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TMI Blog2023 (7) TMI 1400X X X X Extracts X X X X X X X X Extracts X X X X ..... ed order, the Adjudicating Authority ordered the liquidation of the Corporate Debtor - Trend Electronics Limited, as a going concern under section 33 of the IBC. Aggrieved by this impugned order, one set of appeal vide Company Appeal (AT) (Insolvency) No. 565/2023 (herein referred to as the 'first appeal') has been preferred by one of the prospective resolution applicants, Epitome Components Pvt. Ltd. ('Epitome' in short) on the ground that there have been material irregularities in the Corporate Insolvency Resolution Process ('CIRP' in short) of the Corporate Debtor. The other set of appeal has been filed vide Company Appeal (AT) (Insolvency) No. 528/2023 (herein referred to as the 'second appeal') by Marathwada Audogik and General Kamgar Sanghatan ('Sanghathan' in short) under Section 61 of the IBC against the same impugned order aggrieved with the fact that the impugned order does not take into account the interests of all stakeholders of the Corporate Debtor and that the livelihood of nearly 134 families which are dependent on the operations of the Corporate Debtor have been imperilled. 2. The brief facts of the case which are common to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deocon Industries Limited ('VIL' in short). * Epitome thereafter sent an email on 14.07.2021 clarifying that Sushma and Nalini cannot be considered to be promoters of VIL. This clarification was however not accepted by the RP and the resolution plan of Epitome was not placed for consideration of the CoC as conveyed in their email dated 16.07.2021. This decision of the RP, to not place their resolution plan before the CoC, according to the Appellant, was allegedly in excess of powers conferred upon the RP by the IBC. * After various rounds of negotiations, only the resolution plan received from one prospective resolution applicant, namely, Puneet Advisory Services Private Limited ('PASPL' in short), was placed before the CoC for voting, along with a separate settlement proposal submitted by Mr. P.N. Dhoot, Promoter of the Corporate Debtor under Section 12A of the Code. * Both the resolution plan and the Section 12A proposal were considered and evaluated by the CoC and put to vote. Eventually in pursuance of the discussions in the 30th CoC meeting and voting held on 19.07.2021, the resolution plan of PASPL was not found to be feasible and viable as per their com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly because both of them held some negligible share-holding in VIL and that they were relatives of some shareholders of the Appellant, the Appellant could not be treated as disqualified and ineligible under Section 29A of the IBC. The RP had failed to consider in the correct perspective the clarifications provided by the Appellant on 14.07.2021 on the issue of purported ineligibility raised with regard to submission of resolution plan in terms of Section 29A of the IBC. It was contended that both Sushma and Nalini had negligible and inconsequential shareholding in VIL which shares had in any case already been disposed of. There is nothing on record to show that they are connected to or related to either the Appellant or the Corporate Debtor or exercised any influence in their business affairs and therefore cannot be held to be related party. It was also clarified to the RP through an email dated 14.07.2021 that the two were classified as a "promoter group" simply for the purpose of fulfilling the SEBI Regulations and that they have been wrongly held to be related parties by the RP at a time when they could have been so classified as a related party only if they fell within the defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, the Learned Counsel for the Appellant relied on the judgement delivered by the Hon'ble Apex Court in the matter of Arcelor Mittal India (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1 ('Arcelor' in short) which outlined the limited scope for the RP while dealing with the resolution plans received from the prospective resolution applicants and postulated that the sole decision- making power regarding the approval or rejection of the resolution plan vested with the CoC and not with the RP. 7. Rebutting the above arguments made on behalf of the Appellant, the Learned Senior Counsel of the Respondent No.1 stated that two companies, Silvercon Realty Pvt. Ltd. ('Silvercon' in short) and Silverplatter Foods & Beverages Pvt. Ltd. ('Silverplatter' in short) were 'Promoters' of Epitome, the present Appellant which had submitted a resolution plan. Furthermore, Sushma and Nalini, were Directors of both Silverplatter and Silvercon at the time of submission of resolution plan by the Appellant on 06.06.2021. Silverplatter and Silvercon in turn were shareholders of Epitome having 34.92% stake in Epitome. Sushma and Nalini, also being Promoters of VIL, were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held on 15.07.2021. In the said meeting, the CoC in its commercial wisdom unanimously decided not to place Epitome's resolution plan for voting as it was found to be non-compliant with Section 29A of the IBC. The contention of both the Respondents is that submission of the Appellant that the RP had unilaterally rejected their resolution plan in violation of the statutory provisions of the IBC is unsubstantiated and untenable. 