Mr. Dhiren Shantilal Shah vs Amma Lines Pvt. Limited & Anr.

KANTHI NARAHARI, MEMBER (TECHNICAL)

The Present Appeal is filed against the Impugned Order dated 05.05.2020 passed by the Adjudicating Authority (National Company Law Tribunal Division Bench-I, Chennai) in MA/1140/2019 in CA/1026/CAA/2019, whereby the Adjudicating Authority revoked the liquidation process enabling the Corporate Debtor to revive and reconstruct by implementing the scheme sanctioned in terms of the order dated 10.01.2020 and carry forward its business activity by the scheme proponents.

Aggrieved by the order dated 05.05.2020, the Appellant prayed this Bench to declare that the Respondents are ineligible as scheme proponents under Section 29 A (c) of the I&B Code, 2016. The Learned Counsel appearing for the Appellant submitted the brief facts.

It is submitted that the impugned order dated 05.05.2020 in MA No. 1140/2019 passed by the Adjudicating Authority whereby the Hon’ble Adjudicating Authority in contravention to Section 29A read with Section 35(1)(f) of the IBC and Regulation 2B(1) proviso of the IBBI (Liquidation Process), 2016, allowed the Promoters to take back the Corporate Debtor under the scheme for compromise and arrangement under Section 230 to 232 of the Companies Act, 2013.

Vide impugned order dated 05.05.2020 the Adjudicating Authority pleased to revoke the liquidation process of the Corporate Debtor to enable the Corporate Debtor in liquidation to revive and reconstruct by implementing the scheme of the Promoters.

It is submitted that the impugned order is also bad to the extent that it provide scope for erroneous interpretation in relation to payment of fees of the liquidator and the same is also contrary to Section 53 of the IBC read with Regulation 4(3), 42 and 44 of the IBBI (liquidation process) Regulations, 2016. The liquidator fee to be paid as per Clause 4.5 of the Scheme which provides that the liquidator’s fee will be decided and approved by IBBI and the same will be paid in the same proportion and time as CIRP cost. As IBBI is not the Adjudicating Authority, the Hon’ble NCLT vide impugned order dated 05.05.2020 determined and decided the liquidator’s fee in terms of unamended Regulation 4 of the IBBI (liquidation process) Regulations, 2016 which is the correct finding, but left scope for erroneous interpretation of the impugned order dated 20.07.2020, by which the Hon’ble NCLT held that the liquidator’s fees will be payable only as per the occurrence, in the table contained in para 22 at page 17 of the order dated 05.05.2020.

The Leaned Counsel for the Appellant raised the following points in the grounds of appeal stating that the Learned Adjudicating Authority erred in not appreciating the IBBI (liquidation process) Regulations, 2016 in toto. The Adjudicating Authority failed to appreciate Regulation 2B (1) of the IBBI (liquidation process) Regulations, 2016.

The Learned Counsel submitted that the appeal deserves to be allowed on the basis of the points raised in the facts in issue, question of law and the grounds raised in appeal.

The Learned Senior Counsel for the Respondents submitted that the initiation of CIRP against the Corporate Debtor and the subsequent orders passed by the Hon’ble Appellate Tribunal and the Tribunal on various occasions are as detailed out here at.

It is submitted that the Shareholders and Creditors of the Corporate Debtor unanimously approved the scheme in the meeting convened by the Appellant on 05.09.2019. Vide order dated 10.01.2020 in CA No. 1026/2019 the Learned Adjudicating Authority directed the Appellant to file a report certifying that the Respondents herein did not suffer from any disqualification as provided under Section 29A of the Code. As per the directions of the Adjudicating Authority the Appellant/Liquidator filed his report dated 24.01.2020 before the Authority.

While so, the Appellant filed MA 1140/2019 in CA 1026/2019 before the Learned Adjudicating Authority inter alia seeking determination of the fees payable to the Appellant. While sanctioning the scheme, the Adjudicating Authority vide its order dated 05.05.2020 disposed of the said MA 1140/2019 and specifically observed at para 10, 34 and 35 of the order.

