Insolvency & BankruptcyNational Company Law Tribunal & NCLATPower of IRP to liquidate Corporate Debtor during CIRP without taking any step for Resolution

National Company Law Appellate Tribunal, New Delhi

Sunil S. Kakkad v. Atrium Infocom Pvt. Ltd. & Others

Company Appeal (AT) (Insolvency) no. 194/2020 | Date: 10.08.2020

FACTS 

In the present case, Sunil S. Kakkad (hereinafter referred to as “the Appellant”) had filed an application under Section 7 of the I&B Code, 2016 to Initiate CIRP against the Atrium Infocom Pvt. Ltd the Corporate Debtor (hereinafter referred to as “the Respondent”) before the Adjudicating Authority.

Thereafter, the Adjudicating Authority admitted the application and initiated CIRP against the Respondent, because of which Interim Resolution Professional (hereinafter referred to as “IRP”) was appointed, who invited claims from different creditors and appointed Committee of Creditors, which undertook three meetings to bring a Resolution Plan for the Respondent.

However, in the Third Meeting, held on 21 September 2019, Committee of Creditors came to the conclusion that since Respondent is not working for the last five years. Further, there is no scope or possibility to bring a Resolution Plan in favor of the Company and therefore, they should initiate Liquidation Proceeding against them and they placed the same proposition for vote before members of the Committee of Creditors of the Respondent.

Thereafter, in the voting process all the members of the Committee of Creditors agreed with the proposition and gave 100% vote in favor of initiating Liquidation Proceeding against the Respondent. Therefore, based on this unanimous decision IRP filed an application under Section 33 of I&B Code, 2016 before the Adjudicating Authority and Adjudicating Authority admitted the application to initiate Liquidation Proceeding against the Respondent on 05 December 2019.

However, the Appellant was aggrieved by the decision of Adjudicating Authority and therefore, filed this application under Section 61 of I&B Code on 10 August 2020 before the Appellate Tribunal seeking rejection of the approved application to initiate Liquidation Process, without taking any step for the Resolution of Corporate Debtor.

ISSUE BEFORE THE NCLAT

Whether the Interim Resolution Professional, with the approval of CoC with 66% vote share, directly proceed for the liquidation of Corporate Debtor, without taking any steps for Resolution of the Corporate Debtor?

DECISION AND FINDINGS

In regards to the Issue, the Appellant contended that, the decision of Committee of Creditors to Initiate Liquidation Proceeding against the Respondent is completely wrong, as Adjudicating Authority failed to acknowledge that, the Appellant was not provided the opportunity to take appropriate steps to safeguard interest of the Company and to achieve objective of the I&B Code i.e. maximization of the assets of the Corporate Debtor, such as, preparation of Information Memorandum, Preparation of Evaluation Matrix, evaluation of Assets etc.

Further, the Appellant contended that, IRP of the Respondent intentionally overlooked the process of inviting Expression of Interest, as it is evident from the extract of Minutes of Committee of Creditor that, on 09 September 2019 one prospective Resolution Applicant showed willingness to submit Resolution Plan. However, Committee of Creditor ignored the process of Inviting Expression of Interest, stating that the decision to publish Expression of Interest is deferred till next meeting.

The Extract of Minutes of Committee of Creditors meeting is as follows –

“To provide approval on Expression of Interest, resolution plan, eligibility criteria for resolution applicant, last date for submission of resolution plan, evaluation matrix, location of publishing EOI.

IRP apprised CoC that Form-G (Invitation for Expression of Interest) (Under Regulation 36A (1) of the Insolvency and Bankruptcy (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 has been prepared. IRP has to make public announcement to invite interest resolution Applicants to submit resolution plan. The committee after discussion passed the following Resolution:

“RESOLVED THAT the decision to publish EOI has been deferred till next CoC meeting.”

Thereafter, the Appellant, based on the above reasoning contented that, the decision of Committee of Creditors to initiate Liquidation Proceeding is completely wrong and it Is against the principle of natural justice, as the step of initiating Liquidation Process is considered as the last resort and it should not be initiated, without following due process and taking further step for resolution of the Respondent.

