TMI Blog2021 (5) TMI 1040X X X X Extracts X X X X X X X X Extracts X X X X ..... ement which would have vitiated the agreement. The parties to the contract, in such circumstances, should normally be held to their bargain - If JMPL thought that the termination of the contract was wrong, it has all the resources and the legal framework to challenge the same. The fact remains that this has not been done so far. An inference should, therefore, be drawn that JMPL was not aggrieved in any manner by the termination of the contract. Direction sought upon the liquidator to pay the dues of the workers and employees working at the Dharwad plant of the Company in a regular and timely manner - HELD THAT:- The liquidator has taken the decision to terminate the contract on 15.07.2020 from a commercial perspective, where the payments for April 2020 came to be paid in tranches till July 2020. The liquidator was not sure whether the payments for May, June and July 2020 would at all come, and therefore came to the conclusion to terminate the contract so that he could explore other options - it is a matter of conjecture whether JMPL would have come as the knight in shining armour to save the workers. Considering that no payments have come forth from JMPL after the terminatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ka in a regular and timely manner; (b) The respondent/Liquidator be restrained by an order of injunction from taking any coercive steps for closing the operations of the company's plant at Dharwad, Karnataka; (c) The respondent/Liquidator be restrained by an order of injunction from terminating, or taking any decision to terminate, the agreement between the company and Jeju Metals Private Limited as recorded in the letter dated 27.09.2019; and (d) A competent and independent agency be appointed to investigate the manner in which the respondent/Liquidator has been conducting his affairs as such Liquidator, and a report be called for from such agency; 2. The case of the applicants 2.1. The conspectus in which the application is required to be decided is set out as follows. 2.2. The applicants are the employees and workers of Gujarat NRE Coke Limited ( the Company or Gujarat NRE ), in employment for the last twelve years and working at the plant of the Company at Belur Industrial Area, Dharwad, Karnataka. 2.3. The Company is in the business of manufacture of Low Ash Metallurgical Coke ('met coke') and is one of the largest independent cok ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve right to use the plant at Dharwad, the land and all related facilities. 2.9. In order to ensure that there is no impediment faced by JMPL in the process of conversion of coal into met coke, the Company also agreed to provide it employees and workers presently in its employment for such operation at the Dharwad plant. The agreement was agreed to be terminated by either party by giving a prior notice of four months to the other party. On behalf of the Company, the respondent had issued the letter dated 27.09.2019, which was accepted by JMPL only with effect from 01.11.2019. 3 2.10. As per the agreement dated 27.09.2019 the Company, through its present employees and workers, provides services for conversion of the coal into met coke using the manufacturing facilities at the Dharwad plant. For the period November, 2019 to July, 2020, the Company raised monthly invoices on JMPL in terms of the said agreement for a sum of Rs. 47.20 lakh each. 4 2.11. In terms of the bills/invoices raised by the Company, JMPL has been making payments to the Company covering the period November, 2019 to July, 2020. All the employees and workers of the Company at its Dharwad plant continu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not being made by the respondent in spite of funds available in the Company, some of the employees at the higher management level have been compelled to tender their resignations. The respondent, by his act and conduct, and, by withholding the payments, which the workers and employees are entitled to receive, was trying to create a compelling situation for the workers to leave the Company. 7 2.17. By email dated 03.08.2020, 8 the respondent/liquidator had informed the Deputy Commissioner of Police, Dharwad Region, Karnataka, about a possible unrest at the Dharwad plant. The email was only intended to portray that the respondent took all possible steps to revive the Company and had been paying the salaries of employees and wages of workers even during the pandemic till May 2020. The respondent also created an impression that the financial condition of the Company had deteriorated further and that it was becoming impossible to pay the salaries and wages to idle employees and workmen. 