Prince Jain vs Sh. Alok Kucchal, Liquidator of Ratandeep Infrastructure Pvt. Ltd.

ORDER

“….

(ii)

Stay the proceedings if any initiated by the respondent till the final disposal of the application; and/or

(iii)

Grant stay on the sale, if any, which concluded on 06.06.2022 in terms of the E-Auction dated 31.05.2022 published on 01.06.2022; and/or;

(iv)

Grant stay on the Earnest Money Deposit (EMD), if any received, from the prospective bidder in respect to the Notice for sale of assets published on 01.06.2022; and or;

(v)

Quash the sale notice published on 01.06.2022 by the respondent; and/or;

(vi)

Direct that the sale proceeds and Earnest Money Deposit (EMD) (if so received by the respondent/liquidator) must not be distributed; and/or;

(vii)

Take penal actions against the Liquidator in view of his conduct including his removal as liquidator as the Corporate Debtor; and or; …...”

“…….

Prayers as sought for in I.A.No. 73/2021 filed by Mr. Alok Kumar Kuchhal RP of Ratandeep Infrastructure Private Limited, the Corporate Debtor, is allowed and the Corporate Debtor is ordered to be liquidated in terms of section 33(2) of the Code read with sub-section (1) thereof; b. Mr Alok Kumar Kucchal [Reg No IBBI/IPA-002/IP-N00114/2017-18/10284]; Email: [email protected]; Mobile No.+91-98108 94275, Address: C-154, Sector-51, Noida-201301; whose name has been proposed by CoC is hereby appointed as liquidator as provided under section 34(1) of the Code, in terms of regulation 7A of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2019.

c. The Liquidator shall initiate liquidation process as envisaged under Chapter-III of the Code and the Insolvency & Bankruptcy Board of India (Liquidation Process) Regulations, 2016. ……...”

“Ld. Counsel Ms. Babita Jain appeared on behalf of applicant and submitted that in the case of “Ratandeep Infrastructure Private Limited” auction process was in final stages, however, the scheme/ proposal given by her client was almost of twice the value of the reserve price. Hence, suitable directions may be given for stay on the auction process.

She also pointed out that an application had been submitted. However, such application was yet to be listed. The Bench directed her to approach the Registry immediately and get it numbered, so that the matter could be taken up for hearing at the end of the Board. The Registry informed that the defects had been removed and it was numbered as IA No.154/2022. The same is taken on the cause list of today at serial no.7 of the supplementary list by the direction of this Bench. List this matter for further consideration on 31st May, 2022. In the meantime, Mr. Alok Kumar Kuchchal, Liquidator who appeared in person was orally directed not to conclude the auction process, which is being conducted on 02.06.2022.”

“…..

7.

We have considered the submissions made by both the sides and material on record.

8.

It is noted that this Adjudicating Authority vide its order dated 13.04.2022 in IA No.115 of 2022 directed the Liquidator to consider the scheme within a period of three weeks from the date of such order. It is further noted that there are correspondences between the applicant and Liquidator as regard to providing of details/ information for proposing the scheme. It is further noted that on 19.05.2022 an auction notice has been published which has set 02.06.2022 as the auction date.

9.

During the course of hearing, the applicant was asked that why they did not approach this Adjudicating Authority for further directions as regard to providing of information which was required from the Liquidator to propose the scheme, no satisfactory reply was given to this query. It is also noted that the auction is going to take place on 02.06.2022, hence, the applicant herein can very well participate in that process and offer the maximum value for the assets of the corporate debtor.

10.

Considering this fact, we do not find any merit to intervene as of now as the object of maximization of value of assets can be achieved during the liquidation process also. We also make it clear that the Liquidator shall act with a view to maximize the value of the corporate debtor and in case the value offer is found to be below the value offered made by the applicant herein, the auction process may be reinitiated. …”

“Sh. Sanjeev Panda, Advocate for the applicant requested time for filing the rejoinder.

The same will be filed within 2 weeks by serving an advance copy to the other side.

Till then auction process not to be continued.

List this matter on 03rd August, 2022.”

REPLY FILED BY THE LIQUIDATOR/RESPONDENT

i.

