Mangalam Cotton Industries vs G.V. Ravikumar

The IA/265/2020 is an Application filed under Section 60(5) of Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "IBC, 2016") read with Rule 11 of NCLT Rules, 2016, by the Applicants viz. M/s. Mangalam Cotton Industries & 23 Others, seeking relief as follows;

(i) Direct the Respondent to treat the claims of the Applicants submitted during the Corporate Insolvency Resolution Process confirmed by the Hon'ble National Company Law Tribunal vide order dated 10.01.2018 as the claims submitted during the Liquidation process of the Corporate Debtor on equitable grounds; or

(ii) Direct the Respondent herein to ensure that the Applicants herein are considered a part of the Scheme of the Corporate Debtor under Section 230 of the Companies Act, 2013; and

(iii) Pass such other order as this Court may deem fit.

The Learned Counsel for the Applicants submitted that the Applicants herein are largely cotton ginners who have been supplying goods to the Corporate Debtor viz. M/s. Thirupur Surya Textiles Private Limited. The Corporate Debtor had filed an Application under Section 10 of IBC, 2016 before this Tribunal and this Tribunal vide order dated 14.06.2017 had initiated the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor and appointed one Mr. Muthuraju as the Interim Resolution Professional (IRP). The IRP has caused public announcement and the last date for the submissions of the claim was fixed as 17.06.2017. It was submitted that in pursuance of the public announcement being made, the 24 Operational Creditors who are the Applicants herein have filed their claim before the IRP for a sum of Rs.34,93,76,206/-. In order to ascertain the status of their claims being filed with the IRP, the Applicants have appointed an Authorized Representative vide their letter dated 14.08.2017 and communicated the same to the IRP. Further, it was submitted that inspite of reminders being sent, there was no response from the IRP in relation to the status of the claims filed by the Applicants and under such circumstances, the Applicants filed CA/218/IB/2017 before this Tribunal under Section 60(5) of IBC, 2016 and this Tribunal vide order dated 10.01.2018, based on the representation made by the Resolution Professional that he had partially admitted the claim of the Applicants to the tune of Rs.32,98,12,436/- had disposed off the said application.

The Learned Counsel for the Applicants submitted that the Committee of Creditors of the Corporate Debtor in its 6th Meeting held on 08.12.2017 had passed a Resolution unanimously to liquidate the Corporate Debtor and that this Tribunal vide order dated 11.01.2018 in IA/66/2017 has ordered for the Liquidation of the Corporate Debtor and appointed the Respondent herein as the Liquidator. The Learned Counsel for the Applicants submitted that the Applicants are ginners from the State of Maharastra and Gujarat and they were not fully aware of filing a separate claim form for liquidation as they had already made their respective claims during the CIRP and further that the Applicants were admitted as the Operational Creditors in relation to the Corporate Debtor only a day prior to the liquidation order dated 11.01.2018.

The Learned Counsel for the Applicants further submitted that the public announcement in relation to the Liquidation was made by the Liquidator on 19.01.2018 and in the meantime, the promoters / suspended Directors of the Corporate Debtor had preferred an Appeal before the Hon'ble NCLAT against the Liquidation order dated 11.01.2018 passed by this Tribunal and the Hon'ble NCLAT vide its order dated 16.05.2018 had stayed the Liquidation proceedings and granted status quo in relation to the movable and immovable properties of the Corporate Debtor. Thereafter, it is seen that the said Appeal was disposed off vide order dated 08.08.2019 by the Hon'ble NCLAT by observing that if there is a scope for the Corporate Debtor to revive its operations, the same can be done under Section 230 of the Companies Act, 2013.

The Learned Counsel for the Applicants submitted that in pursuance to the order passed by the Hon'ble NCLAT the Liquidator caused a Public Notice on 21.08.2019 inviting suitable bidders to submit a Scheme of Arrangement / Compromise for the Corporate Debtor and the last date was fixed as 17.09.2019. It was submitted by the Learned Counsel for the Applicants that upon getting the knowledge of the order dated 08.08.2019 passed by the Hon'ble NCLAT, the Applicants herein through their Authorized Representative have sent e- mails to the Respondent requesting them to inform about the developments with respect to the Scheme and also sought for a copy of the valuation report. It was submitted that despite sending e-mail communications, there was no response from the Respondent. Further, it was submitted that on 17.09.2019, the Authorized Representative of the Applicants wrote an e-mail to the Respondent to keep the Applicants updated on the Liquidation process and that on 22.11.2019, the Respondent has sent an e-mail to the Authorized Representative of the Applicants stating that the promoters of the Corporate Debtor has filed a Compromise / Scheme under Section 230 of the Companies Act, 2013 and further it has been stated in the said reply that the Applicants have not submitted their claims during the Liquidation stage in relation to the Corporate Debtor.

