The Jammu And Kashmir Bank Ltd vs Kushal International Ltd

PER SE : Mr. Bikki Raveendra Babu, Hon'ble Member (Judicial)

The application (CA No.265/2018) is filed by the Resolution Professional (RP) U/s 33(1)(a) read with section 33(2) of the Insolvency & Bankruptcy Code, 2016 seeking order for liquidation of the Kushal International Ltd. (hereinafter referred to as the Corporate Debtor).

The application (CA No.243/2018) is filed by the Kushal International Ltd. (Corporate Debtor) seeking stay of Corporate Insolvency Resolution Process (CIRP) proceedings under Rule 11 of the NCLT Rules, 2016 and for a direction to the parties to reconcile and settle accounts and to order enquiry into the loan transaction between Corporate Debtor and Financial Creditor and declare the said transaction to be an extortionate credit transaction in terms of Section 50 read with section 51 of the I & B Code, 2016 and for initiation of proceedings against the Financial Creditor under Section 75 of the I & B Code, 2016 for furnishing false information and/ or omission of material facts.

The application (CA No.281/2018) is filed by Kushal International Ltd. (Corporate Debtor) seeking removal of RP and for appointment of a new RP to conduct the CIRP proceedings properly.

Jammu & Kashmir Bank Ltd. as Financial Creditor triggered CIRP in respect of KIL U/s 7 of the I & B Code. This Adjudicating Authority by its order dated 08.05.2018 commenced the CIRP in respect of KIL by appointing IRP. The following are the sequence of events that took place during CIRP period :-

