TMI Blog2020 (9) TMI 385X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in the Affidavit in compliance of order dated 18.08.2020 at paragraph 7 that it is agreeable for forfeiture of an amount of ₹ 15 crores in addition to the already forfeited amount of ₹ 5 crores, in case it fails to deposit an amount of ₹ 50 crores within the three months period, from the date of reversal of the liquidation order. A perusal of Section 29A clause of the I B Code (i) indicates that it disqualifies a person if he has been subject to any of disabilities stated in clauses (a) to (h) of Section 29A in any jurisdiction outside India. In reality, Section 29A (i) will have to be read as a disability which corresponds to Section 29A(f) in view of the antecedent conduct on the part of a person applying as a Resolution Applicant in a jurisdiction outside India - Section 29A(f) and (i) of I B Code speaks of persons prohibited by foreign securities market regulator. It is seen from Section 29A(f) of the Code that if any of the individuals mentioned therein is prohibited by SEBI from either trading in securities are accessing the securities market, again ineligibility of an individual furnishing the plan attaches. In fact, as per sub- clause (i) if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 to 12, and at paragraph 15 and 16 had observed the following:- 3. Respondent No. 1 M/s Kridhan Infrastructure Private Limited had submitted an updated Resolution Plan in respect of Corporate Debtor, which was approved by the Committee of Creditors in their 15th CoC meeting held on 08.03.2019 with majority vote of 89.92%. Subsequently the Adjudicating Authority also approved the resolution Plan under Section 31 of the Code vide order dated 15.05.2019. 4. It has been alleged that there has been inordinate delay in implementation of the Resolution Plan, as the successful resolution applicant, M/s Kridhan Infrastructures Private Limited has miserably failed to infuse equity funds as per the terms of the Resolution Plan. Besides the successful resolution applicant has not taken over the control of management even after passage of long about 8 months from the date of approval of the resolution plan. It is alleged that the secretarial compliance documents/returns have not been filed with the RoC. There has been non-compliance and non-implementation of the approved resolution plan. 5. It is submitted that after due deliberations and pursuant to its meeting held on 11th No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fees as a % of Receipts from 0-12 12-24 More than 24 Sale of Fixed Assets 1.00% of the amount realized 0.75% of the amount realized 0.50% of the amount realized Return of live BGs 0.50% of the amount returned Months Fees as a % of Receipts from 0-24 24-60 More than 60 Arbitration proceedings/claim s/projects recovery 1.25 % of the amount realized 1.00% of the amount realize d OPE, GST and other taxes as applicable, is not included in the above fee proposal and will be billed in addition to the above. Fee also does not include cost of any External Advisors such as Legal, Valuation, Bid Process Advisory, etc. basis for the provisions of the Code. Fee also does not include employee salaries (Corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n plan could at all be implemented. 7. Admittedly the resolution applicant has failed to adhere to any of their timelines for equity infusion even after a period of about 8 months since approval of the resolution plan. There is force in the contention that the respondents have repeatedly failed to honour their own commitments and there was delay in infusion of equity, upfront payment and taking control of the management of the Corporate Debtor, which has threatened the going concern status of the corporate debtor severely. 8. In the facts the erstwhile CoC in its meeting held on 11.11.2019 has passed a resolution for liquidation of the Corporate Debtor with overwhelming majority of 99.28% voting share. 9. It is pertinent to refer here the provisions of sub- section (3) of Section 33 of the Insolvency and Bankruptcy Code, 2016 which envisages as follows: (3) Where the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order as ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... schedule. Therefore, as the respondent resolution applicant has failed to implement the approved resolution plan, the performance guarantee of ₹ 5 Crore furnished by the respondent resolution applicant stands forfeited in terms of Regulation 36B(4A) of CIRP Regulations. 16. There is an additional prayer for restraining the encashment of Bank Guarantees executed by the Corporate Debtor . However, the concerned Banks and the recipients of Performance Guarantees have not been made party. This prayer, therefore, cannot be considered at the back of the recipients of the bank guarantees without giving opportunity of hearing to them. The liquidator, however, is given the liberty to file proper application on the self-same issue, if so advised . and resultantly partly allowed the Company Application by ordering liquidation of the Corporate Debtor viz. Tecpro Systems in the manner laid down in Chapter III of part II of I B Code, 2016 by issuing necessary directions like appointing Mr. Ramachandran Subramanian as liquidator (proposed by COC) in terms of Section 34(1) of the Code. Summary of Facts 3. According to the Appellant(s) one of the Financial Credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity Shares to the Kridhan Projects Private Limited (special purpose vehicle) at a price of INR 1 (Rupee one) per share, for an aggregate sum of INR 15 crores. 