It is contented by the respondent that this application filed by the applicant is not maintainable as applicant does not have any locus standi in this matter as this application has been filed in collusion with Mr Rakesh Kumar Agrawal who has claimed to be Director in M/S Bankey Bihari Private Limited that presented a scheme u/s 230 of the Companies Act just to prolong the liquidation process.

ii.

It is also contented by the respondent that since the commencement of CIRP and liquidation process, the respondent has been acting initially as RP during CIR process and then as liquidator during liquidator process, within the framework of IBC, 2016

iii.

It is further contented by the respondent that due to non-transfer of shares of the company held by the applicant, he could not be categorised as shareholder or a member of the company and this has been duly informed by the respondent to the applicant since the commencement of the CIRP process when he submitted his claim.

iv.

It is contended by the liquidator that he published the EOI twice in the newspaper on 01.7.2019 and 30.07.2019 for submission of resolution plan for the corporate debtor, however, no response was received in this regard. Moreover, Liquidator also moved an application I.A 319 of 20219 under section 12(2) of the IBC, 2016 before this tribunal for extension of CIRP time period by 90 days, which was expired on 13.10.2019, was rejected by this tribunal vide its order dated 07.01.2021.

v.

It is also contended by the respondent that the aforesaid order dated 07.01.2021 passed by this tribunal was communicated to the Committee of Creditors (COC) in their 6th meeting held on 28.01.2021 for their perusal and consideration. After this, COC recommended to liquidate the corporate debtor. Copy of MOM of 28.01.2021 has been annexed as Annexure-1 with the Reply.

vi.

The respondent further pointed out that it is important to emphasize that the members of the Committee of Creditors (COC) were unequivocal in their desire to wind up the Corporate Debtor. As per him, this fact is supported by an email dated 09.03.2021, sent by the COC members (excluding flat buyers) to the Liquidator. In this communication, the COC members, including the Applicant, reiterated their approval for the liquidation of the Corporate Debtor and explicitly instructed the Resolution Professional (RP) that they had no interest in exploring any alternative options beyond liquidation. Copy of the e-mail dated 09.03.2021 received by the Liquidator from the COC members (except flat buyers) is annexed as Annexure-2 with the reply.

vii.

It is further contended by the respondent in support of his decision that the only assets available with the corporate debtor from the last 04 years is land and apart from this, there has not been any activity conducted in the company being the Corporate Debtor. Therefore, it was beneficial in the interest of the corporate debtor to avail the option of liquidation.

viii.

As pointed by the respondent, it is crucial to highlight that the claim documents submitted by the Applicant to the Liquidator through emails dated 21.02.2022 and 28.02.2022 contained certain discrepancies, which were promptly communicated to the Applicant by the Liquidator. However, a noteworthy aspect is that a portion of the claimed amount submitted by the Applicant actually represented funds invested by the Applicant's father-in-law, Mr. A K Jain. Mr. Jain has been actively involved in the Corporate Insolvency Resolution Process (CIRP) from its inception, regularly visiting the offices of both the former Insolvency Resolution Professional (IRP) and the subsequent Resolution Professional (RP), as well as the Liquidator.

ix.

The respondent also pointed out that even during the Liquidation phase, the Applicant's father-in-law personally visited the Liquidator's office, accompanying the claim documents. He had requested the Liquidator to verbally explain the discrepancies found in the claim documents submitted by his son-in-law, the Applicant, as he faced difficulties in communicating via email. Mr. Jain preferred to rectify the issues and submit the corrected documents in person rather than relying on email communication with Mr. Prince Jain. In response to this request, the Liquidator acted in good faith and provided Mr. Jain with the necessary information to rectify the defects. Consequently, the Liquidator could only be able to convey his final decision regarding the claim after physically receiving the defect-free documents from Mr. Jain. Therefore, it is essential to note that any delay in communicating the Liquidator's decision regarding the claim, as stipulated in Section 40(2) of the Code, can be attributed to the Applicant's delay in providing the requisite documentation. As per the respondent as contended by him in reply, the applicant is attributing blame to the Liquidator by attempting to shift his responsibility cunningly.

Rejoinder filed by the Applicant

“…..

20.

