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Judgment
I.A.No.90/2021: IA No.90/2021 is allowed. Order pronounced vide separate sheets.
I.A.No.40/2020: This application is filed seeking for direction from this Tribunal to the Respondents to provide to the Resolution Professional assistance and cooperation for effectively managing the operations at site and carry out the CIRP Process of the Corporate Debtor and also to direct the Respondents to provide the Resolution Professional all necessary and required information as sought by him. Orders in I.A.No.90/2021 were passed on 01.11.2021 permitting the company to be taken up for liquidation. Hence in view of the said order this application is dismissed with a liberty to file a fresh application if need be.
I.A.No.99/2020: This application is filed seeking for direction to the Respondents to provide the Resolution Professional assistance and cooperation for effectively carrying out the CIRP Process of the Corporate Debtor and to direct the Respondents to approve, adopt and sign the Financial Statements for the Financial Year 2017-18 and 2018-19 and to direct the Respondents to provide to the Resolution Professional all required information and documents as sought by the RP. Orders in I.A.No.90/2021 were passed on 01.11.2021 permitting the company to be taken up for liquidation. Hence in view of the said order this application is dismissed with a liberty to file a fresh application if need be.
List all the IAs on 09.11.2021 for arguments.
This is an Application filed by the Applicant/RP Under Section Under Section 33 (2) of Insolvency and Bankruptcy Code, 2016 for initiation of Liquidation Process of the Corporate Debtor i.e., M/s. Sembmarine Kakinada Limited.
Briefly the facts leading to this Application are as follows:
Axis Bank Limited i.e., Financial Creditor filed the Company Petition against the Corporate Debtor due to the default in repayment of the due amounts, committed by the Corporate Debtor. The said petition was allowed by the Tribunal on 23.09.2019 and the Applicant herein was appointed as Insolvency Resolution Professional (IRP) to carry out the Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor. Consequent to the appointment of this Applicant as IRP, a public announcement was made in two newspapers, inviting claims from the Creditors on or before 09.10.2019.
The IRP verified the claims and constituted the Committee of Creditors (“CoC”). The IRP took over the management and business affairs of the Corporate Debtor. He convened the first meeting of the CoC on 22.10.2019. Thereafter, 23 CoC meetings were held on various dates, the last one being on 29.07.2021. In the said meetings, issues relating to the operations of the Corporate Debtor, as well as the CIRP process, have been discussed and requisite approval of the CoC was sought.
As per Regulation 27 of CIRP Regulations, the Resolution Professional (RP) appointed two registered valuers to carry out the valuation of the Corporate Debtor and determine the fair value and liquidation value of the Corporate Debtor. The IRP also prepared the Information Memorandum.
The IRP was of the view that certain transactions carried out by the suspended Board of Directors/Promoters and the management of the Corporate Debtor may fall within the ambit of fraudulent, preferential, extortionate and undervalued transactions. Accordingly, the RP appointed M/s.Sarath and Associates as a Transaction Auditor to assist the Applicant in conducting the detailed review of the transactions of the Corporate Debtor.
Kakinada Sea Ports Limited ("KSPL"), is the erstwhile promoter of the Corporate Debtor and lessor of all the land area measuring about 22 acres situated inside Kakinada Port. The same was subleased to the Corporate Debtor by way of sublease agreements. Despite moratorium being in force, KSPL issued a letter dated 08.11.2019 and claimed deemed termination of the Sublease Agreements and threatened coercive steps on account of alleged non-payment of dues by the Corporate Debtor.
The RP filed I.A.No.17/2020 before this Tribunal and obtained a restraint order with regard to termination of the sublease agreements. The RP was deprived of assistance and cooperation from the directors/key managerial personnel, due to which the RP could not gather all requisite information pertaining to the Corporate Debtor. The Transaction Auditor could not complete the audits due to the said reason. I.A.No.40/2020 was filed, seeking for a direction to the Directors and key managerial personnel to cooperate with the RP. Due to their non-cooperation, the RP is unable to finalize the books of account of the Corporate Debtor for the Financial Year 2017-18 and 2018-19. As a consequence, various statutory compliances such as MCA Annual Filings, GST Audit, Income Tax Return, Tax Audit, etc., are pending.
