R Shankar vs Mr. T.R. Ravichandran

KANTHI NARAHARI, MEMBER (TECHNICAL)

The Present Appeal is filed against the Impugned Order dated 28.04.2022 passed by the Adjudicating Authority (National Company Law Tribunal, Division Bench-I, Chennai) in IA 293/CHE/2022 in IBA/642/2019, whereby the Adjudicating Authority allowed the application filed by the Resolution Professional.

Sh. P.H. Arvind Pandian, Learned Senior Counsel appeared for the Appellant submitted that the Appellant is aggrieved by the impugned order dated 28.04.2022 whereby the Adjudicating Authority allowed the Application filed by the Resolution Professional under Section 33(2) read with Section 60(5) of the Insolvency and Bankruptcy Code, 2016 prayed the Bench to pass an order of liquidation of the Corporate Debtor namely viz. Freeworld Exports Pvt. Ltd. on the ground that the CoC in its 8^th Meeting held on 08.01.2022 unanimously resolved to file an application for liquidating the Corporate Debtor.

The Learned Senior Counsel submitted that the Appellant is the Promoter Shareholder of the Corporate Debtor holding 50% of the equity shares in the Corporate Debtor. While so, an Application under Section 9 was filed by the Operational Creditor namely; M/s Crosby Engineering Pvt. Ltd. against the Corporate Debtor before the Adjudicating Authority on the ground that the Corporate Debtor defaulted payment due to the Operational Creditor. The Learned Adjudicating Authority admitted the Corporate Debtor into CIRP and appointed IRP. The IRP became RP in due process of law. The RP made a public announcement on 03.09.2021 inviting Expression of Interest (EOI) in Form-G. However, there is no response to the said EoI and no Resolution Plans for revival of the Corporate Debtor were received. The Respondents have not taken any efforts to explore the possibility of maximising the value of the asset of the Corporate Debtor in the interest of all the Stakeholders.

The Appellant also made a proposal vide letter dated 07.01.2022 under Section 12A of the I&B Code, 2016 seeking withdrawal of Application admitted under Section 9 of the I&B Code, 2016. However, the same was rejected by the Respondent and the CoC.

The CoC in its 8^th Meeting decided to liquidate the Corporate Debtor and accordingly the RP filed an Application before the Adjudicating Authority for liquidation of the Corporate Debtor.

The Learned Counsel further submitted that the business potential of the Corporate Debtor was not properly appreciated by the RP / CoC and has not taken into consideration that the Corporate Debtor which is a going concern having more than 80 employees / labourers and having a turnover of around 50 – 60 crores. While so, the Corporate Debtor is pushed into liquidation even though the Corporate Debtor is an MSME. It is submitted that the Appellant made efforts to revive the Corporate Debtor and a prospective investor is willing to invest Rs.12 Crores for revival of the Corporate Debtor. The asset value of the Corporate Debtor is Rs. 60 Crores whereas the total liabilities are only Rs.30 Crores.

The Learned Senior Counsel submitted that the Corporate Debtor being an MSME and the proposal submitted by the Appellant for withdrawal of CIRP was not duly considered by the RP and made no sincere efforts for settlement. The Learned Counsel in the grounds of appeal relied upon the judgment of the Hon’ble Supreme Court in the matter of Swiss Ribbons Pvt. Ltd. and Anr. Vs. Union of India & Ors., 2019 (4) SCC 17. The Hon’ble Supreme Court held that “the primary focus of the legislature 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”.

In view of the reasons as stated above the Learned Senior Counsel prayed this Bench to allow the Appeal by setting aside the impugned order.

The Learned Counsel appeared for the Respondent filed his written submissions dated 05.07.2022, which is taken on record and submitted as under.

The Learned Counsel submitted that it is an admitted fact that CIRP was initiated against the Corporate Debtor and called Expression of Interests inviting applications from the prospective Resolution Applicants. It is submitted that the CoC was formed with the following Financial Creditors with 100% voting share namely;

It is submitted that the total admitted claim amount of the above Financial Creditors is Rs.41,52,70,788.24 with 100% voting share.

The Learned Counsel submitted that since no applications from the prospective resolution applicants were received pursuant to Form-G published on 03.09.2021, the CoC in its 6^th Meeting decide to re-issue Form-G to further explore the possibility of reviving the Corporate Debtor. Accordingly, the Form-G was re-issued on 14.10.2021 in the New Indian Express and Dinamani daily newspapers. However, no applications were received even pursuant to the second Form-G.

While so, the Appellant being the Suspended Director the Corporate Debtor vide his e-mail dated 07.01.2022 requested the RP to consider withdrawal of CIRP under Section 12A of the Code. The RP informed the Appellant stating that the said requests is not maintainable due to non-compliance of Section 12A of the Code and Regulation 30A of the IBBI Regulation, 2016. Despite non-compliance of the letter sent by the Appellant, the Respondent placed the above e-mail before the CoC and the CoC in its 8^th Meeting took note of the same and opined that the terms of settlement is not acceptable since the same is not commercially viable.