It is noted that the CIRP of the corporate debtor was initiated with appointment of Interim Resolution Professional (IRP) on 16.4.2019. Since no resolution plan could be obtained in the CIRP, the CoC in its 6th meeting decided for liquidation of the corporate debtor, and the application for liquidation was filed before the Adjudicating Authority on 6.2.2021. It is further noted that while this application for liquidation was under consideration of the Adjudicating Authority, Mr. Rakesh Kumar Agarwal showed interest for the first time in submitting a resolution plan through his company AIG Infratech Private Limited in April, 2021 and as the Resolution Professional (in short ‘RP’) showed his inability to accept such a plan for consideration, Mr. Rakesh Kumar Agarwal director of the AKJ Realtech Private Limited filed IA No. 220/2021 seeking directions for submission and consideration its resolution plan. This IA 220/2021 was dismissed by the Adjudicating Authority on the ground that no useful purpose would be served in considering the request of the Applicant, when the CoC had already resolved to liquidate the corporate debtor. Thereafter, liquidation of the corporate debtor was ordered and it commenced on 31.1.2022.

21.

It is further noted that while the liquidation process was on, Mr. Rakesh Kumar Agarwal again filed IA 115/2022 through the company Bankey Bihari Infrahomes Private Limited (Appellant in the present appeal), in which he is a director seeking directions of the Adjudicating Authority for submission of a scheme of compromise and arrangement with respect to the corporate debtor on 7.4.2022. This IA 115/2022 was disposed of vide order dated 13.4.2022 with a direction to the Liquidator to consider the scheme and a time period of three weeks from the date of order was allowed for submission of the scheme and decision thereon.

22.

It is further noted that, thereafter, a series of e-mails were exchanged between Mr. Rakesh Kumar Agarwal and the Liquidator, starting with e-mail dated 20.4.2022 whereby Mr. Rakesh Kumar Agarwal requested certain information relating to claims from the Liquidator in order to prepare the scheme of compromise and arrangement. After a confidentiality undertaking was provided by the Appellant, a list of claims was provided to Mr. Rakesh Kumar Agarwal, the Appellant submitted a scheme to the Liquidator vide e-mail dated 24.5.2022.

23.

It is relevant to note that the three weeks’ time granted by the Adjudicating Authority for submission of the scheme of compromise and arrangement by the Appellant expired on 4.5.2022, and in view of complete silence on the part of Appellant since 2.5.2022 regarding submission of the scheme, the Liquidator was proceeding with the e-auction process. It was only on 21.5.2022, nineteen days after the last e-mail communication from Mr. Rakesh Kumar Agarwal to the Liquidator that Mr. Rakesh Kumar Agarwal sent an e-mail to the Liquidator, seeking more time for finalisation of the scheme.

24.

It is also noticed that when the Appellant did not submit the scheme of compromise and arrangement within the allotted three weeks’ time, which expired on 4.5.2022, the Liquidator issued a public notice on 20.5.2022 for auction of the land property of the corporate debtor namely, land admeasuring 3542 sq. m. located in GH Plot No. 2 in “Jaipuria Sunrise Greens” Township, Bamheta, Ghaziabad.

25.

The Appellant submitted the said scheme after considerable delay on 24.5.2022, and thereafter he filed IA 154/2022 on 25.4.2022 for staying the auction process and directing the Liquidator to place the scheme before the Stakeholders Consideration Committee for consideration. This IA 154/2022 was dismissed vide the Impugned Order. The relevant part of the order is as follows:-

“10.

Considering this fact, we do not find any merit to intervene as of now as the object of maximization of value of assets can be achieved during the liquidation process also. We also make it clear that the Liquidator shall act with a view to maximize the value of the corporate debtor and in case the value offer is found to be below the value offered made by the applicant herein, the auction process may be reinitiated.

11.

With these directions, this application stands disposed of in terms indicated above.”

26.

A perusal of the order of the Adjudicating Authority dated 1.6.2022 shows that the Adjudicating Authority, after considering the past proceedings in the liquidation process and also the inability of the Appellant to submit a scheme of compromise and arrangement in the given time of three weeks from 19.4.2022, ordered that the e-auction process may be continued. The Adjudicating Authority further ordered that if the Appellant offers a better value for the land of the corporate debtor than what is discovered in the e-auction, the e-auction could be reinitiated.

27.

