Acre – 81 Trust Through Its Trustee ... vs Pawan Kumar Goyal (Interim Resolution ...

Comp. App. (AT) (Ins) No. 447 of 2023 & I.A. No. 1475, 1476 of 2023 IN THE MATTER OF: ACRE - 81 Trust Through its trustee Assets Care ...Appellants & Reconstruction Enterprise Ltd. & Ors.

Versus

Pawan Kumar Goyal Interim Resolution ...Respondents Professional of SARE Realty Projects Private Ltd. & Ors.

Present: For Appellant : Mr. Arun Kathpalia, Sr. Advocate along with Mr. Ujjal Banerjee & Mr. Akash Khurana, Advocates For Respondent : Mr. Rishi Singhal, for IRP/ R-1.

JUDGMENT

Per: Justice Rakesh Kumar Jain:

This appeal has been filed by ACRE-81 Trust (Appellant No. 1), India

Real Estate 2021 Trust (Appellant No. 2), ACRE -100 Trust (Appellant No. 3)

and Catalyst Trusteeship Limited (Appellant No. 4), all assenting members of

the Committee of Creditors (in short 'CoC') of SARE Realty Projects Pvt. Ltd.

(Corporate Debtor) having voted to liquidate the Corporate Debtor, against

the order dated 16.03.2023 passed by the Adjudicating Authority (National

Company Law Tribunal, New Delhi Bench, Court II) in I.A. No.

3818/ND/2021 in CP (IB) No. 684/ND/2020, by which show cause notice

has been issued seeking an explanation of the Appellants as to why the

penalty stipulated under Section 65 of the Insolvency and Bankruptcy Code,

2016 (in short 'Code') be not imposed upon them.

Comp. App. (AT) (Ins) No. 447 of 2023 2

2. In brief, one Dharam Vir Gupta, filed an application under Section 9

of the Code, as an operational creditor before the Adjudicating Authority

bearing C.P. (IB) No. 684 of 2020 against the Corporate Debtor. The

Corporate Debtor did not file any reply nor appeared during the proceedings

and was proceeded against ex-parte on 01.03.2021. The Adjudicating

Authority admitted the application filed under Section 9 of the Code ,vide its

order dated 05.03.2021 and appointed the IRP besides imposing the

moratorium. The IRP made a public announcement on 09.03.2021 to invite

claims from the creditors of the Corporate Debtor. The IRP conducted first

meeting of the CoC on 06.04.2021 and informed the members of the CoC

that the office of the Corporate Debtor was closed for more than one year, all

the directors of the Corporate Debtor had resigned before the

commencement of the CIRP, last audited financial statements of the

Corporate Debtor filed with the ROC were for the year ending March 31,

2017 and the secured financial creditors of the Corporate Debtor had

initiated enforcement action under SARFAESI Act, 2002 and taken over

possession of the project assets. One of the authorized representatives of

CoC members, India Real Estate 2021 Trust and ACRE-81 Trust, proposed

the liquidation of the Corporate Debtor.

3. Second meeting of the CoC was held on 27.05.2021 in which

liquidation of the Corporate Debtor was proposed and publication of Form G

was deferred till the CoC take the decision on the issue of early liquidation.

The 3rd meeting of the CoC held on 23.06.2021 in which the members of the

CoC again discussed the early liquidation of the Corporate Debtor. The IRP

Comp. App. (AT) (Ins) No. 447 of 2023 3

also highlighted the high cost involved in the continuation of CIRP. The 4th

CoC meeting was held on 27.07.2021 in which members of the CoC

proposed to take the issue of liquidation of the CD before other agenda

items. The CoC had a detailed deliberation on the issue of liquidation

including powers of the CoC to recommend liquidation at any time before

the approval of the resolution plan and the members of the CoC decided to

liquidate the CD in terms of Section 33 of the Code but at the request of the

majority members of the CoC, e-voting on the said agenda was deferred. The

IRP sent a notice for conducting the 5th CoC meeting to be held on

13.08.2021. On 12.08.2021, the representative of India Real Estate Trust

2021 and ACRE -81 Trust sent an email to IRP and other members of the

CoC proposing early liquidation of the CD. In the 5th meeting of the CoC was

held on 13.08.2021 in which the CoC continued their deliberations on the

issue of liquidation of the CD which was not voted upon in the 4th CoC

meeting. E-voting on the said issue was conducted during the period from

16.08.2021 till 18.08.2021 in which 88.48% of the CoC members including

the financial creditors in class, i.e. allottees/homebuyers voted in favour of

the liquidation of CD. The IRP filed an application for liquidation of the

Corporate Debtor bearing I.A. No. 3818 of 2021 with the following prayers:-

"a. allow the present application.

b. Pass an order for liquidation of the CD under Section 33(2) r/w Explanation and in terms of sub-clauses (i), (ii) and (iii) of clause

(b) of sub-clause (1) of Section 33 of the Code.

c. Pass an order to appoint the Interim Resolution Professional Pawan Kumar Goyal, IBBI Registration No. IBBI/IPA-001/IP- P00875/2017-18/11473 as Liquidator of the Corporate Debtor.

