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Judgment
Ashok Bhushan, J.
This Appeal by two Suspended Director of the Corporate Debtor have been filed challenging the order of the Adjudicating Authority (National Company Law Tribunal), Jaipur Bench, dated 31.08.2022 allowing the IA No. 325/JPR/2020 filed by Resolution Professional for passing an order of liquidation. The Adjudicating Authority allowed IA No. 325/JPR/2020 and passed an order of liquidation and another IA No. 433/JPR/2021 praying for extension of period of Corporate Insolvency Resolution Process (CIRP) was dismissed as having become infructuous.
Brief facts of the case necessary to be noticed for deciding this Appeal are:-
The Adjudicating Authority on an application filed by ‘M/s. Toyoto Kirloskar Motors Private Limited’ under Section 9 of the I&B Code passed an order dated 30.09.2019 initiating the CIRP against the Corporate Debtor- ‘R.S. Motors Private Limited’. In pursuance of public announcement issued by the Interim Resolution Professional (IRP), two Financial Creditors namely— ‘Tata Capital Housing Finance Limited’ and ‘Reliance Commercial Finance Limited’ filed their claim. On the Resolution of the CoC, Form-G was also issued for invitation of Expression of Interest. An IA No. 5 of 2020 was also filed by the Appellant seeking a direction to the Resolution Professional to verify the claim made by the Financial Creditors. The CoC also appointed a Forensic Auditor to conduct forensic audit of the Corporate Debtor. The CIRP period of 270 days was coming to an end on 30.06.2020. On an Application filed by the Resolution Professional by an order dated 31.07.2020 CIRP period was extended 90 days i.e. from 01.07.2020 to 28.09.2020. On 31.08.2020, Forensic Auditor submitted its report which revealed that certain assets of the Corporate Debtor were sold by the Corporate Debtor to inter related parties at a value which is much less than the market value. In light of the findings in the Forensic Audit Report, Resolution Professional filed an IA No.291/2020 under Sections 45, 49 and 66 of the IBC. CoC has conducted various meetings to take forward the CIRP. The CoC in its 11th meeting held on 28.09.2020 passed a resolution to liquidate which resolution was passed by both the Financial Creditors having 100% vote shares. In pursuance of the decision of the CoC taken on 28.09.2020, Resolution Professional filed an IA No.325/2020 praying for liquidation. The Adjudicating Authority while considering the Resolution Professional’s IA No. 325/2020 observed that the CoC and the Resolution Professional have not considered all the requisites of the Code. The application was adjourned to 17.12.2020 to enable the CoC and the Resolution Professional to take appropriate steps. The Adjudicating Authority while considering the liquidation application IA No. 325/2020 issued directions dated 18.11.2021, 17.12.2021 and 07.03.2022. IA No. 325/2020 was heard and allowed by order dated 31.08.2022, aggrieved by which order, this Appeal has been filed.
We have heard Shri Puneet Jain, Learned Counsel for the Appellant, Learned Counsel appearing for the Liquidator and Learned Counsel appearing for the erstwhile Resolution Professional.
Learned Counsel for the Appellant challenging the order of the Adjudicating Authority submits that the Resolution Professional has neither completed the audit of the Corporate Debtor nor have prepared the Information Memorandum including all assets of the Corporate Debtor. Assets of the Corporate Debtor have been siphoned by other Directors against whom the Appellant have already filed First Information Report. It is submitted that without completing necessary process, the CoC could not have passed a resolution for liquidation. It is further submitted that the Adjudicating Authority while considering the IA No.325/2020 had issued various orders dated 26.11.2020, 18.11.2021, 17.12.2021 and 07.03.2022 which have not complied with, without there being compliance of the order issued by the Adjudicating Authority, order of liquidation could not have been passed. It is submitted that the order impugned is subject to judicial review of this Tribunal and orders have been passed without completing the necessary process in the CIRP, order deserves to be set aside.