The RP filed I.A.No.99/2020 before the Tribunal seeking directions against the suspended directors to approve, adopt and sign the Financial Statements. The RP published Expression of Interest (EoI) on 07.12.2019 inviting the Resolution Plan for the Corporate Debtor, but no EoIs were received. Hence with the approval of CoC, Form G was revised and published twice and last date of submission of EoI was extended till 13.01.2020 and 24.01.2020 respectively. Upon receiving the EoIs, Asset Reconstruction Company (India) Limited and Chowgule & Company Private Limited were qualified as prospective Resolution Applicants for the Corporate Debtor.
The RP issued information memorandum, evaluation matrix and a request for submission of Resolution Plans to every Prospective Resolution Applicant on 08.02.2020 with the last date for submission of Resolution Plan as 09.03.2020. The CIRP period of 180 days was due on 21.03.2020. An Application was moved for extension of the said period with the approval of the CoC and the period was extended for another 90 days by the Tribunal, by virtue of order dated 20.03.2020. As no Resolution Plan was received by 09.03.2020, the RP republished EoI with the approval of the CoC.
However, after passing of the said extension order, due to the Covid-19, lockdown was declared. Hence, with the approval of the CoC, the last date for submission of EoI was extended till 10.06.2020 by way of issuance of revised Form G on the Corporate Debtor's website and IBBI website.
Garden Reach Shipbuilders & Engineers Ltd (GRSE) and Chowgule & Company Private Limited were qualified as prospective Resolution Applicants. The last date for submission of Resolution Plan by the said Resolution Applicants was declared as 18.07.2020. By way of an amendment, Regulation 40C was added in the CIRP Regulations with regard to time-line, which is to the effect that the period of lockdown imposed by the Central Government in the wake of Covid-19 shall not be counted for the purposes of the timeline for any activity that could not be completed due to such lockdown, in relation to a Corporate Insolvency Resolution Process.
Resolution Plan process given EoI was extended till 10.06.2020. Meanwhile, the GRSE being one of the Prospective Resolution Applicant requested to extend the timeline for submission of Resolution Plan. The said proposition was discussed in the 8th CoC meeting held on 17.07.2020 and the same was approved by the CoC by 83.88% voting in favour of the proposition. Accordingly, the last date for submission of Resolution Plan was extended to 14.08.2020. The period of lockdown was also excluded for the purpose of counting the limitation.
An Applicant was filed in I.A.No.110/2020 to that effect and the same was allowed by the Tribunal. GRSE again requested for extension of the timeline for submission of Resolution Plan and the last date for submission of Resolution Plan was fixed as 09.11.2020. But the GRSE and Chowgule failed to submit the Resolution Plan for the Corporate Debtor, hence the RP conduct called for a meeting of CoC on 24.11.2020 to invite new EoI by issuing fresh Form G with the approval of CoC. The last date was extended till 07.12.2020. Out of the new EoIs received, Ocean Sparkle Limited (OSL) and Brijesh Singla (Singla) were qualified as prospective Resolution Applicants. The Applicant in the course of 15th CoC meeting, informed the CoC members that due to the existing land lease issues, exorbitant infrastructure charges and increased port tariff charges, the Prospective Resolution Applicants are finding it difficult to submit a successful and viable Resolution Plan.
An application was filed before the Tribunal in I.A.No.23/2021 seeking to exclude 75 days from the calculation of the CIRP timeline for the purpose of computation of 270 days and another application was filed before the Tribunal to avoid extortionate lease rentals levied by KSPL which is pending. M/s.Sarath & Associates carried out the Transaction cum Forensic Audit for the period from 01.04.2011 to 31.03.2017 and submitted the Transaction cum Forensic Audit Report on 30.11.2020. I.A.No.22/2021 was filed before the Tribunal which pertains to variance in cost of Floating Dry Dock procured by the erstwhile management of Corporate Debtor and changing terms of contract and the same was withdrawn with liberty to file a fresh application and a fresh application was filed in I.A.No.73/2021 and is pending.
On January, 2021, KSPL issued a Trade Circular notifying that a special tariff will be applicable to vessels that come to the port for ship repairs, dry docking, etc., which is exorbitant than the earlier charges. The same made it commercially unviable for the clients of SKL to avail the services of SKL which created impediments in the business operations and resolution of the Corporate Debtor. The RP addressed a letter to the Special Chief Secretary to Government, to intervene in the matter. A Writ Petition was filed by the RP seeking stay on the implementation of the Trade Circular, which was subsequently withdrawn.
