Siva Rama Krishna Prasad vs Krishna Industrial Corporation Limited & Ors.

Per: ANIL KUMAR B, MEMBER (TECHNICAL)

The instant Application has been filed by one Mr. Siva Rama Krishna Prasad, (hereinafter referred to as the "Applicant"), the erstwhile Promoter / Director of the Corporate Debtor viz. M/s. Krishna Industrial Corporation Limited, under section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "IBC, 2016"), seeking relief as follows;

Shorn of unnecessary details, the brief facts of the case are as follows;

i). Upon an Application filed by the (2^{\text{nd}}) Respondent in CP/1053/IB/2018 under Section 7 of IBC, 2016, this Tribunal vide its order dated 16.12.2019 initiated the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor and appointed the (1^{\text{st}}) Respondent as the Interim Resolution Professional (IRP). ii) Subsequent to the same, paper publication was made and the meeting of the First Committee of Creditors (CoC) was conducted on 13.01.2020, wherein the (1^{\text{st}}) Respondent was confirmed to act as the Resolution Professional (RP) of the Corporate Debtor. Further, it is stated that the (2^{\text{nd}}) and (3^{\text{rd}}) Respondent alone are the Financial Creditors of the Corporate Debtor and they hold (100%) voting rights in the CoC as ascertained by the RP. iii) It is stated that the Applicant, in the first CoC meeting had discussed with the CoC in relation to the withdrawal of the CIRP under Section 12A of IBC, 2016, however the same never fructified.

iv) Thereafter, certain dissension arose between the Applicant and the RP and the Applicant filed a complaint to the Insolvency and Bankruptcy Board of India (IBBI) on 26.02.2020, however the IBBI vide its order dated 15.04.2020 has rejected the complaint of the Applicant. Subsequently, the Applicant has filed a Writ Petition in WP No. 7609 of 2020 before the Hon'ble Madras High Court challenging the said order of IBBI, which is pending disposal.

vi) It is stated by the Applicant that, the 1st Respondent has filed IA/376/2020 under Section 33 of IBC, 2016 to liquidate the Corporate Debtor on the basis of the Resolution passed by the CoC and this Tribunal has heard and reserved the said IA/376/2020 for orders on 05.06.2020.

vii) Under such circumstances, the Applicant has moved the present Application for the reliefs as mentioned supra.

The Ld. Senior Counsel for the Applicant submitted that the CIRP in relation to the Corporate Debtor was initiated on 19.12.2019 and the CoC was constituted only on 13.01.2020 and before the expiry of 180 days period, the 1^st Respondent has moved an Application for the Liquidation of the Corporate Debtor. Further, it was submitted that the Applicant has always intended to settle the creditors of the Corporate Debtor and thereby sought to withdraw the CIRP, however, they could not impress the CoC to withdraw the CIRP due to the following reasons;

Further, the Ld. Senior Counsel for the Applicant put forth a proposal for the Financial Creditors of the Corporate Debtor, which is as follows;

The Ld. Senior Counsel for the Applicant submitted that the Applicant has already come to an agreement with the 2nd Respondent for a sum of Rs.12 Crores and has also paid a sum of Rs.2 Crores in relation to the same. Further, it was submitted that the debt of the Corporate Debtor is only a sum of Rs.25 Crores, whereas the assets of the Corporate Debtor is valued at a sum of Rs.30 Crores, which elucidates the fact that the debt-asset ratio in relation to the Corporate Debtor is very less and thereby the Applicant is very much willing and able to settle the Creditors of the Corporate Debtor. In order to bolster his argument, the Ld. Senior Counsel for the Application pressed into service the decision of the NCLT, Ahmedabad Bench in Sunil Kumar Agarwal, Rp of Digjam Ltd. -Vs- Suspended Board of Directors of Digjam Ltd. in IA/144/2020 in Cp(IB)/594/NCLT/AHM/2018 wherein it has been stated that Liquidation should be only an exception and Resolution should be the norm. Thus, it was submitted that the Applicant will sustain huge loss, if the Corporate Debtor is liquidated and henceforth in the interest of justice and equity, the proposal as extracted in the table above should be considered by the CoC.

The Learned Counsel for the 1st Respondent has filed reply and inter alia submitted that the decision to Liquidate the Corporate Debtor was taken at the 2nd CoC meeting held on 05.03.2020 wherein the Authorized Representative of the Applicant one Mr. Swaminathan had attended the meeting. Further, it was submitted that the promoters were in discussion with an interested buyer; however no concrete information about the alleged prospective investor was provided by the promoter group. The Learned Counsel for the 1st Respondent further submitted that the Applicant did not approach the RP with any material information to settle the creditors at any point during the CIRP nor subsequent to the 2nd CoC meeting, and thus, submitted that a settlement proposal at this stage, wherein this Tribunal has heard and reserved the order in the Liquidation Application filed, may not be entertained by this Tribunal, as the present application filed by the Applicant is an abuse to the process of law. Further, it was also submitted that the Corporate Debtor is not in operation for more than two years and the Applicant has not provided any revival plan so as to revive the Corporate Debtor as stated by the Applicant.

