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TMI Blog2023 (8) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... B/2021 in CP(IB) No.438/KB/2018. Both the appeals were heard together and on 22.05.2023 judgement was reserved. 2. By the impugned order the learned Adjudicating Authority was pleased to approve the Resolution Plan submitted on behalf of Respondent No.2/Square Four Housing and Infrastructure Development Pvt Ltd, submitted by RP/R1. 3. The three appellants in Company Appeal (AT)(Ins) No.839/2022 are suspended directors of Board of Directors of the Corporate Debtor i.e. Castal Extrusion Pvt Ltd whereas appellant in Company Appeal (AT)(Ins) No.861/2022 had claimed to be tenant of the major portion of the land of the Corporate Debtor and the appellant in this appeal whose resolution plan was not approved has also assailed the approval of the Plan by the impugned order. 4. In Company Appeal (AT)(Ins) No.839/2022 the appellants have prayed for following reliefs:- a) Quash and set aside the impugned judgement dated 29th June, 2022 passed by the Learned Adjudicating Authority, Kolkata Bench in IA (IB) No.277/KB/2021 in CP (IB) No.438/KB/2018; and b) Call for the records of CP (IB) No.438/KB/2018; and c) Pass any other order which this Hon'ble Appellate Tribunal deems fit in the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement (Annexure A-2) with the appellant and lease hold right over 1.90 acres of subject land was created in favour of the appellant for a period of five years on monthly rental of Rs.55000/- Thereafter on 01.08.2014, Notice under Section 13(4) of the SARFEASI Act, 2002 was issued by the Vijaya Bank for enforcement of security interest over the subject land. Mr. Harshvardhan Tantia, who on the date of execution of the unregistered lease agreement dated 27.07.2014 was holding 6.22% shares in the Corporate Debtor, on 14.03.2016 resigned from the directorship of the Corporate Debtor. It is further evident that on 26.02.2018 Vijaya Bank invoked the bank guarantee against the Corporate Debtor and asked the Corporate Debtor to pay an amount of Rs.57.34 crores alongwith interest. Even thereafter on 26.07.2019 the Corporate Debtor entered into an unstamped and unregistered rent agreement (Annexure A-1) with the appellant whereas lease hold right over 1.90 acres of the subject land was created in favour of the appellant for further period of five years. We may deal with in detail in respect of aforesaid two lease agreement subsequently. 7. Since the financial debt was not cleared by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eas the Corporate Debtor gave the subject land to the appellant for Rs.55000/- per month. 11. Finally on 12.02.2021 e-voting on the Resolution Plan was concluded and plan submitted by R2 was approved with 100% voting share and resolution plan submitted by the appellant was rejected by the CoC. Thereafter on 15.02.2021 RP issued letter of intent to Respondent No.2 and same was accepted. Subsequently RP filed an application i.e. Application No.IA(IB) No.277/2021 under Section 30(6) of the IB Code seeking approval of the resolution plan. Finally by the impugned order dated 29.06.2022 the Adjudicating Authority allowed the IA(IB) No. 277/2021 and approved the plan submitted by Respondent No.2 as approved by the CoC. The Adjudicating Authority also allowed IA No.107/2021 filed by the RP for directing the appellant herein to vacate the land within a period of 30 days and also make payment to the Corporate Debtor at the rate of Rs.2 lakhs per month. 12. Aggrieved with the order dated 29.06.2022 to the extent of approval of plan the present Company Appeal (AT)(Ins) No.861/2022 has been preferred by the appellant. Whereas against the approval of the resolution plan and allowing IA No.277/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such the learned Adjudicating Authority has committed error in approving the said plan. In course of arguments he has also drawn our attention to running page 91 of the impugned order and referred to Sl.No.6 para 10.2. It is better to reproduce para 10.2 as follows which is from running page 91 to 94:- 6 10.2 Title in respect of immovable property held by the Corporate Debtor 10.2.2 Based on the information received from the Information Memorandum and during due diligence, it is revealed that one T-RMC Pvt. Ltd. having its registered office at 35A, Dr. Sarat Banerjee Road, 2nd Floor, Kolkata 700029, has been carrying on its business activities of ready-mix concrete in a substantial portion of the Land/Premises of the Corporate Debtor as an occupier. It has also been transpired that there are several number of workers are engaged