AI Structured Summary
Not yet generated for this judgment
Judgment
Ashok Bhushan, J
These two Appeals have been filed against the same Order dated 26th October, 2021 passed by the National Company Law Tribunal, Allahabad Bench, Allahabad (hereinafter referred to as “The Adjudicating Authority”) in CP No. (IB)131/ALD/2017. By the Impugned Order, the Adjudicating Authority has allowed CA No. 85 of 2019 filed by the Resolution Professional under Section 33(1) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “The Code”) for liquidation of the Corporate Debtor-M/s. Shamken Spinners Limited.
Company Appeal (AT) Ins. No. 204 of 2022 has been filed by Mr. Sanjay Chaturvedi-the Suspended Director of the Corporate Debtor and Company Appeal (AT) Ins. No. 211 of 2022 has been filed by Mr. Satya Narain Sharma-the Resolution Applicant whose Resolution Plan was not approved by the Committee of Creditors (hereinafter referred to as “CoC”). In Company Appeal (AT) Ins. No. 204 of 2022, the Ex-Director has relied on and supported the Resolution Plan submitted by Mr. Satya Narain Sharma hence it shall be sufficient to refer to the pleadings in Company Appeal (AT) Ins. No. 211 of 2022 for deciding both the Appeals.
We have heard Mr. Arun Saxena, Advocate for the Appellant in Company Appeal (AT) Ins. No. 204 of 2022 and Mr. P Nagesh, Sr. Advocate for the Appellant in Company Appeal (AT) Ins. No. 211 of 2022. Mr. Milan Singh Negi and Mr. Nikhil Jha, Advocates appeared for Resolution Professional. Mr. Dinkar Singh, Advocate appeared for Committee of Creditors and Ms. Shalya Agarwal, Advocate appeared for Liquidator.
Mr. P. Nagesh, Learned Sr. Counsel advancing submissions on behalf of Resolution Applicant submits that Resolution Applicant had submitted the Resolution Plan which was with support of employees of the Corporate Debtor who were interested in reviving the Corporate Debtor. The Adjudicating Authority vide Order dated 21st May, 2019 has allowed the Application filed by the Resolution Applicant and directed the Resolution Professional and Committee of Creditors to consider the Resolution Plan of the Resolution Applicant. A presentation of the plan submitted by the Resolution Applicant was made before the CoC in the 12th CoC Meeting held on 07th June, 2019. The Resolution Applicant highlighted the relevant portion of the Resolution Plan and amount of Rs. 17 Crores was proposed in the Resolution Plan of the Corporate Debtor. 25% of the said amount was to be paid within 30 days from the receipt of the Order of the Hon’ble Adjudicating Authority and balance within six months. It is submitted that the plan value being more than the liquidation value of the Corporate Debtor, the Adjudicating Authority ought to have approved the Resolution Plan. Further in 13th CoC Meeting held on 18th June, 2019, the plan came for consideration, the Resolution Applicant has paid an amount of Rs. 50 Lakh on 15th June, 2018 as was submitted before the CoC in the 12th CoC Meeting. Net worth of Resolution Applicant as well as his wife was Rs. 26.29 Crores which was more than criteria of Rs. 25 Crores of net worth. It is submitted that there was no valid reason given by the CoC for not approving the plan and plan stood rejected in the e-voting on 21st June, 2019. It is submitted that Appellant has also filed an I.A. before the Adjudicating Authority seeking a direction to disclose the reason for rejection of the Application for which C.A. No. 322 of 2019 was filed. It was further submitted by Mr. Nagesh that in 14th CoC held on 22nd July, 2021 the improved offer although was noticed by the CoC, but said decision was not placed before the Adjudicating Authority when the Impugned Order was passed on 26th October, 2022.
Mr. Arun Saxena, Learned Counsel appearing for the suspended director of the Corporate Debtor supported the submissions made on behalf of the Resolution Applicant and submitted that the plan submitted by the Resolution Applicant ought to have been approved by the CoC which would have resulted in revival of the Corporate Debtor.
