BDR Builders And Developers Pvt. Ltd. & Ors. vs Mohan Lal Jain, Liquidator, Kaliber Associates Private Limited & Anr.

[ Per.: Dr. Alok Srivastava, Member (Technical)]

This appeal has been filed under section 61 of the Insolvency and Bankruptcy Code, 2016 (hereafter called “IBC”) wherein the Appellant has assailed the order of the Adjudicating Authority (NCLT, New Delhi) dated 24.9.2021 in IA No. 4328/2021 in CP (IB) 228(ND)/2018.

In brief, the facts of the case are that an application under section 7 of IBC was filed by financial creditor Relan Buildwell Pvt. Ltd. against Kaliber Associates Private Ltd. (Corporate Debtor)which was admitted on 18.1.2019. Since no resolution of the corporate debtor could be effected during the CIRP, liquidation order dated 2.1.2020 was passed by the Adjudicating Authority.

The Appellants, who claim to have stake in the liquidation of the Corporate Debtor as unsecured financial creditors, have stated and argued in the appeal that during the liquidation process, the liquidator did not consult and take advice of the members of the Stakeholders Consultation Committee in accordance with legal provisions, on issues relating to the sale of the assets of the Corporate Debtor. According to the Appellants, after the liquidation order was passed, the Stakeholders Consultation Committee was constituted by the liquidator, and in its first meeting held on 7.3.2020, the liquidator obtained the approval of Stakeholders Consultation Committee to sell the Corporate Debtor as a going concern, as stipulated under Regulation 32 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (hereafter called “Liquidation Regulations‟). The 1st e-auction took place on 31.3.2020,in which no bids were received. Thereafter, in the second meeting of the Stakeholders Consultation Committee (SCC) it was decided to conduct one more round of e-auction. Accordingly, the second e-auction was held on 31.7.2020, wherein a Honda car owned by the Corporate Debtor was sold. The other item which was put up for bidding in the second round of e-auction viz. “short term loans and advances” could not be sold.

The Learned Counsel for Appellants has stated that the Liquidator did not follow the stipulated procedure under IBC in the third and fourth rounds of e-auction and he did not inform the SCC members about the result of the second round of e-auction in time, nor the proposed strategy of sale in the third round of e-auction in time. For instance, the result of the second round of e-auction, which took place on 31.7.2020, was informed to the SCC members in the third SCC meeting on 9.11.2020. It was decided in this meeting to hold third round of e-auction, which took place on 20.3.2021. The result of third round of e-auction was placed for information before the SCC only on 24.5.2021.

The Learned Counsel for Appellants has further stated that in the third round of e-auction Corporate Debtor‟s assets were grouped into five groups namely Groups A, B, C, D and E (refer sale notice attached at page 172 of Appeal Paper Book Volume I) by the liquidator on his own without consulting the SCC or informing the stakeholders in advance. Due to such conduct of the liquidator, the Appellants filed IA No. 4328/2021 requesting the Adjudicating Authority to replace the liquidator for not conducting the liquidation proceedings following the letter and spirit of the IBC, 2016 and the Liquidation Regulations with complete fairness and transparency. He also prayed for quashing the sales made by the liquidator to the Respondent No.2 (successful bidder)in the third round of the e-auction and also quash the fourth e-auction notice dated 25.8.2021 (which was yet to take place) for the sale of assets in Groups B, C, E, F, G, H and I that had been published in the newspapers. The Learned Counsel of Appellant has claimed that the liquidation process as it is being carried on is taking much more time than should normally be taken and as is provided in regulations, and liquidator is more focused on realizing CIRP and liquidation costs without attention on timely liquidation of assets of the corporate debtor.

The Learned Counsel for Liquidator (Respondent No. 1) has argued that the Impugned Order was passed on 24.9.2021, whereas the appeal has been filed on 8.11.2021,which is after the limitation period, and therefore, the appeal is barred by limitation. He has adverted to Para 36 in the reply to the application IA No. 4328 of 2021 filed by the Appellants, wherein the Appellants have claimed to represent more than 77% of the members of the Committee of Stakeholders whereas the fact is that only one Appellant, namely Paradise Systems Pvt. Ltd.(Appellant No. 3) is a member of the SCC, while Appellants No. 1 and 2, namely, BDR Builders and Developers Pvt. .Ltd., and Columbia Buildtech Pvt. Ltd. are not members of SCC. Hence, he has claimed, the Appellants jointly represent only 25% of the voting share in SCC, which has four members, namely Paradise Systems, Aadhar Infraholding, Income Tax Department and Lalit Modi HUF. Thus, the Appellants have given incorrect information in their application IA No. 4328 of 2021 and they have no locus standi in preferring this appeal as they represent only 25% voting rights in the SCC.