in the business activities of the said T-RMC Pvt. Ltd. In this regard, the RA proposes for passing an order by the Hon'ble NCLT, Kolkata Bench directing eviction of the said T-RMC from the aforesaid Land/Premises of the Corporate Debtor along with its establishment/machineries/staffs/employees/raw materials and all other things whatsoever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled. The Resolution Applicant accordingly expects the vacant & peaceful of the property subsequent to the approval of the Resolution Plan. The RP has argued that the impugned transaction vide 2014 Agreement was covered within the purview of Section 46 (1) (ii) of IBC. It has been brought on record by the RP that at the relevant time of execution of the 2014 Agreement, the CD and T-RMC were related parties within the meaning of Section 5 (24) (d) of IBC. This is since Harshvardhan Tantia, one of the promoters of both the CD and TRMC, was a director of T-RMC and held more than 2% shares in the CD at the time of the execution of the purported 2014 Agreement. In this regard, the RP has drawn our attention to the following relating to Shareholding pattern: * Shareholding of T-RMC in FY 2014-15 at page 43 of the Application: Harshvardha n Tantia held 50% shares of and in T-RMC at the relevant date. * Shareholding of CD in FY 2014-15 at page 107, Application: Harshvardha n Tantia personally held 6.22% shares of and in the CD at the relevant date at the time of execution of the 2014 Agreement. * Details of appointment and resignation of Harshvardha n Tantia from T-RMC (Form N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lution the Applicant within the period stipulated above. In the event of failure to make such payment within the stipulated period, the Corporate Debtor and/or the Resolution Applicant shall be at liberty to claim and realise mesne profit from T-RMC at such rate as may be reasonably decided by the Corporate Debtor and/or the Resolution Applicant. The Corporate Debtor and/or the Resolution Applicant shall be at liberty to take appropriate step against TRMC for their eviction and realisation of the said dues in the event their failure to comply this order. The said I.A. (IB) 107//KB/2021 and I.A. (IB) 1302//KB/2020 IN C.P (IB) No. 438/KB/2018 is thus disposed of with the directions as above. 10.2.4 Any dues, liabilities, charge, interest, penalty or cost on the Corporate Debtor relating to any period prior to the insolvency commencement date is deemed to waived/written-off with respect to the immovable property. Such dues for the period prior to the insolvency commencement date shall form part of the Operational Creditor (other than workmen/ employees) and if claim has been filed by the concerned authorities then the same to be paid on pro-rata basis from the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .C.R. at page 149, and A.R. Antulay V. R.S. Nayak & Ors. S.C.R. at page 71). It is also true that the time taken by a Tribunal should not set at naught the time limits within which the corporate insolvency resolution process must take place. However, we cannot forget that the consequence of the chopper falling is corporate death. The only reasonable construction of the Code is the balance to be maintained between timely completion of the corporate insolvency resolution process, and the corporate debtor otherwise being put into liquidation. We must not forget that the corporate debtor consists of several employees and workmen whose daily bread is dependent on the outcome of the corporate insolvency resolution process. If there is a resolution applicant who can continue to run the corporate debtor as a going concern, every effort must be made to try and see that this is made possible.3 A reasonable and balanced construction of this statute would therefore lead to the result that, where a resolution plan is upheld by the Appellate Authority, either by way of allowing or dismissing an appeal before it, the period of time taken in litigation ought to be excluded. This is not to say that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s promoters / those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again protects the corporate debtor's assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through 40 its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends." 29. In view of the aforesaid fact, as the 'Resolution Plan' is against the object of the Code and the application under Section 10 was filed with intent of closure of the 'Corporate Debtor' for a purpose other than for the resolution of insolvency, or liquidation, we hold that the part of the 'Resolution Plan' which relates to closure of the 'Corporate Debtor'/ 'Corporate Applicant' being against the scope and intent of the 'I&B Code' is in violation of Section 30(2)(e) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the CoC which is per se contrary to the statutory provision then the same can be looked into and interfered with in an appeal. In support of his submission he has placed reliance on 2022 SCC Online NCLAT 289 63 Moons Technologies Ltd Vs Administrator of Dewan Housing Finance Corporation Ltd and others. 