Learned Counsel for the Resolution Professional refuting the submissions made by Learned Counsel for the Appellant, submits that ‘Corporate Insolvency Resolution Process’ (CIRP in short) against the Corporate Debtor was initiated by Order dated 29.05.2018 and the period of CIRP was coming to an end on 23.02.2019. CoC in its 11th CoC Meeting dated 18.02.2019 decided to liquidate the Corporate Debtor and an Application was filed by Resolution Professional being C.A. No. 85 of 2019 praying for order of liquidation before the Adjudicating Authority. The Resolution Plan filed by the Resolution Applicant which was directed by the Adjudicating Authority to be considered vide Order dated 21st May, 2019 was duly examined, scrutinized and considered by the CoC in its 12th CoC Meeting and 13th CoC meeting. The Resolution Plan was discussed. Resolution Applicant was asked to explain the details of sources of fund, performance guarantee was also not submitted by the Resolution Applicant. In 12th Meeting, time was allowed to Resolution Applicant to remove certain shortcomings including the deposit of the EMD. EMD was deposited on 15th June, 2019 of Rs. 50 Lakhs and plan again came for consideration in 13th CoC Meeting held on 18th June, 2019. Representative of the Resolution Applicant prayed for waiving the condition for submitting Performance Guarantee. With regard to sources of fund, it was submitted that Resolution Applicant is discussing with certain investors who have shown their interest in investing in the Corporate Debtor. After the plan is approved by the Adjudicating Authority, the Applicant shall be able to pay the balance 25% and thereafter 75%. It is further submitted that after detailed discussion it was decided to put the plan to e-vote and in the e-voting which was held on 21st June, 2019, the Plan of the Resolution Applicant was rejected by 71.44 % vote. In favour of the plan, there was only 8.61% vote. It is submitted that only plan which was received in the Resolution Process having been rejected, there was no option left except the liquidation of the Corporate Debtor and no error has been committed by the Adjudicating Authority in approving the Liquidation of the Corporate Debtor.
Mr. Dinkar Singh appearing for the Committee of Creditors submitted that during the discussion both in 12th CoC Meeting and 13th CoC Meeting, Resolution Applicant was repeatedly asked to disclose the sources of fund in which the Resolution Applicant failed. The Resolution Applicant was time and again repeating his stand that once Resolution Plan was approved, there shall be sufficient investors to invest in the Corporate Debtor. Mr. Dinkar Singh, Learned Counsel for the CoC has taken us to various parts of the Minutes of the 12th and 13th CoC Meeting.
Learned Counsel for the Liquidator submits that after his appointment, has issued publication in two Newspapers inviting claims. Liquidator has proceeded with Liquidation Process and accordance with Liquidation Regulations. Efforts have been made. Sale Notice has also been published. Liquidator in his submissions has also submitted that on 02nd April, 2022, ‘Letter of Intent’ has been issued for accepting the sale of the assets of the Corporate Debtor as a going concern to the highest bidder for placing highest bid amounting to Rs. 41.05 Crores.
This Court vide its Interim Order dated 12th April, 2022 has passed an Interim Order that auction which has been held on 31st March, 2022 shall not be confirmed till the further decision of this Court.
We have heard Learned Counsel for the parties and have perused the record.
‘Corporate Insolvency Resolution Process’ was initiated against the Corporate Debtor by Order dated 29th May, 2018. Twice Form-G was issued by the Resolution Professional inviting ‘Expression of Interest’ and ‘Resolution Plan’. In pursuance of the publication of Form-G, three EOIs were received out of which two have withdrawn. One Resolution Applicant submitted its Resolution Plan on 12.10.2018, but failed to deposit EMD and the Plan was not placed before the CoC. CoC held its meeting on 18th February, 2019 and passed a Resolution for Liquidation. Thereafter on 19.02.2019, Resolution Applicant submitted a plan. Application for Liquidation being C.A. No. 85 of 2019 was filed before the Adjudicating Authority. Resolution Applicant filed C.A. No. 62 of 2019 seeking a direction to Respondent to consider its plan which application was allowed on 21st May, 2019 and the plan came to be considered, examined and scrutinized in the 12th CoC Meeting held on 07th June, 2019.