He further asked clarification on the amount of Trade Payables shown in Balance Sheet as at 31.03.2017. Also that the documents pertaining to the transfer of car in the name of Mr. Karan Vir Singh in May 2017 in lieu of the loan given to the Company of Rs.47,03,422/- to be showed to him as it will come u/s 43 as Preferential Transactions. He further asserted to file application for non- compliance of the order of the Hon'ble NCLT. 11.08.2018Received a reply from Mr. Karan Vir Singh stating that the company has filed an application with NCLT for providing sometime to arrange remaining documents. Also that the Company is in final stage of arranging funds to be paid to the only Financial Creditor (J&K Bank). 13.08.2018Convene Third Meeting of Committee of Creditors (CoC) as per Agenda items mentioned in the Notice of COC. 14.08.2018Prepared and Circulated the minutes of Third Meeting of Committee of Creditors to the members present. 16.08.2018Received tally data for the FY 2017-18 from CA Devendra Garg Also in his e-mail has accepted his negligence in the preparation of Consolidated Balance Sheet of Kushal International Ltd. 20.08.2018Received reply from ICAI and ICSI in context of the complaint initiated against CA Devendra Garg and PCS Anju Bansal respectively demanding Rs. 2950/- and Rs2500/- respectively in order to initiate the procedure. 23.08.2018Filed 4 Applications with NCLT: 1. Application u/s 60 (5) (b) & (c), IBC for attaching the property of m/s. Barnawa agro industries ltd. which is the subsidiary of the corporate debtor, m/s. Kushal international limited. 2. Application u/s 60 (5) &70 (1) (a), (b) and (c) IBC, for granting punishment to the officers of corporate debtor for not disclosing to the resolution professional all the details of property of the corporate debtor/ or does not deliver all or part of the property of the corporate debtor in his control or custody and which he is required to deliver /or does not deliver all books and papers in his control or custody belonging to the corporate debtor and which he is required to deliver. 3. Application u/s 19(2) and 19(3) read with section 25 (1) & (2) (a) of IBC, 2016 and regulation 30 of IBBI (CIRP) Regulations, 2016 for issuance of necessary directions to the SDM of tehsil Sadar, Behat, Nakur, Rampur Maniharan and Deoband of district Saharanpur to comply with the instructions of the applicant and/or to provide the requisite information to the applicant in discharging his duties as a resolution professional under the code. 4. Contempt petition u/s 12(5) of the contempt of court act 1971, r/w section 425 of the companies act, 2013 for initiating contempt proceedings against the officers of CD for non compliance of the order dated 04.07.2018 & 16.07.2018 passed by the NCLT. Matter was taken up and NDOH: 18.09.2018 Also filed Progress Report with NCLT from 23.07.2018 to 20.08.2018. 24.08.2018Sent a mail to J&K Bank informing them about the order passed by NCLT dated 23.08.2018 30.08.2018Had a telephonic conversation with Mr. Karanvir Singh regarding the documents and filing of Form DIR-3KYC as the last date of filing of the said forms was 31.08.2018. 03.09.2018Had a telephonic conversation with the Mr. Karanvir Singh and reminded him that the last date of filing of Form DIR-3 KYC has been extended by the Ministry of Corporate Affairs by 15.09.2018 and after 15.09.2018 if Director has failed to file the said form then his DIN shall be deactivated by the MCA and for renewal of deactivated DIN director needs to file Form DIR-3KYC with late fee of Rs. 5,000/-. 09.09.2018Received a reply of the applications, from Mr. Karanvir Singh, already filed on 22.08.2018. 14.09.2018In compliance with the Directions as issued by Hon'ble NCLT, filed a fresh Application u/s 19(2) & 19(3) read with Section 25 (1) (2) (a) of the IBC-2016 for issuance of necessary directions to the District Magistrate (Saharanpur), SDM of Sadar, Behat, Nakur, Rampur Maniharan and Deobad districts of Saharanpur to comply with the instructions of the Applicant in discharging his duties as Resolution Professional vide diary no. 655. 15.09.2018Wrote a mail to Mr. Karanvir Singh, Mr. Ashish Prashar & CA Devendra Garg regarding the filing of Form DIR- 3KYC and reminding them that 15.09.2018 is the last date of filing of Form DIR-3 KYC and till date Financials of the Company has not been finalized and due to that we are unable to call the Annual General Meeting. 