M/s Mohan Fabtex Limited vs Rajesh Jhunjhunwala & Anr

Ashok Bhushan, J

This Appeal has been filed against the order dated 23.05.2022 passed by the Adjudicating Authority (National Company Law Tribunal), Jaipur Bench, Jaipur allowing the I.A. No. 308/JRP/2020 filed by the Liquidator for accepting of proposal of purchase of the Corporate Debtor submitted by the Respondent No.2 - Kautilya Industries Pvt. Ltd. and rejecting the Intervention Application I. A. No.30/JPR/2020 filed by the Appellant. The Appellant aggrieved by the impugned order has come up in this Appeal. Brief facts of the case necessary to be noticed for deciding the Appeal are:

i. On an application filed under Section 7 of the Code by Financial Creditor - Asset & Reconstruction Company (India) Ltd. insolvency resolution process was initiated against the Corporate Debtor - Parasrampuria Synthetics Limited by order dated 17.05.2018.

ii. In response to Form G issued by the Resolution Professional Expression of Interest were received. A Resolution Plan was also submitted by M/s Kautilya Industries Pvt. Ltd., which was rejected by the CoC.

iii. No plan being approved in the resolution process, order of liquidation was passed on 15.02.2019 and Respondent No.1 - Mr. Rajesh Jhunjhunwala was appointed as the Liquidator.

iv. The Respondent No.2 questioned the liquidation order by filing an appeal in this Tribunal, which was dismissed on 31.07.2019. This Tribunal while dismissing the appeal has directed the Liquidator to explore the possibility of compromise/ arrangement scheme under Section 230 of the Companies Act, 2013.

v. The Liquidator called meeting of Stakeholders with whose consent invitation was issued for compromise scheme. Respondent No.2 - M/s Kautilya Industries Pvt. Ltd. submitted a scheme of compromise which, however, can receive only 64.44% votes and was rejected.

vi. The Liquidator thereafter proceeded to conduct e-auction for sale of Corporate Debtor as going concern. Reserve Price in the first auction was Rs.120 Crore. Auction was fixed for 26.12.2019, which failed. Liquidator further issued four auction notices on reduced reserve price which also could not receive any bid. Fifth e-auction notice was issued on 05.08.2020 fixing auction dated on 18.08.2020 on Reserved Price of Rs.73.50 Crore. In pursuance of e-auction notice, no EMD was received.

vii. Liquidator being of the view that fifth auction has also failed, convened a Stakeholders' Consultation Committee meeting on 18.08.2020. In the meeting held on 18.08.2020, the Liquidator brought before the Stakeholders' Committee about interest shown by certain parties. In the meeting, the Liquidator informed that he has received a proposal through ARCIL where M/s Kautilya Industries Pvt. Ltd. who had submitted resolution plan and also scheme of compromise has shown interest to purchase the Corporate Debtor as going concern. The proposal was for amount of Rs.73.51 Crore (more than the last reserve price). 66% of the stakeholders voted in favour, accepting the proposal of M/s Kautilya Industries Pvt. Ltd. for selling the Corporate Debtor as going concern. The Financial Creditors authorised the Liquidator to place the proposal before the Adjudicating Authority in pursuance of the decision of the Stakeholders' Consultation Committee.

viii. I.A. No. 308/JPR/2020 was filed by the Liquidation before the Adjudicating Authority seeking approval of the proposal received from M/s Kautilya Industries Pvt. Ltd. - Respondent No.2. The matter came for hearing before the Adjudicating Authority on 02.12.2021, before whom learned counsel appearing for ARCIL and Pegasus submitted that the proposal submitted by M/s Kautilya Industries Pvt. Ltd. is acceptable to them. The Adjudicating Authority asked both the Financial Creditors to file an affidavit. In pursuance of order dated 02.12.2021, affidavits were filed by ARCIL and Pegasus which were noticed by the Adjudicating Authority in its order dated 10.12.2021.

ix. The Appellant filed an I.A. No. 30/JPR/2021 before the Adjudicating Authority seeking Intervention and direction to the Liquidator to take on record the proposal offered by the Applicant/ Appellant. The Adjudicating Authority on the application filed by the Appellant directed the Appellant to implead M/s Kautilya Industries Pvt. Ltd. (Respondent No.2 herein). Reply was filed by M/s Kautilya Industries Pvt. Ltd. to the application objecting to the intervention sought by the Appellant.

