The National Company Law Appellate Tribunal (NCLAT), New Delhi bench comprising Justice Ashok Bhushan, Chairperson and Barun Mitra, Technical Member was hearing an Appeal yesterday where the Appellant has challenged the Order of the Liquidation. The NCLAT New Delhi bench observed that 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 decision of the CoC is reflected in the result of the voting which cannot be questioned.
These two Appeals have been filed against the same Order passed by the National Company Law Tribunal, Allahabad Bench. By the Impugned Order, the Adjudicating Authority has allowed CA filed by the Resolution Professional under Section 33(1) of the Insolvency and Bankruptcy Code, 2016 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. 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.
Resolution Applicant’s Submission:
Learned Sr. Counsel advancing submissions on behalf of Resolution Applicant submitted 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 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 the Sr. Advocate 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.
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.
Resolution Professional’s Submission:
Learned Counsel for the Resolution Professional refuting the submissions made by Learned Counsel for the Appellant, submitted that CIRP 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 was 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.
Submission of the CoC:
Counsel 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. 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 submitted 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.
Appellate Tribunal’s Analysis:
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 7th 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 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. 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. 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.
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.
it was clear that there was 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 was 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 v. Indian Overseas Bank and Others, REED 2019 SC 02502, 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.
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.
The Appellate Tribunal were 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 were dismissed.