Ajay Agarwal vs Kohinoor Paper and Newspaper Private Limited & Ors.

Per: Bidisha Banerjee, Member (Judicial)

Heard Ld. counsels for the parties.

This application has been preferred to seek the following reliefs, inter alia: -

The Order dated 10.06.2022 referred to above reads as under: -

Submissions of the Applicant: -

The Petitioner is the authorized representative of 100 nos. of workmen/employees of the corporate debtor which was put under CIRP by an order dated September 26, 2019 passed by this Tribunal under Section 9 of the Insolvency & Bankruptcy Code, 2016 in C.P. (IB) No. 1694/KB/2018, when the Corporate Debtor was a going concern. Its factory premises was situated at Falta Industrial Growth Center Phase II Sector – V and its workmen and contract labourers used to earn their livelihood from working at the said factory.

It is alleged that since initiation of the CIRP process, the plant of the corporate debtor is lying closed whereas in terms of Section 20 of IBC, 2016 it was the duty of the Resolution Professional (in short “RP”) to keep the Corporate Debtor as a going concern.

Further that the super cyclone Amphan in May 2020 caused a massive damage to the said plant and the factory was blown away. Again, in the year May 2021, cyclone Yash badly affected the plant area and all its plant/machineries are all lying idle and are daily exposed to corrosion from rusting of iron. It is alleged that no steps have been taken by the then Resolution Professional, now the liquidator or the then Committee of Creditors, now the stakeholders committee, to prevent the plant and machineries from getting damaged.

Vide an order dated 12^th July, 2021, in IA No. 1174/KB/2020 filed by Sri Uday Narayan Mitra, the RP of the Corporate Debtor, the Corporate Debtor was ordered to be liquidated in terms of section 33(2) of the Code and vide order dated 10^th June, 2022 the corporate debtor was directed to be sold as a going concern.

It is alleged that the sole intention of the RP/Liquidator from the very beginning was to sell the assets of the Corporate Debtor by slump sale, as it would be now evident from the invitation of expression of interest dated 25^th June, 2022.

It is alleged that the liquidation value of the corporate debtor was valued by the registered valuer at a much lesser value than the reserve price. The reserve price to sale the corporate debtor as a going concern has been fixed at Rs. 48,58,28,350/- (Rupees Forty-Eight Crore Fifty-Eight Lakh Twenty-Eight Thousand Three Hundred Fifty), higher that the liquidation value, with an intention that no purchaser would be willing to buy the corporate debtor as a going concern at a higher value than the valuation of the company, since he would have to make huge investment after acquiring the property as a going concern, when the assets, plant, machinery as well as the factory premises are at a ruinous state.

The fresh valuation of the plant and machinery, during the liquidation process has been depicted as hereunder Average Valuation as per sub-regulation (4) of regulation 35 of Insolvency and Bankruptcy Board of India (Liquidation process) Regulation, 2016, from valuers appointed on 17.03.2021.

Valuer Name Regn. No. PAN No. Asset Valuation (Rs.) Average Valuation as per Sub-regulation 35 (Liquidation) IBBI

It is alleged that previously Rare Asset Reconstruction Private Limited a prospective resolution applicant had submitted a resolution plan of Rs. 59 crores plus, yet the committee of creditors rejected the resolution plan. Moreover, certain pictures of the machineries have been doing the rounds in the social media which would make it more evident that the machineries are intended to be sold in slump sale. The ‘eligibility’ criteria set forth in the invitation of expression of interest dated 25^th June, 2022 is without any conditions as to the competency of the intending purchaser to have manufacturing experience whereas the liquidator ought to have set a pre-condition in the “ELIGIBILITY OF A PERSON TO PARTICIPATE IN E-AUCTION PROCESS” requiring the person/individual and not only cooperate/FIS to have a certain net worth which shall automatically eliminate scrap buyers.

That vide publication dated 8^th July, 2022 the liquidator modified the earlier publication of the sale notice dated 25^th June, 2022 whereby a clear attempt was made to circumvent the order of this Hon’ble Tribunal directing that the Corporate Debtor be run as a going concern.

It is submitted that an application was previously filed by the workers of the Company during the CIRP of the corporate debtor being IA No. 1428 of 2020 inter alia praying inter alia for directions upon the then resolution professional to run the corporate debtor as a going concern.

It is alleged the liquidator in collusion with the stakeholders committee has failed to act in the spirit of the said Code which aims at maximization of value of assets even after, vide order dated 21^st December, 2021. The time period for selling the corporate debtor as a going concern was extended by 90 days and to a further period of 90 days vide an order passed on 10^th June, 2022 for selling it as a going concern.

The Liquidator, Uday Narayan Mitra has refuted the allegations stating that: -

That the corporate debtor was a loss-making organization for a long time prior to the commencement of Corporate Insolvency Regulation Process and as on the date of the Corporate Insolvency Regulation Process there was no manufacturing activity.

That on 14^th December, 2019 the said factory was closed in terms of order for closure dated 14^th December, 2019 passed by West Bengal Pollution Control Board. A lockout was declared by the then Resolution Professional on 14^th December, 2019 which was reported to the CoC, in its 3^rd meeting held on 30.12.2019. Further, a profitability analysis was done.