21. Mr. Kumarjit Banerjee, learned counsel has appeared on behalf of Respondent No.1/RP and opposed the appeal. He submits that the appeal is fit to be rejected primarily on the ground that the appellant appears to have connived with the Corporate Debtor in frustrating the CIRP. He submits that even after account of the Corporate Debtor was declared NPA the appellant entered into an unlawful lease agreement with the Corporate Debtor and major portion of the land Corporate Debtor was occupied on the strength of such untenable lease agreement for several years. He submits that since the appellant has not approached this Tribunal with clean hands, the appellant is not entitled to get any relief. 22. Mr. Banerjee, learned counsel for the Respondent has also referred to page 4 of the minutes of 6th COC Meeting dated 02.01.2021 to show that condition of the corporate debtor was in suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21) 130 taxmann.com 147(NCLAT) in Next Orbit Ventures Fund Vs Print House (India) Pvt Ltd. He has referred to paras 3(50), 37 and 38 of the said judgement which are reproduced hereinbelow:- "3.50. We are of the view that there is nothing the Code that inhibits a Resolution Applicant from pursuing a line of business that is different to the erstwhile business of the 'Corporate Debtor'. If this proposition is accepted, then it would mean that there can never be a situation where the successful Resolution Applicant can revive a 'Corporate Debtor' by pursuing a different line of business. We can easily conceive a situation where the business of the 'Corporate Debtor' is overtaken by technology - examples that come to mind are the pager business, fax business, telex business etc., which were consigned to the dustbin of history when technology overran them. Besides, the Code only contemplates that to the extent possible, the 'Corporate Debtor' shall be continued to be run as a going concern. That, by no means, is enough to bind the Resolution Applicant to the erstwhile business of the 'Corporate Debtor', especially when there is obsolescence of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore we are of the considered view that if the Resolution Plan contemplates a change in the nature of business to another line when the existing business is obsolete or nonviable, it cannot be construed that the Resolution Plan is not 'feasible or viable'. It can be seen from the aforenoted Sections 30(2) & 31 and Regulations 37, 38 and 39 that there is nothing in the Code which prevents a 'Resolution Applicant' from changing the present line of business to adding value or creating 'Synergy' to the existing assets and converting an obsolete line of business to a more 'viable and feasible' option. Keeping in view the ratio laid down by the Company Appeal (AT) (Insolvency) No. 417 of 2020 with Company Appeal (AT) (Insolvency) No. 744 of 2020 Hon'ble Supreme Court in the recent Judgement 'Kalpraj Dharamshi & Anr.' (Supra), and the fact that there is no 'material irregularity in the exercise of powers' by the Resolution Professional; and the approved 'Resolution Plan' is not in contravention of any law for the time being in force, we are of the view that there is no illegality or infirmity in the Impugned Order of the Learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and machinery had not been insured for past several years leading up to insolvency commencement date and continued to remained uninsured as on the date of preparation of the IM. In this connection, a relevant extracts from the IM issued by the RP, the Respondent No. 1 herein, on 19th September, 2020 is annexed hereto and marked as Annexure "A". c. In fact, it would also be evident from the perusal of the IM that the last payment in respect of the Municipal Taxes and Khazna liability of the Corporate Debtor was made for the period of 2005- 06 to 2007-08, and it remains unpaid for entire period of 15 years thereafter. The said liability has not even been provided for in the books of accounts of the Corporate Debtor. In this connection, copy of the receipt for last payment of Khazna by the Corporate Debtor is annexed hereto and marked as Annexure "B". d. Furthermore, as per