In regards to the Issue, the Committee of Creditors of the Respondent contended relying on the judgment of Global Business Corporation v. Punjab National Bank that, they have power to initiate Liquidation Proceeding against Respondent under Section 31(1) (2) & (3) of I&B Code, without taking any step for resolution, if members of the Committee of Creditors approve this decision by giving more than 66% vote in favor of initiating Liquidation Proceeding against Respondent before confirmation of any Resolution Plan.

The decision of Global Business Corporation v. Punjab National Bank is as follows –

“In their commercial wisdom, COC have decided not to accept the Resolution Plan with conditions contained therein. Even though the suspended Board of Directors has a right to attend the meeting and may offer any suggestion but they cannot force their decision on their terms to Committee of Creditors especially when the suspended Board of Directors has no right to vote on the Resolution Plan. We also note that Committee of Creditors has rejected the resolution plan with 100% voting”.

Further, it was contended relying on the Supreme Court Judgment of k. Sashidhar v. Indian Overseas Bank that, the decision taken by Committee of Creditors by giving 100% vote in favour of initiating Liquidation Proceeding against Respondent is taken under the ambit of Commercial Wisdom and therefore, Neither Adjudicating Authority nor the Appellate Authority has the jurisdiction to Interfere with the decision of Committee of Creditors, taken under the ambit of Commercial Wisdom.

The decision of K. Sashidhar v. Indian Overseas Bank is as follows –

“In our view, neither the adjudicating authority (NCLT) nor the appellate authority (NCLAT) has been endowed with the jurisdiction to reverse the commercial wisdom of the dissenting financial creditors and that too on the specious ground that it is only an opinion of the minority financial creditors.”

The Appellate Authority after hearing Arguments of both the parties, agreed with the contention of Committee of Creditors of Respondent and held that, the amendment made under Section 31 of I&B Code on 16 August 2019 specifically added Explanation under Section 31 (2) of I&B Code, which gave power to the members of the Committee of Creditors to liquidate Respondent under Section 21 (1) of the I&B Code, at any time during CIRP and before preparation of Information Memorandum and confirmation of Resolution Plan.

Section 31 (2) along with Explanation is as follows –  

“(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 Company Appeal (AT) (Insolvency) No. 194 of 2020 7 of 14 a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).

(Explanation.—For the purposes 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.)”

Thereafter, Appellate Authority, decided relying on the judgment of k. Sashidhar v. Indian Overseas Bank that, they does not have jurisdiction to interfere with the decision of members of Committee of Creditors, because in the present case, members of Committee of Creditor took decision under the ambit of Commercial Wisdom to liquidate Respondent under Section 21 (1) of I&B Code, because they were not functioning since past Five years. Further, there was no scope or possibility to bring a Resolution Plan, which could safeguard their Interest.

Therefore, based on the above reasoning Appellate Authority decided that, the decision taken by Adjudicating Authority of accepting application of IRP of Respondent to Liquidate Respondent under Section 21 (1) of I&B Code is valid and they have no intention to interfere with the decision of Adjudicating Authority and they set aside the Appeal of Appellant filed under Section 61 of I&B Code, 2016.

AMLEGALS REMARKS 

In the present case, the Appellate Tribunal agreed with the decision taken by Adjudicating Authority and decided to set aside the appeal filed by Appellant under Section 61 of I&B Code, 2016 stating that, since Members of the Committee of Creditors have been provided with the power, because of the amendment made under Section 31 (2) of I&B Code, on 16 August 2019, as this amendment specifically added Explanation under Section 31 (2) of I&B Code, which gave power to the members of the Committee of Creditors to liquidate Respondent under Section 21 (1) of the I&B Code, at any time during CIRP and before preparation of Information Memorandum and confirmation of Resolution Plan.

Further, the decision taken by members of the Committee of Creditors to liquidate Respondent was taken under the ambit of Commercial Wisdom, as 100% of the Creditors agreed with the proposition to liquidate Respondent. Therefore, based on the judgment of k. Sashidhar v. Indian Overseas Bank, they does not have the jurisdiction to interfere with the decision of members of Committee of Creditors, as the decision taken by Committee of Creditors under the ambit of Commercial Wisdom is non-justiciable.

ABOUT US

AMLEGALS is a multi-specialised law firm. We would love to hear your views, queries, feedback and comments on anand@amlegals.com or tanmay.banthia@amlegals.com