In the first CoC meeting held on 25.10.2019 the then RP proposed for making payment of all the expenses for raw materials, salaries & wages to existing permanent laborers, contract laborers, other staff of corporate debtor and other expenses, to run the corporate debtor as going concern during Corporate Insolvency Regulation Process period.

A report was placed in 3^rd CoC meeting dated 30.12.2019. After studying the possibilities, the CoC concluded that there is no guarantee as to the profit from the operation of the factory of the corporate debtor and also estimated that there can be losses also, thereby increasing the liabilities of the CD.

That the decision of resumption of the operations at the factory or to run the corporate debtor as a going concern is a commercial decision of the CoC. The said decision of approval of lockout by CoC was based on the facts that the corporate debtor was a loss-making organization for a long time prior to the commencement of Corporate Insolvency Regulation Process.

The then Resolution Professional took steps to keep the corporate debtor as a going concern and tried to resume the operations at the factory by doing the profitability analysis. The sale of the corporate debtor was endeavoured to be done as a going concern.

That the order dated 12^th July, 2021 was uploaded on 3^rd August, 2021 and a public announcement was made on 5^th August, 2021.

In the first meeting of the Stakeholders Consultative Committee, it was decided that an application for extension of time for making sale as a going concern shall be filed. After consulting the Stakeholders Consultative Committee, e-auction sale notice was published on 25^th June, 2022 after two extensions granted by this Tribunal.

Two liquidation value, one at the start of the Corporate Insolvency Regulation Process period and another obtained at the start of the liquidation period having been obtained, an application being IA(IBC)/952/(KB)2021 was filed by the liquidator (after consulting the Stakeholders Consultative Committee) seeking a direction from this Tribunal for fixation of reserve price. By an order dated 10^th June, 2022 this Tribunal was pleased to direct that the liquidator shall decide the liquidation value in terms of the minutes of the Stakeholders Consultative Committee held on 10^th January, 2022.

Accordingly, the reserve price to sale the corporate debtor as a going concern was fixed at Rs. 48,58,28,350/- i.e., at the liquidation value obtained at the start of Corporate Insolvency Regulation Process period. Hence, the reserve price to sale the corporate debtor as a going concern has been fixed at Rs. 48,58,28,350/-.

The eligibility criteria set forth in the invitation of expression of interest dated 25^th June, 2022 was done in Consultation with the Stakeholders Consultative Committee which included Mr. Shekhar Soni as the worker’s representative in the said Committee.

By way of rejoinder the applicant has almost reiterated the facts stated in the original application except a minor addition that the total value of the Corporate Debtor was coming to Rs. 37.12 crores approximately. And hence, the liquidator, in the invitation of expression of interest dated 25^th June, 2022, arbitrarily proceeded to fix the reserve price of the Company in liquidation at Rs. 48,58,28,350/-, without any justification.

The Stakeholders Committee, the Assistant General Manager of Union Bank of India, the respondent no. 2 on behalf of the Stakeholders Committee has submitted that more than 22 months has elapsed since the Corporate Debtor was admitted into CIRP. That the Stakeholders Committee advised the liquidator to conduct valuation of the assets of the Corporate Debtor once again. The valuation marked at Rs. 36 crores is Rs. 12 crores less than the earlier valuation. That some of the prosecutive bidders had given offers even going upto Rs. 50 crores. At the third Stakeholders Committee meeting 10^th June, 2022. The Members of CoC advised the liquidator of e-auctioning the Corporate Debtor as a going concern as the same would fetch a greater value.

It has been strongly denied that they had any intention to sell the assets of the Corporate Debtor by way of slump sale as alleged.

The applicant by way of written notes of arguments has urged that Regulation 35 of IBBI (Liquidation Process), Regulations 2016 read with Schedule 1 Clause 1 Sub-Clause 4 is a mandatory provision and the liquidator was bound to go by the valuation of the Corporate Debtor obtained during liquidation. Reference is made to Khub Chand And Ors vs. State of Rajasthan & Ors (AIR 1967 SC 1074) and another State of Haryana vs. Raghubir Dayal (1995) 1 SCC 133 to contend that the word “shall” ought to be construed in the context in which it is used and the purpose it seeks to serve and as mandatory or as directory accordingly.

Respondents 2 to 8 have alleged that Mr. Ajay Agarwal has initiated the instant proceedings at the behest of Mr. Vijay Bothra, the promoter director of the CD and they had jointly attended other stakeholder committee meetings as representatives of Suashish Capital Private Limited.

Affidavits have been filed by the said incumbents Mr. Ajay Agarwal stating that he has been authorised to ensure the cause of other workmen and denying the fact that he was an employee of Suashish Capital Private Limited or even drawn salary, while Mr. Vijay Bothra was the earlier controller of the Company.

Be that as it may upon delving into the allegations made in the petition and the corresponding reply filed by liquidator as well as SCC, we find no plausible explanation coming to the fore which would inspire us to give a direction upon the liquidator to revise the invitation of expression of interest dated 25^th June, 2022 for the reasons mentioned in the application that the tentative offers of the bidders as on March 2022 were in fact ranging between Rs. 45 crores to Rs. 50 crores, as would be evident from the reply affidavit of the Stakeholders Committee. The allegations of the applicant stand uncorroborated, unsubstantiated and hence have no legs to stand on.

Accordingly, the application stands dismissed.