17.09.20181) Informed Mr. Karanvir Singh regarding non-filing of Form DIR-3KYC and informed him that Digital Signature is Expired. 2) Got a mail from J&K Bank, Branch Meerut that insurance of Corporate Debtor was due for renewal. 3) Received a reply from CA Devendra Garg stating that he doesn't have the DSC of the Corporate Debtor. 18.09.2018Counsel on behalf of Corporate Debtor assures Hon'ble NCLT, Allahabad Bench stated that the Consolidated Balance Sheet for the F.Y 2015-16, 2016-17 will be provided by 30.09.2018 along with the details of the Immovable Assets of the Corporate Debtor. Interim Application to CA 199/2018 to seek directions against the DM, Saharanpur along with the SDM of Tehsil Nakur, Sadar, Deoband, Rampur Maniharan and Behat of Saharanpur is taken on record. Next Date of hearing is 08.10.2018. 24.09.2018Wrote a mail to Mr. Karanvir Singh, Mr. Ashish Parashar and CA Devendra Garg and informed them that the MCA has extended the last date of Filing of Form DIR- 3KYC with a fee of Rs. 500/- till 05.10.2018 and from 06.10.2018 onwards, a late fee of Rs.5,000 will be charged. 25.09.20181. Approve the J&K Bank to pay the insurance premium from the Account of Corporate Debtor. 2. Sent a mail to Mr. Karanvir Singh, Mr. Ashish Parashar and CA Devendra Garg asking them to confirm whether the Digital Signature of all the Suspended Directors are updated and registered with MCA as all the directors are required to file Form DIR-3KYC ASAP otherwise respective DIN will be deactivated by the MCA and Rs. 5,000/- will be charged as Penalty. 3. Received a reply from CA Devendra Garg in regard with the mail sent informing us that he is the Statutory Auditor of the Corporate Debtor and it is not his issue. 27.09.2018Had a telephonic conversation with Mr. Karanvir Singh reminding him the last date to provide all the necessary documents is 30^th September in order to comply with the order dated 18.09.2018. 28.09.2018Received a mail from Mr. Karan Vir Singh informing us that DIR 3 KYC has been successfully done of all the Directors. 01.10.2018Sent a mail to Mr. Karan Vir Singh (Suspended Director), Mr. Ashish Parashar (Manager) and CA Devendra Garg (Statutory Auditor) informing them that due to their non- cooperation in providing the requisite information we are unable to: 1. appoint two Registered Valuers under regulation 27 of IBBI (CIRP) Regulations, 2016; 2. prepare and submit Information Memorandum before CoC under Regulation 36(1) of IBBI (CIRP) Regulations, 2016; and 3. Invite EoI under Regulation 36A & 36B of IBBI (CIRP) Regulations, 2016 Also that only 19 days has left for submission of CoC Approved Resolution Plan with the Hon'ble Tribunal because as per Section 30(6) read with Regulation 39(4) of IBBI (CIRP) Regulations, 2016, the Resolution Professional is required to submit the Resolution plan approved by the Committee to the National Company Law Tribunal at least 15 days (T+165) before the expiry of the 180 days and in our matter already 146 days has been passed. 05.10.2018Sent a mail to the Bank informing them that since the last day of CIRP is 04.11.2018, a COC meeting has to be conducted in the coming week (11^th or 12^th) to pass the resolution either for seeking extension of time or else opt for liquidation as due to non-cooperation by the Personnel of Corporate Debtor we are unable to appoint Valuers, call EOI, finalized Information Memorandum, filling of ITR and ROC returns. 08.10.20181. Council on the behalf of the Suspended Director of Corporate Debtor presented some Application to the Hon'ble NCLT, Allahabad Bench, of which no advance copy was provided to us. Further, time is granted to file a reply of on the maintainability of Application filed by Counsel for CD and the Progress Report being filed by the Resolution Professional for a period from 21.08.2018 to 01.10.2018 is taken on record. The matter is listed for hearing on 01.11.2018. 2. Issued Notice for the 4th Meeting of CoC. 12.10.2018Convene Fourth Meeting of (CoC) 13.10.2018Prepared and Circulated the minutes of Fourth Meeting of CoC to the members present and who attended the meeting and till date no objection has been raised. 26.10.2018Sent a mail to IBBI, ICSI of the minutes of 4^th meeting of COC. 31.10.20181. Filed a Reply of application filed by the CD u/s 60(5) and 75 of IBC, 2016 read with rule 11 of NCLT rules, 2016. 2. Filed Progress Report from 2.10.2018 to 24.10.2018 along with minutes of 4^th COC. 3. Filed an app for liquidation u/s 33(1)(a) read with section 33(2) of IBC, 2016.