The Learned Counsel for Respondent No. 1 has further argued that the sale notices for various rounds of e-auction were sent to members of the SCC as follows: –

Thus, the Ld. Counsel of Liquidator has claimed, the information about various rounds of e-auctions was duly provided to the members of SCC. Moreover, he has urged, the representative of Appellant Paradise Systems was present during discussion in all the meetings of SCC and the minutes of the meetings of the SCC were sent to the stakeholders (minutes of meetings attached at pp. 38 – 45 of reply of Respondent No. 1) wherein decisions taken in the respective SCC meetings have been duly recorded and informed to its members. He has further claimed that the request for providing minutes of first SCC meeting was made by the Appellants, whereupon they were requested to submit application in writing along with confidentiality undertaking on stamp paper of Rs.100 (refer to email dated 23.3.2020, attached at page 34 of reply of Respondent No. 1), but since no one submitted any undertaking of confidentiality, the minutes were not provided. He has urged that, looking to the facts presented by the Liquidator, he has carried out all the four rounds of e-auction in accordance with Liquidation Regulations with full transparency and as per decisions taken in SCC meetings, and hence, there is no ground for replacing the liquidator nor canceling/quashing the e-auctions carried out in third and fourth rounds.

We notice that the Impugned Order dated 24.9.2021 records that the stake claimed by the three applicants is not to the extent of 75% in the SCC, but is limited to only 25%, as only Applicant No. 3, Paradise Systems Private Limited (appellant in this appeal) is a member of the SCC. The Impugned Order also records the finding that no exceptional circumstances have been made out in the application which would warrant the change of liquidator using inherent powers under rule 11 of NCLT Rules, 2016.

Sub-section 5(c) of Section 60 of IBC gives jurisdiction to National Company Law Tribunal for disposing any question of law or facts arising in relation to liquidation proceedings, and thus the Adjudicating Authority can consider such a matter on point of facts of law. Sub-section 5 of section 60 is reproduced below for ready reference –

The Learned Counsel for Respondent No. 2 (successful bidder) has claimed that he has bid successfully through the e-auction which was carried out in a fully fair and transparent manner, and therefore no case for cancellation of any auction process is made out.

We have considered the pleadings and documents submitted by the Appellants and Respondents and also duly considered the oral arguments put forth by respective Learned Counsels.

The grounds pleaded in the appeal for replacing the liquidator are that the liquidator did not carryout the process of liquidation insofar as sale of assets through the e-auction is concerned, in a fair and transparent manner. It is also urged in the grounds of appeal that the liquidator did not discuss the process and details of liquidation with the stakeholders as well as Appellants, who are also stakeholders in the liquidation proceedings, with an admitted claim of Rs.40,32,98,554 in the „list of stakeholders version I‟(attached at pp.67-79 of Appeal Paperbook, Vol.I ).

Insofar as constitution of the SCC is concerned, the relevant extract of regulation 31A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 is as follows –

We find that the liquidator has constituted the Stakeholders‟ Consultation Committee in accordance with regulation 31A of the Liquidation Regulations and as such, only one of the Appellants, Paradise Systems Private Limited is a member of the SCC as representative of unsecured creditors holding 25% voting right. Be that as it may, we are of the opinion that while the other two Appellants, while they are not members of the SCC, they do have a stake in the liquidation of the Corporate Debtor by virtue of being unsecured creditors and hence are entitled to prefer an appeal under Section 60(5) of IBC.

The Ld. Counsel for Respondent No.1 has also claimed that the appeal has been filed beyond the limitation period and is, therefore, barred by limitation. We note that the Impugned Order was passed on 24.9.2021 and the appeal was filed on 8.11.2021. Thus, the appeal is filed 15 days after the expiry of 30 days‟ limitation period. In view of the prevailing conditions of corona pandemic and the suo moto order of Hon‟ble Supreme Court in Misc. Application No. 665/2021 in SMW(C) No. 3/2020, in computing the period of limitation for any suit, appeal, application or proceeding, the period from 15.3.2020 till 2.10.2021 shall stand excluded from limitation period. Since the Impugned Order was passed on 24.9.2021, the period of limitation for this appeal shall begin to be counted from 3.10.2021. Thus the appeal was filed on 37^th day after the start of limitation period. Looking to the difficult circumstances due to corona pandemic, as classified by the Appellants, we are inclined to condone the delay in filing the appeal beyond 30 days. In light of this condonation of delay, the appeal is considered to be within limitation.