8. It is the stand of the Appellant(s) that the Resolution Plan required the incorporation of Kridhan Projects Private Limited (SPV) as well as the approval of the plan by the Adjudicating Authority pursuant to which the said Kridhan Projects Private Limited shall perform and observe the terms of this Resolution Plan and assume the performance obligations of the Resolution Applicant . 9. It is brought to the fore that the Kridhan Projects Private Limited (SPV) was duly incorporated on 27.04.2018 with an authorised and paid up share capital of 10,00,000/- however, the operations of the special purpose vehicle were to initiate only upon approval of the Resolution Plan , execution of all documentation and all regulatory approvals. 10. The version of the Appellant(s) is that by virtue of the order dated 15.05.2019 passed by the Adjudicating Authority, the approval of Resolution Plan would confer the change in the management and ownership of the Corporate Debtor and the control of the Corporate Debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant(s) proceeds to point out that this Tribunal, on 03.02.2020, (at the time of admission date of the instant Appeal) had directed the Appellant(s) to file an additional affidavit by giving one opportunity by specifying the time frame for compliance of the approved Resolution Plan . 15. The Learned Counsel for the Appellant(s) puts forward contention that preference is to be given to a Resolution over a Liquidation and further Liquidation can only be seen as a last resort. 16. The Learned Counsel for the Appellant(s) cites the decision of Hon ble Supreme Court Arcelor Mittal India Pvt. Ltd. V. Satish Kumar Gupta Ors. , AIR, 2018 at page 5646 wherein the scope of the words Adjudicating Authority in Section 33 pertaining to approval of Resolution Plan was interpreted to be wide enough to include National Company Law Appellate Tribunal also and the Hon ble Supreme Court had observed at paragraph 82 and 83 as under:- 82. One thing that must be made clear at this stage is that one Section 33 speaks of the Adjudicating Authority in sub-section (1) it is referring to both the Adjudicating Authority as well as the Appellate Authority. An Adjudicating Author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporate Insolvency Resolution Process of both the Corporate Debtors - M/s. Adhunik Metallics Ltd. and M/s Zion Steel Ltd. now reaches finality, the Committee of Creditors other creditors etc.; now have no objection and the liquidation will not be in the interest of both the Corporate Debtors M/s. Adhunik Metallics Ltd. and M/s Zion Steel Ltd. its employees etc. set aside the impugned order dated 9th July, 2019. Both the Resolution Plans be implemented in its latter and spirit. The claim of all the creditors stand settled. Control and records of both the Corporate Debtors - M/s. Adhunik Metallics Ltd. and M/s Zion Steel Ltd. have already been handed over to the Successful Resolution Applicant by Committee of Creditors / Monitoring Committee / Resolution Professional . Committee of Creditors / Monitoring Committee / Resolution Professional stand discharged. 18. The Learned Counsel for the Appellant(s) contends that Rule 11 of NCLAT Rules specifically provides wide powers to this Tribunal to pass orders in upholding the principles laid down by the Hon ble Supreme Court in making all efforts to save the Corporate Debtor from a corporate death o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debtor as well as Operational Creditors are pressing for, as they are interested in resolution as against liquidation and further that Edelweiss Asset Reconstruction Company Ltd. , being the 85% Financial Creditor of the Corporate Debtor was present during the last hearing had requested for resolution of the Corporate Debtor rather than its Liquidation. Apart from that, an Operational Creditor had filed an Impleadment Application in the instant Appeal and are claiming Resolution over Liquidation and in the best interest of all stakeholders, Liquidation is to be avoided and a Resolution Order is to be passed. 