Nitin Jain & Anr. vs Ratandeep Infrastructure Private Limited

ORDER

A) Direct the Applicant herein for impleading the Respondents in the aforesaid Interlocutory Application No. 193 of 2022 filed in the aforesaid Company Petition No. (IB) NO. 45/ALD/2019;

B) declare the Auction dated 06.06.2022 conducted by the Liquidator as illegal and the same may be set-aside;

C) direct the Liquidator to make attempts to sell the assets of the Corporate Debtor as a going concern;

(D)

take the instant Interlocutory Application filed by the Applicants herein in the aforesaid Interlocutory Application No. 193 of 2022 in the aforesaid Company Petition No. (IB) No. 45/ALD/2019 on record;

E) Take appropriate action against the Liquidator, i.e., Mr. Alok Kumar Kuchchal for running the Liquidation Process in total disregard under the Insolvency and Bankruptcy Code, 2016. ….”

“………

35.

In view of the above-stated situation and the turn of events, we are of the clear opinion that the Liquidator, being duty bound to proceed in accordance with the provisions of IBC and Liquidation Process Regulations when the purported scheme was not submitted in three weeks, acted quite appropriately and in consonance with the provisions of law by issuing the auction notice dated 19.5.2022 which was published in newspapers on 20.5.2022. The submission of the said scheme by the Appellant on 24.5.2022 after a delay of twenty days and the filing of IA No. 154/2022 on 25.5.2022, should therefore, be viewed in this context. The order of the Adjudicating Authority dated 1.6.2022 in IA 154/2022, whereafter a fresh auction notice was published by the Liquidator are also events that follow the correct course as stipulated in the liquidation process of the corporate debtor.

36.

We now turn our attention to the features of the scheme submitted by the Appellant, albeit after much delay, to understand whether the Appellant was interested in providing a credible scheme of compromise and arrangement.

37.

A perusal of the scheme (attached with the Affidavit of the Liquidator, filed vide Diary No. 40689 dated 1.11.2022) tells us that the total payments proposed to all the stakeholders is provisioned at Rs. 11,48,56,758. This amount includes a figure of Rs. 1.5 crores for payment to the creditors whose claims were not admitted by the RP during CIRP. Another amount of Rs. 1.32 crores has been provisioned for payment to other creditors/stakeholders, unsecured financial creditors who are related parties and other creditors/stakeholders. Thus, an amount of approximately Rs. 2.82 crores is proposed as payment to creditors, who may not be entitled to any payment in the liquidation process of the corporate debtor or would come lower down in ‘waterfall mechanism’ and may not even get such large payments. Further the very important financial creditors in class, who are 33 homebuyers in number and have filed a total claim of Rs. 2.68 crores during the CIRP of the corporate debtor, are proposed to be paid within 90 days from the date of approval of the scheme whereas other creditors are to be made 100% payments irrespective of whether their claims are admitted or not by the Liquidator. The flats are supposed to be completed in 24 months and provided to the homebuyers against their claims filed with the Liquidator. It is not at all clear as to how the homebuyers who have only paid part of the total cost will be treated and whether they will be required to pay any extra amount and what would be its quantum.

38.

It is, therefore, noted that the purported scheme proposes to make payments to a number of related parties/unsecured creditors/not submitted claims upto an extent of 100% of admitted claimed amounts. Another issue in the proposed scheme is that it proposes to make payments within 90 days of approval of scheme whereas in the event of auction-sale the payments would be made promptly to claims in accordance with the ‘waterfall mechanism’ under section 53 of IBC. …….

40.

We also note that only 33 allottees have filed a total claim of Rs. 2.68 crores during the CIRP of the corporate debtor which means that, on an average, each allottee has claimed Rs. 8.10 lakhs. Considering this full amount to have been used for construction of flats, it is quite understandable that the level of construction would not be significant. How then the Appellant, as proponent of the scheme of compromise and arrangement, proposes to bring in additional funds to complete construction and how he will bring in the extra funds is unclear on a deeper examination of the scheme. The said scheme, therefore, appears to be a ‘fictional one’ ostensibly to appropriate the land to the benefit of a select few who are related parties of the corporate debtor. 41. Both the Learned Counsel for Appellant and the Learned Counsel for Respondent No. 2 have cited the judgment of Hon’ble Supreme Court in the matter of Arun Kumar Jagatramka vs. Jindal Steel and Power Limited & Anr. [(2021) 7 Supreme Court Cases 474] in support of their rival contentions with regard to any ineligibility that would attach to the Appellant in providing a scheme of compromise and arrangement under section 230 of the Companies Act, 2013 with reference to section 29-A of IBC which pertain to ineligibility of related persons to submit resolution plan and section 35(1)(f) of IBC, which is a provision applicable during liquidation. It is instructive to have a look at the relevant portion of the Arun Kumar Jagatramka judgment (supra), which is as hereunder:-

“71…..In the context of the statutory linkage provided by the provisions of Section 230 of the 2013 Act with Chapter III IBC, where a scheme is proposed of a company which is in liquidation under the IBC, it would be farfetched to hold that the ineligibilities which attach under Section 35(1)(f) read with Section 29-A would not apply when Section 230 is sought to be invoked. Such an interpretation would result in defeating the provisions of the IBC and must be eschewed.

