by the Promoter/ Director on the claim of Rs.16,12,23,210/-. Paragraph 1.3 to 1.9 of the order contains the case of the Promoter/ Director, which is as follows: "1.3 It is further stated that the CD protested the said claim of Rs.16,12,23,210.00 (Rupees Sixteen Crores Twelve lacs Twenty Three thousand Two hundred Ten only) lodged by the respondent No.1 on the following grounds:- (i) That in view of the Negotiated Settlement (NS) dated 30.04.2005, the CD (Principal Borrower National Boards Ltd.) paid an amount of Rs.92.24 lacs to the respondent herein, the balance amount being Rs.123.65 lacs, Rs.61.65 lacs being the cash component to be recovered by selling the assets and Rs.62.00 lacs to be received in the form of Zero Nonconvertible Debenture. It is important to point out that at the time of extending the loan facility to the financial creditor the lender (IDBI) had created a pari passu charge in respect of movable and immovable property belonging to the Principal Borrower (National Boards Ltd.). After obtaining a decree and ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cant point in the above context is that the respondent had obtained a decree in OA No.27/2002 by the ORT on 03.01.2005. Further it is also relevant to point out that in the aforesaid OA the respondent had not arrayed the present appellant as a party. It is therefore submitted that the decree essentially operated against the principal borrower and others who were party to the OA and not against the present CD- NPIL. Additionally, the respondent and the principal borrower entered into a negotiated settlement on 30.04.2005. Even at the time of entering into the negotiated settlement, the respondent did not put the CD-NPIL on notice. It is therefore submitted that the entire process from obtaining of decree to entering into a negotiated settlement was done in the absence of the CD-NPIL. 1.4 It is further submitted that the DRT is seized with the matter and a recovery proceeding in respect of the same decreed certificated dated 05.01.2005 pending before the DRT cannot be instituted before NCLT, unless the proceeding pending before DRT at the behest of IDBI of which the respondent is the successor in interest is withdrawn. 1.5 It is also submitted that the respondent No.1 deliberat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Hence, the prayer made by the petitioner (Promoter Director) here to give direction to the RP to set aside the claim lodged by the FC, is rejected. 9. The RP is hereby directed to verify the claim amount of the FC minutely and transact the proceedings with utmost dedication strictly and in accordance with the provisions of the "Code", Rules and Regulations of IBC / IBBI." 37. From the above order, it is clear that the prayer of the Appellant - Promoter/ Director to set-aside the claim of Financial Creditor was rejected. However, RP was directed to verify the claim of Financial Creditor minutely and transact the proceedings with utmost dedication strictly and in accordance with the provisions of the Code. The submission of learned Counsel for the Appellant that order dated 09.12.2020 operates as resjudicata towards the Application, i.e., IA No.27 of 2021, cannot be accepted. There was positive direction by the Adjudicating Authority to verify the claim amount of Financial Creditor minutely and transact the proceedings with utmost dedication strictly and in accordance with the provisions of the Code. The above is clear indication that the Adjudicating Authority found substance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n following: "85. Based on the above discussion, we are the considered opinion that the Constitution of the Committee of Creditors violates the proviso to Section 21 (2) of the I & B code 2016 read with 12(3) of CIRP Regulations. Therefore, the Constitution of the creditors' committee is a nullity in the eye of law that vitiates the entire CIRP. Liquidation is like a death knell for the corporate entity/corporate person. Liquidation based on the resolution of the CoC, which consists of related party Financial Creditors having 77.20 % vote share, is a matter of grave concern. Hon'ble Supreme Court in the case of Phonix ARC (supra) has described the entering of such related party Financial Creditors in the Committee of Creditors as an act of commercial contrivances through which these entities sought to enter the COC, which could affect the other independent Financial Creditors. An order for liquidation of corporate debtor based on the sole decision of related parties Financial Creditors could be fatal for the existence of the corporate debtor, cannot be sustained. It is also pertinent to mention that when the Constitution of the Committee of Creditors itself is found to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and yet chose to exclude the Appellant/Financial creditor from the CoC on the ground that there was a need to verify the provisional claims submitted by him. This conduct is unjustified in that the exclusion of Financial Creditor from the CoC or delayed inclusion of the Financial Creditor on the CoC is prejudicial to the best interests of the Corporate Debtor. In our considered view, the undue haste shown by the IRP in certifying the constitution of the CoC; excluding a secured financial creditor therefrom on a flimsy pretext and also proceeding ahead with a meeting of an invalidly constituted CoC is not in sync with the form and spirit of the IBC and therefore cannot be countenanced. 