The Learned Counsel for the Applicants submitted that in reply to the said e-mail, the Applicants have sent an e-mail to the Respondent on 25.11.2019 stating that they are ginners and do not understand the procedural aspect of the matters and requested the Respondent to consider the claims submitted during the CIRP for the Liquidation process as well. However, since the Respondent has failed to carry forward the claim of the Applicants which was submitted during the CIRP Process to the Liquidation process, the Applicants have filed the present Application seeking relief thereof as extracted supra.

The Respondent has filed counter and the Learned Counsel for the Respondent submitted that pursuant to the Order of Liquidation passed by this Tribunal and based on the public announcement being made by the Liquidator, the Respondent verified the Claims of the Creditors and admitted the Claims to the tune of Rs.183,19,12,759/- and also submitted the list of stakeholders before this Tribunal. Further, it was submitted that in the interregnum, the Liquidation period expired on 10.01.2020 and the Liquidator had preferred an Application viz. IA/61/2020 under Regulation 44(2) of IBBI (Liquidation Process) Regulations, 2016 and this Tribunal vide order dated 11.01.2020 has extended the Liquidation period in relation to the Corporate Debtor for a further period of one year from 11.01.2020.

The Learned Counsel for the Respondent submitted that the present Application has been affirmed and executed on 22.01.2020 which is after a period of 2 years and 12 days from the date of Liquidation and in the absence of following the procedures under IBC, 2016, it is not open to the Applicants to file the present Application for the relief sought, when the Respondent / Liquidator has submitted the list of stakeholders before this Tribunal. Further, it was submitted that the Applicants being aware of the Resolution being passed by the CoC for the Liquidation of the Corporate Debtor, cannot take a plea that the Applicants do not know the procedural aspect of IBC, 2016 for filing the claims during the Liquidation process.

The Learned Counsel for the Respondent submitted that the Liquidator filed an Application MA/1287/2019 under Section 230 of the Companies Act, 2013 for a direction for calling, holding and conducting of the meeting of all the stakeholders, which came to be dismissed by this Tribunal vide its order dated 04.12.2019 on the ground of maintainability since the scheme proponents are persons ineligible to submit a Scheme under Section 29A of IBC, 2016.

Thus, it was contended by the Learned Counsel for the Applicants submitted that the Applicants have not submitted any claims within the period stipulated under the IBC, 2016 during the period of liquidation process and hence sought for the dismissal of the present Application.

The Applicants have filed rejoinder and they have reiterated and canvassed the same issues as raised in their application.

Heard the submissions made by the Learned Counsel for both the parties. The Applicants who claim to be the Operational Creditors in relation to the Corporate Debtor have submitted their claims during the CIRP in relation to the Corporate Debtor but have failed to submit their claims during the Liquidation process of the Corporate Debtor. It is seen that the Applicants in their Application have averred that they came to know about the Liquidation process of the Corporate Debtor only when the order was passed by the Hon'ble NCLAT on 08.08.2019. However, even after the said order was passed by the Hon'ble NCLAT, the Applicants have not preferred to file any claim before the Liquidator.

It is to be noted here that the provisions of IBC, 2016 mandates that the Claimants are required to submit the claim to the Liquidator in such form and in such manner along with such supporting documents as specified by the Board. Thereafter, upon submission of the claim, the Liquidator is required to verify the claims within the time limits specified by the Board and in this connection referring to the relevant Regulations namely, IBBI (Liquidation Process) Regulations, 2016 and more specifically under Regulation 30, the Liquidator is required to verify the claim submitted within a period of 30 days from the last date of receipt of the claims and may either admit or reject in whole or part as the case may be of such claim. Section 40 of the I&B Code, 2016 mandates the Liquidator to record the reason in writing for rejection of the claim and the same is also required to be communicated to the Applicant. In relation to his decision of admission or rejection, the Liquidator is required to communicate to both the creditors and the Corporate Debtor within seven days of such admission or rejection of the claim. As against the rejection of the claim, Section 42 of I&B Code, 2016 provides for a time window of 14 days upon receipt of such decision to the creditor to file an appeal to the Adjudicating Authority against the said decision of the Liquidator.

As per the provisions of the IBC, 2016 read with the Regulation 19(4) of the IBBI (Liquidation Process) Regulations 2016 which is extracted hereunder;

Claims by workmen and employees.

(1) A person claiming to be a workman or an employee of the corporate debtor shall submit proof of claim to the liquidator in person, by post or by electronic means in Form E of Schedule II.

(2) Where there are dues to numerous workmen or employees of the corporate debtor, an authorized representative may submit one proof of claim for all such dues on their behalf in Form F of Schedule II.