The Appellant filed IA. 399/2020 before the Adjudicating Authority seeking payment of the fees with immediate effect. The Learned Adjudicating Authority vide its order dated 20.07.2020 (impugned order) disposed of the Application and held that ‘in respect of the fees payable to the Liquidator, as already dealt with vide order dated 05.05.2020, the fees will become payable only upon the occurrence of the events of respective receipts and disbursal at the specified percentage payable and not otherwise and in the circumstances we direct the Liquidator to desist from claiming the amounts towards the Liquidator fees as immediately payable’.

It is submitted that while approving the scheme vide its order dated 10.01.2020 the Hon’ble Adjudicating Authority clearly noted that the Respondents were never disqualified under Section 29A of the Code, however, the Adjudicating Authority gave an opportunity to the Appellant and directed him to file a report with respect to in-eligibility of the Respondents under Section 29A of the Code. The Learned NCLT clearly noted in its order that at the time of liquidation the account of the Corporate Debtor was not a Non-Performing Asset as the amounts owed to the secured financial creditors were fully settled by the Respondents in December 2018 to the tune of Rs.39.75 crores out of total debt of Rs.39.75 crores.

The Appellant never even contested the issue of ineligibility of the Respondents before the Adjudicating Authority. Further the Appellant himself filed CA 1026/2019 for approval of the scheme before the NCLT. As per the recent amendment made under Regulation 2B of the Liquidation Regulation as inserted by notification dated 06.10.2019, any person ineligible for the reasons mentioned under Section 29A of the Code shall not be able to submit a scheme of compromise or arrangement. The said issue of applicability as well as ineligibility of the Respondents was discussed in detail by the Learned NCLT and the Learned NCLT held that the eligibility of the Respondents was not attracted under Section 29A of the Code.

It is submitted that the NCLT vide its order dated 10.01.2020 directed the Appellant to file a report of such eligibility of the Respondents. However, the said issue was never raised by the Appellant before the Learned NCLT. In fact, the Appellant himself submitted before the NCLT that the issue of ineligibility of the Respondents shall not be pressed by the Appellant. However, the issue of applicability of Section 29A in the present appeal is nothing but an afterthought and a counter reaction to the Respondents not ceding to the unreasonable demands of the Appellant in respect of the fees demanded by the Appellant which is contrary to law and against the impugned order.

The Respondents submitted their scheme of compromise and arrangement to the Appellant and the Appellant himself submitted the said scheme before the NCLT and convened a meeting of creditors and shareholders of the Corporate Debtor. The scheme was approved by a majority of 98% of the creditors, statutory authorities and members of the Corporate Debtor. The Learned NCLT approved the scheme of the Respondents vide order dated 10.01.2020. The Learned NCLT specifically recorded in the order dated 05.05.2020 passed in MA 1140/2019 that the liquidation process has been revoked and the scheme was directed to be implemented. Therefore, the appeal is misconceived and the Appellant being officer of Court neither has any vested right nor any locus standi to challenge the scheme filed by himself before the NCLT and the Learned NCLT approved the scheme as approved by a majority of 98% of creditors.

The Appellant illegally and unauthorisedly, due to reasons best known to him delayed in handing over of the Corporate Debtor to these Respondents on one pretext or other for 10 months. After much delay a partial handover was done by the Appellant to these Respondents wherein only dredgers of the Corporate Debtor were handed over by the Appellant. Because of the delay in handing over, the Respondents incurred an expense of Rs.2 crores in repairing the dredgers. The Appellant has been in-charge of managing the Affairs of Corporate Debtor since the very initiation of CIRP of the Corporate Debtor and thus all the contemporaneous records of the Corporate Debtor as mentioned hereunder, continue to be in the control and possession of the Appellant.

It is submitted that the above-mentioned record till date have not ben handed over by the Appellant which clearly depicts that the Appellant disregards the facts that the Corporate Debtor is in the process of resuscitation and the Appellant is only concerned about his fees.