22. The Learned Counsel for the Appellant(s) submit that pursuant to the letter received by the erstwhile Resolution Professional of the Corporate Debtor (Tecpro Systems Ltd.) from one Mr. Gautam Joginderlal Suri claiming to be the authorized signatory of the Kridhan Infrastructure Pvt. Ltd. (Resolution Applicant/RA) the meeting was called by the liquidator on 25.02.2020 at Edelweiss House, Mumbai and discussions took place in the said meeting and that the representatives of the Resolution Applicant inform the erstwhile COC members that they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Company (at a conversion price of INR 1/- per share) on the date of equity infusion to ensure 20% equity holding with Financial Creditors as per the Resolution Plan approved by NCLT; d. In the event of failure to make upfront payment of INR 50 crore to Financial Creditors, then INR 15 crore of equity infused and kept in an account marked under lien shall stand forfeited and no further opportunity shall be granted to the Resolution Applicant . Financial Creditors can approach the Adjudicating Authority to take further steps in this matter; e. Till balance INR 415 crores is paid to the Financial Creditors, the Resolution Applicant must strictly follow the cash sweep mechanism stipulated in Section 5.3 of the approved plan; f. INR 5 crores performance security as per order dated 16.01.2020 of NCLT already was utilized by the liquidator for the payment of unpaid CIRP /MC period costs (incurred prior to liquidation commencement date) which shall be recouped from the upfront funds infused (₹ 15 crores + ₹ 50 crore) and held in fixed deposit as per order of NCLT; g. All other terms of the approved Resolution Plan remain unchanged and the Resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shiju PV, Puja Agarwal (through Audio Conference) 26. The Learned Counsel for the Appellant(s) contends that the Appellant had already taken the 1st step towards the capital infusion as per the approved Resolution Plan under clause 5.1 of the Plan i.e. that deposit of an amount of ₹ 15 crores pursuant to which the capital reduction is to take place and the issuance of shares is to be made in favour of the Resolution Applicant . Besides this, the sum of ₹ 15 crores, as deposited by the Appellant would be used for the infusion of the equity, upon the order reversing the liquidation order dated 16.01.2020. 1st Respondent s Contentions 27. In response, the Learned Counsel for the 1st Respondent submits that the instant appeal is filed arraying the erstwhile Resolution Professional as a Respondent and that Mr. Ramachandran Subramanian, liquidator appointed by the Adjudicating Authority as per order dated 16.01.2020 has not been arrayed as a party to the present appeal. 28. The Learned Counsel for the 1st Respondent / Erstwhile Resolution Professional submits that the modified Resolution Plan was approved by the Adjudicating Authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for not complying with the Resolution Plan which perforced the Adjudicating Authority to Reserve orders . As such, the counter plea taken on behalf of the Appellant that no opportunity of being heard was not provided to them is an incorrect one. 32. The Learned Counsel for the 1st Respondent submits that there is no allegation of material irregularity or fraud and in the absence of such averment made in the appeal, the Order of Liquidation is an irreversible one unless there has been some material irregularity or fraud, albeit, Section 230 of the Companies Act, 2013 permits for the scheme of arrangement between the Corporate Debtor and its Creditors. 33. Continuing further, it is represented on behalf of the 1st Respondent that the application for liquidation of Corporate Debtor u/s 33(3) r/w Section 60(5) was moved before the Adjudicating Authority, after resolution was passed by the erstwhile Committee of Creditors with an overwhelming majority of 99.28% voting share in the meeting that took place on 11.11.2019. 34. The Learned Counsel for the 1st Respondent adverts to the Reply Affidavit of the 1st Respondent (filed on 06.03.2020) wherein at paragraph 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned Counsel for the 1st Respondent submits that the instant Appeal is not maintainable since the Appellant(s) had miserably failed to demonstrate before this Tribunal any instance of material irregularity or fraud in the order of liquidation passed by the Adjudicating Authority and an Appeal is maintainable as per Section 61(4) of IBC, only on the ground of material irregularity or fraud. Liquidator s Stand 36. The Learned Counsel for the Liquidator contends that an opportunity to submit reply was provided by the Adjudicating Authority to the Appellant / Resolution Applicant and the 1st Appellant / Resolution Applicant had failed to file the reply or prove its bonafide and correctly an order of liquidation was passed by the Adjudicating Authority resting upon an unanimous decision of the Monitoring Committee and lenders. 37. The Learned Counsel for the Liquidator submits that the Resolution Applicant in its communication dated 15.08.2019 addressed to Bombay Stock Exchange and National Stock Exchange had admitted that it has two Singapore based subsidiary companies viz. Ready-Made Steel Pte Ltd. , and its step-down subsidiary KG Foges Pvt. Ltd. and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he plan. Also, that the 1st Appellant / Resolution Applicant is incapable to bring in the required funds as seen from the documents available on public domain and one more Company controlled by the same group Swee Hong Pvt. Ltd. which is under restructuring in Singapore which is equivalent to Corporate Insolvency Resolution Process under the code. 41. The Learned Counsel for the Liquidator submits that the Resolution Plan is for ₹ 470/- crores and the affidavit dated 18.08.2020 filed by the Director of the 1st Appellant / Resolution Applicant does not demonstrate that it is financially capable to implement the Resolution Plan nor it is supported with solvency certificate from a competent professional and that the present endeavour of the Appellant(s) is merely a ruse to take over the Company s assets with an intention to sell and generate assets. 