Learned Counsel for the erstwhile Resolution Professional opposing the submissions of the Counsel for the Appellant submits that in reply to the notice issued by this Tribunal vide its order dated 01.11.2022, reply has been filed where detailed reply has been given regarding compliance of all orders issued by the Adjudicating Authority i.e. orders dated 26.11.2020, 18.11.2021, 17.12.2021 and 07.03.2022. It is submitted that the Resolution Professional has conducted the CIRP in accordance with relevant CIRP Regulations, 2016. The Resolution to liquidate the Corporate Debtor has been passed with 100% CoC vote in its 11th CoC meeting held on 28.09.2020. No Resolution Plan was forthcoming in the CIRP, CoC has rightly passed the resolution to liquidate. It is submitted that the period of 270 days was over and extension was granted by the Adjudicating Authority i.e. 90 days which was also over. It is submitted that the Appellants who were the suspended Directors have not been co-operating with the Resolution Professional and on application under Section 19(2) of the IBC, orders were passed by the Adjudicating Authority against the suspended Directors of the Corporate Debtor.
We have considered the submissions of the Learned Counsel for the parties and perused the record.
The present Appeal has been filed against the order dated 31.08.2022 by which order the Adjudicating Authority allowed IA No.325/2020 filed by the Resolution Professional praying for liquidation order. In the Appeal, a limited notice was issued by this Tribunal vide order dated 01.11.2022. Order dated 01.11.2022 is as follows:-
“01.11.2022: I.A. No. 3954 of 2022:-
This is an Application for Condonation of Delay. The order was passed on 31.08.2022 and the Appeal was e-filed on 15.10.2022. There being delay of only 15 days, we are of the view that cause shown in the Application in paragraph 6 is sufficient to condone the delay. Delay of 15 days is hereby condoned.
Comp. App. (AT) (Ins.) No. 1288 of 2022
Learned Counsel for the Appellant submits that the Resolution Professional did not comply with the direction issued by the Adjudicating Authority on the application for liquidation earlier passed on 26.11.2020, 18.11.2021, 17.12.2021 and 05.03.2022. It is submitted that without compliance of those orders, order of liquidation has been passed.
Learned Counsel appearing for the Respondent No.4 submits that all process was expedited and there is no error in the liquidation order passed by the Adjudicating Authority.
Considering the above submissions, we issue limited notice only to Respondent Nos. 1 and 2 to submit a Reply with regard to steps taken in pursuance of the orders of the Adjudicating Authority, as noted above. Requisites along with process fees be filed by the Appellant within three days. Let Reply be filed within two weeks.
Learned Counsel for the Appellant seeks liberty to remove the defects. He may do so within a week.
List the Appeal on 25.11.2022.”
In response to notice dated 01.11.2022, erstwhile Resolution Professional has filed a reply giving the steps taken towards compliance of the aforesaid four orders relied by Counsel for the Appellant.
We may first notice certain facts and events in the CIRP. CIRP was initiated on 30.09.2019, period of 270 days was coming to an end on 30.06.2020. Adjudicating Authority passed an order on 31.07.2020 granting extension of 90 days from 01.07.2020 to 28.09.2020. CIRP period was coming to an end on 28.09.2020 on which date the CoC held its 11th CoC meeting. In the 11th CoC meeting held on 28.09.2020, following resolution was passed in Agenda Item No.5:-
“5. TO TAKE DECISION RELATED TO ONGOING CORPORATE INSOLVENCY RESOLUTION PROCESS:
The chairman informed that the process of Corporate Insolvency Resolution Process is verge of completion committee has to take decision related to the ongoing corporate insolvency resolution process as no possibility of resolution plan is there. Chairman further added as per section 12 of the code extension of the CIRP can be taken once and that has been given by the Hon'ble tribunal vide order dated 31.07.2020. Discussion held related to the process of liquidation and the appointment of liquidator needs to be finalized.
Mr. Himanshu Kumawat (on behalf of Reliance Commercial Finance Limited) having voting share 76.88% proposed the resolution and seconded by Mr. Dhirendra Singh (on behalf of Tata Capital Housing Finance Limited) having 23.12% voting share that company needs to be transfer in the process of liquidation and the appointment of liquidator is deferred for the next meeting which to be held on 30th September, 2020 at 12.00 Noon.