the information and documents in possession and custody of the answering respondent herein, there is no factory license necessary for running the factory of the Corporate Debtor, and the extrusion unit was running without the requisite license and approval(s) for the past several years. No copy of the last l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lteration of business line of the Corporate Debtor and the corresponding shut down of an existing undertaking, to be permissible under the provisions of the Code and/or regulations framed thereunder. m. The purported tenant is the beneficiary of a fraudulent transaction perpetrated at the behest of the promoters of the Corporate Debtor in favour of the said T-RMC, which at the relevant time was a related party of the Corporate Debtor and it has been held by the Hon'ble Adjudicating Authority that the entire transaction was carried into effect with the sole mala fide intent of keeping the subject asset out of the reach of the creditors of the Corporate Debtor in so far as the said transaction was given effect to post issuance of 13 (2) notice on 10 March, 2014 and 4 days prior to issuance of 13(4) notice on 02 August, 2021. It is stated that the purported tenancy has been held to be a fraudulent transaction under section 49 of IBC and the said finding has not been challenged in the present appeal and such the Appellants have no locus whatsoever to aver, allege and/or impugn the subject resolution plan on account of the fact that there is a purported tenant at the subject prem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he employees and workman on the basis the requirement on new terms and conditions." In the plan submitted by the appellant page 263 reflects that there is 'Nil' against workman dues. He has also drawn our attention to running page 259 which is part of the resolution plan submitted by appellant T-RMC Pvt Ltd to show that plant operation of the Corporate Debtor was shut down for long period and further the appellants' plan was not specific on the point of revival. The proposal for take over as incorporated in the plan of the appellant was referred by the learned counsel for the appellant which is reproduced hereinbelow:- "Proposal for the takeover On payment of the Upfront Payment under the Proposed Resolution Plan, RA will do the Techno Economic Viability (TEV) of the Plant and estimate the cost of refurbishment and Maintenance of the Plant and other critical Machinery in the Factory as the entire Plant of the CD has been in Shut Down mode for many months. Basis the TEV study, RA will be decided whether to restart the Plant or put the land to alternate use or both. The said action will be the basis on which the pipeline of the orders for execution can be build up or some altern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any M/s Castal Corporation Private Limited (CCPL) purchased 2.209 acres of land situated and lying at Narayanpur, P.O.-R. Gopalpur, Dist. 24 Parganas (North), West Bengal by two registered deeds of conveyance dated 19.05.1964. CCPL thereafter constructed sheds, buildings, etc, over the said plot of land from time to time and started non-ferrous metal factory therein. CCPL was amalgamated with G. Das & Company Private Limited w.e.f. 01.07.1985. On 08.09.1988, G. Das & Company Private Limited became a public company. On 31.10.1988, G. Das & Company Limited entered into an agreement to sell the factory along with land, plant & machinery etc. to the Corporate Debtor - Castal Extrusion Private Limited at a total price of Rs. 25 lakhs and the date of sale was 01.02,1989, The property comprised of freehold land measuring 6.7 Bighas or says about 8,840 Sq. Meters with a pucca boundary wall all around, all covered spaces Including shads, structures, apartment and quarters, garages and other open land boundary. After acquiring of the factory, CEPL developed the factory site and the commercial production started from 20.03.1990. CEPL is part of the Tantia Group. Tantia Constructions Lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the right to induct other shareholders in the SPV. The Resolution Applicant will infuse funds into CEPL to the tune of Rs. 6.50 Lakhs, SPV will be used to hold the shares of CEPL; b) Conversion of Nature of Factory Land -The Resolution Applicant proposes to convert the nature/use of the Factory Land from Industrial purpose to Residential/Commercial purpose. The Resolution Applicant has studied that the nearby areas of the Factory have been developed into a residential area with many residential properties being developed in the recent past, hence, it will be very difficult to restart or carry out any other new industrial activity in this area. The Resolution Applicant accordingly proposes to convert the industrial land into residential/commercial land. c) Termination & Settlement of Labour & Staff - The workforce of CEPL as on Insolvency Commencement Date comprised of 38 labours and 5 employees, none of whom have the required skill set for working in a real estate company. Accordingly, the Resolution Applicant does not intend to retain the workforce of the company. The Resolution Applicant thus proposes for the retrenchment/termination of the workforce and any amount payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproved by the learned Adjudicating Authority. 