42. The Learned Counsel for the Liquidator refers to the judgement of the Hon ble Supreme Court in Meghal Homes Pvt. Ltd. V. Shree Niwas Girni KK Samidi and Ors. (civil appeal No. 3179-3181 of 2005, decided on 24.8.2007) wherein it is observed as under:- when a Company is ordered to be wound up, the assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecified. 48. The Learned Counsel for the Liquidator points out that the Cash Flow Details as per the failed Resolution Plan is as follows:- Amount in Crores Qtr Amount Infused Otherwise Amount Infused through Sale of Assets Total Amount 2 3.61 33.25 37.22 3 4.33 42.75 47.08 4 Nil 28.50 28.50 TOTAL 7.94 104.50 112.80 and takes a plea that from the aforesaid Cash Flow that it is clear that the Resolution Applicant in the Resolution Plan is dependent upon the sale of assets and, therefore, the plan is subjective one. 49. The Learned Counsel for the Liquidator submits that the Appellant(s) had failed to provide an undertaking of meeting the unpaid Resolution Process Cost and liquidation cost to the tune of ₹ 7.25 crores. Reply Submissions of the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of financial creditors have accorded approval to the resolution plan would be of no avail, unless approval is by a vote of not less than 75% (after amendment of 2018 w.e.f. 6.6.2018, 66% of voting share of the financial creditors. To put it differently the action of liquidation process postulated in chapter III of the I B Code is avoidable, only if approval of the resolution plan is by a vote of not less than 75%(as in October, 2017) of voting share of the financial creditors. Conversely, the legislative intent is to uphold the opinion or hypothesis of minority dissenting financial creditors. That must prevail, if is not less than the specified percent (25% in October, 2017; and now after the amendment w.e.f. 6.6.2018 44%). The inevitable outcome of voting by not less than requisite percent of voting share of financial creditors to disapprove the proposed the resolution plan, de jure, entails in its deemed rejection. xxxxxxxxxx 49 .No corresponding provision has been envisaged by the legislature to empower the resolution professional, the adjudicating authority (NCLT) all for that matter the appellate authority (NCLAT) to reverse the commercial decision of the CO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong other things observed that the code is thus a beneficial legislation which puts the Corporate Debtor , back on its feet, not being a recovery legislation for creditors . 58. The Learned Counsel for the Lenders contends that the intent of the I B Code is clear to have lenders as a consultative body all through out liquidation process as they are better equipped to take decisions in respect of the Corporate Debtor and/or the primary stakeholders to receive the payment from liquidation estate liquidated by the liquidator during liquidation. Therefore, the amendments to the liquidation regulations ensure that the stakeholders consultation committee is constituted and advise of the SCC is to be considered by the liquidator and if the liquidator decided differently from such majority decision of the SCC , he has to record reasons in writing. 59. The Learned Counsel for the Lenders point out that during the pendency of the instant appeal, before this Tribunal, the Liquidator was directed not to take any action on confirmation of sale and that the liquidator went ahead and proceeded to put the property on sale for the second time even for the conclusion of the 1st option ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nown as Krish Steel and Trading Private Limited) ii) Eight Finance Pvt. Ltd. (EFPL) iii) Employees of the Corporate Debtor . In fact, the Resolution Professional verified the Resolution Plan as per Section 30(2) of the I B Code and presented the same before the Committee of Creditors for their consideration. The Committee of Creditors after deliberating and discussing the Resolution Plans submitted by the aforesaid Resolution Applicants in their 6th and 7th meetings and on 30.04.2018 the Committee of Creditors in its 8th meeting dated 30.04.2018 approved the Resolution Plan submitted by KIPL (Now Known as Krish Steel and Trading Private Limited) by a majority vote of 88.39%. 