Sanjev Krishan Sharma vs Sandeep Kumar Bhatt & Ors.

PER: BHASKARA PANTULA MOHAN, MEMBER (JUDICIAL)

This application is filed by the Applicant, being the erstwhile director of the of the Corporate Debtor M/s KMG A to Z System Pvt. Ltd, under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 ('Code'), read with Rule 11 of the NCLT Rules, 2016, seeking the relief as under:

It is submitted by the Applicant that; the Respondent No. 1 is the Liquidator of the Corporate Debtor, appointed vide its order dated 13.05.2021 by this Tribunal and Respondent No. 2 and 3 are the Secured Financial Creditors who are also the stakeholders in the ongoing liquidation proceedings.

It is further submitted that; Corporate Debtor is a Private Limited Company, which was incorporated and registered as a Micro Small and Medium Enterprise, vide registration certificate dated 07.12.2014. Presently the Corporate Debtor is undergoing Liquidation Process initiated by this Tribunal on 13.05.2021.

It is further submitted that the Applicant is being eligible as per Section 240A of the Code and in furtherance of this the Applicant had submitted a settlement proposal to the Respondent No. 1 on 25.07.2021, under section 230 of the Companies Act, 2013 read with Regulation 2B of the Liquidation Process Regulations, 2016; and as per the Settlement proposal dated 25.07.2021, the applicant proposed to pay Rs. 12.90 crores plus 40% share of the expected receipts from pending Arbitration matters to the Respondents No. 2 and 3.

The Liquidator being the Respondent No. 1 in the 1st meeting of Stakeholders Consultation Committee (SCC), held on 27.07.2021, shared the details about the settlement proposal of the Applicant and requested the Respondent No. 2 and 3 to form an opinion within 20 days of time.

In the 2nd SCC meeting, held on 17.08.2021, the Respondent No. 2 and 3 negotiated on the terms of the settlement proposal with the Applicant; and as per the insistence of the Respondent No. 1, it was decided that the settlement proposal will be put to vote on 02.09.2021 and the voting would end on 06.09.2021; and the applicant was given 2 days time to submit the revised proposal in accordance with the negotiations which was duly submitted by the Applicant on 19.08.2021.

On receipt of the revised settlement proposal the Respondent No. 2 and 3 had sought more time to decide on it and the voting to the same was postponed to 10.09.2021 and the revised timeline was given for voting was from 10.09.2021 to 17.09.2021, wherein the settlement proposal of the Applicant was unanimously rejected by the Respondent No. 2 and 3.

Thereafter, the applicant, on 11.10.2021, had submitted a much-improved settlement proposal in which proposal sum was quoted of Rs. 16 crores along with 70% share of the expected receipts from the ongoing arbitration proceedings to the Respondent No. 2 and 3, along with agreed to bear all the legal expenditure for arbitration proceedings, which is estimated at around Rs. 60-70 lacs and also offered 10% payment to the claim of the Operational Creditor i.e. GST Department.

However, in the 3rd SCC meeting held on 06.10.2021, the Respondent No. 1 had informed the members of SCC that as per Regulation 2B of the Liquidation Process Regulation, 2016 which states that the compromise or arrangement is proposed under section 230 of the Companies Act, 2013 shall be completed within 90 days of the Liquidation order and the 90 days period has expired on 01.09.2021 and hence the assets of the Corporate Debtor have to be liquidated.

The Respondent No. 1 had informed his inability to place the improved settlement proposal of the applicant dated 11.10.2021 before the SCC, on account of Regulation 2B of the Liquidation Process Regulations, 2016 which allows a period of 90 days from the date of the liquidation order to complete the compromise under section 230 of the Companies Act, 2013.

The applicant herein further submits that the Respondent No. 1 has erred in refusing to submit the improved settlement proposal of the Applicant before the SCC. The revised offer will drastically improve the recovery for the secured financial creditors and will prevent the death of the corporate debtor.

The Applicant in this application had relied on the various judgments of the NCLAT where the importance of the revival and continuance of the corporate debtor and to prevention of the death of the corporate debtor is considered and further had quoted the judgement of Hon'ble National Company Law Appellate Tribunal in Y Shivram Prasad Vs. S. Dhanpal & Ors. Company Appeal (AT) (Insolvency) No. 224 of 2018 held that during liquidation process the following steps must be taken for revival and continuance of the corporate debtor and to prevent death by liquidation;

The another Judgement quoted by the applicant of Hon'ble NCLAT in M/s. Khitiz Gupta vs. Asset Reconstruction Company Limited and Ors. Company Appeal (AT) (Insolvency) No. 1386 of 2019 held that it is open for the Adjudicating Authority to grant more than 90 days period for the purpose of proceedings under Section 230 - 232 of the Companies Act, 2013.

The applicant lastly submitted that the additional time of 41 days, beyond the stipulated period of 90 days, was consumed in his efforts to maximize the amounts proposed in the settlement as he was seeking different financial proposals form his financial partner. In addition to this the applicant had also approached the Respondents No. 2 & 3 with the incremental offer and the respondents have verbally expressed their desire to consider the revised proposal. Therefore, the applicant filed this application seeking directions to the Liquidator to conduct proceedings under Section 230 of the Companies Act, 2013.

After considering the facts, circumstances and the judgements quoted in this Application, this bench is hereby issuing following directions to the Respondents;

That the Liquidator is directed to put forth the revised settlement proposal before the SCC for its reconsideration, and it is absolutely up to SCC to take a call on the merits in terms of Section 230 of the Companies Act, 2013 read with Regulation 213 of the Liquidation Process Regulation 2016.

That the Liquidator shall file its status report in compliance of this order within 30 days from the date of this order. In case the Scheme is rejected by the SCC on merits the reason of the same shall be recorded in writing;

That in respect of costs incurred by the Liquidator, in relation to the Scheme of Compromise or Arrangement, shall be borne by Applicant as per Regulation 2B of the Liquidation Process Regulations, 2016.

Therefore, as per aforesaid terms we hereby Allow the prayer (a) and (b) from the date of this order.

I.A. 4692/2021 stands disposed of in terms of the above order.

Let a copy of order be served to parties.