10. It was further submitted on behalf of Respondent No. 1 that liquidation of the Corporate Debtor was unanimously approved by the CoC with 100% votes in favour of liquidation in the 30th CoC meeting held on 19.07.2021. Further, the RP had explored all possibilities under CIRP before the decision was taken by the CoC in the 30th meeting to sell the Corporate Debtor as a going concern. Resolution plans received from prospective resolution applicants were discussed in the CoC meetings. The CoC had also examined the Section 12A proposal before it and only after due consideration and voting, had unanimously resolved to liquidate the Corporate Debtor as a going concern with 100% majority. During the e-auction held on 11.05.2023, the Corporate Debtor has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rior motives. It was emphatically asserted that the IBC expects the CoC to take into account all material facts, the best interest of the corporate debtor and to make genuine attempts at reviving and maximising the value of the corporate debtor which however did not happen in the present case. The CoC failed to take any steps to revive the corporate debtor and operate it as a going concern and instead brought about its corporate death. Holding that the Adjudicating Authority has proceeded to summarily and mechanically allow the application for liquidation of the corporate debtor, it also contended that it has failed to appreciate that the payment towards provident fund and gratuity cannot form a part of the liquidation estate of the corporate debtor and such payments cannot be made subject to realisation from the assets of the corporate debtor. It has also been further stated that the Hon'ble Supreme Court of India in the matter of Swiss Ribbons (P) Ltd Vs. Union of India (2019) 4 SCC 17 has reiterated that primary focus of the IBC is revival and not liquidation of the corporate debtor. 13. Refuting the above contentions, the Learned Senior Counsel for the CoC stated that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l bidder was liable to make such payments over and above the value it is providing for acquisition of Corporate Debtor as a going concern. 15. It was also added that liquidation process of Corporate Debtor is near completion and the letter of intent issued by the liquidator on 12.05.2023 has been accepted by the successful bidder. Thus the CoC has ensured that the interests of the workmen and employees are met and the CoC has made all efforts to resurrect the operations of the Corporate Debtor rather than ensuring corporate death of the same. On the other hand, the reliefs sought by the Appellant to revive the Corporate Debtor only adds to the delay of the resolution process through liquidation. The delay not only hampers the resolution process of the Corporate Debtor, but also the interests of all the vigilant stakeholders. 16. We have duly considered the arguments and submissions advanced by the Learned Counsel for the parties in both the appeals and perused the records carefully. 17. The moot point for consideration common to both appeals is whether in the facts of the present case the manner of rejection of the resolution plan of Epitome can be deemed to have been marred by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to a communication received from the RP on 16.07.2021 as placed at page 176 of APB. It may be relevant to notice the contents of the said communication which is to the effect: From: Divyesh Desai [email protected] Date: 16 July 2021 at 7:20:41 PM IST To: CEO ceo@Ã(c)pitomeindia.com Subject: Resolution Plan Epitome - Trend Electronics Ltd Dear Mr. Dhoot, As per the public filings made by Videocon Industries Limited read with Section 29A of Insolvency and Bankruptcy Code, 2016, Epitome Components Private Limited is not eligible to submit a resolution plan. We have received and reviewed clarifications provided by you on 29A eligibility of Epitome Components Private Limited. Clarifications provided by you do not negate the public filings made by Videocon Industries Limited. In view of this we are declaring Epitome as ineligible as per section 29A of Insolvency and Bankruptcy Code, 2016. The CoC has also been posted about your ineligibility and the explanations provided by you. In the circumstances, the Resolution Plan submitted by Epitome is not placed before CoC for their consideration and voting. We shall refund the Bid Bond Guarantee submitted by E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided by Epitome and the technical nature of determining the eligibility involved, he is willing to place the resolution plan of Epitome which is otherwise compliant as per IBC for CoC's consideration. The RP also highlighted the waiver sought by Epitome in the plan for submission of Performance Bank Guarantee of Rs. 10 crores, which is a condition under the RFRP." From the minutes reproduced above, again in all fairness, clearly the RP cannot be said to have denied an opportunity to the CoC to consider the resolution plan or be blamed for having prejudiced the CoC to reject the resolution plan. 23. However, since some of the members of the CoC noted that no legal steps had been taken by Sushma and Nalini to remove their names from the list of promoters of VIL and no documents had been submitted either by Epitome depicting any legal action having