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TMI Blog2022 (7) TMI 1480X X X X Extracts X X X X X X X X Extracts X X X X ..... .A. No. 224 of 2018 in CP (IB) No. 88/NCLT/AHM/2017 and other consequences. I.A. No. 230 of 2020 was dismissed by the Adjudicating Authority having found no misrepresentation or fraudulent misrepresentation in issuing Information Memorandum calling for the expression of interest for submitting insolvency resolution plan. I.A. No. 229 of 2022 3. I.A. No. 229 of 2020 was filed under Section 60 (5) of Insolvency and Bankruptcy Code, 2016 (for short 'IB Code') read with Rule 11 of National Company Law Tribunal, Rules 2016 ('NCLT Rules') and Regulation No. 39 (9) of Corporate Insolvency Resolution Process ('CIRP') regulations for issue of appropriate direction against the Respondent to implement the resolution plan including the direction for deposit of balance amount, allotment of debentures, giving of guarantees by Respondent Nos. 2 to 4 etc. as approved by the Adjudicating Authority vide order dated 27.02.2019 made by the Adjudicating Authority in I.A. No. 224 of 2018 and as confirmed by the Hon'ble NCLAT New Delhi by its order dated 19.12.2019 passed in Comp. App. (Ins.) No. 354 of 2019 and allied appeals. The Petitioner also sought an alternative relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lan and the same was placed before the Committee of Creditors for voting on 6.6.2018 and 7.6.2018, the same was approved by the Committee of Creditors. 10. The Resolution Applicants/Appellants herein filed I.A. 224 of 2018 in CP (IB) No. 88/NCLT/AHM/2017 to approve the resolution plan under Section 30 of I&B Code, 2016 before the Adjudicating Authority. 11. The application was allowed by the Tribunal i.e. Adjudicating Authority upon hearing both the parties to the petitions, including objections, by order dated 27.02.2019. Thus, the Corporate Debtor was merged into applicant No. 1 company i.e. the first Appellant herein. As per the approved plan submitted by the Applicants/Appellants, the applicant is required to make payment as per plan in the specified manner at different intervals as agreed by Committee of Creditors, but the Appellants paid an amount of Rs. 30.50 crores as on the date of disposing the applications. 12. The contention of the appellants is that, they have also spent Rs. 3.67 crores as CIRP cost. It is further alleged that, despite complying with its obligation, applicant has not been given possession of the office premises and the same is continued to be in pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adjudicating Authority as per the orders in I.A. No. 224 of 2018 by order dated 27.02.2019, thus, the order was obtained by fraudulent misrepresentation which is avoidable or it can be avoided by the Appellants herein since the fraud or misrepresentation vitiates the entire proceedings and requested to recall the order passed in I.A. No. 224 of 2018 dated 27.02.2019 relying on the judgment in Kundan Care Products Ltd. vs. Amit Gupta Comp. App. (AT) (Ins.) No. 653 of 2020 dated 30.09.2020 19. The respondents opposed the appeals on various grounds. The Resolution Professional contended that the joint lenders meeting of Rainbow Paper Ltd. was held on 01.08.2017 accepted, the liability of Corporate Debtor as estimated by the applicant and that Information Memorandum was issued after exercising of due diligence by visiting the plant of Rainbow Papers Ltd. and only after visiting, after compliance of statutory procedure, the Information Memorandum was issued. On the basis of Information Memorandum, the appellants submitted the resolution plan and approved by the Committee of Creditors, later accepted by the Adjudicating Authority by order dated 27.02.2019 in I.A. No. 224 of 2018. 20. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50; Deepa Gourang Murdeshwar Katre vs. Principal, V.A.V. College of Arts (2007) 14 SCC 108; Revandas Ranchhodhbhai Rathod vs. Jyotiben Wd/o Rameshbhai Madhusudan Thakar; Bindeshwari Pd. Chaudhary V. Debendra Pd. Singh AIR 1958 Patna 618. 24. The Adjudicating Authority on erroneous appreciation of law arrived at such conclusion, on the ground that the Adjudicating Authority is not vested with power to recall its own orders. 25. It is further contended that the question of merger does not arise as the Appellants did not prefer any appeal before the Appellate Authority on the ground of misrepresentation or fraudulent misrepresentation made by Resolution Professional but filed appeal on different ground and the other aggrieved parties also preferred appeals before the Appellate Tribunal and Hon'ble Supreme Court, but the order was confirmed with certain modifications. Such order is not deemed to have been merged with the order and thereby, dismissal of the application of these Appellants on the ground of merger of the judgment of the Appellate Court into the judgment of Adjudicating Authority is erroneous and thereby, the approach of the Adjudicating Authority is illegal and plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of the insolvency resolution and in that process Resolution Professional was appointed for completion of the insolvency resolution process. Later, he issued Information Memorandum inviting expression of interest from the public. In response to the Information Memorandum calling for expression of interest, the resolution applicants/appellants herein submitted their plan for resolution. 