The relevant provision in Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 regarding sale of assets is given in regulations 32 and 32A, which are reproduced below:-

We find that in the first meeting of the Stakeholders‟ Consultation Committee held on 7.3.2020, the liquidator sought and obtained approval of the SCC for selling the Corporate Debtor as a going concern. In the first round of e-auction held on 31.3.2020 (page 136 of appeal paperbook, Volume I), no bids were received. Subsequently, in the second meeting of SCC held on 23.6.2020,the sale of assets was discussed (as item number 12, pg. 136 of Appeal paperbook), when it was decided to make renewed efforts for sale of assets of Corporate Debtor. The second round of e-auction resulted in the sale of Honda car at Rs.1,51,500/-. Thereafter, again the SCC authorized the liquidator to conduct the third round of e-auction process for sale of assets of the Corporate Debtor (pg. 167 of the Appeal paperbook).

The Appellants have raised objection about the procedure adopted in 3^rd and 4^th e-auction processes. The third meeting of SCC took place on 9.11.2020, and in the agenda note item No. 2 of Part B which includes „list of issues to be voted upon after discussions‟ wherein the sale of remaining assets was also discussed in the third SCC meeting (agenda note of third SCC meeting at pgs.141-170 of Appeal paperbook Vol I).

On perusing the agenda note for the third SCC meeting held on 9.11.2020 (supra), we find that the proposed resolution in the agenda note is as follows: –

The minutes of the third SCC meeting record the approval of these resolutions (extract at pp.40-42 of the Reply of Respondent No. 1). Thereafter, the liquidator sent an e-mail dated 17.3.2020 to SCC members, which was actually after the sale notice had been published in newspapers on 17.3.2020. This sale notice (attached at pp. 171-173 of Appeal Paperbook) shows that the assets have been grouped in five groups namely groups A, B, C, D and E. Such a grouping of assets does not seem to have been discussed as it is not recorded in the minutes of meeting of third SCC.

In the fourth meeting of SCC held on 24.5.2021,the minutes recorded are as follows (attached at pp. 43–45 of the reply of Respondent No. 1) :-

Thus, we find that while the provision of Regulation 32 of Liquidation Regulations is recorded in the minutes in a general way, no specific strategy or manner to be adopted in sale of assets such as grouping of assets has been recorded therein. Moreover, we find that the information about the third e-auction sale notice (attached at pg. 48 of reply of Respondent No. 1) and fourth e-auction sale notice (attached at pg. 49 of reply of Respondent No. 1) were sent to the members of SCC after the publication of the sale notice in newspapers. We also find that there is a significant lapse of time between the decision taken for e-auction in the third meeting of SCC held on 9.11.2020 and the actual auction taking place on 20.3.2021, which is about four and a half months. Similarly, decision was taken for the fourth round of e-auction in the fourth SCC meeting on 24.5.2021, whereas the actual auction took place on 18.9.2021, again after almost 4 months. Thus, there is a significanttime gap between decisions taken for e-auctions in the third and fourth SCC meetings and the holding of the e-auctions.

Regulation 47 of the Liquidation Regulations provides “Model time-line for liquidation process”. According to this regulation, from the date of commencement of liquidation and appointment of liquidator under sections 33 and 34 of IBC the time provided for completion of liquidation process is 365 days. Further, sub-regulation (1) under Regulation 44, is as follows:-

In the present case, from third meeting of SCC onwards, it was decided that the Corporate Debtor or its business is not to be sold as a going concern. Hence, a period of prescribed time limit for completion of liquidation of 365 days should be counted from the date of 3^rd meeting of SCC held on 9.11.2020. Since there was no “lockdown” enforced by the authorities in the period after 9.11.2020, no exclusion of time under Regulation 47-A is necessary. With passage of more than 365 days after 9.11.2020 now, we feel that the liquidation of the Corporate Debtor should have been completed by now. Therefore, in our view liquidation of the Corporate Debtor should be done as quickly as possible to ensure that the assets of the Corporate Debtor do not undergo deterioration resulting in loss of their value.

On the basis of discussion in above mentioned paragraphs about how various rounds of e-auctions have been carried out, we find that the concerns of the stakeholders, who are Appellants in this appeal, are not entirely misplaced and that the liquidation process has gone over a long time with rather sketchy results. We also note the concern of the Appellants that the cost of liquidation is also going up as the liquidation process is getting prolonged.

In view of the above discussion and after perusing the documents (agenda notes and minutes) related to meetings of SCC, we do not find that the appellants have been able to convincingly advance their arguments for replacement of the liquidator, particularly when no material irregularities have been found in the functioning of the liquidator.

We are of view that the liquidation process which has now gone on for a long time should be completed as early as possible, if not already completed. The inordinate and unexplained delay between the dates decisions are taken in SCC meetings regarding e-auctions and holding of e-auctions are a cause of concern, and they should be reduced to the minimum. Since the liquidation process has been prolonged and the record of SCC meetings show there is a substantial amount of funds that are being spent in liquidation, we are also of the view that the liquidation costs should be restricted to the payment of actual costs incurred in liquidation process. With these directions, the appeal is disposed off.

There is no order as to costs.