The CoC in its fourth meeting held on 12.10.2018 resolved to initiate liquidation process in respect of Corporate Debtor. The COC also approved the appointment of RP to act as Liquidator of the Corporate Debtor. The minutes of the fourth CoC meeting held on 12.10.2018 has been circulated amongst all members present and who attended the meeting vide email dated 13.10.2018. Basing on the resolution of the CoC in its fourth meeting held on 12.10.2018, RP filed this application seeking liquidation of the Corporate Debtor and for appointment of RP as Liquidator of Corporate Debtor.

The Suspended Director of the Corporate Debtor filed reply in CA No.265 of 2018. The Suspended Director of the Corporate Debtor also filed CA No.243 of 2018 seeking stay of the CIRP and CA No.281 of 2018 seeking removal of RP and appointment of a new RP to conduct the CIRP proceedings properly. The averments made in the reply in CA No.265/2018 and the averments made in CA No.243/2018 & CA No.281/2018 are almost the same. Therefore, the case of the promoters of the Corporate Debtor is as follows.

The Financial Creditor instead of providing complete finance as promised, created a situation of financial distress impacting the Food Park Project of the Corporate Debtor and thereby causing losses of subsidies amongst other business losses to the Corporate Debtor.

It is alleged by the Suspended Director of the Corporate Debtor that since inception Mr. Pankaj Khetan (initially appointed as IRP now RP) is biased and is acting contrary to the interest of the company. It is alleged that IRP fixed his remuneration as Rs.3.5 Lakh on monthly basis alongwith exorbitant remuneration. It is also stated that IRP failed to understand the loan amount and has wrongfully taken the amount quoted by the Bank as gospel truth without verifying the claim of the Financial Creditor.

IRP filed an application against M/s Barnawa Agro Industries Ltd. without any reason. IRP filed various applications making allegation against the Directors of the Corporate Debtor. IRP repeatedly sought information, which is already available with the Bank records and which has already been provided by the Directors. It is stated that the documents required by the IRP have been sent vide e-mail dated 23.07.2018. It is further stated that the IRP is not competent to carry on present resolution process as the sole purpose appears to be personal gain and not to go ahead with the resolution process. It is further stated that the claim made by the Financial Creditor in terms of substantially unfair loan transaction and in the nature of an extortionate credit transaction.

It is stated by the Suspended Directors of KIL that the Bank has taken an erroneous stand in the present case, which could be clear from the following facts as narrated in CA No.281/2018 :-

It is stated that the non-appearance of Directors in two CoC meetings is no ground to liquidate the company.

It is stated by the Suspended Directors, that non-cooperation from the Directors is a false and misleading statement. It is stated that IRP without performing his functions, filed an application for liquidation under Section 33. It is also stated that RP visited the office of the company and took custody of the original documents, computers, files, folders and the entire stationary, but the RP did not prepare any inventory inspite of several requests by the Suspended Directors. IRP instead of doing his job, demanded documents, which are already taken by him. IRP also choose to make complaint against an Independent Practicing Chartered Accountant to ICAI.

It is alleged in the reply in CA No.265 of 2018 as follows, “Upon being contacted Mr. Pankaj Khaitan again took a stand that entire matter can get resolved if he is allowed to come for a sum of Rs.10 crore out of which Rs.8 crore before to bank and he would get Rs.2 crores to facilitate the entire being. The abovementioned acts of RP discouraged the Directors to remain in touch with him so as to give options and bring before him the entire factual matrix. RP has even threatened the Ex-Director if such demands are not made; he would file various applications before the Tribunal so as to seek prayers which may not arises in factual situation. Such an act of corruption is not at all appreciated by Ex-Director and/or the Auditor and therefore, he is misusing his position.”

It is stated that RP has taken almost all the documents on the following occasions :-

It is stated that the CoC must keep the basic object of the Code, that is to explore resolution, but not liquidation. It is stated that the scheme of the Code is to vest the powers of management of a company to a professional agency to continue the business of the corporate body as a going concern until a resolution plan is drawn up, but IRP/RP instead of discharging his duties U/s 18(1)(a) & (b) and Section 25(2)(h) of the Code and Section 29 & 30 of the Code, made a way for the liquidation. It is stated that it is a settled principle of law, that the stage of inviting the resolution plan cannot be jumped and U/s 25(2)(h) of the Code, RP is under obligation to undertake the action interalia of inviting prospective lenders, investors and any other persons to put forward resolution plans. It is also stated that the RP has to file the certificate to the effect that all steps for CIRP leading to the approval of CoC for liquidation has been taken.

Heard the arguments of learned counsel appearing for the RP and learned counsel appearing for the Suspended Directors of the Corporate Debtor.