The two new Prospective Resolution Applicants submitted a letter termed as Resolution Plan but the same was found to be not complying with the requirements of the Code and the CIRP Regulations. The RP informed Mr.Singla to provide Resolution Plan and complying the same. The existing resolution plan process was annulled and fresh EoI with truncated timelines of 15 days was endorsed and the same was approved by the CoC.
Fresh invitation for submission of EoI was issued, 6 new EoI's were received as per revised Form G and last date for submission of the Resolution Plan was 01.03.2021. The CoC members voted with 74.93%, approving the proposition for extension of the CIRP period from 270 days to 330 days. An application in I.A.No.27/2021 was filed before the Tribunal and the same was allowed.
Meanwhile, the Applicant revised Form G dated 18.03.2021 and extended the last date of submission of the Resolution Plan to 30.03.2021. Two Prospective Resolution Applicants submitted Resolution Plans. However, no compliant Resolution Plan was submitted by them. The RP in order to save the Corporate Debtor from going in liquidation, proposed to the CoC members to extend the last date to submit the Resolution Plan and the same was extended till 20.05.2021.
I.A.No.37/2021 was filed, seeking further extension of 45 days for the CIRP period and the same was allowed. In I.A.No.17/2020, the Tribunal suggested amicable settlement, consequent to which settlement talks were held by the RP, but no common grounds could be achieved. In the 21st CoC meeting held on 16.06.2021, Mr.Brijesh Singla submitted Resolution Plan dated 15.06.2021. In the meeting held on 18.06.2021, the CoC members by 100% voting, accorded their approval to file an application for seeking extension of 30 days for the CIRP timeline. I.A.No.71/2021 was filed before the Tribunal and the same was allowed.
Subsequently, MARK vide its email dated 16.07.2021 submitted an unsigned offer letter seeking further time to access information enabling him to provide a compliant Resolution Plan. However, since the CIRP timelines and base offer being too low, granting of additional time was declined. Further, despite several reminders, there was no response from Mr.Brijesh Singla for providing a revised Resolution Plan.
A sole proprietorship of Mr.Brijesh Singla is reflected as a wilful defaulter during the three quarters. The RP sought clarification, but did not receive the same from Mr.Brijesh Singla, hence found to be ineligible under Section 29A of the Code. The RP sought clarity on the source of funding along with other amendments requested in the Resolution Plan, but there was no response from Br.Brijesh Singla. The RFRP requirement of providing earnest money deposit amount of Rs.50 Lakhs was also not fulfilled. Hence the Resolution Plan submitted by Mr.Brijesh Singla could not be presented to the CoC for its approval. The CoC members requested for adjournment of the 24th CoC meeting held on 20.07.2021 to evaluate the option of liquidation of the Corporate Debtor.
The CIRP period of the Corporate Debtor expires on 21.07.2021 which is 330 days in terms of Section 12 (2) and 12 (3) of the Code. The Applicant filed an application seeking for extension of CIRP period by 15 days and in the CoC meeting held on 29.07.2021, the CoC members deliberated and agreed that it is in the best interest of all the Stakeholders to liquidate the Corporate Debtor as a going concern, as the business of the Corporate Debtor is operational and the same was resolved with 100% voting in favour of liquidation. Since, the RP has health issues, he suggested the name of one Mr.Vedagiri Venkata Krishnamurthy to be the Liquidator. The written consent of the said liquidator was obtained and was placed before the CoC members for their approval. In view of the above, the RP is submitting the recommendation of the CoC for liquidating the Corporate Debtor.
Heard the RP and the Counsels for the Respondent Nos.1, 4 & 7 and Respondent Nos.3, 5 & 10. The RP by relying on the judgment of Supreme Court in “2021 SCC online SC707 between Ebix Singapore (P) Ltd. Vs. Committee of Creditors of Educomp Solutions Limited”, submits that since the CIRP process went beyond 330 days which is the ultimate timeline as held by the Supreme Court above cited judgment, the Corporate Debtor should be taken up for liquidation. The Supreme Court observed at Paragraph 182 of the Judgment as follows:
“The aim to tighten timelines for receiving regulatory approvals through the provision of in-principal approvals, prior to the approval of the Adjudicating Authority, indicates that the statutory framework under the IBC has consistently attempted to avoid situations which may introduce unpredictability in the insolvency resolution process and has sought to make the process as linear as it can be. Further, the recommendations made in the Insolvency Law Committee Report of February 2020 discussed above indicate that the aim is to ensure that the Resolution Plan placed before the Adjudicating Authority should reach a certain finality, even in the context of governmental approvals. A conditionality which allows for further negotiations, modification or withdrawal, once the Resolution Plan is approved by the CoC would only derail the time-bound process envisaged under the IBC”.