The Learned Counsel for the 2^nd Respondent has also filed reply and submitted that the present application has been made with the intention to delay and prolong the process of insolvency of the Corporate Debtor by employing dilatory tactics. It was further submitted that the Applicant has never attended the 1^st CoC meeting and there was no discussion on settlement and withdrawing the CIRP by invoking Section 12A of IBC, 2016. The Learned Counsel for the 2^nd Respondent has categorically submitted that the 2^nd Respondent is not interested in the Applicant’s OTS proposal, as the same are neither a fair settlement of the outstanding, nor do reflect the value of the underlying security.

The Learned Counsel for the 2^nd Respondent submitted that more than 66% of the creditors have voted for sending the Company into liquidation and as such the same cannot be affected due to the alleged pendency of the proceedings before the Hon’ble Madras High Court, which pertains to the alleged conduct of the RP. It is also averred in the reply filed by the 2^nd Respondent that the secured creditor has not noticed even an iota of impropriety in the actions of the RP. Further, it was submitted that as per Section 33(2) of IBC, 2016, it is sufficient if the CoC during the CIRP decides to liquidate the Corporate Debtor with necessary statutory voting requirements and in the present case, 87.57% votes were casted in favour to liquidate the Corporate Debtor.

It was also submitted by the Learned Counsel for the 2^nd Respondent that the loan availed by the Corporate Debtor from the 2^nd Respondent from the Assignor viz. Andhra Bank, was classified as NPA way back on 28.02.2015 and under the guise of settling the matter, the Applicant has made several submissions before this Tribunal during the pendency of Section 7 Application, however has never re-paid the same as per the said terms of settlement.

The Applicant has filed rejoinder to the reply filed by the 1^st and 2^nd Respondents, wherein the Applicant has rebutted the contentions made by the 2^nd Respondent.

Heard, both sides and perused the documents, including the pleadings placed on file. From the rejoinder filed by the Applicant, this Tribunal deems it fit to extract para 6 of the Rejoinder, which is as follows;

Thus, from the averments made in the rejoinder, it is clear that the Applicant has not put forth any concrete proposal of settlement before the 2^nd Respondent, who is a Financial Creditor, and thereby making a statement that the Applicant has identified a financier / buyer who would provide financial assistance to the Corporate Debtor and the Applicant would want the 2^nd Respondent to negotiate the terms with the said financier / buyer. In this context, it is relevant to refer to the decision of the Hon’ble NCLAT in the matter of Abhishek Aggarwal –Vs- Mr. Alok Kumar Agarwal & Ors. in Company Appeal (AT) (Insolvency) No. 568 of 2020, wherein the Appellant in the said case has challenged the Liquidation order on the ground that the settlement discussions were going on and the same was not apprised with the Adjudicating Authority. The Hon’ble NCLAT has held as follows;

Further, as to the issue raised by the Applicant that before the expiry of 180 days, the CoC ought not to have liquidated the Corporate Debtor is answered above by the above extracted decision of the NCLAT. In this regard, it is also pertinent to point out here that, by virtue of the Insolvency and Bankruptcy (Amendment) Act, 2019 (Act No.26 of 2019) an Explanation to sub – section (2) of Section 33 of IBC, 2016, was inserted, which came into force on 16.08.2019, in and by which, it has been stated in the said Explanation that the Committee of Creditors may take the decision to liquidate the Corporate Debtor, any time after its constitution under sub-section (1) of section 21 and before the confirmation of the resolution plan, including at any time before the preparation of the information memorandum.

It is also significant to refer to the decision of the Hon'ble Supreme Court in the matter of Mr. K. Sasidharan –Vs– Indian Overseas Bank (2019) SCC OnLine SC 257, wherein in relation to the decision taken by the Committee of Creditor, the Hon'ble Apex Court has held as follows;

The Ld. Senior Counsel for the Applicant while dilating his arguments has emphatically contended that this Authority can exercise its discretionary power vested with it under Rule 11 of NCLT, Rules 2016 and grant time to the Applicant to settle the matter with the Financial Creditor, as the main object of IBC is to revive the Company and not to push into liquidation. Eventhough, this argument seems to have force at first blush, the intent of the legislature and the judicial precedence of the Apex Court is somewhat different. In this context, it is relevant to refer to the decision of the Hon'ble Supreme Court in the matter of Committee of Creditors of Essar Steel India Limited –Vs- Satish Kumar Gupta & Ors. in Civil Appeal No. 8766 – 67 of 2019, wherein at para 91 it has held as follows;

Thus, from the aforementioned decision of the Apex Court, it is manifestly made clear that this Authority cannot venture in the commercial decision taken by the CoC and as such, the opinion to liquidate the Corporate Debtor is being made after due deliberations in the CoC meetings through voting, and hence the same is a collective business decision. As already stated in the Judgment supra, the legislature has consciously not provided any ground to challenge the “commercial wisdom” of the individual financial creditor or their collective decision before the Adjudicating Authority.

Needless to say, that even during the Liquidation process, subject to Section 29A of the IBC, 2016 and as per Regulation 2B of the IBBI (Liquidation Process) Regulations, 2016, a 90 day time period is provided to the Applicant to submit a Scheme as contemplated under Section 230 of the Companies Act, 2013, and if the Applicant is otherwise found eligible can very well submit a Scheme for the revival of the Corporate Debtor.

Thus, in view of the reasons stated supra, the Application filed by the Applicant stands dismissed. No order as to costs.

-SD- (R.VARADHARAJAN) MEMBER (JUDICIAL)