Learned Counsel for the Appellant has attacked the decision of CoC on the ground that there were no reasons given by CoC for rejecting the plan of the Resolution Applicant. There was no sufficient opportunity given to the Resolution Applicant. In the 07th CoC Meeting, Resolution Applicant has made a request to permit the Resolution Applicant to make a presentation before the CoC of the Resolution Plan which permission was granted and a Resolution Plan was presented by one Mr. M.S. Saggu, who was part of the Resolution Applicant Team. The Plan was presented where with regard to the value of the Corporate Debtor Rs. 17 Crores was mentioned and it was mentioned that 25% shall be paid within 30 days from the receipt of the Order of the Adjudicating Authority and balance within six months. The presentation of plan is captured in the minutes of 12th CoC Meeting in 4 pages. Queries were raised by the Resolution Professional, whose Reply was also given by the Resolution Applicant. In 12th CoC Meeting, Resolution Applicant requested one opportunity to deposit the EMD. CoC Members also interacted with Resolution Applicant. It is useful to extract the following part of the minutes of the CoC containing the interaction with CoC Members:
“One of the CoC member intervened and asked the Resolution Applicant that what would be the plan B in case all of the discussions with the investors does not work, to which Mr. SN Sharma replied that they have shortlisted 8-10 customers who would advance money to them and gradually the said advance could be deducted from the sales made. Mr. Saggu added that the company is facing financial issues since last 15-16 years and these kind of arrangements were done in past also and there won’t be any issues.
CoC members asked the Resolution Applicant regarding the EMD, Bank Guarantee and the Sources of Funds. Mr NS Sharma requested the CoC members that as they are willing to pay 25% of the Plan amount within 30 days of the receipt of the NCLT order, then why the COC Members are forcing them to pay the EMD amount.
Majority of the CoC members did not agree to the stand of the Applicant in claiming to pay 25% of the amount in 30 days but not able to pay Rs. 50 lacs as EMD. The applicant here requested the COC members to give time for the paying of EMD. RP intervened that it is very difficult to give time as on or before June 23, 2019 the COC needs to decide and communicate their decision to the Hon’ble NCLT.
SASF was of the opinion this company resembles to some other case of a company based in Nagpur (the name was not mentioned). The Applicant does not have EMD deposit. Further the SPV they are talking about is just incorporated on June 06, 2019, though the COC is expected to consider their infant plan.
RP intervened and mentioned that he had asked the applicant for the details of SPV, and the applicant had said that the said SPV was incorporated just of the purpose of acquisition and financing as per this resolution plan(s), thus they are recently incorporated and the same is already covered in their presentation.
Mr. SN Sharma mentioned that, if the COC gives some positive reply with respect to the plan, then it will become easier for them to start taking approvals and streamlining the sources of funds including EMD. This can be worked out within 10 days, if the CoC is positive about the plan.
SASF asked the Applicant that he had sufficient time from the date of submission of plan i.e. 18 February 2019 till the date of his COC meeting i.e. 07th June, 2019 still they have not managed to submit the EMD. He further questioned that, if the Applicant can’t submit 50 lakhs after so many days than how can
we even think that he will be in a position to pay the entire plan amount.”
Detailed discussion regarding plan is recorded in the minutes which indicate meaningful interaction of the CoC Members in the 12th CoC Meeting with the Resolution Applicant. The CoC gave 10 days’ time to Resolution Applicant to comply the shortcomings in the plan and it was decided that CoC meeting will be held again. The next CoC meeting was held on 18th June, 2019 (13th CoC Meeting) where the Resolution Applicant mentioned that EMD of 50 Lakhs have been arranged. Detail interaction with CoC Members has been separately recorded in the minutes. Before the CoC, Resolution Professional has summarized the issue. Following portion of minutes is relevant to notice:
“Discussion within the CoC Members
BOB questioned regarding Mr. J P Chaturvedi and his eligibility? The RP mentioned that there are 2 ways of verification of 29A compliance. One from the external sources wherein he has checked and verified that he was never a director in the group companies of the corporate debtor nor he has held any other senior managerial post in the corporate debtor. While the other aspect of the compliance is with regards to the said person being relative. The RP in this regards has taken an affidavit mentioned that the said applicant is compliant under section 29A of the Code.
One of the lenders asked regarding the timeline available with the RP to which he replied that the CoC has to decide the matter before 23rd June, while the RP shall file a report before the Hon’ble NCLT on or before 24th June, 2019.
The RP summarized the issues before the COC mentioned that-
- The RA is no agreeable to the condition of PBG
- The NW criteria is met only if the NW of RA’s wife or Mr. Rakesh Sharma is considered
- Despite various letters being shown there is no clear sources of funds demonstrated
- However, it is the prerogative of the CoC to consider the plan submitted by the RA in view of the order of the Hon. NCLT.
-
The RP asked the view of each of the CoC members:-BOB mentioned that they are with the decision of the majority.