72.

An argument has also been advanced by the appellants and the petitioners that attaching the ineligibilities under Section 29-A and Section 35(1)(f) IBC to a scheme of compromise and arrangement under Section 230 of the 2013 Act would be violative of Article 14 of the Constitution as the appellant would be “deemed ineligible” to submit a proposal under Section 230 of the 2013 Act. We find no merit in this contention. As explained above, the stages of submitting a resolution plan, selling assets of a company in liquidation and selling the company as a going concern during liquidation, all indicate that the promoter or those in the management of the company must not be allowed a back-door entry in the company and are hence, ineligible to participate during these stages. Proposing a scheme of compromise or arrangement under Section 230 of the 2013 Act, while the company is undergoing liquidation under the provisions of the IBC lies in a similar continuum. Thus, the prohibitions that apply in the former situations must naturally also attach to the latter to ensure that like situations are treated equally.”

42.

A perusal of the above-mentioned observation in the Arun Kumar Jagatramka judgment (supra) makes it very clear that the promoter or those in the management of the company under liquidation cannot be allowed a ‘backdoor entry’ into the company and hence, would be considered ineligible to submit a proposal under section 230 of the Companies Act, 2013. When we view the continuous efforts of Mr. Rakesh Kumar Agarwal in seeking to ‘takeover’ the corporate debtor through various stratagems, and also the finding that he is in ‘collusion’ or acting in concert with the erstwhile management of the corporate debtor, the motive or intention in putting forward a useless scheme of compromise and arrangement in respect of the corporate debtor becomes seriously doubtful. The observation of Hon’ble Supreme Court regarding ‘backdoor entry’ in the corporate debtor by the erstwhile management then appears to be a very distinct, something that we should not disregard. In this background, the judgment of this tribunal in the matter of Y. Shivram Prasad (supra) should also be viewed, so that following such a judgment should not lead to undesirable consequences as are pointed out in the Arun Kumar Jagatramka Judgment (supra) of Hon’ble Supreme Court.

43.

The Learned Counsel for Appellant has also cited the judgment of this Tribunal in the matter of Punjab National Bank vs. EVA Agro Feeds Pvt. Ltd. & Anr. [CA (AT)(INS.) No. 757 of 2021], wherein it is held that “the successful bidder in the auction sale does not acquire any vested right in law to enforce the auction.” We are conscious of the fact that the issue in this appeal is not about any right of the successful bidder, but where the Adjudicating Authority has considered all the related facts and circumstances concerning the request of the Appellant in proposing a scheme of compromise and arrangement, and thereafter passed an order which balances the liquidation process with the need to avoid liquidation of the corporate debtor. This judgment, therefore, does not support the case of the Appellant.

44.

The Senior Learned Counsel for Respondent No. 2 has adverted to the judgment of the Hon’ble Supreme Court in the matter of Ebix Singapore (P) Ltd. v. Educomp Solutions Ltd. [(CoC), (2022) 2 SCC 401], wherein it is held that the “if the CIRP is not completed within the prescribed timeline, the corporate debtor is sent into liquidation…..We cannot afford to be swayed by abstract conceptions of equity and ‘contractual freedom’ of the parties.” We note that the Adjudicating Authority in the present case has struck a fine balance between the right of the Appellant in proposing the scheme for compromise and arrangement and the timely and successful completion of the liquidation process of the corporate debtor, a move that would be in accordance with the ruling in the Ebix Singapore judgment (supra).

45.

In view of the above-noted detailed discussion, it is clearly established that the Adjudicating Authority provided reasonable and sufficient opportunity to the Appellant to submit a credible scheme of compromise and arrangement, and the fact that the scheme so presented by the Appellant was prima-facie found to inflate the total payments by provisioning payments to creditors who are either related to the corporate debtor or for such creditors who had not filed legitimate claims in the liquidation process and thus, the proposed payments were in effect not of greater value than the amount being offered by the successful bidder in the e-auction.

46.

We, therefore, hold the clear opinion that the Adjudicating Authority has not committed any error in disposing of the IA 154/2022 by the Impugned Order allowing the Liquidator to proceed with the e-auction and not allowing any more time for consideration of the scheme proposed under section 230 of the Companies Act, 2013. In view of this inescapable conclusion that the Adjudicating Authority has not erred in passing the Impugned Order, the appeal is dismissed, and is accordingly disposed of. [Emphasis supplied] ……….”