20. This brings us to the next issue for our consideration which is to determine whether the decisions taken by this CoC which was not validly constituted deserves to be set aside. Under the IBC, the role assigned to the CoC is of critical significance. Section 28(1) of the IBC clearly enunciates that the Resolution Professional, prior to taking various actions in the CIRP process, needs the prior approval of the CoC and is required to seek the vote of the creditors. The success of CIRP of the Corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in Company Appeal (AT) (Insolvency) No.42 of 2022 - Hindalco Industries Ltd. vs. Hirakud Industrial Works Ltd. in paragraph 112 has again reiterated the same proposition, which is to the following effect: "112. Based on the above discussion, we are of the considered opinion that the Constitution of the Committee of Creditors violates the proviso to Section 21(2) of the I & B Code 2016 read with 12(3) of CIRP Regulations. Therefore, the Constitution of the creditors' committee is a nullity in the eye of law that vitiates the entire CIRP. Liquidation is like a death knell for the corporate entity/corporate person. Liquidation based on the resolution of the CoC, which consists of related party Financial Creditors having 77.20% vote share, is a matter of grave concern. Hon'ble Supreme Court in the case of Phoenix ARC (supra) has taken note of the entering of such related party Financial Creditors in the Committee of Creditors as 'an act of commercial contrivances through which these entities sought to enter the COC, which could affect the other independent Financial Creditors'. It is also pertinent to mention that when the Constitution of the Committee of Creditors itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Corporate Debtor in 2019, abandoning the proceedings, which it was prosecuting against the Principal Borrower. It is also relevant to notice that SASF was the operating Agency in BIFR with regard to the Corporate Debtor and in the proceedings before the BIFR the debt as per guarantee was not even included in the inventory of debt. Though the Financial Creditor has initiated proceedings vide OA No.36 of 2003 regarding the Financial Facilities extended to the Corporate Debtor, which it recovered successfully and No Due Certificate was issued to the Corporate Debtor on 15.07.2016 by the Financial Creditor. 45. In view of the above background, filing of Section 7 Application by the Financial Creditor against the Corporate Debtor is nothing but steps towards recovery of dues of the Financial Creditor and not for any insolvency resolution of the Corporate Debtor. The Corporate Debtor after coming out from the BIFR has recovered from its insolvency and started earning profit, which has been noticed by Adjudicating Authority in the order dated 08.04.2022 in IA No.43 of 2021. We may refer to para 14.1(iii), (iv), (v), (vi) of the impugned order, which is to the following effect: "14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apse of a 48 years MSME Running unit, after survival under BIFR, for a guarantee amount of Rs. 3.20 crores given by it in 1997 for PB." 48. The facts of the present case and sequence of events clearly indicate that Section 7 Application was nothing but proceedings to recover the dues and was not for any purpose of insolvency resolution of the Corporate Debtor. The present was a fist case where powers under Section 65 of the IBC were to be exercised and proceedings of CIRP required to be closed against the Corporate Debtor. However, in view of the orders passed by this Tribunal, under which the proceedings of CIRP proceeded too far, we desist from passing any such order and we are of the view that CIRP be completed as per the directions issued by the Adjudicating Authority in its order dated 08.04.2022 passed in IA No. 43 of 2021. 49. In view of the foregoing discussions, we are of the view that there is no merit in Company Appeal (AT) (Insolvency) No. 526 of 2022, which deserves to be dismissed and is hereby dismissed. Appeal in Group B 50. These group of Appeals include - Company Appeal (AT) (Insolvency) No. 499 of 2022 filed by Financial Creditor; Company Appeal (AT) (Insol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an account are part of the institutional records and there is no discretion on any of the officers to put an outstanding amount at their discretion. ii. ii. It is found from the records submitted by the parties that the Original Lender had disbursed only Rs. 3.08 Crores to the Principal Borrower out of the sanctioned loan amount of Rs. 3.20 Crores in 1997 The R1 has filed claim amount of Rs. 133.34 crores in the Application which is 43 times of the loan amount for a period of 21 years This calculation is unheard of when Base Rate, MCLR Capping interest rate are in operation in the Country. Although R1 has reduced its claim from Rs 133.34 crores to Rs 16.12 crores during the process of CIRP but the left over amount of the Negotiated Settlement took place in 2005 is Rs 1.23 crores. iii. The submission of the R1 does not hold good. The guarantor's liability cannot exceed that of the Principal Borrower. This is not a Recovery Forum. IA no 27/2021 filed by the Petitioner in this respect has been remanded 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, the first Form G inviting EOIs was published in November 2019 in widely circulated, newspapers in Assam, West Bengal and Tamil Nadu, including Aajkaal, Amar Assam, Financial Express and North East Times with a collective circulation of over 5,00,000 copies to attract more Resolution Plan as per the provisions of IBC. The R2 could not clarify or submit the reason for not publishing in widely circulated News papers as required. When the second EOI was not published in widely circulated papers, one of the main objectives of the IBC for maximization of value of assets is defeated by the action of the R2. The submission of the R2 is contrary to his own action. iv. Hence the