x. The Adjudicating Authority heard the parties and by impugned order has allowed I.A. No. 308/JPR/2020 filed by the Liquidator and approved the proposal of sale of Corporate Debtor as going concern in favour of the Respondent No.2 - M/s Kautilya Industries Pvt. Ltd. and rejected I.A. No. 30/JPR/2021 filed by the Appellant. Appellant aggrieved by the said order has come up in this Appeal.

We have heard Shri Virender Ganda, learned senior counsel for the Appellant, Shri Neeraj Kishan Kaul, learned senior counsel appearing on behalf of Respondent No.2 - M/s Kautilya Industries Pvt. Ltd. and learned counsel appearing for the Liquidator.

Shri Virender Ganda, learned counsel appearing for the Appellant submits that maximisation of the value of the Corporate Debtor being objective under the I&B Code, the offer of the Appellant which was more than 10% of the offer made by the Respondent No.2 ought to have been considered by the Adjudicating Authority and allowing the application filed by the Liquidator is not in accordance with law. It is further submitted that the Liquidator has not conducted the liquidation proceedings in accordance with the Liquidation Regulation, 2016. No steps were taken for identification of the assets of the Corporate Debtor when the sale of the Corporate Debtor was going to take place as a going concern. Regulation 32A enjoins upon the Liquidator to identify and group the assets and liabilities to be sold as a going concern. There was no identification of the assets. It is further submitted that the actual measurement of the Bhiwadi property which was owned by the Corporate Debtor is 92,525 sq. m. whereas Liquidator has shown the extent of property only as 85,025 sq. m. and there was no explanation for the remaining land of 7,500 sq. m. It is submitted that the Liquidator also did not follow the procedure under Regulation 32A as well as Schedule - I of the Regulations. No strategy for sale was prepared. Date of fifth auction was 18.08.2020 and on the same day decision was taken by the Stakeholders Consultation Committee in favour of the Respondent No.2.

Shri Neeraj Kishan Kaul, learned senior counsel appearing for the Respondent No.2 refuted the submissions of learned counsel for the Appellant and submits that the proposal submitted by Respondent No.2 for sale of the Corporate Debtor as going concern was rightly accepted by the Liquidator as well as the Adjudicating Authority. The Respondent No.2 has earlier also submitted the Resolution Plan as well as scheme to purchase the Corporate Debtor as a going concern. The Respondent No.2 is carrying on same business as was the Corporate Debtor. The offer given by the Respondent No.2 being higher than the last Reserve Price of the last failed auction, the Liquidator was fully competent to accept the private sale. It is submitted that the Appellant never shown any interest and after more than four months of approval of the proposal of the Respondent No.2 has filed Intervention Application before the Adjudicating Authority on the only ground that Appellant is offering 10% more sale consideration hence his offer be accepted. It submitted that Appellant has been prompted by the Promoters of the Corporate Debtor which fact is clearly proved by affidavit filed in this Appeal on behalf of the Appellant bringing Asset Memorandum on record which is a confidential document, not required to be disclosed by the parties who participated in the process. The Appellant has been prompted by the Promoter is clear since several facts which are in their knowledge are being canvassed by the Appellant. When the proposal which is higher than the Reserve Price of the last failed auction has been submitted which proposal has also been approved by the Stakeholders Consultation Committee, the attempt of the Appellant in making offer of a higher price is to derail the entire process. The Adjudicating Authority has directed the Financial Creditors to file an affidavit regarding the proposal of Respondent No.2, they having consented, the Adjudicating Authority has approved the proposal in which there is no illegality. After proposal of the Respondent No.2 has been accepted for Rs.73.51 Crores, it is not open for the Appellant to come up with higher offer to unsettle the proposal. Learned counsel for the Respondent No.2 has submitted that no right can accrue to the Appellant merely on the ground that he has submitted a higher offer. Liquidator has full jurisdiction and right to consider and accept any proposal as per the Liquidation Regulations. The Appellant has produced confidential documents which are protected under the Regulations. Appellant cannot be allowed to rely on the Asset Memorandum which was a confidential document. No case of procedural irregularities in the process adopted by the Liquidator has been canvassed before the Adjudicating Authority. There is clear collusion between the Appellant and Promoter which itself is sufficient to non-suit the Appellant. In the application filed by the Appellant before the Adjudicating Authority, there was no pleading of any procedural irregularity or fraud on part of the Liquidator or Respondent No.2 and the submissions which are sought to the raised in the Appeal need no consideration.