It is submitted that the Appellant is guilty of misrepresenting the facts in the appeal. The Appellant in the memo of parties still mentions that he is a Liquidator of the Corporate Debtor, whereas by virtue of operation of the orders dated 10.01.2020, 05.05.2020, 15.05.2020 passed by the NCLT, it is clear that on approval of the said scheme, the scheme proponents took over the management of the Corporate Debtor in terms of the Scheme and thus, the Appellant was appointed as the independent observer on the board of the Corporate Debtor. The Appellant deliberately concealed material facts that he is not acting as liquidator but appointed as independent observer to oversee the enforcement and implementation of the said scheme.

It is submitted that the findings in the impugned order dated 20.07.2020 are nothing but a reiteration of its findings in its orders dated 10.01.2020, 05.05.2020 and 15.05.2020 which have duly been accepted by the Appellant. Further, the present Appeal is only endeavour of the Appellant to make a wilful gain to himself and cause a wilful loss to the Corporate Debtor without performing his responsibilities during the process of the implementation of the scheme. On this account itself the conduct of the Appellant being a professional deserves to be deprecated and required to pass strict directions against the Appellant and the present Appeal is deserves to be dismissed with punitive costs.

Further the Appeal is barred by the estoppel for the reasons that the Appellant himself filed an application bearing MA No.793/2019 seeking leave of the Learned NCLT to convene a meeting of creditors and shareholders for consideration of the scheme proposed by the Respondents. The scheme was duly presented by the Appellant himself and the NCLT vide its order dated 10.01.2020 approved the said scheme. As per Clause 4.5 of the Scheme, it was provided that the liquidator’s fee will be decided and approved by the IBBI. In order to get more clarity with respect to his fees again preferred an application being MA No. 1140/2019 seeking fixation or approval of the fee of the liquidator. The said MA No.1140/2019 allowed vide order dated 05.05.2020 and fixed the fees payable to the Appellant and the Learned NCLT relied on the calculations submitted by the Appellant on the basis of the estimated fees payable if the said distribution was happening under Section 53 of the Code. However, the Learned Adjudicating Authority vide impugned order dated 20.07.2020 reaffirmed its directions passed vide orders dated 10.01.2020 and 05.05.2020, hence the present appeal is barred by the principles of estoppel.

It is submitted that the CIRP cost was duly paid by the Respondents as per the directions of the Learned NCLT in its orders dated 15.05.2020 and 22.05.2020.

It is submitted that the conduct of the Appellant was in fact strongly deprecated by the Learned NCLT while passing the impugned order due to repeated and consistent endeavour to abuse his power and to derail the implementation of the scheme in order to suit his personal agenda which is most unbecoming of a Liquidator under the provisions of the Code.

It is submitted that the Appellant filed the present Appeal misrepresenting and by concealing the facts only in order to unjustly enrich himself. In view of the facts as stated above the appeal deserves to be dismissed with cost.

Heard the Learned Counsel appeared for the respective parties, perused the pleadings, documents filed in support of their case. After analysing the pleadings, the issue that felt for consideration is whether the Appellant has made out any prima facie case seeking the reliefs as prayed in the Appeal and whether the order passed by the Adjudicating Authority need any interference.

In the present Appeal, the Appellant challenged the orders dated 10.01.2020 and 05.05.2020 passed by the Adjudicating Authority praying this Bench to set aside both the orders by raising two pleas viz.

The Appellant filed an Appeal bearing No.791/2020 before this Tribunal challenging the order dated 20.07.2020 passed by the Adjudicating Authority mainly contending on the issue of fee payable to him and the said Appeal also heard along with this Appeal and a separate judgment is passed. Therefore, in this judgment we restrict to the first relief i.e. whether scheme proponents are eligible under Section 29A or in-eligible as contended by the Appellant.