31. The Resolution Professional undisputedly issued the Information Memorandum calling for expression of interest dated 21.2.2018, disclosing the profile of Corporate Debtor in Annexure I, the same is extracted hereunder: "A Company Profile document provided by the company is shown as Annexure - 1. As per the total installed capacity of India of 22.15 Million MTs of Paper, the installed capacity of the Corporate Debtor (herein after also termed as Company) is 0.359 Million MTs equivalent to 1.6% of the Country's production capacity. Important information related to the Corporate Debtor are provided herein below:" 32. Though Annexure -1 is referred it was not filed. After 18 months from the date of approval of resolution plan by the Adjudicating Authority and after disposal of appeals filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art are in place 35. According to the report and as per Column No. III of the Information Memorandum, it is mentioned that the company profile document provided by the company show the installing capacity of the Corporate Debtor is 0.359 MTs is equivalent to 1.6% of Country Production Capacity. 36. Based on this Information Memorandum issued by the Resolution Professional, the Resolution applicants/appellants herein submitted their resolution plan and approved by COC and adjudicating authority, however, they got appointed GITCO for the purposes mentioned in the earlier paragraphs. The inspection was done unilaterally without the presence of CIRP or his representatives. However, the adjudicating authority calculated the production capacity based on GITCO report as follows: 37. We found that the production capacity of the industry is minimum, the same is shown as under:- Assumption 1- Considering the daily capacity as shown in the GITCO Report Assumption 2- Calculation of daily production capacity by factoring in to the production calculation formula the gsm, speed, machine hours, Machine deckle as per the basis shown in the GITCO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /(1000 x 1000) ** Installed capacity (GSM x Machine Deckles in Meters x design speed x 24 hours)/(1000 x 1000) Installed capacity means the design production capacity to run the machine at highest efficiency i.e. 24 hours x 365 days 38. As per the details mentioned above, the capacity was calculated by the Adjudicating Authority and found that the installing capacity as 5,21,911 MTs as shown in last column of the table. 39. Thus, the Tribunal on accessing the installing capacity i.e. the production capacity, the capacity of the industry of the Corporate Debtor, as mentioned in the Information Memorandum is equivalent to the capacity noted by GITCO after due inspection. Therefore, there is no misrepresentation, much less fraudulent misrepresentation. The production capacity of Corporate Debtor as calculated by the adjudicating authority in the order under challenge was not questioned in the appeals by the Appellants in the present case. However, this Court while deciding this appeal under Section 61 of the IB Code need not undertake the process of calculating the production capacity of the Corporate Debtor. 40. Learned counsel for the Appellants in the written submission cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the request of the learned counsel for the Appellants. 46. 'Misrepresentation' and 'fraud' are not defined in IBC. The word 'Fraud' is defined under Section 17 and 'Misrepresentation' is defined under Section 18 of the Indian Contract Act, 1872. "Section 17. 'Fraud' defined.- 'Fraud' means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract: (1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true; (2) the active concealment of a fact by one having knowledge or belief of the fact; (3) a promise made without any intention of performing it; (4) any other act fitted to deceive; (5) any such act or omission as the law specially declares to be fraudulent. Explanation.-Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons for the previous two years; (b) financial and operational payments for the previous two years; list of assets and liabilities as on the initiation date; and such other matters as may be specified. But this provision is irrelevant since the appellants did not submit any resolution plan based on the IM issued by IRP. 52. Section 25 (2) (G) of IBC obligates the Resolution Professional to prepare the Information Memorandum in accordance with section 29, whereas Section 29 deals with preparation of information memorandum and the contents of information memorandum. The contents are as follows: "(a) The Resolution Professional shall prepare an information memorandum in such form and manner containing such relevant information as may be specified by the board for formulating a resolution plan, the Resolution Professional shall provide to the resolution applicant access to all the relevant information in physical and electronic form provide such a resolution applicant undertakes to comply with previous provisions of law for the time being enforce relating to confidentiality. (b) to protect any intellectual property of Corporate Debtor it may have access to (c) not to share releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed on record. Even according to the certificate, the production capacity of corporate debtor is same as mentioned in Information Memorandum, as such, the information disclosed by CIRP is based on material. Hence the finding of Tribunal cannot be interfered by this Appellate Tribunal. 56. Viewed from any angle, the Resolution Professional prima facie did make no misrepresentation or false representation, much less, fraudulent misrepresentation as alleged by the Appellants. 