2.18. For their part, the applicants lodged complaints dated 04.08.2020 with the Deputy Labour Commissioner, Belgaum, and with the Deputy Commissioner of Police, Dharwad Region, Karnataka, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed even after receipt of payment and having available fund. The respondent is only interested in closing down the Dharwad plant, which is otherwise operational and cut short the source of generating revenue. Immediate intervention of this Adjudicating Authority is, therefore, both expedient and necessary to prevent further illegalities being committed upon the applicants at the instance of the respondent, who is only interested in the closure of the Company and not its revival. The manner in which the respondent is discharging the functions as the Liquidator of the Company also requires to be investigated by an independent and competent agency so as to prevent any unjust decision being taken at the behest of the Respondent. 3. Arguments of Mr. Swatarup Banerjee, learned counsel for the applicants 3.1. Mr. Swatarup Banerjee, learned counsel appearing for the applicants, started his arguments by referring us to the Hon'ble Supreme Court order dated 24.02.2020, 11 wherein it was directed that while the liquidation proceedings could go on, sales, if any, will not be confirmed. This was apropos the hon'ble NCLAT's order that liquidation should be the last resort, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould harm the interests of the workers at large. 3.5. Mr. Banerjee also pointed out from the liquidator's reply, It is also on record that JMPL has not been processing its coal as per the agreement for the reasons best known to them. Further, there was recall notice recently issued on 03.09.2020 by the lenders of JMPL, 18 indicating defaults of debts by JMPL to their lenders. Mr. Banerjee submitted that this was a recall notice issued by Lakshmi Vilas Bank Ltd. dated 03.09.2020, 19 which had nothing to do with the period between Feb 2020 to July 2020, when the liquidator finally issued notice of termination to JMPL. The recall notice issued by Lakshmi Vilas Bank Ltd. is after the date of termination (15.07.2020) of JMPL's contract by the liquidator. Mr. Banerjee wondered what the effect of the Bank's letter was when it was issued more than one and a half months after the notice of termination by the liquidator. 3.6. Mr. Banerjee submitted that the main issue was whether the Company was running on a foothold which could have revived the Company. In this regard, Mr. Banerjee drew our attention to the statement titled, Financial Health of the Corporate Debto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion notice with effect from 24.09.2020 which was well before the four-month notice period of termination which ended on 14.11.2020. 27 3.11. Mr. Banerjee pointed out that there were two back-to-back contracts entered into between the Company and JMPL. The first was a coal contract, and the second was the processing contract. If these two were to be read together, and the adjustments made thereunder, it would appear that JMPL owes nothing to the Company, and that it is the Company that owed payments to JMPL. Therefore, Mr. Banerjee submitted that termination of contract was wrong and uncalled for on the part of the liquidator. He also stated that the liquidator should have been more flexible keeping the interests of the workers central to the issue. The liquidator should have strained every sinew to ensure that the Dharwad plant was functional for the benefit of its workers and employees in these hard times. 3.12. Mr. Banerjee urged the Court to grant reliefs mentioned at (a) and (c) of the Application, 28 stating that these are paramount in the spirit of the orders passed by the Hon'ble NCLAT on 24.10.2019 and Hon'ble Supreme Court on 24.02.2020. 29 The survi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 24.10.2019, the appeal was allowed, and the promoter was held ineligible to propound a Scheme u/s. 230 by the NCLAT, which further directed the Liquidator to follow the directions passed in Y. Shivram Prasad v. S. Dhanapal Ors.decided on 27.02.2019 [Company Appeal (AT) (Insolvency) No. 224/2018 a/w Company Appeal (AT) (Insolvency) No. 286/2018] 32 Following this, on 30.11.2019, around 370 employees/workmen propounded a scheme for revival. On 21.02.2020, the secured creditors and the equity shareholders rejected the scheme, while the operational creditors and the bondholders approved the same. On 29.05.2020, an application for reconsideration of the Scheme by the financial creditors was filed. In this application, the applicants therein also specifically prayed for restraining the liquidator to discharge any employees and maintain their employment. Since the secured creditors refused to reconsider, this Adjudicating Authority vide its order dated 09.06.2020 dismissed the application as not worth considering and did not grant any relief on prayers made by the applicants therein relating to discharge of employees by the Liquidator. The application filed by the liquidator