34. Mr Arun Agarwal, learned counsel has appeared on behalf of Respondent No.3/CoC. Besides adopting arguments advanced by Mr. P. Nagesh, learned senior counsel for Respondent No.2 as well as Mr. Banerjee, learned counsel for Respondent No.1 he tried to persuade the Court that lease agreement itself was fictitious and it was created only with a view to put the financial creditor to loss by illegal means. He submits that the perusal of the lease agreement itself makes it clear as to what was the object for creating such a document. By way of referring to lease agreement dated 27.07.2014 which is at running page 119 to 122 he submits that one of the Directors of Corporate Debtor namely Jaydeep Ghosh had executed the agreement as landlord on behalf of the Corporate Debtor and on behalf of M/s T-RMC Pvt Ltd (tenant), it was signed by Mr. Harshvardhan Tantia. This lease agreement was only notarised but not registered whereas the lease agreement was for a period of five years and land measuring 1.90 acres out of 2.209 acres of Corporate Debtor was leased out, that too for a monthly rent of Rs.55000/-. He has also drawn out attention to para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s running the industry of aluminium production and as such there was no reason for alteration of the business. 38. In Company Appeal (AT)(Ins) No.839/2022 three suspended directors of the Board of Directors of the Corporate Debtor are three appellants. One of the appellant namely Mr. Jaydeep Ghosh is the signatory of the lease rent agreement dated 27.07.2014 and 26.07.2019. 39. Mr Prakhar Tandon, learned counsel has appeared on behalf of the appellant in the present appeal CA(AT)(Ins) No.839/2022. He assailed the resolution plan on several grounds including the ground that the approved resolution plan was conditional and vague. He emphasised that resolution plan has not discussed about the revival of the Corporate Debtor and decided for closure of the business of the Corporate Debtor. However, on being asked as to whether the appellants had also submitted any resolution plan, the learned counsel for the appellant accepted that no plan was submitted on behalf of the appellant. 40. Mr. P Nagesh, learned senior counsel appearing on behalf of Respondent No.2 raised preliminary objection on the point of maintainability of the appeal filed by the directors of the suspended Board of Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icularly by replying submission of counsels in Company Appeal (AT)(Ins) No.861/2022. 42. Mr. Nagesh, learned senior counsel on the question of law in both the appeals has taken the same stand. He submits that it is settled that Resolution Applicant has no vested right regarding his resolution plan. It is upto the commercial wisdom of the CoC to consider the plan which may not be interfered with. On this very issue he has placed reliance on para 79 of judgement reported in (2019) 2 SCC Page 1 Arcelormittal India Pvt Ltd Vs Satish Kumar Gupta and others which is quoted hereinbelow:- "79. Given the timeline referred to above, and given the fact that a resolution applicant has no vested right that his resolution plan be considered, it is clear that no challenge can be preferred to the adjudicating authority at this stage. A writ petition under Article 226 filed before a High Court would also ne turned down on the ground that no right, much less a fundamental right, is affected at this stage. This is also made clear by the first proviso to Section 30(4), whereby a Resolution Professional may only invite fresh resolution plan, if no other resolution plan has passed muster." 