A perusal of the series of events during the liquidation process makes it clear that the Appellant, through Mr. Rakesh Kumar Agarwal, made an attempt through the company AIG Infratech Private Limited to submit a resolution plan much after the CoC had decided to liquidate the corporate debtor and the application for liquidation has been filed by the Resolution Professional before the Adjudicating Authority. This IA 220/2021, was filed in July, 2021 through the company AIG Infratech Private Limited for seeking order to submit a resolution plan, was dismissed by the Adjudicating Authority on the ground that “no useful purpose would be served in keeping IA 220/2021, when the COC had already resolved to liquidate the Corporate Debtor.”

28.

Thereafter, after the commencement of liquidation process vide order dated 31.1.2022, Mr. Rakesh Kumar Agarwal again sent a letter to the Liquidator on 3.3.2022, after passage of more than one month from the date of commencement of liquidation requesting to submit a scheme of compromise and arrangement, and upon the Liquidator expressing inability to accept such a scheme in view of the commencement and progress of liquidation, Mr. Rakesh Kumar Agarwal filed IA 115/2022 through another company ‘Bankey Bihari Infrahomes Private Limited’ seeking permission of the Adjudicating Authority for submission of a scheme of compromise and arrangement. This interlocutory application was disposed of by the Adjudicating Authority vide order dated 13.4.2022 with the following observations: -

“This is an application filed by the “Bankey Bihar Infrahomes Private Limited” seeking a direction to the liquidator to consider the scheme propounded by the Applicant herein.

Ms. Babita Jain, learned counsel for the Applicant present. Ms. Snehal Sharda, learned counsel appearing on behalf of the liquidator present.

The liquidator is expected to act in accordance with the Liquidation Process Regulations. The decision on the proposed scheme be taken within a period of three weeks’ from today. No other directions are called for in IA No. 115/2022 and hence the same shall stand disposed.”

29.

It is noted that after exchange of a number of e-mails between the Appellant and the Liquidator, starting with e-mail dated 20.4.2022, the Appellant finally submitted the requisite scheme vide e-mail dated 24.5.2022 (The e-mails exchanged between the Appellant and the Liquidator are attached at pp. 98-122 of the appeal paperbook). It is noted when the information regarding claims which was sought by the Appellant was provided by the Liquidator vide e-mail dated 4.5.2022 (attached at pp. 103-104 of the appeal paperbook), the Appellant forwarded the confidential information to erstwhile directors of the corporate debtor, which was in breach of the confidentiality undertaking provided by the Appellant.

30.

The Liquidator, on not receiving no further information from the Appellant about submission of the scheme of compromise and arrangement after his e-mail dated 2.5.2022, and when the three weeks’ time starting from 13.4.2022 granted by the Adjudicating Authority had expired on 4.5.2022, proceeded to publish the auction notice on 20.5.2022.

31.

It appears that on publication of this auction notice, the Appellant sent an e-mail dated 21.5.2022 seeking more time for submission and finalization of the scheme on which the Liquidator expressed his inability to provide more time vide e-mail dated 24.5.2022. The Appellant, thereafter, submitted the requisite scheme to the Liquidator on the evening of 24.5.2022 and immediately thereafter filed IA 154/2022 before the Adjudicating Authority requesting for stay of the auction process and directions to place the proposed scheme before the Stakeholders Consultation Committee.

32.

The above-stated actions of Mr. Rakesh Kumar Agarwal make it absolutely clear that he, through different corporate entities, has attempted to intervene in the process of liquidation by filing the three interlocutory applications viz. IA 220/20221, (which was dismissed by the Adjudicating Authority), IA 115/2022 and IA 154/2022. We also note that Mr. Rakesh Kumar Agarwal in utter disregard to the confidentiality agreement provided to the Liquidator to keep the information supplied to him by the Liquidator confidential, went ahead and shared such information with the counsel of Mr. Prince Jain, a creditor whose claim was not admitted during CIRP of the corporate debtor.

33.

We also note that the Liquidator and the Adjudicating Authority have with due regard to fairness, natural justice and in consonance with the objectives of IBC, provided an opportunity through order in IA 115/2022, giving three weeks’ time for the submission and decision on the purported scheme of compromise and arrangement as claimed by the Appellant which the Appellant failed to do in the time limit provided and was, thus, unable to establish his bonafide about his seriousness in proposing such a scheme. This has to be seen in the context of the fact that the liquidation order was passed on 31.1.2022, and that the prescribed time period for completing liquidation process was substantially over by this time.