It is submitted that despite best efforts no applications were received and the fact that the CIRP period was due to expire on November, 2022 and the CoC in its 8^th Meeting resolved to liquidate the Corporate Debtor and directed the RP to file liquidation application and resolved to appoint the RP as liquidator. In accordance with the resolutions passed in the 8^th CoC this Respondent filed I.A. No. 293 of 2022 in IBA No.642/2019 before the Hon’ble Adjudicating Authority and the Hon’ble Adjudicating Authority passed order of liquidation vide impugned order dated 28.04.2022. It is submitted that the CoC also took note of the fact and observed that the proposal made by the Appellant is unviable. The Learned Counsel also referred to the decision of the Hon’ble Supreme Court in Vellal RCK Vs. Siva Industries and Holdings Ltd. & Ors. in Civil Appeal No.1811-1812 of 2022 dated 03.06.2022, whereby the Hon’ble Supreme Court held that “the commercial wisdom of CoC is final”.

In view of the reasons as stated above the Learned Counsel prayed this Bench to dismiss the Appeal as not maintainable.

Heard the Learned Counsel for the respective parties perused the pleadings, documents and citations relied upon by them. After analysing the pleadings, the issue felt for consideration is whether the order passed by the Adjudicating Authority is in accordance with law or not?

The Adjudicating Authority in para 9 of the impugned order dated 28.04.2022 observed as under:

In the above impugned order, the Learned Adjudicating Authority clearly observed that the resolution passed by the CoC for liquidating the Corporate Debtor with 85.64% voting share, hence it passed the order of liquidation and appointed the Respondent as the liquidator of the Corporate Debtor to carry out the liquidation process.

It is an admitted fact that after Initiation of CIRP in respect of the Corporate Debtor the Respondent issued Form-G inviting Expression of Interest twice i.e. on 03.09.2021 and on 14.10.2021. However, no applications were received from any prospective Resolution Applicants. While so, the Appellant being the Suspended Director of the Corporate Debtor vide his e-mail dated 07.01.2022 addressed to the Resolution Professional to consider the settlement proposal submitted by the Appellant to the Financial Creditors and requested the RP to withdraw the CIRP initiated against the Corporate Debtor under Section 12A of the I&B Code, 2016. The salient features of the settlement proposal as submitted to the Financial Creditors also sent to the Respondent. However, the Respondent vide his e-mail dated 07.01.2022 sent to the Appellant stating that the procedure as stipulated under Section 12A of the I&B Code, 2016 and the Regulations made thereunder were not followed by the Appellant.

It is undisputed that the CIRP period was due to expire on 09.01.2022 after extension of exclusion of time period as ordered by the Learned Adjudicating Authority. However, the Adjudicating Authority taken note of the fact that the CoC in its 8^th Meeting resolved to liquidate the Corporate Debtor and directed the RP to file an application before the Adjudicating Authority. Further, it is also undisputed that the resolution was approved by the Members of the CoC for liquidating the Corporate Debtor with 85.64% voting share. The CoC in their commercial wisdom taken the decision for liquidating the Corporate Debtor having not received any prospective Resolution Applications despite twice the EoI called for. Having no other option, the Adjudicating Authority passed the order. Further, the stand of the Appellant that he sent an e-mail on 07.01.2022 to the Respondent with regard to settlement proposal made to the Financial Creditors and requested the Respondent to consider the same. The 1^st Respondent in his written submission dated 05.07.2022 at para 4 (g) stated as under:

As stated (supra) the wisdom of the CoC cannot be interfered as held by the Hon’ble Supreme Court in the matter of Vallal RCK Vs. M/s Siva Industries and Holdings Limited & Ors. dated 03.06.2022, whereby and whereunder at para 27 held as under:

The Learned Senior Counsel for the Appellant contend that the Corporate Debtor is an MSME and the proposal submitted by the Appellant for withdrawal of CIRP was not considered by the Adjudicating Authority, is concerned this Tribunal is of the view that the Appellant failed to comply the procedure as contemplated under Regulation 30A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. In the Regulations the procedure has been prescribed and accordingly the application under sub-Regulation (1) of Regulation 30A for withdrawal under Section 12A, shall be made in Form FA of the Schedule accompanied by a bank guarantee:

It is unequivocal that the Appellant has not complied with the above Regulation and therefore, giving a due weightage to a class or a category who has not complied with the provisions of law and the Regulations made thereunder cannot be considered. Since the law applies equally to all.

Further, the Learned Senor Counsel for the Appellant relied upon the judgment of the Hon’ble Supreme Court in Swiss Ribbons Pvt. Ltd. and Anr. Vs. Union of India & Ors., 2019 (4) SCC 17, however, the same is not applicable to the facts of the present case.

As held (supra) in the present case, despite calling EoI twice no Resolution Applications received for the Resolution of the Corporate Debtor. Therefore, the CoC took a decision in their commercial wisdom with a majority voting share to liquidate the Corporate Debtor. The fact remains that the Appellant’s settlement proposal was not considered by the CoC for the reasons that it was not viable.

To sum up, this Tribunal comes to an irresistible and inescapable conclusion that the Appellant failed to make out any case either on law or on facts. We make it clear that there is no legal infirmity or illegality in the order passed by the Adjudicating Authority dated 28.04.2022. The Appeal is devoid of any merit and accordingly, the same is dismissed. Parties to bear their own costs. Applications if any pending stand closed.