1.

The Applicants are painfully aggrieved by the deliberate failure of the Resolution process qua the Corporate Debtor and the initiation of liquidation proceedings against the Corporate Debtor whereby, the Liquidator/Respondent herein unilaterally decided to auction the assets and dissolve the Corporate Debtor despite the same being a going concern thereby violating the salutary purpose of the Insolvency and Bankruptcy Code, 2016 i.e. to revive a going concern, which in present case could have been a successful resolution plan or a consideration of a bona-fide scheme under section 230 of the Companies Act, 2013.

2.

Subsequently, the e-auction initiated on 01.06.2022 carried out at the behest of the Liquidator/Respondent was not performed in an ethical or transparent manner, to the extent that vide IA 2251/2022 before the Hon’ble NCLT, M/s, AKJ Real Tech Pvt. Ltd. was the only successful bidder in the auction carried forth by the Respondent herein. In this regard, the Liquidator has accepted an amount of Rs. 7.45. However, it is noteworthy that the present market value of the asset is about 12-15 crores and the same has been reiterated as well as offered by the Petitioner herein who was willing to pay an amount of Rs. 11.48 crores. Hence, the entire auction process is mala-fide and a colourable exercise of power & is liable to be set aside on this factum alone.

3.

Furthermore, the Liquidator/Respondent violated the settled procedure as enshrined under IBBI (Liquidation Process) Regulations, 2016 and conducted the entire resolution as well as the e-auction process in a highly prejudicial and biased manner insofar as the Liquidator itself was a related party to the Corporate Debtor which is demonstrable from a bare reading of the details of the data available in the public domain.

4.

More-so, it is further submitted that the List of Creditors was not uploaded on the IBBI website by Respondent No.1/Liquidator till the appeal by Appellant was pending before Hon’ble NCLAT, which is clear contravention of IBBI Circular No. IBBI/LIQ/40/2021 dated 29 March 2021, which was further modified in Nov. 2021, accordingly in pursuance of clause (d) of sub-regulation (5) of regulation 31 of the IBBI (Liquidation Process) Regulations, 2016 (Liquidation Process Regulations) requiring the liquidator to file list of stakeholders on the electronic platform of the Board for dissemination on its website directing the liquidators to file the list of stakeholders and modification thereof, in the stipulated format, on the electronic platform, www.ibbi.gov.in. However, it is pertinent to mention here that the Liquidator who had filed the List of Creditors in other Liquidation matters, intentionally did not file the same in this matter only which demonstrates malafide intentions on the part of the respondent no.1/Liquidator. In this regard it is clear that the conduct of the Respondent Liquidator is ex-facie suspicious and in grossviolation of the provisions of the law.

5.

It is pertinent to mention that on 30.09.2020 the Liquidator/Respondent and his associate-Chanchal Yadav were taken charge as Directors in “Silvertoan Papers Limited” run by Mr. Prasoon Agarwal who is the son of Mr. Surender Agarwal (Ex-director of Corporate Debtor). It is noteworthy that the said period when the Liquidator/Respondent took the position as the Director in “Silvertoan Papers Limited” was during the CIRP process while he was already serving as IRP/RP with the Corporate Debtor. The said action is complete contravention of Regulation 3(1) of the IBBI (Insolvency Resolution Process for Corporate Regulation) Regulation, 2016 which prohibits an IP from being appointed as a Resolution Professional of a corporate debtor if he is not independent of the Corporate Debtor. The relevant para of Regulation 3(1) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 is reproduced herein:

PRAYER

“I.A. (Dy.) No.27202/2023 and I.A. (Dy.) No. 27204/2023 Applications are taken on board. Learned counsel for the applicant urges that he did not participated in the auction because somehow he missed out on the auction but he is willing to pay more. There is hardly a reason for the applicant to intervene. Applications stand dismissed.

I.A. No.26569/2023 and I.A. No. 26573/2023 These applications are by the home buyers who claim that the process is carried out in a hurry therefore the actual price is not being realized. Once the process is followed, such kind of endeavours will only prolong the matter and go contrary to the very objective of the Insolvency and Bankruptcy Code, 2016 (IBC). Applications stand dismissed.

Learned counsel for the appellant states that the appellant has not been able to raise the amount of Rs.12.48 crores but has got a draft of Rs.3,00,00,000/-. Despite this we have heard learned counsel for the appellant. The bottom line is that 12.48 crores haven not been brought as assured on the last date. The civil appeal stands dismissed accordingly.”

FINDINGS AND ORDER