been taken by them to remove their names from the list of promoters, the RP was urged to clearly indicate whether a plan could be submitted without Section 29A compliance certificate by the RP and in the event such a plan is submitted by the RP, whether CoC could vote on the same. The query raised by one of the creditors, Canara B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... criteria cannot be held against the RP simply because the opinion of the RP did not suit the interest of the Appellant. The RP had formed his opinion on the basis of available material on record which was clearly placed before the CoC in a most candid and forthright manner and the CoC in its wisdom had relied upon the opinion so tendered. And only thereafter the CoC decided that the resolution plan of Epitome cannot be placed for CoC members' consideration or voting. Further it is the CoC which took the decision to intimate the decision of the RP to Epitome which the RP carried out dutifully vide their email dated 16.07.2021. It is significant to note that the 29th CoC meeting was held on 15.07.2021 which pre- dated the letter from the RP to the Appellant informing them about their ineligibility which was dated 16.07.2021. Thus what was conveyed by the RP to the Appellant also clearly had the sanction of the CoC. 25. That the RP had placed all the resolution plans before the CoC is borne out from material records placed before us. We also notice that it was the CoC which had directed the RP to give his opinion on the Section 29A compliance of the Appellant and in terms of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5/2023 that the RP exceeded the power and authority cast upon him under the provisions of the IBC by rejecting the Resolution Plan of the Appellant himself without placing the same before the CoC thereby driving the Corporate Debtor into liquidation. Further it is the contention of the Appellant that the claim made by the RP about the Appellant being ineligible under Section 29A of the IBC lacks foundation since the RP had failed to substantiate the same through any proper examination. The Appellant has also submitted an additional affidavit in which it has been stated that as per their limited knowledge, the amount being brought in by the liquidator through the e-auction process would be lower than the amount proposed to be brought in by the Appellant. Thus the RP and CoC having pushed the Corporate Debtor to liquidation without giving an opportunity to rehabilitate and recover from insolvency failed to ensure maximum recovery for the stakeholders. Further stating that the Appellant was still interested in submission and implementation of resolution plan of the Corporate Debtor, it has been urged that the liquidation order should be set aside. 29. We have already made a detailed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Corporate Debtor as a going concern with 100% majority. This has been clearly recorded in the minutes of the 30th meeting of the CoC which was placed on record before this Tribunal by the Respondents during the course of hearing. We also notice that only in pursuance of the decision taken in the 30th CoC meeting, IA No. 2104 of 2021 was filed by RP before the Adjudicating Authority on 08.09.2021 seeking initiation of liquidation of the Corporate Debtor. 31. Now this brings us to the primary contention of the Appellant in Company Appeal (AT) (Insolvency) No. 528/2023 that the liquidation order was allowed by the Adjudicating Authority summarily and mechanically without taking due care of the interests especially of the workmen and therefore deserves to be set aside. We however notice that the Adjudicating Authority passed a speaking order on 10.02.2023 wherein the developments in the CIRP process were adequately examined including the fact that the CoC discussed the prospects of selling the Corporate Debtor as a going concern at length in the 30th CoC meeting. The decision of initiation of liquidation proceedings of the Corporate Debtor was taken by the CoC in its commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udice and that the decision of their ineligibility was communicated way back in 2021, it does not stand to any cogent reasoning to allow them to belatedly revive their claim to submit a resolution plan afresh after hibernating for almost two years. To ignore this delay at this stage in allowing the Appellant to resurrect their claim to submit a resolution plan would tantamount to causing unjustified delay in the liquidation of the Corporate Debtor as a going concern. This acquires greater significance since a bidder had already been declared successful pursuant to the auction conducted in terms of the impugned order and the successful bidder is in the process of implementing its bid. 34. It is further the contention of the CoC, which happens to be the common Respondent in both appeals that it is a settled principle of law that the commercial wisdom of the CoC is paramount and the legislature has consciously not provided any ground to challenge the commercial wisdom. In support of their contention reliance has been placed on the judgement of the Hon'ble Supreme Court in K. Sashidhar v. Indian Overseas Bank & Ors. (2019) 12 SCC 150 and Maharashtra Seamless Ltd v. Padmanabhan Ven ..... X X X X Extracts X X X X X X X X Extracts X X X X
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