contention of the Petitioner that the invitation for the second rollout of EOI was in collusion to allow a backdoor entry to the Respondent No.4 is not ruled out. v. An inclusion of SPVs and SPCs in the Eligibility Criteria for filing EOIs was only done in the second roll-out of invitations for EOIs 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the promoters of the other company of RA when the Resolution Plan of the RA is under process for approval. The RP has filed FIR/Criminal case, instead of taking up the matter before the AA under Section 74 of IBC for redressal of the issue, which had gone up to the Hon'ble Supreme Court, for one payment of Rs 32.50 lacs made by the Suspended Management to the Supplier of Raw materials to the CD during the Covid Period to sustain production of the Unit, though the CD was under moratorium. The unwarranted action of the RP in filing the FIR has resulted into the freezing of the accounts including the accounts of the Suppliers and closure of the production of a 48 years old the CD which was running well before the RP took over the charge on initiation of the CIRP. The RP had filed two new trademark applications for the CD's brands with a new logo on his own even during the process of CIRP when the production is closed from July 2020. 20.2 It is observed that 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s collusion between Financial Creditor, RP and Respondent No.4 has not been substantiated. The learned Counsel for the Appellant submitted that the CIRP process was conducted in accordance with the prescribed procedure and regulations therein. The mentioning of claim of Rs.133.55 Crores in Section 7 Application was due to the fact that in SAFS officials of IDBI were taken and they as per the records maintained by IDBI, has computed the amount of Rs.133.55 Crores, which was neither deliberate nor was with any intent to prejudice the Corporate Debtor. It is submitted that the claim, which was filed by the Financial Creditor was only for Rs.16.12 Crores, which was verified by the RP and accepted. It is submitted that the CoC decided to roll out from second EOI, since no Resolution Plan was received in pursuance of Form-G. Even the Promoter/ Director did not file any Resolution Plan in response to first Form-G. The opportunity was given to the Promoter/ 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 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r/ 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 Promoter/ Director diverted the funds of Corporate Debtor and made a payment of Rs.32 lakhs to an entity, who had supplied material, which payment was directed to be reversed by order of the Hon'ble Supreme Court and ultimately the said amount was refunded. The RP has filed the First Information Report against the Promoter/ Director due to the aforesaid diversion of fund. The allegation that RP allowed the production to stop and did not keep the Corporate Debtor as going concern is not correct. By the impugned order, the Adjudicating Authority has turned back the clock of the CIRP from second EOI, which is clear contravention of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was requested to be adjourned by several other Members of the CoC, since the said Meeting was convened in the second wave of Covid, which request was not accepted and in the Meeting held on 28.05.2021, the SASF was the sole Member of the CoC, who presented and approved the Plan. The RP has shown complete bias in favour of SASF and PLBB as he accepted the inflated and incorrect claim of SASF. The RP inspite of direction of Adjudicating Authority did not amend its error, which indicates that the mind set of RP, was to allow the Financial Creditor to dominate the CoC. It is submitted that PLBB, which was an entity, not even incorporated when the Plan was submitted and it having not disclosed any source of found and it had no experience in the field in which Corporate Debtor was working, accepting the Resolution Plan of PLBB clearly indicates the bias of the Financial Creditor and the RP. The RP has given his consent to be the IRP in another matter 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Financial Creditor and the Principal Borrower, under which settlement, out of Rs.215.89 lakhs, Rs.92.24 lakhs were paid by the Principal Borrower by selling his immovable land. We have already noticed that it was the Financial Creditor, who stopped the further sale of the assets by Principal Borrower, so that Principal Borrower could not make entire payment under the Negotiable Settlement. We have already held that quantum of claim of Financial Creditor was a major factor for CIRP as the quantum is directly related to vote share to be allocated to Financial Creditor. When vote share to the Financial Creditor of 87.76% has been held not to be in accordance with law, the process undertaken by the CoC with the decision of the Financial Creditor having 87.76% vote share cannot be approved. We are of the view that decision to terminate the entire process after rollout of Second EOI can be fully supported by our conclusion that claim of Financial 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 di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an inference that the Appellant was proceeding contrary to the statutory provisions as contained in the IBC and also delaying the smooth conclusion of CIRP. We are of the considered opinion that there is no defect in the impugned order warranting interference by this Tribunal. On the contrary the conduct of the appellant/RP which was observed by the Adjudicating Authority and reflected so in the impugned order is sufficient enough to direct IBBI to conduct an inquiry regarding the role played by the RP in this matter." 