It is an admitted fact that the CIRP initiated against the Corporate Debtor i.e. Meka Dredging Company Pvt. Ltd. on 09.02.2018. In absence of any Resolution Plan the CoC passed a resolution for liquidation of Corporate Debtor. In pursuance thereof the RP filed an Application No. MA 344/2018 seeking liquidation of the Corporate Debtor. While so, the Adjudicating Authority passed an order of liquidation in respect of the above Corporate Debtor on 28.09.2018 and appointed the Appellant as Liquidator. While so, the Promoters of the Corporate Debtor filed an Appeal CA (AT) (Ins) No. 696/2018 against the order of liquidation and this Tribunal disposed of the said Appeal on 07.03.2019 with an observation and direction as under:

In view of the judgment of this Tribunal, the Respondent submitted a scheme of compromise and arrangement under Section 230 of the Companies Act, 2013 on 01.06.2019 in the light of the judgment in the matter of Y. Shivram Prasad. The liquidator moved an Application MA No. 793/2019 before the Adjudicating Authority seeking leave to convene a meeting of the creditors and shareholders for considering scheme proposed by the Promoters. The Adjudicating Authority allowed the said I.A. on 02.08.2019. The meeting of creditors and shareholders convened and the Promoters proposed a scheme to settle all class of creditors.

The scheme proponents filed the scheme of compromise and arrangement under Section 230 of the Companies Act, 2013. Thereafter, the Liquidator filed an application being CA 1026/2019 before the Adjudicating Authority seeking relief that the scheme of compromise or arrangement approved by the equity shareholders and creditors of the company in liquidation be approved so as to bind the equity shareholders and creditors. The Adjudicating Authority passed a detailed order on 10.01.2020.

The Adjudicating Authority recorded the submissions of the Liquidator whereby it was brought to the notice of the Adjudicating Authority regarding this Tribunals judgment in the matter of Jindal Steel and Power Limited Vs. Arun Kumar Jagatramka & Ors. dated 24.10.2019. This Tribunal in the aforesaid judgment observed that if the Promoter is in-eligible under Section 29A cannot make an application for compromise and arrangement for taking back the immovable and movable property or actionable claims of the Corporate Debtor. The Liquidator also pointed out that the Respondents/Promoters of the company, suffered the disqualification. While so, the scheme Proponent/Respondents submitted that the disqualification as prescribed under Section 29A of the Code, 2016 may not be applicable in the instant case as the amounts due to the Financial Creditors as reflected at the time of liquidation has been fully settled and which has also been brought forth in the order of this Tribunal dated 07.03.2019 in relation to the company under liquidation.

The Adjudicating Authority gave an opportunity to both the parties to make their submissions in relation to the disqualification. The counsel for the liquidator after pointing out the judgment of this Tribunal in Jindal Steel, left to the discretion of the Adjudicating Authority to take a decision in view of change in the circumstances as the Promoters of the Company have paid the debt amount to the Financial Creditors in full. After hearing the respective counsel appeared for the parties and relying upon the judgment of the Hon’ble Supreme Court in M/s Meghal Homes Pvt. Ltd. Vs. Shree Nivas Girni Vs. KK Samiti & Ors. in Civil Appal No.3179-3181/2005 while considering the erstwhile provisions of Section 391 read with Section 394A of the Companies Act, 2013, it was held that the liquidator is well within the power to obtain a scheme under relevant provisions either from the members or creditors of the company in liquidation, and in the said circumstances the scheme cannot be shut out from being considered by the Adjudicating Authority.

Thus, the Adjudicating Authority considered the following aspects:

The Adjudicating Authority has considered all aspects including the scheme submitted by the Respondents. The Adjudicating Authority also relied upon the judgment of the Hon’ble Supreme Court in Arcelormittal India Pvt. Ltd. Vs. Satish Kumar Gupta & Ors. in Civil Appal No.9402 to 9405 of 2018, the Hon’ble Supreme Court interpreted Section 29A(c) as follows:

The Adjudicating Authority taking into consideration the observations of the Hon’ble Supreme Court (supra) passed the following order as under:

In view of the directions passed by the Adjudicating Authority, the Appellant obtained an affidavit from the Respondents dated 17.01.2020, whereby the Respondents have clearly stated that they were eligible to submit the scheme under Sections 230-232 of the Companies Act, 2013 and did not suffer from any disqualification under Section 29A of the Code. Further, the Adjudicating Authority also directed by the aforesaid order to the Appellant to submit a report before the Adjudicating Authority within a period of one week after application of his mind in relation to the contents of the affidavit and the veracity of the statements made therein. Accordingly, and incompliance of the order of Adjudicating Authority, the Appellant filed his report dated 22.01.2020. The Appellant in its report clearly stated at para 4(iii) as “further the Hon’ble Tribunal in paragraph 31 of the said order held that, in view of the settlement of the claims of Financial Creditors ‘pre-liquidation’ of the Company, and in absence of other disqualification being demonstrated, the proponents of the scheme are not disqualified under Section 29A of the I&B Code. However, I wish to bring to the kind attention of the Hon’ble Tribunal that the settlement by the scheme proponents with Financial Creditors i.e. ARCIL & L&T Finance Ltd. took place pursuant to the order of liquidation of the Company viz. order dated 28.09.2018.”

The order of the Adjudicating Authority dated 10.01.2020 has not been appealed by the Appellant and the said order has attained finality. Further, the Appellant filed its report before the Adjudicating Authority after receipt of affidavit from the Respondents.

The Learned Counsel for the Respondent took legal plea that the present Appeal also filed challenging the order dated 10.01.2020 belatedly hence, the same is barred by limitation and the Appeal is liable to be dismissed on the issue of limitation. This Tribunal is also of view that the Appellant filed the present Appeal on 05.10.2020 whereas the limitation period expires on 09.02.2020 and the Appellant has not filed any application seeking condonation of delay. Even otherwise, this Tribunal cannot condone the delay beyond the period as prescribed under Section 61(2) of the I&B Code, 2016. On this ground itself the Appeal is liable to be dismissed to the extent challenging the order dated 10.01.2020. However, this Tribunal has dealt with the issue even on merits to give a quietus to the litigation initiated by the Appellant.

The Appellant also filed another application being MA No. 1140/2019 in CA No. 1026/2019 praying the Adjudicating Authority to approve the Appellant’s fee in the capacity as Liquidator. The Adjudicating Authority disposed of the said M.A. by passing a speaking order dated 05.05.2020. the Adjudicating Authority in its order dated 05.05.2020 at para 10 observed as under:

Further, the Adjudicating Authority in its order dated 05.05.2020 at para 12 observed that the Adjudicating Authority cannot review its own order dated 10.01.2020 with respect to the scheme filed before it, since the order to that affect has already been passed on merits as well as on the aspects of law and the Liquidator is not an aggrieved person.

This Tribunal intend to have a glance on the sequence of events and the orders of this Tribunal and the judgment of the Hon’ble Supreme Court on this aspect.

From the sequence of events, the Respondent have submitted scheme as directed by this Tribunal. The consequences thereof follow namely convening meeting of creditors and shareholders and filing an application before the Adjudicating Authority seeking approval of the scheme as per the directions of this Tribunal. In this regard, the Hon’ble Supreme Court in Arcellormittal India Pvt. clearly held at para 54, that the person must first pay off its debt of the Corporate Debtor in order to become eligible under Section 29A(c). The Appellant is a party even to the Appeal filed by the promoters before this Tribunal in C.A. (AT)(Ins) No. 696/2018 dated 07.03.2019 and subsequent to all other proceedings. Being a party to the proceedings the Appellant is bound by the decisions of the Adjudicating Authority and this Tribunal and the precedents of the Hon’ble Supreme Court. As held supra the order of the Adjudicating Authority dated 10.01.2020 to which the Appellant is a party has not challenged the said order dated 10.01.2020 and the same has attained finality. Therefore, the Appellant is estopped from challenging the said order in this Appeal. The filing of the present Appeal is an abuse of process of law and wasting the precious time of this Tribunal.

Having discussed all the issues, this Tribunal comes to an irresistible and inescapable conclusion that the Appeal is frivolous and vexatious and the same is liable to be dismissed.

Accordingly, the Appeal is dismissed. No order as to costs. Applications if any, pending stand closed.