34.

Thus, in view of the fact that the Appellant neither submitted the scheme of compromise and arrangement within the stipulated time which was upto 4.5.2022 nor did he inform the Liquidator about the delay in submitting the scheme or seek any extension of time limit from the Adjudicating Authority, the intention and seriousness of the Appellant in submitting a scheme as prayed by him appears to be doubtful.

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, where after 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.

39.

The Learned Counsel for Appellant has cited the judgments of this Tribunal in the matters of S.C. Sekaran vs Amit Gupta & Ors. [CA (AT)(INS) 495-496/2018] and Y. Shivram Prasad vs. S. Dhanapal & Ors. [CA(AT)(Ins) 224/2018] wherein the Tribunal held that steps should be taken for the revival and continuance of the Corporate Debtor by protecting the Corporate Debtor from its management and from corporate death by liquidation. We distinguish this judgment on the ground that while it affirms the spirt and ethos of the IBC in that “the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation”, and also “even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern” but it doesn’t hold that the any scheme of compromise or arrangement if proposed in breach of regular timelines of the liquidation process has to be necessarily considered.

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.”

PRAYER

a)

Direct the Liquidator to hold Fresh Bidding Auction of the Corporate Debtor; ……..”

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)…….. 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.

WRITTEN SUBMISSIONS BY THE APPLICANT

WRITTEN SUBMISSIONS BY THE RESPONDENT/LIQUIDATOR

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 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 have not been brought as assured on the last date.

The civil appeal stands dismissed accordingly.

RESPONSE TO ARGUMENTS ADVANCED BY COUNSEL IN IA. NO. 177 OF 2022

The arguments put forth by the Counsel for Mr. Prince Jain in IA 177/2022 are based on incomplete, half-formed narratives and unverified information, lacking a firm basis for authenticity. Moreover, majority of the allegations and submissions made by Counsel for Mr. Prince Jain before this Hon’ble bench are not even covered in IA 177/2022.

It is respectfully submitted before this Hon’ble bench that the Liquidator stands fully prepared to address and respond to each and every allegation or objection raised by the raised during the course of proceedings, however for the sake of brevity and convenience of this Hon’ble bench, the response to the main allegations leveled against the Liquidator are as follows:

The delay in sending the acknowledgment e-mail was solely on account of the delay on the part of Mr. Prince Jain in providing the relevant documents in support of the amount claimed. [Refer to Para 5 on pages 8 & 9 of Liquidator’s reply to IA 177/2022]

The Liquidator has duly furnished all relevant disclosures as set forth in Circular No. IP/005/2018 dated 16.01.2018 which outlines the requirements for disclosures by IPs. Moreover, the Liquidator’s obligation to disclose is limited to the parameters set forth in the said circular, and any request (as made by Prince Jain’s Counsel) to extend beyond the specified requirements is not obligatory.

The liquidator had very well uploaded the List of Stakeholders on the e-portal of IBBI but due to technical glitches, the same was not reflecting on the e-portal of IBBI. [Refer to Para 10 & Page 49 of Liquidator’s reply to IA 177/2022]

The scheme same practically never submitted to the Liquidator for examination. Nevertheless, when the Liquidator received information about the scheme, he had circulated an update on the liquidation process via e-mail to all stakeholders wherein IA filed by the scheme proposer was categorically disclosed. [Refer to Para 12 on Page 14 & Pages 50 – 51 of Liquidator’s reply to IA 177/2022]

The liquidator has on several occasions called for meetings with the SCC on 04.06.2022, 14.01.2023, 11.02.2023 & 01.03.2023 & 13.05.2023, however, not a single member of the SCC has ever cared to turn up for the scheduled SCC meetings. Additionally, Liquidator has conducted several Zoom meetings with the stakeholders (flat buyers) of the Corporate Debtor, apprising them about the developments taken place in the liquidation process and has addressed their concerns at length.

Allegation w.r.t. non-compliance of the said Regulation is totally based on presumption. Rather, an application u/s 19(2) of the Code was duly filed by the Resolution Professional at the appropriate time. Furthermore, the Hon’ble NCLAT Chennai Bench vide its recent judgment dated 04.08.2023 in the matter Mr. Tenny Jose & Ors. Mr. Pratahap Pillai Resolution Professional of M/s Tenny Hose Limited [Company Appeal (AT) (CH) (INS) No. 95/2023] has categorically held that the “time period” prescribed under Regulation 35A is not a ‘Mandatory’ one, but, only ‘Directory’ in Character.