62. We, thus, do not accept the submission of learned Counsel for the RP that Adjudicating Authority lack jurisdiction to pass an order replacing the RP. 63. Coming to the conflict of interest, we have already taken the view that observations made in the impugned order against Respondent No.3, i.e., Anand Verma were uncalled for. We have already allowed Company Appeal (AT) (Insolvency) No. 804 of 2022 filed 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 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of Company Appeal (AT) (Insolvency) Nos. 499 of 2022, 525 of 2022 and 612 of 2022 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 adverse observations made by the Adjudicating Authority against Respondent No.5 in the impugned order, i.e., Counsel who was appearing for Financial Creditor are deleted. Ordered accordingly. (III) Observations made by the Adjudicating Authority against the RP shall not to be treated as adverse to the integrity of RP and not be made basis for initiating any proceeding or action against the RP in any Forum. (IV) The new RP, who has been appointed under the impugned order shall conclude the entire CIRP process within 90 days from today, under the supervision and control of Committee of Creditors. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndertaken by Ex-Management are preferential, undervalued and fraudulent. Hence, an Application was filed giving details of 13 such transactions, which were questioned. It is submitted that although Adjudicating Authority has noted the case of the Appellant in paragraph 4 of the order in detail, but has failed to advert to the said averments/ contentions. It is submitted that reason given by the Adjudicating Authority that MSME unit even after surviving from BIFR was earning profit without taking loan from the Financial Creditor, was not a relevant consideration for deciding the Application filed under Section 43, 44, 45, 46, 48 and 49. It is submitted that sufficient materials were before the Adjudicating Authority to come to the conclusion that transactions questioned were preferential, undervalued and fraudulent. Whereas, the Adjudicating Authority without adverting to the relevant materials and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal (AT) (Insolvency) No.160 of 2021 - PLBB Products Pvt. Ltd. vs. Piyush Periwal, itself has noted the allegations of the Promoter/ Direct that RP has also appointed a professional Firm for forensic audit, which reflects the biasness and conflict of interest. The learned Counsel for Respondent No.1 has referred to following observation in the order dated 07.09.2021 of this Appellate tribunal: "The Resolution Professional has also appointed a known professional firm which has done several professional assignments with him before appointing them as the 'forensic auditors' of the CD which reflects the biasness, conflict of interest, coercion or undue influence on the other side and allegations against the promoter." 73. It is further submitted by learned Counsel for Respondent No.1 that the RP himself has approved all the transactions and signed the relevant balance sheets and no 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 chos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the Adjudicating Authority. 76. When we look into the entire order passed by the Adjudicating Authority, it is clear that all contention of both the parties have elaborately been noticed. As noted above, the case of the Respondent No.1 was that transactions, which are questioned by RP were transactions done in the ordinary course of business. The learned Counsel for the Appellant has referred to the judgment of the Hon'ble Supreme Court in Anuj Jain IRP for Jaypee Infratech Ltd. v. Axis Bank Ltd. - (2020) 8 SCC 401, where the Hon'ble Supreme Court had occasion to consider Section 43 and 44 of the IBC. The Hon'ble Supreme Court has analyzed Section 43 of the Code and has laid down following in paragraphs 21.1, 21.2, 21.3 and 21.4 : "21.1. Looking at the broad features of Section 43 of the Code, it is noticed that as per sub-section (1) thereof, when the liquidator or 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 au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (3) of Section 43. 21.4. Sub-section (3) of Section 43 specifically excludes some of the transfers from the ambit of sub-section (2). Such exclusion is provided to : (a) a transfer made in the ordinary course of business or financial affairs of the corporate debtor or transferee [ Whether the expression "or", as occurring in between the expressions "corporate debtor" and "transferee" in clause (a) of sub-section (3) of Section 43, is to be read as "and" has been one of the significant questions raised in this matter and shall be dealt with hereafter later.] ; (b) a transfer creating security interest in a property acquired by the corporate debtor to the extent that such security interest secures new value and was given at the time specified in subclause (i) of clause (b) of Section 43(3) and subject to fulfilment of other requirements of sub-clause (ii) thereof. 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of business or transfer/ sales made for securing new value of the CD. " 80. When we look into the aforesaid paragraphs, it is clear that Adjudicating Authority has only recorded 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. We, thus, find substance in the Appellant's submission that order of the Adjudicating Authority does not contain any reason for coming to the conclusions. 81. 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. 82. In view of the above ..... X X X X Extracts X X X X X X X X Extracts X X X X
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