for di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany is continued during the liquidation process by the liquidator, no such steps were taken even for non-functional units of the Company since revival of the Company was the objective under law. 36 4.9. Since the Company did not have requisite funds to purchase met-coke for operating the Coke plants, as a result of which Coke Plants were nonfunctional. The agreement with JMPL was conceived in order to ensure that the monthly wages/salary and other expenses arising out of the Dharwad plant are met. The Liquidator, after due consultation with the Key Managerial Personnel (KMPs) of the Company, entered into a Processing Agreement with JMPL dated 27.11.2019 which was accepted by JMPL only with effect from 01.11.2019. 37 Under this Agreement, the Company was to receive a minimum of Rs. 40 lakh plus applicable taxes. 4.10. Coming to the present application, the primary contention raised by the applicants was that there was a viable agreement with JMPL, which was self-sufficient to pay off their wages. It is the contention of the applicants that payments from Jeju were coming on time and that the liquidator, for no good reason, gave notice of termination of work. 4.11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first blush. But it hides far more than what it reveals. The chart is not limited to Dharwad unit, but to the Company's various units as a whole. Without going into the factual correctness of the figures stated therein, it does not include electricity, cost of procurement of raw material for other units of the Company, and other charges like maintenance, administration, freight, consumables and other statutory dues. The chart showing receipts and payments from 01.11.2019 to 31.08.2020 45 remains completely uncontroverted, and the last part received from JMPL is in the month of July 2020, which is the last part payment for April 2020. After this, the liquidator issued notice of termination of contract with JMPL. 4.14. It is in this background that the notice dated 03.09.2020 46 issued by Lakshmi Vilas Bank Ltd. has to be seen. Apropos this, the applicants had stated that this notice cannot be a ground for termination of the contract. A large portion of the arguments of Mr. Swatarup Banerjee, learned counsel for the applicants, was devoted to espouse the cause of JMPL. What was the fascination of the employees with JMPL, a recalcitrant, Mr. Thaker mused. The applicants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 18.10.2019 passed by this Adjudicating Authority in CA No. 867/KB/2019. The liquidator has drawn remuneration for a period of sixteen months from 11.01.2018 and that too in a staggered manner, with the last of such drawings in March 2020, which was for the period ended July 2019. 4.17. On the allegation regarding proceedings in the Supreme Court not finding place in the chart of ongoing litigation, 52 Mr. Thaker submitted that he was a bit surprised as to how the workmen sitting in Dharwad could get hold of this document, which was part of a presentation made to the Monitoring Committee. This was a confidential document. In any case, no prejudice was caused to the workers by the purported non-disclosure of the Supreme Court order dated 24.02.2020 53 to the Monitoring Committee. Further, the 24.02.2020 order has been clearly referred to in the order dated 09.06.2020 and 24.06.2020, whereby the Schemes propounded by the employees and shareholders were rejected by this Adjudicating Authority. 4.18. Mr. Thaker further submitted that the date of presentation before the Monitoring Committee was 16.09.2020. On this date, the minutes of the meeting were also drawn up, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inder to the Supplementary Affidavit, between JMPL and officials of the Corporate Debtor. He submitted that monies which JMPL claims under the coal contract are not payable by the Company as on date, since the liabilities have not yet been discharged. It is submitted that claim on account of the coal sale contract would admittedly accrue only after JMPL has taken delivery of the coal from the Importers and submitted the Importer's Invoice to the Company. In any case, Mr. Thaker submitted that these are not to be relied on, especially in an application filed by the workers, where the arguments have travelled well beyond the cause espoused by the applicants in their application. 4.22. Mr. Thaker stated that the liquidator had explored all avenues before terminating the contract with JMPL. The processing agreement was already fixed at the most optimal consideration, only considering that the salaries and wages of the employees and workmen of the Company and other allied costs of the Dharwad plant could be met. Any further reduction in the consideration was not possible for the Company. 