One of the COC member mentioned that the stand of the COC with regards to PBG needs to be clarified. He mentioned that the COC had never waived the condition of PBG to the previous resolution applicant. The RP clarified that the COC has consciously put the previous plan to vote despite the condition of PBG not being met by the RA. Thus if the plan would have been approved, the condition of PBG with regards to the said previous RA would have been considered to be waived.
The RP tried to analyze the situation before the COC mentioned that the COC has already received the EMD of Rs. 50 Lakhs for the corporate debtor. Thus, considering a situation that the RA is not able to honor its first commitment of 25%, even then the COC is benefitted by Rs. 50 Lakhs and the option of liquidation which is sought today can be exercised in next 30 days post approval from NCLT.
UCO bank mentioned that it is not easy to forfeit the money of the workers. The RP replied that if the NCLT approves the plan and then after RA defaults in its commitment, the CoC should have all the right to forfeit the EMD. The RP mentioned that considering the number of calls he receives from the RA he believes that the RA is more serious towards the revival of the corporate debtor in comparison to the two plans earlier received by him.
One of the COC member mentioned that without providing for sources of funds and net worth criteria and denying PBG, how can you say that they are serious? What the RA has done is the past 10 days is only provided the EMD. One of the COC member mentioned that they had made it very clear before the RA in the previous COC Meeting that these four conditions are very crucial in order to consider the resolution plan.”
In the minutes, queries raised by the different CoC members, doubts expressed by them has been recorded in the minutes. It was ultimately decided that Resolution Plan be put to e-voting on 20th June, 2019 and 21st June, 2019. e-Voting was conducted and the result of the e-Voting has been brought on record in the counter affidavit on behalf of Respondent No. 1. On the resolution, Item No. 1, to approve the Resolution Plan, 8.61% were received for the plan. 71.44% vote was received against the plan and 19.95% votes abstained from voting. There being 71.44% negative voting, plan failed.
When we look into the minutes of 12th and 13th CoC Meeting, it is clear that there is elaborate consideration of Resolution Plan submitted by the Resolution Applicant. Several questions, queries and doubts expressed by the CoC members have been recorded in the minutes after detailed discussion, repeatedly Resolution Applicant was asked to explain sources of fund and from the discussion, which is captured in the minutes, it is clear that Resolution Applicant could not satisfy the CoC regarding the sources of fund. Hon’ble Supreme Court in the matter of “K. Sashidhar Vs. Indian Overseas Bank and Ors” [(2019) 12 SCC 150] had categorically laid down that commercial wisdom of the Committee of Creditors has to be given paramount status and scope of judicial intervention in the decision taken by the CoC in its commercial wisdom is minimal. In paragraph 52, following has been laid down:
“52. …..Besides, the commercial wisdom of the CoC has been given paramount status without any judicial intervention, for ensuring completion of the stated processes within the timelines prescribed by the I&B Code. There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject matter expressed by them after due deliberations in the CoC meetings through voting,
as per voting shares, is a collective business decision. The legislature, consciously, has not provided any ground to challenge the “commercial wisdom” of the individual financial creditors or their collective decision before the adjudicating authority. That is made non-justiciable.”
The CoC having rejected the Resolution Plan submitted by the Resolution Applicant after due deliberation and discussion, the decision taken by the CoC is a decision taken in the commercial wisdom of the CoC which cannot be interfered with in exercise of jurisdiction by the Adjudicating Authority or by this Tribunal.
The submission of Learned Counsel for the Appellant that no reasons have been given by the CoC for rejecting the plan has also no legs to stand when a decision is taken after due deliberation. The decision of the CoC is reflected in the result of the voting which cannot be questioned. In so far as reliance on 14th CoC meeting dated 22.07.2021 is concerned, the Resolution Professional has brought into notice of CoC about the e-mail send by Resolution Applicant revisiting his offer, which fact although was noticed but no decision was taken by CoC to consider the e-mail by reversing its earlier decision of rejection of plan. Thus, the minutes of 14th CoC in no manner helps the Appellants.
We, thus, are satisfied that no error has been committed by Adjudicating Authority in directing for liquidation of the Corporate Debtor. No grounds have been made out to interfere with the Impugned Order dated 26th October, 2021 passed by the Adjudicating Authority. Both the Appeals are dismissed, accordingly. The Interim Order stands discharged.