57. The Adjudicating Authority dismissed the application on the ground that the Adjudicating Authority has no power to recall its own order, which is prima facie erroneous, in view of the law laid down by the Apex Court in various judgments. At this stage, it is relevant to refer judgment of Apex Court in United India Insurance Co. Ltd. vs. Rajendra Singh 2000 ACJ 1032 where the Apex Court held that: "Fraud and justice never dwell together" (Fraus et jus nunquam cohabitant) is a pristine maxim which has never lost its temper over all these centuries. Lord Denning observed in a language without equivocation that "no judgment of a Court, no order of a Minister can be allowed to stand if it has been obtained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion or merger of two orders irrespective of the subject matter of the appellate or revisional order and the scope of the appeal or revision contemplated by the particular statute. In our opinion, the application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provisions conferring the appellate or revisional jurisdiction. For example in Amritlal Bhogilal & Co's. (1) case it was observed by this Court that the order of registration made by the Income-tax officer did not merge in the appellate order of the Appellate Commissioner, because the order of registration was not the subject-matter of appeal before the appellate authority. It should be noticed that the order of assessment made by the Income-Tax Officer in that case was a composite order viz., an, order granting registration of the firm and making an assessment on the basis of the registration. The appeal was taken by the assessee to the Appellate Commissioner against the composite order of the Income-tax- Officer. It was held by the High Court that the order of the Income-tax- Officer granting registration to the respondent must be deemed to be merged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olanki vs. State of Gujarat 2008 (3) SCALE 556; Vijay Shekhar vs. Union of India 2007 (9) SCALE 442, Venture Global Engineering LLC vs. Tech Mahindra Ltd. (2018) 1 SCC 656. 63. However, applying with principles laid down in the above judgments to the present facts of the case, we hold that dismissal of application of these appellants by the Tribunal on the ground of merger is erroneous, for the reason that, there was no challenge to the resolution plan approved by the Tribunal on the ground of misrepresentation or fraudulent misrepresentation. 64. In view of law laid down by the Apex Court in the judgements referred above, the dismissal of the application on the ground of lack of power to recall the orders and on the principle of doctrine of merger, the order of the Adjudicating Authority is liable to set aside, as it is ex facie erroneous. Accordingly, the findings are hereby set aside. 65. In any view of the matter, based on fact situation, more particularly about the calculation of production capacity by specific formula extracted above and for the failure of these appellants to inspect the premises before making expression of interest for submitting resolution plan indicates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th a channel through which solutions can be submitted for evaluation. The code does not specify details of the manner or the mechanism in which this should be done, but rather emphasis that it must be done in a time-bound manner and that it is accessible to all possible interested parties." 67. Similarly, the Apex Court also adverted to UNCITRAL Guide notes, which is as follows:- " 5. Duties and functions of the insolvency representative [....] (e) Obtaining information concerning the debtor, its assets, liabilities and past transactions (especially those taking place during the suspect period), including examining the debtor and any third person having had dealings with the debtor....." 68. In para 189 of the judgment the Apex Court concluded that under the IBC, duty is cast upon a Resolution Professional to collect as much information about the Corporate Debtor as is accurately possible to him. Then, such information is communicated through an Information Memorandum. The Resolution Professional must be careful to clarify when its information is not comprehensive and what facts may cause change. 69. The word 'relevant information' is required under Section 29 to for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a specific finding is recorded by this Tribunal that no fraudulent misrepresentation was made by the CIRP and the CIRP had undertaken an exercise to calculate the production capacity of the industry and concluded that no fraudulent misrepresentation was made by CIRP while issuing Information Memorandum, calling for expression of interest. 74. As the application to recall the order passed by the Tribunal in I.A. No. 224 of 2018 was dismissed, the appellants are under obligation to implement the resolution plan. In fact, these appellants and others are challenging the order passed by the Tribunal in I.A. No. 224 of 2019 preferred the appeals which were dismissed by this Tribunal. In Paragraph No. 45 of the order, the Appellate Tribunal held as follows:- "45. Therefore, we direct the 'Successful Resolution Applicant'- 2nd Respondent ('Kushal Ltd.') to release full provident fund and interest thereof in terms of the provisions of the 'Employees Provident Fund' and Miscellaneous Provision Act 1952' immediately, as it does not include as an asset of the 'Corporate Debtor'. The impugned order dated 27th February, 2019 approving the 'Resolution P ..... X X X X Extracts X X X X X X X X Extracts X X X X
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