A perusal of the averments in all these three applications and the replies and as well as the progress reports filed by the RP clearly disclose that RP taken steps to get information from the Suspended Directors of the Corporate Debtor. In fact RP filed application seeking directions against the Chartered Accountant (CA) Devendra Garg (Statutory Auditor), Mr. Ashish Parasher (Manager) and Suspended Director Mr. Karan Vir Singh, Mr. Kusal Pal, Mr. Shashi Sirohi and Mr. Surendar Nagpal of the Corporate Debtor to extend assistance and cooperation to the RP in managing the affairs of the Corporate Debtor and discharging the responsibilities as RP. On the said application, this Authority by its order dated 04.07.2018 directed the Suspended Directors of the Corporate Debtor and CA (Statutory Auditor) of the Corporate Debtor to fully cooperate with the RP. RP in his progress report dated 24.07.2018 stated that the Suspended Directors of the Corporate Director have handed over some of the documents and they did not hand over some of the documents. Thereafter, RP filed CA No.200/2018 U/s 60(5)(b)(c) of the I & B Code for attachment of the assets of M/s Barnawa Agro Industries Limited, the subsidiary company of the Corporate Debtor. RP also filed CA No.198/2018 U/s 60(5) read with section 70(1)(a), (b) & (c) of the I & B Code, 2016 seeking direction regarding the punishment to the officers of the Corporate Debtor for not disclosing to the RP all the details of property of the Corporate Debtor and for not delivering the possession of the property of the Corporate Debtor. RP also filed CA No.199/2018 seeking certain directions against the SDM without giving full details.

This Authority by its order dated 18.09.2018 directed the Corporate Debtor to provide details of the immovable assets of the Corporate Debtor company to the RP by 30.09.2018. Thereafter, RP represented that the Corporate Debtor did not comply with the order dated 18.09.2018.

A perusal of the progress report filed by the RP no doubt shows that there is no preparation of information memorandum, there is no invitation for expression of interest. It is also a fact that there are no resolution plans, there is no expression of interest given by any of the prospective Resolution Applicant and in fact there is no Resolution Applicant that filed the resolution plan. The controversy is, whether the RP had not taken up all the steps that are required to be taken in the CIRP, is on account of his lapses or on account of non-cooperation of the Suspended Directors of the Corporate Debtor. According to the RP, it was on account of the non-cooperation of the Suspended Directors of the Corporate Debtor. According to the Suspended Directors of the Corporate Debtor it was because of the attitude and inaction of the IRP/RP in following various steps in the resolution process that ultimately led the CoC that consist of only one Financial Creditor to take a decision for liquidation. On examination of the entire material placed on record, it appears that the RP decided to proceed against the assets of the M/s Barnawa Agro Industries Ltd. the subsidiary of the company (KIL) by filing CA No.200 of 2018. It appears if the said issue made the Directors of the Corporate Debtor not to cooperate with the KIL to the extent they are required to cooperate. The material on the record also goes to show that there is no proper cooperation from the Suspended Directors of the Corporate Debtor. In fact applications have also been filed to punish the Suspended Directors of the Corporate Debtor for not following the directions given by this Authority to cooperate with the RP in the CIRP process.

Several allegations were made by the Suspended Directors of the Corporate Debtor against the RP, but no material has been placed on record to substantiate such allegations. However, it is for the IBBI to consider the allegations, if any, against the RP. This Authority has to see, whether RP has conducted the CIRP in the manner laid down by the IBC or not.

In considering an application seeking liquidation order U/s 33 of the IBC, this Adjudicating Authority has to see, whether any resolution plan has been received before the expiry of Insolvency Resolution Process period or the maximum period permitted for completion of CIRP U/s 12 of the IBC.