Learned counsel for the Liquidator has supported the impugned order and submitted that the Liquidator has conducted the entire liquidation process in accordance with Liquidation Regulations. The Adjudicating Authority has also returned finding that the Liquidator has conducted the process in accordance with the Regulations. The Respondent No.2 had also submitted a scheme under Section 230 which could not be approved as it could not secure the requisite majority. The Respondent No.2 has made deposit of Rs.4 Crore as EMD whereas the Appellant alongwith application has filed photocopy of Draft of Rs.50 Lakhs. The offer submitted by the Appellant did not require any consideration by the Adjudicating Authority and has rightly been rejected.

We have considered the submissions of learned counsel for the parties and perused the record.

The fact brought on the record indicates that the Liquidator has issued five e-auction notices for sale of the Corporate Debtor as a going concern. In the fifth e-auction notice issued on 15.08.2020, last date for receipt of EMD was 13.08.2020 and admittedly no EMD was received in response to fifth auction notice. The Liquidator having realised that fifth auction has also failed since no EMD was received, issued a notice on 15.08.2020 for conducting Stakeholders Consultation Committee meeting. The Respondent No.2 has approached the Financial Creditor - ARCIL with a proposal to purchase the Corporate Debtor on a price higher than the last Reserve Price and ARCIL in the Stakeholders Consultation Committee meeting on 18.08.2020 expressed his agreement in favour of the proposal of Respondent No.2. The Stakeholders in the meeting dated 18.08.2020, resolved to accept the proposal of Respondent No.2 with majority vote and authorized the Liquidator to file an application before the Adjudicating Authority for acceptance of proposal of Respondent No.2. Consequently, an application was filed by the Liquidator being I.A. No. 308/JPR/2020 seeking approval of proposal of Respondent No.2. It was after more than four months, Intervention Application I.A. No. 30/JPR/2021 was filed by the Appellant. In the Intervention Application, the Appellant came up with a case that the Appellant is making proposal to pay and amount of Rs.81 Crores as against Reserved Price of Rs.73.50 Crores. It was stated that the Applicant could not participate in the auction due to lack of awareness about the ongoing liquidation process. In the application following prayers were made by the Appellant:

"PRAYER:

In view of the facts and circumstances, the Applicant most respectfully prays that this Hon'ble Tribunal may kindly be pleased to:

a) Pass directions to allow the intervention of the Applicant;

b) Direct the Liquidator to take on record the Buyout Proposal offered by the Applicant;

c) Pass directions to the Stakeholders to consider the Buyout Proposal of the Applicant and take decision in accordance with law and in the interest of the stakeholders and the Corporate Debtor.

d) Pass such other and further order(s) as deemed fit be passed in the interest of justice."

Application  came  for  hearing  before  the  Adjudicating  Authority  on 02.12.2021, where in I.A. No. 308/JPR/2020 and I.A. No. 30/JPR/2021 following order was passed:

"ORDER

IA  No.  308/JPR/2020  &  IA  No.  30/JPR/2021- Heard Mr. Abhishek Anand, Adv. on behalf of Kautaliya Industries Private Limited, Mr. Anand Chibbar, Ld. Sr. Counsel on behalf of Mohan Fabtex Limited, and Mr. Amol Vyas, Adv. on behalf of the Liquidator.

Also heard Mr. Dinkar Singh, Adv. on behalf of ARCIL. & Pegasus Asset Reconstruction Company (India) Limited. He submitted that the Application submitted by Kautaliya Industries Private Limited is acceptable to them as stakeholders. In this regard Learned Counsel is directed to file separate affidavits of ARCIL and Pegasus Asset Reconstruction Company (India) Limited stating the same very clearly under due authorization. List these two IAs for conclusion of hearing on 10.12.2021."