Resolved that committee approves with 100% majority that the process of liquidation needs to be initiated in the company as no resolution plan has been received in the company or no s are there for any resolution plan.
Committee further submitted that resolution professional will file an application before Hon'ble court for further process after the next meeting which is to be held on 30th September, 2020
There is no other discussion were made and the meeting of the committee of creditors concluded at 5.00 P.M with the vote of thanks to the chair.”
CoC with 100% vote share resolved to liquidate the Corporate Debtor and permitted the Resolution Professional to file an Application. The Resolution of the CoC noted that in ongoing CIRP no possibility of Resolution Plan is there. It was further noted that the extension of the CIRP has already been taken by order dated 31.07.2020. Noticing the above circumstances, the resolution was passed to liquidate the Corporate Debtor.
Section 33 of the IBC deals with ‘initiation of liquidation’. Section 33 provides as follows:-
“33. Initiation of liquidation. - (1) Where the Adjudicating Authority, -
(a) before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the corporate insolvency resolution process under section 12 or the fast track corporate insolvency resolution process under section 56, as the case may be, does not receive a resolution plan under sub-section (6) of section 30; or
(b) rejects the resolution plan under section 31 for the non-compliance of the requirements specified therein, it shall –
(i) pass an order requiring the corporate debtor to be liquidated in the manner as laid down in this Chapter;
(ii) issue a public announcement stating that the corporate debtor is in liquidation; and
(iii) require such order to be sent to the authority with which the corporate debtor is registered.
(2) Where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors [approved by not less than sixty-six per cent. of the voting share] to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).
[Explanation. – For the purpose of this sub-section, it is hereby declared 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.]
(3) Where the resolution plan approved by the Adjudicating Authority 3 [under section 31 or under sub-section (1) of section 54L,] is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order as referred to in sub-clauses (i), (ii), (iii) of clause (b) sub-section (1).
(4) On receipt of an application under sub-section (3), if the Adjudicating Authority determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).
(5) Subject to section 52, when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor:
Provided that a suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority,
(6) the provisions of sub-section (5) shall not apply to legal proceedings in relation to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.
(7) The order for liquidation under this section shall be deemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor, except when the business of the corporate debtor is continued during the liquidation process by the liquidator.”
The present is a case where before expiry of CIRP period or the maximum period permitted for completion of the CIRP, no Resolution Plan was received. The CoC has passed a resolution to liquidate the Corporate Debtor by vote share of 100%. The statutory scheme indicates that in the eventualities mentioned in Section 33(1) & (2) initiation of liquidation proceedings can be made by the Adjudicating Authority. In the present case, extension granted by the Adjudicating Authority of 90 days by order dated 31.07.2020 was also coming to an end on 28.09.2020 on which date CoC in 11th meeting decided to liquidate the Corporate Debtor.
Now coming to the submission of the Counsel for the Appellant that in the resolution process, necessary process was not completed. It has been in the Appeal itself stated that on 31.08.2020, Forensic Auditor has submitted its report and on the basis of Forensic Audit Report, IA No. No.291/2020 was filed under Sections 45, 49 and 66 of the IBC by the Resolution Professional in which application notices were issued by the Adjudicating Authority.
The submission which has been pressed by the Counsel for the Appellant is that in spite of the order passed by the Adjudicating Authority on 26.11.2020 and subsequent orders as noted above, no steps were taken. On 26.11.2020 in IA No.325/2020, following order was passed:-
“IA No.325/JPR/2020
This Application has been filed by the RP of M/s. R.S. Motors Private Limited under Section 33(1) of the Code seeking passing of liquidation order. Heard Mr. Varun Mehra, Authorised Representative of the Resolution Professional. The CoC has not considered all the requisites of the Code and regulations in the liquidation process. Hence to enable the RP and COC to take appropriate steps, list the IA No.325/JPR/2020 on 17.12.2020.”