(3) The existence of dues to workmen or employees may be proved by them, individually or collectively, on the basis of-

(a) records available in an information utility, if any; or

(b) other relevant documents which adequately establish the dues, including any or all of the following -

(i) a proof of employment such as contract of employment for the period for which such workman or employee is claiming dues;

(ii) evidence of notice demanding payment of unpaid amount and any documentary or other proof that payment has not been made; and

(iii) an order of a court or tribunal that has adjudicated upon the non-payment of dues, if any.

(4) The liquidator may admit the claims of a workman or an employee on the basis of the books of account of the corporate debtor if such workman or employee has not made a claim.

The claim in respect of workmen and employees alone are required to be admitted by the Liquidator based on the books of accounts of the Corporate Debtor, eventhough the Workmen and Employees have not preferred a claim before the Liquidator as per Regulation 19(4) of the IBBI (Liquidation Process) Regulations, 2016 and no such relaxation is granted / available to the Operational Creditor like the Applicants herein or for that matter for any other class of creditors. Thus filing of the claim with the Liquidator during the Liquidation process within the time period stipulated thereunder is a mandatory requirement under the IBC, 2016 and also it must be noted here that the mere entry of debt in the books of accounts of the Corporate Debtor is also not evidential enough for the claims to be admitted and considered by the Liquidator.

It must be borne in mind that the IBC treats the CIRP and Liquidation process as two separate stages and the proof of claim is to be filed separately at each stage and hence the submissions of the Learned Counsel for the Applicant that claims filed during CIRP should be treated as the Claim filed during the Liquidation process would render the CIRP and Liquidation Process as envisaged under the provisions of IBC, 2016 as nugatory. Further, the plea of the Learned Counsel for the Applicant that the claim of the Applicants during the CIRP period should be considered as a claim filed during the Liquidation Process on the basis of equity is also required to be brushed aside in view of the decision of the Hon'ble Supreme Court in the matter of Arun Kumar Jagatramka -Vs- Jindal Steel and Power Ltd. & Anr. in Civil Appeal No. 9664 of 2019 wherein the Hon'ble Supreme Court while dealing with the judicial intervention of the Hon'ble NCLAT and NCLT in the provisions of IBC, 2016, had at para 89, held as follows;

"89. ................However, we do take this opportunity to offer a note of caution for the NCLT and NCLAT, functioning as the Adjudicatory Authority and Appellate Authority under the IBC respectively, from judicially interfering in the framework envisaged under the IBC. As we have noted earlier in the judgment, the IBC was introduced in order to overhaul the insolvency and bankruptcy regime in India. As such, it is a carefully considered and well thought out piece of legislation which sought to shed away the practices of the past. The legislature has also been working hard to ensure that the efficacy of this legislation remains robust by constantly amending it based on its experience. Consequently, the need for judicial intervention or innovation from the NCLT and NCLAT should be kept at its bare minimum and should not disturb the foundational principles of the IBC "

(underline supplied)

It may also be seen that the Applicants during the CIRP period also has preferred to file a claim before the IRP / RP and as per the provisions of IBC, 2016 the Applicant ought to have filed the claim before the Liquidator after the commencement of the Liquidation proceedings, which they have not done so.

This Tribunal is also persuaded by the decision of the Hon'ble NCLAT in the matter of The Deputy Commissioner Commercial Taxes (Audit), Raichur -Vs- Surana Industries Ltd. (In Liquidation) & Anr. in Company Appeal (AT) (Insolvency) No. 1525 of 2019 dated 07.02.2020, wherein the Hon'ble NCLAT has dismissed the appeal filed by an Applicant similar to the present application filed by the Applicant against the order of the liquidator and also held that liquidation process is a time bound process and the Liquidator has to conclude his proceedings within one year.

Further, it may be noted that under Regulation 44(1) of the IBBI (Liquidation Process) Regulations, 2016, the Liquidator is directed to liquidate the Corporate Debtor within one year from the date of commencement of the liquidation proceedings and Regulation 44(2) stipulates that, after the expiry of one year, the liquidator shall file an application to the Authority to continue the liquidation period along with a report and explain why the liquidation has not been completed. Thus, it can be seen that the Liquidation is a time bound process and the Liquidator is being made accountable and required to explain, if there is any delay caused in the liquidation process.

Further, the Hon'ble Supreme Court in Gaurav Hargovindbhai Dave -Vs- Asset Reconstruction Company (I) Ltd. & Another in Civil Appeal No. 4952 of 2019, in relation to the aspect of limitation has restated the well established and well settled principle that "there is no equity about limitation", we are unable to entertain this Application. In view of the IBC, 2016 being a time bound process as well as the Learned Liquidator being under a compulsion to complete the liquidation process within a period of one year from the date of commencement of liquidation, the IA/265/2020 stands dismissed, however without costs.