In compliance of the order by the Adjudicating Authority on 02.12.2021, affidavits were filed by both the Financial Creditors i.e. ARCIL and Pegasus. In the affidavit filed on behalf of the ARCIL following has been stated with regard to proposal of Respondent No.2:

"2. I do hereby depose that Asset Reconstruction Company (India) Limited (ARCIL) being lead member (57.68%) at stakeholder consultation committee duly constituted under Section 31A of the INSOLVENCY AND BANKRUPTCY BOARD OF INDIA (LIQUIDATION PROCESS) REGULATIONS, 2016, in the meeting of stakeholder consultation committee held on August 18, 2020 had conveyed in-principle acceptance of the proposal submitted by M/s Kautilya Industries Private Limited Further during the said meeting held on August 18, 2020, Arcil recommended to the Liquidator to approach the Hon'ble NCLT for approval of the proposal. The copy of minutes of the meeting of said stake-holders consultation committee is attached here with the affidavit.

I depose in compliance with the directions issued by the Hon'ble Tribunal in the last order dated December 02, 2021 that the offer received from M/s Kautilya Industries Private Limited is acceptable to Arcil subject to any terms imposed by this Hon'ble Tribunal."

Similarly, an affidavit was filed by another Financial Creditor - Pegasus, where in Para 2 and 3 following has been stated:

"2. I do hereby depose that M/s Pegasus Assets Reconstruction Private Limited being lead member (3.02%) of stakeholder consultation committee duly constituted under Section 31A of the INSOLVENCY AND BANKRUPTCY BOARD OF INDIA (LIQUIDATION PROCESS) REGULATIONS, 2016, gave its acceptance in principle for the sale of the assets of corporate debtor under private sale treaty by M/s Kataliya Industries Private Limited in terms of its proposal dated 14 August 2020: The copy of minutes of meeting of stakeholder consultation committee held on 18 August. 2020 wherein the proposal of M/s Kataliya Industries Private Limited was considered & consented by Mrs Pegasus Assets Reconstruction Private Limited is attached herewith this affidavit

I depose that the offer dated 14 August, 2020 duly accepted in meeting held on 18th August, 2020 is acceptable to Pegasus Asset Reconstruction Private Limited subject to any terms imposed by this Hon'ble Tribunal."

The sequence of event indicate that after receiving application filed by the Liquidator being I.A. No. 308/JPR/2020 as well as I.A. No. 30/JPR/2021 received  from  the  Appellant,  the  Adjudicating  Authority  asked  for  filing affidavit by both the Financial Creditors and both the Financial Creditors filed affidavit clearly stating that the proposal submitted by Respondent No.2 is acceptable. The Financial Creditors having given their consent by affidavit, as required by the Adjudicating Authority, Adjudicating Authority proceeded to approve the proposal of Respondent No.2 by the impugned order.

The submission which has much pressed by learned counsel for the Appellant is that the Appellant has made a higher offer of more than 10% from the offer of Respondent No.2 which was sufficient ground to accept the offer of the Appellant, maximisation of the value of the Corporate Debtor being the main objective of the I&B Code. There can be no dispute that maximisation of the value of the Corporate Debtor is one of the objectives of the I&B Code. However, the said objective has to be achieved within timelines. There has been already five failed e-auctions and the Respondent No.2 was an entity who had been interested in the Corporate Debtor from very beginning by submitting Resolution Plan. Respondent No.2 was objecting to the liquidation and even filed an appeal in this Tribunal, where this Tribunal observed that Liquidator should explore the possibility for a scheme for compromise and arrangement. The Respondent No.2 has also filed a scheme for compromise which came to be considered by the Stakeholder Consultation Committee, which was not approved having received only 64% voting share. The Stakeholder Consultation Committee have thus well aware of the plan and scheme submitted by Respondent No.2 and Stakeholders has given their express approval to the proposal of Respondent No.2. The acceptance of proposal of Respondent No.2, which was more than the last Reserve Price of the failed auction, after due deliberation was accepted by the Stakeholders.