There were subsequent three orders also passed by the Adjudicating Authority while hearing of IA No.325/2020. In reply, which has been filed by erstwhile Resolution Professional with regard to each direction issued by the Adjudicating Authority relevant steps taken by the Resolution Professional have been stated by Resolution Professional. A perusal of the reply of the Resolution Professional indicate that steps were taken by the Resolution Professional in compliance with the direction passed by the Adjudicating Authority in IA No. 325/2020.
The main issue to be considered in this Appeal is as to whether Adjudicating Authority committed error in allowing IA No.325/2020 directing for liquidation of the Corporate Debtor. As noted above, the decision of the CoC in 11th meeting of the CoC to liquidate the Corporate Debtor was taken with 100% vote share which resolution has already been extracted above. We have noted that timeline for CIRP even after extension of 90 days was coming to an end on 28.09.2020.
Appellant while referring to order dated 31.07.2020 in his Appeal has made following statement at page ‘U’: -
“The Hon’ble Adjudicating Authority vide its order dated 31.07.2020 extended the time for conclusion of CIRP by 90 days from 01.07.2020 i.e. till 28.09.2020.”
Learned Counsel for the Appellant has referred judgment of this Tribunal in “Praveen Kumar Nanda Kumar vs. VSL Securities Pvt. Ltd. & Ors.- Company Appeal (AT) (Ins.) No. 308/2020”. In the above case, CoC with 70.97% vote share recommended the liquidation. This Tribunal took the view that when CIRP has expired, order of liquidation has to be upheld. This Tribunal in the said case laid down following:
“After hearing learned counsel for the Appellant and Shri Haribabu Thota, Resolution Professional in person (Respondent No. 3) and Shri K. Dushyantha Kumar, Liquidator in person (Respondent No. 4), we find that the Corporate Insolvency Resolution Process initiated at the instance of the Financial Creditor –‘M/s VSL Securities Pvt. Ltd.’, in terms of order of admission dated 31st July, 2019 passed by the Adjudicating Authority in CP No. 172 of 2019, culminated in passing of the impugned order dated 8th January, 2020, in terms whereof the Corporate Debtor has been sent into liquidation. It further appears that no Resolution Plan was forthcoming within the prescribed timelines as the liquidation cost was not ascertainable and available liquid assets were only of the value of Rs.29,60,000/- whereas total claims received against the Corporate Debtor were for Rs.2,35,72,27,259/-. The Committee of Creditors finding no other option available recommended initiation of liquidation proceedings by a majority of 70.97%. It is by now settled that, the commercial wisdom of the Committee of Creditors qua the business decision as regard the feasibility and viability of the Resolution Plan cannot be questioned before the Adjudicating Authority or even before this Appellate Tribunal. Likewise, the decision of the Committee of Creditors recommending liquidation of the Corporate Debtor after proper evaluation of the assets and liabilities of Corporate Debtor with no Resolution Plan forthcoming would be a business decision falling within the domain of commercial wisdom of the Committee of Creditors which is not amenable to judicial review. Admittedly, the Corporate Insolvency Resolution Process period has expired and the order of admission on application under Section 7 culminating in passing of impugned order of liquidation has not been assailed by the Appellant. Since, the Corporate Insolvency Resolution Process is over and all actions taken in such process go unassailed, we find no merit in the instant appeal. The appeal is accordingly dismissed.”
When CIRP period was coming to an end on 28.09.2020, we are of the view that CoC, there being no Resolution Plan in the CIRP, had rightly passed a resolution to liquidate the Corporate Debtor with 100% vote share. The submission of the Appellant that Resolution Professional did not complete the various process including obtaining the Audit Report cannot be accepted. Forensic Audit Report was obtained by the Resolution Professional which was submitted on 31.08.2020 on the basis of which application I.A No. 291/2020 for avoiding transaction was already filed. The period of CIRP having coming to an end, CoC has no option but to take a decision of the liquidation of the Corporate Debtor. In the facts of the present case, we do not find any error in the decision of the Adjudicating Authority allowing the liquidation application. The Appeal is dismissed, accordingly.