64. As a matter of fact, CA 368(PB)/2018 was filed on 3rd May, 2018 u/s 30(6) of the Code read with Regulation 39 of the Corporate Insolvency Resolution Process Regulations seeking approval of the Resolution Plan . On 10.03.2019, the modified Resolution Plan was approved by a majority vote of 89.92% through e-voting conducted between 10.03.2019 (11 A.M.) to 12.03.2019 (11 A.M.). The National Company Law Tribunal Principal Bench, New Delhi in CA 503(PB)/2019 on 15.03.2019 in Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BCLC 328(CA). In fact, the Legislature had made specific provisions in public interest and to facilitate good Corporate governance . It cannot be forgotten that the Bankruptcy Law Reforms Committee elected certain principles within which I B Code would function and one such principle is that the I B code specifies the time bound process, which will not be extended, to better preserve the Economic Value of the Asset . 67. Time limit specified in I B Code is the essence of the triggering process and the Insolvency Resolution Process. This is the prime reason behind the enactment of the Code. If an Adjudicating Authority extends the Insolvency Resolution Process beyond the time line mentioned u/s 12(3) of the code, the same will be in negation of the underlying policy behind the court of ensuring timely resolution of Company Insolvency. Per contra, the exercise of this power, in violation of statutory provision may be desirable in an exceptional / extraordinary circumstance(s). In fact, a Resolution Applicant has no vested right that his Resolution Plan be considered. 68. Ordinarily, the Adjudicating Authority is to follow the discipline of I B code enacted b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on failure of CIRP and it facilitates / encourages resolution in several manner. Undoubtedly, a liquidation order shall also be a notice of discharge to the offices, employees and workmen of the Corporate Debtor except when the business of the Corporate Debtor is continued. 73. It is to be pointed out that Section 230 of the Companies Act, 2013 deals with Tribunal s power to make an order on the application of the Company or of any creditor or member of the Company or in case of company which is being wound up, of the liquidator under this Act or under IBC as the case may be that a meeting may be called for the proposed compromise or arrangements including debt restructuring etc. between company, its creditors and members. In fact, the Company or any other person by whom an application made shall disclose all material facts relating to Company such as latest financial position of the Company, latest Auditor s Report, Reduction of Share Capital of the company included in the compromise or arrangement etc. 74. The Adjudicating Authority in the impugned order dated 16.01.2020 in C.A. No. 2683(PB)/2019 in Company Petition No. (IB)-197(PB)/2017 at paragraph 6 had clearl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of this Tribunal. Also, that the 1st Appellant / Resolution Applicant had averred in the Affidavit in compliance of order dated 18.08.2020 at paragraph 7 that it is agreeable for forfeiture of an amount of ₹ 15 crores in addition to the already forfeited amount of ₹ 5 crores, in case it fails to deposit an amount of ₹ 50 crores within the three months period, from the date of reversal of the liquidation order. 79. At this stage, it is to be relevantly pointed out that the Liquidator (although not arrayed as one of the parties to the present Appeal) was heard through is counsel and the forceful objection on the side of Liquidator is that the Resolution Applicant through its subsidiaries had defaulted to the Union Bank of India, Hongkong Branch to the tune of INR 750 crores approx. and, therefore, is ineligible u/s 29A of the Code. In fact that after the failed Resolution Plan the Appellant(s) want the period to recommence henceforth. 80. A perusal of Section 29A clause of the I B Code (i) indicates that it disqualifies a person if he has been subject to any of disabilities stated in clauses (a) to (h) of Section 29A in any jurisdiction outside India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal is concerned, in terms of Section 27 of the I B Code, a stakeholder aggrieved by the conduct of Resolution Professional may file a complaint as per IBBI (grievance and complaint handling procedure) Regulation, 2017. 85. In the present Appeal, in an unnumbered interlocutory application (vide Diary No(s). 34419 and 20770 of 2020 dated 23.07.2020) an Intervenor / Operational Creditor (Skyline Engineering Contracts (India) Pvt. Limited has taken a stance that the continuation of liquidation proceedings is prima facie prejudicial to the interests of all the stakeholders and further that the revival / resolution of the Corporate Debtor is indeed, the best possible option, during the ongoing times of COVID 19. In fact, the aforesaid interlocutory application is not entertained by this Tribunal. 86. Be that as it may, in the light of foregoing detailed discussions, this Tribunal, taking note of the entire conspectus of the attendant facts and circumstances of the instant case in an encircling manner and also keeping in mind of the plea taken on behalf of the liquidator that the Resolution Applicant(s) cash flow mentioned in the failed Resolution Plan is squarely ..... X X X X Extracts X X X X X X X X Extracts X X X X
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