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2020 (7) TMI 296 - Tri - Insolvency and BankruptcyLiquidation of Corporate Debtor - assignemnet of debt by Operational Creditor - section 5 of SARFAESI Act, 2002 - going concern or not - HELD THAT:- The crucial aspect which is noticed is the term "going concern". Admittedly, it has not been defined in the Code though used at many places, hence, to find out the meaning of 'going concern', we have to look into the dictionary, accounting literature and judicial decision An organisation is normally viewed as a going concern when it will be running business or continuing operations for a foreseeable future and such organization has neither any intention nor any compulsion or necessity of shutting down or reducing the scale of operations in a substantial manner. Further, going concern also implies ability of a business to meet its financial obligations. Thus, in the event of either business failure or financial failure, question mark is raised on the status of a business entity - The company was incorporated way back in 1920 for the manufacture of various kinds of electrical cables, wires and conductors, radio frequency cables, equipment wires, high temperature cables for domestic and industrial use and for sophisticated applications in defence, electric, electronic and space research in India. Commercial production was started in 1923. Expansions also took place from time to time and in 1970, a factory was acquired in Pune. In fact, upto a certain period, corporate debtor was the only private sector unit which used to manufacture almost all the cables at its Jamshedpur and Pune factories. It is also noted that besides the conventional type of cable accessories and specialised materials related thereto for jointing and terminating the cables were also manufactured. The company was profitable till 1991. Subsequently, it started incurring losses and during 1993-1996, there was a virtual stalemate in the company's operations. Jamshedpur plant was closed down completely for 34 months. The corporate debtor is not a going concern, particularly when vast technological changes have taken place over a period of last 25 years and the plant and technology in possession of the corporate debtor are obsolete, out-dated and beyond repair/renovations due to depletion thereof. To put it in simple words, corporate debtor is not a going concern but already a gone concern. Whether corporate debtor can be or should be made a going concern? - HELD THAT:- It is an undisputed legal position that IRP is appointed when CIRP is initiated against the corporate debtor by the order of the Adjudicating authority and such IRP is made responsible to manage the operations of corporate debtor as a going concern, hence, what is most crucial is that as on the date of initiation of CIRP, corporate debtor should be a going concern. This is not the case here, hence, to say that it should be continued as a going concern when it is not so nor there appears to be any possibility of the (sic) due to reasons mentioned by CoC while passing the resolution for liquidation which have been listed - Although the Code implies that only a going concern at the date of initiation of CIRP should be made to run as such subject to conditions imposed in the IBC, 2016, however, if CoC provides necessary interim finance and other requisite infrastructure is put in place, then, there is no bar that a closed concern cannot be made operational or a going concern. Though it is easy to say but a herculean task in reality, but it remains a possibility and depends upon the willingness of all the parties involved in the resolution of insolvency of a corporate debtor in a most beneficial manner to all. The status of the corporate debtor need not be made as a going concern as there is no legal necessity to do so mandatorily. However, as mentioned earlier, if the lenders wish to do so voluntarily, they can do so. Role and power of CoC - HELD THAT:- The basic structure of the IBC, 2016 is based on the theme of creditors in control. Therefore, the CoC has been empowered to exercise its jurisdiction in espect of all the key matters during CIRP without any interference as far as its commercial wisdom is concerned. The only restriction is that any activity/decision of CoC should not be in contravention or violation of any law for the time being in force. The role of Adjudicating Authority to disturb the decisions of CoC is very limited in scope and its obligation is further circumscribed by explicit provisions of IBC, 2016 giving extensive jurisdiction to CoC in respect of all crucial decisions. As far as taking care of interest of workmen/employees being operational creditors, no doubt, liquidator is supposed to dispose of the assets as a package, in terms of provisions of Regulation 32 and 32A of IBBI (Liquidation Process) Regulations 2016 read with Regulation 39C of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016, keeping in mind such objective along with maximisation of value for all stakeholders. Having said so, we are of the view that commercial wisdom of CoC cannot be challenged as it is basic instinct of the Code and this has been held so in the case of K. Sashidhar and aforesaid decision also. Whether the process of passing such resolution can be said to be fair and reasonable? - HELD THAT:- In the present case, it is not in dispute that financial statements have not been prepared after the year 1999. The statutory records and other accounting records at different locations are not available to the extent to enable the resolution professional to prepare the accounts for which efforts had been done as mentioned in the various progress reports filed after initiation of CIRP. The claims by the creditors have been verified mostly from their own records or through the records of the third parties - information memorandum, if prepared, would not have served any purpose. Further, in the first four CoC meetings, it has been submitted that efforts were made to prepare Information Memorandum. However, once a decision has been taken by CoC for liquidation, then, preparation of information memorandum loses all its significance as liquidator has to prepare asset memorandum. After taking into consideration the applicable legal position and carefully analysing the facts of conducting of CIR Process including meetings of CoC and the fact that progress reports of all minutes of such meetings have been filed with this Authority as per the relevant Regulation, we hold that there is no lacunae or non-compliance in regard to following of process. Further, all other lenders who are financial institutions and also have substantial stake by way of outstanding debts, have also consented to the proposal made by CoC. Thus, for this reason also, there remains no scope for us to have a limited judicial review of such actions. Consequence of order of liquidation - HELD THAT:- The group of assets and liabilities have not been identified for sale as a going concern under Regulation 32(e) or 32(f). This leads to a situation where, now, liquidator has to act for sale as a going concern under Regulation 32(e) and 32(f) as per the provisions of Regulation 32A(3) of the Liquidation Process Regulations, 2016 and he shall identify the group of assets and liabilities in consultation with the Consultation Committee to be sold as a going concern. Thereafter, if such process does not yield any result, then the liquidator shall be at liberty to realise assets in terms of provisions of regulation 32(a) to 32(d) of Liquidation Process Regulations, 2016. Whether in the facts and circumstances of the case, the corporate debtor or its business or any part thereof be sold as a going concern if the order of liquidation is passed? - HELD THAT:- Only a large corporate having entrepreneurial instincts coupled with a necessity to establish a unit suitable to his corporate requirements may come forward. Since it is very hard to conceive as to how the undertaking which comprises of only land and workers could be useful to him. Thus, it is the intention of the acquirer that would be the deciding factor for disposal of the corporate debtor or its assets as a going concern. This business paradigm needs to be passed through the legal mechanism prescribed under the IBC, 2016. Though we have already held that it is not a going concern, hence, it cannot be run as a going concern by RP and liquidator is required to run the unit only for its beneficial liquidation but there is no bar also if somebody comes and wants to start an industrial activity with the help of the assets of the corporate debtor or in the name and style of the corporate debtor as well. Validity of assignment - HELD THAT:- The fact which is noticeable even in petition filed under section 9 on 28-11-2018 and no aggrieved party filed any interlocutory application to raise this issue as it would have an impact on the composition of CoC if the corporate debtor was admitted into CIRP. Thus, prima facie, this issue has been closed by the parties by their own conduct and cannot be raised now. All pleas of all parties regarding validity of assignment are rejected and dismissed, both on the ground of maintainability as well as on merits - Corporate Debtor is liquidated - moratorium shall cease to have effect.
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