It is observed in the said judgment that the IBC contemplates strict timelines. It also observed that, the Supreme Court in Essar Steel, held that 330-day outer limit is directory which has resulted in Kundan Care’s Plan remaining pending before the NCLT for over a period, resulting in unviability and losses. The mandate of the Supreme Court with regard to the timeline of 330 days is reflected in its words “Judicial delay was one of the major reasons for the failure of the insolvency regime that was in effect prior to the IBC. We cannot let the present insolvency regime meet the same fate.”
The Counsel for the Respondents accept that the purport of the above cited judgement of the Supreme Court is not to extend the CIRP period beyond 330 days unless there are compelling reasons. The above facts would reflect that there are no compelling reasons for extending the CIRP period which was already extended several times. The CoC has voted by 100% for the liquidation.
It can be noted that the Hon'ble Apex Court in K Sashidhar vs. Indian Overseas Bank and Ors: (2019) 148 LA 497 (SC) inter alia held that: "The Adjudicating Authority (NCLT) is not expected to do anything more; but is obligated to initiate liquidation process under section 33 (1) of I & B Code. The legislature has not endowed the Adjudicating Authority (NCLT) with the jurisdiction or authority to analyse or evaluate the commercial decision of the CoC must less to enquire into the justness of the rejection of the Resolution Plan by the dissenting Financial Creditors".
The record, as already observed, would reveal that despite of all possible steps as required under the Code being taken during the CIRP, the CoC did not receive any viable Resolution Plan/Proposal for revival of the Company. The CoC in its wisdom has resolved to liquidate the Company by 100% voting share. Hence, I do not find any reason to take a contrary view in terms of Section 33 (1) (a) of the Code. Consequently, an order for liquidation of the Company in the manner laid down in Chapter III of the Code needs to be passed. Hence ordered.
ORDER
The Application is accordingly allowed with the following directions.
The Corporate Debtor i.e. M/s. Sembmarine Kakinada Limited shall be liquidated in the manner as laid down in Chapter-III of the Code.
Mr. Vedagiri Venkata Krishnamurthy (Reg. No.: IBBI/IPA-001/IP-P00905/2017-2018/11505), #197, 6th A Main, 16th Cross, JP Nagar 4th Phase, Bangalore, Karnataka-560078, email: vvk.fca@gmail.com, Mobile No. 9945277897, is appointed as the Liquidator. No disciplinary proceeding is pending against him as per the IBBI website. He is directed to file his written consent in Form No. 2 forthwith.
He shall issue public announcement stating that Corporate Debtor is in liquidation.
The Moratorium declared under Section 14 of the IBC 2016 shall cease to operate here from.
Subject to section 52 of the IBC, 2016, no suit or other legal proceedings shall be instituted by or against the Corporate Debtor. This shall however not apply to legal proceedings in relation to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.
All powers of the Board of Directors, Key Managerial Personnel and partners of the Corporate Debtor shall cease to have effect and shall be vested in the Liquidator.
The liquidator shall exercise the powers and perform duties as envisaged under Sections 35 to 50 and 52 to 54 of the Code, read with Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations 2016.
Personnel connected with the Corporate Debtor shall extend all assistance and cooperation to the Liquidator as will be required for managing its affairs.
The Liquidator shall be entitled to such fees as may be specified by the Board in terms of Section 34 (8) of the Code.
This Order shall be deemed to be a notice of discharge to the officers, employees and workmen of the Corporate Debtor, except when the business of the Corporate Debtor is continued during the Liquidation process by the Liquidator.
Copy of the Order shall be furnished to the IBBI, to the Regional Director (South Eastern Region), Ministry of Corporate Affairs; Registrar of Companies & Official Liquidator, Andhra Pradesh, the Registered Office of the Corporate Debtor; and the Liquidator.
With the above directions IA.No.90/2021 is disposed of.