In this case 180 days is going to expire by 03.11.2018, but the COC in its fourth meeting held on 12.10.2018 resolved to liquidate the company by 100% voting share, that means by the date of fourth meeting 157 days is only over. In the fourth meeting of CoC it was considered and resolved that due to non-providing of financial data and other information by the Corporate Debtor, RP failed to appoint valuers, unable to finalize information memorandum and to call for expression of interest. The CoC was of the view that none of the Suspended Directors has attended the last two meetings of the COC and violated the directions issued by this Authority and therefore it is better to liquidate the company rather than making application for extension of the CIRP period. It is the said resolution passed in the CoC, that made the RP to file this application for liquidation. The wisdom of the CoC in passing a resolution for liquidation cannot be interfered by this Authority. Moreso, when the CoC took such a decision because of the non-cooperation of the Suspended Directors of the Corporate Debtor in providing the financial information related to the Corporate Debtor. The very fact that the Suspended Directors are asking stay of the CIRP period on 08.10.2018 that is nearly five months after the resolution process commenced goes to show that they are not at all interested in the resolution process. If really the Suspended Directors of the Corporate Debtor were aggrieved against the IRP/RP and they are of the view that effective steps are not being taken by the IRP/RP they ought to have moved this Authority during initial days of the CIRP period. After the IRP/RP filed application seeking direction to the Suspended Directors to cooperate and after the IRP/RP filed application seeking attachment of the assets of the subsidiary of the Corporate Debtor, the Suspended Directors came forward with an application to stay the CIRP. Section 33(2) enables the RP to seek liquidation of the Corporate Debtor in case the CoC by not less than 66% voting share resolved to liquidate the Corporate Debtor before confirmation of resolution plan and during CIRP.

In the case on hand, there is no resolution plan at all. In fact there is no expression of interest also. The CoC by 100% voting share resolved to go for liquidation. Basing upon that resolution, RP filed this application U/s 33(2) of the Code. Section 33(2) of the Code enjoins on the Adjudicating Authority to pass a liquidation order, if the CoC passed the resolution approving for liquidation by a 66% voting share, on the application of the RP. Here the sole Financial Creditors that constitute CoC by 100% voting share resolved to go for liquidation. Therefore, this Authority has no right to interfere with the wisdom of the CoC in going for liquidation, moreso, on the ground that RP has not followed the various steps in the CIRP. It appears that RP is unable to follow the various steps in CIRP period due to non-cooperation of the promoters of the Corporate Debtor. There are no grounds to invoke Section 75 of I & B Code against Financial Creditor. This Authority has no jurisdiction to enquire into the loan transaction between Financial Creditor and Corporate Debtor moreso after admission order is passed.

Therefore, in view of the above discussion, this Authority is of the considered view, that there is no need to stay the CIRP process and it is a case where a liquidation order has to be passed in respect of the Corporate Debtor. Applicant in CA No.243/2018 is not entitled for any relief. In view of the liquidation order passed in CA No.265/2018, no need to consider the request of applicant in CA No.281/2018 to replace RP to conduct CIRP.

Coming to the application filed by the Suspended Directors for removal of the RP. Since this Authority decided to pass an order for liquidation of the Corporate Debtor, the question is whether the same RP can be appointed as Liquidator or not.

Section 34(4) enables the Adjudicating Authority to replace the RP under three contingencies.

In the case on hand, RP submitted the written consent. The Board also did not recommend for the replacement of the RP. However, there are some serious allegations against the RP. It is the plea of Suspended Directors of the Corporate Debtor that due to inaction and inability of the RP, he could not follow the various steps in CIRP. The fact remain that no resolution plan has come forward in this case. Without going into the truth or otherwise of the allegations made against the RP, this Authority is of the considered view that in the interest of the smooth functioning of the liquidation process, it is necessary to replace the RP by another Insolvency Professional to act as Liquidator. In that view of the matter, list CA No.265 of 2018 for hearing on the appointment of another Insolvency Professional as Liquidator.

CA No.265 of 2018 is allowed passing order for liquidation of the Corporate Debtor (KIL) U/s 33(2) of the I & B Code. Liquidator, after his appointment shall issue public announcement stating that the Corporate Debtor is in Liquidation. Registry is also directed to send a copy of the order to the ROC, with which the Corporate Debtor is registered.

CA No.243/2018 is dismissed.

CA No.281/2018 is dismissed in view of the liquidation order passed.

List CA No.265/2018 for hearing on appointment of Liquidator on 11.03.2019.