43. To c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of hardship due to prevailing circumstances, the Appellant cannot be permitted to cry foul. It is not a case of alleged material irregularity in the Corporate Insolvency Resolution Process which is in final stages with the approved Resolution Plan being under implementation. Outbreak of COVID-19 pandemic has slowed down the economic activity and operations have been adversely impacted. Viewed in that context some necessary changes in the agreed terms and extension of time for implementation would not be uncalled for. Be that as it may, the Appellant has no locus to maintain that the change in terms of the approved Resolution Plan in regard to extension of time for induction of upfront amount as also implementation of the Resolution Plan has jeopardized its legal rights qua consideration of its Resolution Plan which has been rejected." 45. Similarly learned counsel for the Respondents have referred to para 31 of a judgement of this Appellate Tribunal passed in an unreported IA No.215/2023 in Company Appeal (AT)(CH)(Ins) No.58 of 2023 which is reproduced hereinbelow:- "31.On a careful consideration of the respective contentions advanced on either side, this Tribunal, keepi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod of five years which was to end on 26.7.2019. It is mandatory that if a tenancy is created on the basis of an agreement/lease agreement for one year or more then the said deed is required to be registered. However, it is not disputed that in the present case the lease agreement which was for five years was only notarised, not registered. Further it has been pleaded and not disputed by the appellant that Mr. Jaydeep Ghosh one of the directors who signed on behalf of the Corporate Debtor was never authorised by the resolution passed by the Corporate Debtor. Mr. Harshvardhan Tantia who put signature on the agreement, on behalf of tenant, i.e. T-RMC Pvt Ltd on the date of execution was also having about 6.22% shareholding in the company i.e. Corporate Debtor. It is also not in dispute that a charge had been created on the whole land of the corporate debtor in favour of the financial creditor/Bank. Once charge in respect of the said land was created in favour of the Bank it was mandatorily required on the part of the Corporate Debtor to get first permission/consent of the Bank for executing lease rent agreement that too for five years. One of the condition in lease agreement i.e. 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (e) Curing or waiving of any breach of the terms of any debt due from the corporate debtor; (f) Reduction in the amount payable to the creditors; (g)Extension of a maturity date or a change in interest rate or other terms of a debt due from the corporate debtor; (h)Amendment of the constitutional document of the corporate debtor; (i) Issuance of securities of the corporate debtor, for cash, property, securities, or in portfolio of goods or services produced or rendered by the corporate debtor. (j) Change in portfolio of goods or services produced or rendered by the corporate debtor. (k)Change in technology used by the corporate debtor; and (l) Obtaining necessary approvals from the Central and State Governments and other authorities. 50. Section 5(26) of the IBC is also necessary to be reproduced as follows: "5(26) "resolution plan" means a plan proposed by resolution applicant for insolvency resolution of the corporate debtor as a going concern in accordance with Part II. (Explanation : For the removal of doubts, it is hereby clarified that a resolution plan may include provisions for the restructuring of the corporate debtor, including by way of me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ul gain and with a view to take undue pecuniary advantage and depriving the interest of the Financial Creditor/Bank by illegal means, we feel this issue should not be left untouched. We are of the opinion that creation of aforesaid two doubtful and suspicious lease agreements which have been used in the court proceeding to defeat the objective of IBC, requires enquiry. As such we propose to request Delhi Police Commissioner to get the issue relating to aforesaid two lease rent agreements, its effect and also conspiracy, if any, enquired into and if materials are collected showing commission of cognisable offence, then in that event a regular FIR may be lodged and case may be investigated to its logical end. It is upto the Delhi Police Commissioner to entrust enquiry/investigation either to Economic Offences Wing or any other appropriate investigation wing of Delhi Police for taking the inquiry/investigation to its logical end. 54. Let a copy of this order be sent to the Delhi Police Commissioner for its compliance. 55. The Ld. Registrar of this Tribunal is directed to provide all assistance/material/authenticated copies of the appeals and other documents if asked by the investiga ..... X X X X Extracts X X X X X X X X Extracts X X X X
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