Learned counsel for the Appellant has placed reliance on judgment of this Tribunal in "Rimjhim Ispat Limited & Anr. Vs. Jindal Stainless Limited & Anr., Company Appeal (AT) (Ins.) No. 1212-1213 of 2022" and submitted that in the similar facts and circumstances when a higher offer was made before the Adjudicating Authority by Jindal Stainless Ltd. before approval of the private sale, the Adjudicating Authority has accepted the said offer by Jindal Stainless Ltd. and directed for limited e-auction between the Appellant- Rimjhim Ispat Ltd. and Jindal Stainless Ltd.

When we look into the facts of the Rimjhim's case (supra), the private sale in favour of Rimjhim Ispat Ltd. for Rs.177.50 Crore whereas Jindal Stainless Ltd. filed an application before the Adjudicating Authority where it made an offer of initially Rs.190 Crore and revised to Rs.200 Crore. The Adjudicating Authority held that in the circumstances sale in favour of the Appellant cannot be said to be complete and directed Jindal Stainless Ltd. to deposit Rs.50 Crore to show its bonafide and directed for limited e-auction. This Tribunal dismissing the appeal filed by Rimjhim Ispat Ltd., whose private sale was accepted by the Liquidator, held that private sale in favour of the highest offer shall not be treated to be complete since terms of the sale require prior approval of the Adjudicating Authority. The law laid down by this Tribunal in the above case is well settled. In the above case, the Adjudicating Authority exercised its discretion and directed for limited e-auction after deposit of Rs.50 Crores by Jindal Stainless Ltd. The discretion exercised by the Adjudicating Authority was in the facts of the above case, which was affirmed by this Tribunal in Rimjhim's case (supra). There are few specific facts which have been relied by the Adjudicating Authority in the present case for approving the offer of Respondent No.2. The proposal submitted by Respondent No.2 came to be approved by Stakeholder Consultation Committee and thereafter after filing of application by the Respondent No.2 as well as the Appellant, the Adjudicating Authority directed the Stakeholders to again file affidavit giving their response. Affidavits filed by both the Financial Creditors, as noted above, where they clearly shown their acceptance to the proposal of Respondent No.2. When the stakeholders had expressed their acceptance to the proposal of Respondent No.2, we do not find any error in the decision of the Adjudicating Authority approving the proposal, as noted above. The Respondent No.2 was not a stranger to the above process and he has already filed Resolution Plan and a scheme which was not earlier approved. Financial Creditors were aware of the credentials of the Respondent No.2 and must have interacted with the Respondent No.2 even earlier. The judgment of this Tribunal in Rimjhim Ispat Ltd. (supra) was a case where the Adjudicating Authority exercised its discretion for directing for limited auction whereas in the facts and circumstances of the present case, the Adjudicating Authority proceeded to approve the proposal of Respondent No.2. We, thus, do not find any error in exercise of jurisdiction by the Adjudicating Authority in approving the proposal of Respondent No.2 and judgment of this Tribunal in Rimjhim Ispat Ltd. was on its own facts.

Shri Ganda has submitted that there was non-compliance of mandatory provisions of Regulation 32A Sub-regulation (3) since the Liquidator has not identified the assets to be sold as going concern. Regulation 32A(3) is as follows:

"32A. (3) Where the committee of creditors has not identified the assets and liabilities under sub-regulation (2) of regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the liquidator shall identify and group the assets and liabilities to be sold as a going concern, in consultation with the consultation committee.”

Shri Ganda has filed an affidavit where he has referred to a letter of Rajasthan State Industrial Development and Investment Corporation dated 29.02.2020 where area of plot allotted to the Corporate Debtor was mentioned as 92,525 sq. m. Learned counsel for the Appellant submits that in the Asset Memorandum issued by the Liquidator, the area mentioned of the land of Bhiwadi is 85,025 sq. m. The said memorandum was issued by the Liquidator and with regard to Bhiwadi plots in Note no.2 following has been stated:

"2. Bhiwadi Land- as per RIICO records total leasehold land is 13945644 sq mtrs however as per records of the corporate debtor and secured creditors claim total land is 85,025 sq mtrs. The liquidator had visited RICO office at Bhiwadi and requested for certified copies of land lease deeds. However, there is no response from RIICO in spite of repeated reminders. At present, only 85,025 sq mtrs plot of land is considered for the liquidation estate."