FINDING AND ORDER

^*40. (1) The liquidator may, after verification of claims under section 39, either admit or reject the claim, in whole or in part, as the case may be: Provided that where the liquidator rejects a claim, he shall record in writing the reasons for such rejection. (2) The liquidator shall communicate his decision of admission or rejection of claims to the creditor and corporate debtor within seven days of such admission or rejection of claims.

3. Eligibility for appointment as liquidator.

(1)

An insolvency professional shall be eligible to be appointed as a liquidator if he, and every partner or director of the insolvency professional entity of which he is a partner or director, is independent of the corporate debtor.

Explanation– A person shall be considered independent of the corporate debtor, if he-

(a)

is eligible to be appointed as an independent director on the board of the corporate debtor under section 149 of the Companies Act, 2013 (18 of 2013), where the corporate debtor is a company;

(b)

is not a related party of the corporate debtor; or

(c)

has not been an employee or proprietor or a partner:

(i)

of a firm of auditors or [secretarial auditors] or cost auditors of the corporate debtor; or

(ii)

of a legal or a consulting firm, that has or had any transaction with the corporate debtor contributing ten per cent or more of the gross turnover of such firm, in the last three financial years.

(2)

A liquidator shall disclose the existence of any pecuniary or personal relationship with the concerned corporate debtor or any of its stakeholders as soon as he becomes aware of it, to the Board and the Adjudicating Authority.

(3)

An insolvency professional shall not continue as a liquidator if the insolvency professional entity of which he is a director or partner, or any other partner or director of such insolvency professional entity represents any other stakeholder in the same liquidation process.

Section 149 of the Companies Act, 2013

……

(6)

An independent director in relation to a company, means a director other than a managing director--or a whole-time director or a nominee director,

(a)

who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience;

(b)

(i) who is or was not a promoter of the company or its holding, subsidiary or associate company;

(ii)

who is not related to promoters or directors in the company, its holding, subsidiary or associate company;

(c)

who has or had no ²[pecuniary relationship, other than remuneration as such director or having transaction not exceeding ten per cent. of his total income or such amount as may be prescribed,] with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year.

“…..

26.

A perusal of the order of the Adjudicating Authority dated 1.6.2022 shows that the Adjudicating Authority, after considering the past proceedings in the liquidation process and also the inability of the Appellant to submit a scheme of compromise and arrangement in the given time of three weeks from 19.4.2022, ordered that the e-auction process may be continued. The Adjudicating Authority further ordered that if the Appellant offers a better value for the land of the corporate debtor than what is discovered in the e-auction, the e-auction could be reinitiated.

27.

A perusal of the series of events during the liquidation process makes it clear that the Appellant, through Mr. Rakesh Kumar Agarwal, made an attempt through the company AIG Infratech Private Limited to submit a resolution plan much after the CoC had decided to liquidate the corporate debtor and the application for liquidation has been filed by the Resolution Professional before the Adjudicating Authority. This IA 220/2021, was filed in July, 2021 through the company AIG Infratech Private Limited for seeking order to submit a resolution plan, was dismissed by the Adjudicating Authority on the ground that “no useful purpose would be served in keeping IA 220/2021, when the COC had already resolved to liquidate the Corporate Debtor.”

28.

Thereafter, after the commencement of liquidation process vide order dated 31.1.2022, Mr. Rakesh Kumar Agarwal again sent a letter to the Liquidator on 3.3.2022, after passage of more than one month from the date of commencement of liquidation requesting to submit a scheme of compromise and arrangement, and upon the Liquidator expressing inability to accept such a scheme in view of the commencement and progress of liquidation, Mr. Rakesh Kumar Agarwal filed IA 115/2022 through another company ‘Bankey Bihari Infrahomes Private Limited’ seeking permission of the Adjudicating Authority for submission of a scheme of compromise and arrangement. This interlocutory application was disposed of by the Adjudicating Authority vide order dated 13.4.2022 with the following observations: -

“This is an application filed by the “Bankey Bihar Infrahomes Private Limited” seeking a direction to the liquidator to consider the scheme propounded by the Applicant herein.