4.23. After Notice of no work no pay issued on 23.09.2020, 57 it was categorically info ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the employees would be reasonably taken care of JMPL in the difficult period. However, it was the liquidator who was quite adamant in sticking to the contract in spite of the Covid-19 pandemic which made it difficult for JMPL to honour its commitments. 5.3. Mr. Banerjee closed his arguments by submitting that the liquidator is an extended arm of the court. His function is to work within the statute, not beyond it. In extraordinary circumstances, one would have expected the Liquidator to safeguard the assets, not to close working units. Skilled workers are being rested. 5.4. Leading us through the prayers, Mr. Banerjee submitted that prayer (a) seems to be an admitted fact in terms of the documents attached to the 1st supplementary affidavit. 63 Prayer (b) is for restraining the Liquidator from taking any coercive decisions or steps for closing down the plant. Mr. Banerjee submitted that prayer (c) is in the nature of an indulgence, he conceded that it is for the court to examine. He, however, urged that granting this prayer would save livelihoods. 6. Analysis of the arguments, findings and orders thereon 6.1. We have heard the learned counsel appearing for both side ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn cause. 6.7. If JMPL thought that the termination of the contract was wrong, it has all the resources and the legal framework to challenge the same. The fact remains that this has not been done so far. An inference should, therefore, be drawn that JMPL was not aggrieved in any manner by the termination of the contract. In these circumstances, we hold that prayer (c) of the Application cannot be granted. 6.8. That leaves us with prayer (a) and prayer (b) to deal with. Prayer (a): 6.9. Prayer (a) is a direction sought upon the liquidator to pay the dues of the workers and employees working at the Dharwad plant of the Company in a regular and timely manner. We are satisfied with the statement in para 4.24 (supra) that the liquidator has made payments wages of all workmen have been paid in full till 23.09.2020 on the basis of wages sheet for Aug 2020, and that the salaries of all employees at Dharwad and other units of the Company have been paid in full till August 2020. We also note that owing to limited cash flow, the liquidator has paid Rs. 15,000/- on account of salary of employees drawing up to Rs. 30,000/- for the month of September, 2020, while every employee dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operational. We note that the outstanding expenses of the Company as on 31st August 2020 were Rs. 8.32 crore besides other liabilities, 64 and that the same would continue to is mount due to monthly fixed costs of the Company. We also note that April to Dec 2019, the revenue of the Dharwad unit was Rs. 18.50 crore, whereas the expenditure was Rs. 32.55 crore, 65 thereby making the unit unviable. The liquidator cannot be expected to keep it afloat when the balance sheet of the company is in the red. The documents placed on record do not reveal any other source of revenue to meet the expenses of the Company. 6.14. At some point of time, hard decisions are called for in the life of a company, and these have to be taken. Unviable units will have to be closed down. The actions will have to be measured up against the objectives of the Code, one of which is to free up resources of unviable companies by permitting an easy exit. It cannot be misconstrued to keep unviable units afloat by some sleight of hand under the guise of keeping it as a going concern, thereby defeating a key objective of the Code. 6.15. The upshot of the discussion is that prayer (b) cannot be granted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Application 3 page 43 of the Application. 4 pages 44 to 52 of the Application. 5 p. 53 of the Application. 6 page 53 of the Application. 7 para 19 at page 22 of the Application. 8 page 54 of the Application. 9 pp. 56-57 of the Application 10 p. 53 of the Application. 11 p. 53 of the Application. 12p. 42 of the Application 13 p. 43 of the Application. 14 p. 56 of the Application. 15 pp. 44-52 of the Application. 16 p. 7 of the Reply. 17 pp. 56 and 61 of the Application 18 p. 9 of the reply, first para. 19 p. 22 of the reply. 20 p. 117 of the Rejoinder. 21 p. 121 of the Rejoinder. 22 p. 53 of the Application. 23 p. 123 of the Rejoinder. 24p. 9 of the rejoinder to the two supplementary affidavits. 25 p. 14 of the rejoinder to the two supplementary affidavits. 26 p. 42 of the rejoinder to the two supplementary affidavits. 27 pp. 17-18 of the rejoinder to the two supplementary affidavits. 28 p. 26 of the Application. 29 p. 53 of the Application. 30 p. 133 of the Rejoinder. 31 pp. 30-41 of the Application. 32 decided on 27.02.2019 [Company Appeal (AT) (Insolvency) No. 224/2018 a/w Company App ..... 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