The area which was included in the Asset Memorandum issued by the Liquidator was on its due diligence and five e-auction notices were issued by the Liquidator which received no objection from any participant including Promoters of Parasrampuria Synthetics Limited regarding area which was included in the Asset Memorandum. We are of the view that Appellant in this Appeal cannot raise the issue that Liquidator has not correctly described the area of Bhiwadi plot. We have noted the contents of the I.A. No. 30/JPR/2021 filed by the Appellant, in which application no said ground was taken or pressed. We also find substance in submission of learned counsel for Respondent No.2 that Asset Memorandum is a confidential document, which is not accessible to any person during course of liquidation and the document which are sought to be filed in the Additional Affidavit filed on 01.02.2023 are the document which can be in the knowledge of Promoter only. We find substance in the submission of learned counsel for Respondent No.2 that no source of document which have been filed by the Appellant has been disclosed and there is every reason to accept the submission of Respondent No.2, that it is the Promoter from whom the document have been received by the Appellant. Be as it may, the issue regarding incorrect measurement of the Bhiwadi plot cannot be a ground which can be taken by the Appellant in support of his appeal. Appellant has come up only with ground that his offer is 10% more than the offer of Respondent No.2, hence, his offer should be considered.

The submission of learned counsel for the Appellant is that there is no identification of the land, whereas the Liquidator was obliged under Regulation 32A Sub-regulation (3) to identify the assets and liabilities. Appellant has brought on record the Asset Memorandum issued by the Liquidator which contains details of fixed assets of the Corporate Debtor. The Asset Memorandum contains all details of the assets of the Corporate Debtor situated at different locations with other details which are contained in the notes. The Asset Memorandum is a detailed document containing details of immovable and movable assets and submission of the Appellant that there has been no identification of the assets under Regulation 32A Sub-regulation (3) is without any substance. After identification of the assets and liabilities, five e-auction notices were issued, which were never objected by anyone. At this stage, when Appellant has come up before the Adjudicating Authority by filing an Intervention Application making a higher offer, he cannot be allowed to rake up issues which were never raised before the Adjudicating Authority.

The Adjudicating Authority has returned the finding that liquidation process was conducted by the Liquidator in accordance with the Regulation. In paras 21, 22 and 23 following has been held by the Adjudicating Authority:

"21. The Adjudicating Authority finds that the Liquidator has complied with the due process to sell the assets of the Corporate Debtor as laid down in Schedule I under Regulation 33 of the Liquidation Regulations 2016. The process of sale of the business of the Corporate Debtor as going concern through private sale was rightly resorted to under the ongoing liquidation proceedings as per section 35 of IBC and Regulation 32, 32A and 33 of the Liquidation Regulations, 2016 and Regulation 39C of the CIRP Regulations.

Considering the interim application moved by M/s Mohan Fabtex Ltd. bearing IA No. 30/JPR/2021, we observe that since due process of liquidation was followed by the liquidator, there appears no fault in the procedural aspect of this case. Allowing such intervention would not only extend the liquidation process further but will also mean disturbing the procedure for liquidation as laid under the code at a belated stage.

The only argument that stands unanswered is that the Applicant in IA No. 30/JPR/2021 namely M/s Mohan Fabtex Ltd. has proposed to buy the Corporate Debtor at a value of INR 81 Crores which is over and above the amount of INR 73.51 Crores as envisaged in the Plan of the M/s Kautilya Industries Pvt. Ltd. The preamble of the Code envisages the resolution of the Corporate Person in a time bound manner for maximisation of value of assets. Time limit is an essential element for successful liquidation process, as delay in the process can be financially lethal to the debtor under liquidation as well as the creditors. Hence, the process of liquidation is clearly a time bound process."

Considering the overall facts and circumstances, we do not find any illegality in the order of the Adjudicating Authority which may warrant interference in the impugned order in exercise of our appellate jurisdiction. There is no merit in the Appeal.  Appeal is dismissed.