Ms. Babita Jain, learned counsel for the Applicant present. Ms. Snehal Sharda, learned counsel appearing on behalf of the liquidator present.

The liquidator is expected to act in accordance with the Liquidation Process Regulations. The decision on the proposed scheme be taken within a period of three weeks’ from today. No other directions are called for in IA No. 115/2022 and hence the same shall stand disposed.”

29.

It is noted that after exchange of a number of e-mails between the Appellant and the Liquidator, starting with e-mail dated 20.4.2022, the Appellant finally submitted the requisite scheme vide e-mail dated 24.5.2022 (The e-mails exchanged between the Appellant and the Liquidator are attached at pp. 98-122 of the appeal paperbook). It is noted when the information regarding claims which was sought by the Appellant was provided by the Liquidator vide e-mail dated 4.5.2022 (attached at pp. 103-104 of the appeal paperbook), the Appellant forwarded the confidential information to erstwhile directors of the corporate debtor, which was in breach of the confidentiality undertaking provided by the Appellant.

30.

The Liquidator, on not receiving no further information from the Appellant about submission of the scheme of compromise and arrangement after his e-mail dated 2.5.2022, and when the three weeks’ time starting from 13.4.2022 granted by the Adjudicating Authority had expired on 4.5.2022, proceeded to publish the auction notice on 20.5.2022.

31.

It appears that on publication of this auction notice, the Appellant sent an e-mail dated 21.5.2022 seeking more time for submission and finalization of the scheme on which the Liquidator expressed his inability to provide more time vide e-mail dated 24.5.2022. The Appellant, thereafter, submitted the requisite scheme to the Liquidator on the evening of 24.5.2022 and immediately thereafter filed IA 154/2022 before the Adjudicating Authority requesting for stay of the auction process and directions to place the proposed scheme before the Stakeholders Consultation Committee.

32.

The above-stated actions of Mr. Rakesh Kumar Agarwal make it absolutely clear that he, through different corporate entities, has attempted to intervene in the process of liquidation by filing the three interlocutory applications viz. IA 220/20221, (which was dismissed by the Adjudicating Authority), IA 115/2022 and IA 154/2022. We also note that Mr. Rakesh Kumar Agarwal in utter disregard to the confidentiality agreement provided to the Liquidator to keep the information supplied to him by the Liquidator confidential, went ahead and shared such information with the counsel of Mr. Prince Jain, a creditor whose claim was not admitted during CIRP of the corporate debtor.

33.

We also note that the Liquidator and the Adjudicating Authority have with due regard to fairness, natural justice and in consonance with the objectives of IBC, provided an opportunity through order in IA 115/2022, giving three weeks’ time for the submission and decision on the purported scheme of compromise and arrangement as claimed by the Appellant which the Appellant failed to do in the time limit provided and was, thus, unable to establish his bonafide about his seriousness in proposing such a scheme. This has to be seen in the context of the fact that the liquidation order was passed on 31.1.2022, and that the prescribed time period for completing liquidation process was substantially over by this time.

34.

Thus, in view of the fact that the Appellant neither submitted the scheme of compromise and arrangement within the stipulated time which was upto 4.5.2022 nor did he inform the Liquidator about the delay in submitting the scheme or seek any extension of time limit from the Adjudicating Authority, the intention and seriousness of the Appellant in submitting a scheme as prayed by him appears to be doubtful.

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.

39.

The Learned Counsel for Appellant has cited the judgments of this Tribunal in the matters of S.C. Sekaran vs Amit Gupta & Ors. [CA (AT)(INS) 495-496/2018] and Y. Shivram Prasad vs. S. Dhanapal & Ors. [CA(AT)(Ins) 224/2018] wherein the Tribunal held that steps should be taken for the revival and continuance of the Corporate Debtor by protecting the Corporate Debtor from its management and from corporate death by liquidation. We distinguish this judgment on the ground that while it affirms the spirt and ethos of the IBC in that “the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation”, and also “even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern” but it doesn’t hold that the any scheme of compromise or arrangement if proposed in breach of regular timelines of the liquidation process has to be necessarily considered.

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.

47.

There is no order as to costs. …….”

“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.”