Comp. App. (AT) (Ins) No. 447 of 2023 4

d. Pass any other or further order(s) as this Hon'ble Tribunal deem fit and proper in the facts and circumstances of the matter"

4. In the impugned order, the Adjudicating Authority has observed that

until EOI in From G is published, there is no mechanism under the regime

of IBC to discover prospective resolution applicants for a corporate debtor

and without publishing Form-G, CoC could not have been in a position to

formulate an opinion that there were no prospective buyers available for the

CD. It further observed that the scheme of IBC gives every Corporate Debtor

a fair chance to stand on their own feet and to come out of financial distress

and that is why every Corporate Debtor must go through the IBC mandated

CIR process before facing the liquidation proceedings. It was concluded that

without taking any steps for seeking resolution of the Corporate Debtor, the

CoC has acted contrary to the scheme of IBC. With these observations, the

Adjudicating Authority has further observed that it was prima facie of the

opinion that the application for liquidation of CD has been filed with

malicious intent and therefore, it was found as a fit case for issuance of

show cause notice to the assenting CoC members jointly who voted in favour

of the liquidation of the CD without even exploring the possibility of

resolution of the Corporate Debtor. The Appellants herein have thus been

asked to show as to why penalty stipulated under Section 65 of the Code

should not be imposed on them.

5. Although, the Adjudicating Authority has asked the present

Appellants to file a joint reply to the show cause notice and had also

observed that it has not finally adjudicated upon the liquidation application,

Comp. App. (AT) (Ins) No. 447 of 2023 5

the fate of which would depend upon the outcome of Section 65 proceedings

initiated against the assenting CoC members but aggrieved against the

aforesaid impugned order dated 16.03.2023, the present appeal has been

filed in which on the date of preliminary hearing held on 13.04.2023, this

Court passed the order of stay 'in the meantime, issuance of notice under

Section 65 in the impugned order shall remain stayed'. Thus as a matter of

fact, no notice was there before the Appellants for the purpose of giving reply

to the same.

6. Counsel for the Appellant has vehemently argued that not only the

Adjudicating Authority has committed an error in invoking Section 65 of the

Code for the purpose of issuance of show cause notice but also it misread

the provisions of Section 33(2) of the Code and the explanation of the Code.

It is submitted that as per Section 33(2), the Resolution Professional, at any

time during the CIRP but before confirmation of resolution plan, intimate

the Adjudicating Authority of the decision of the CoC (approved by not less

than sixty six per cent. of the voting share) to liquidate the CD. It is further

submitted that explanation to Section 33(2) further provides that the CoC

may take the decision to liquidate the CD any time after its constitution and

before the confirmation of the resolution plan including at any time before

the preparation of the information memorandum. In support of his

submissions, he has relied upon a decision of this Appellate Tribunal

rendered in the case of Sunil S. Kakkad Vs. Atrium Infocom Pvt. Ltd. & Ors.,

2020 SCC Online NCLAT 1160 in which the question involved was as to

whether the Resolution Professional with the approval of CoC with 66 per

Comp. App. (AT) (Ins) No. 447 of 2023 6

cent vote share can directly proceed for the liquidation of CD without taking

any steps for resolution of the CD? He has submitted that in the said case

only three meetings of CoC took place and without making any endeavour

for inviting EOI, the CoC unanimously resolved to liquidate the CD. He has

further referred to Para 19, 20 and 21 of the said decision in which the

power of the CoC has been discussed in respect of Section 33(2) of the Code

as per which it can order for liquidation at any stage but before confirmation

of resolution plan. It is further submitted that the decision in the case of

Sunil S. Kakkad (Supra) has further been upheld by the Hon'ble Supreme

Court reported as 2021 SCC Online SC 723. It is further submitted that in

the present case the decision has been taken by the CoC in its fifth meeting

for the liquidation of the CD by 88.48% voting share. It is also submitted

that the decision relied upon by the Adjudicating Authority in the case of

Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors. is not applicable

because it is prior in time to the amended Section 33(2) of the Code which

clearly empowers the CoC to liquidate the CD at any time after the

constitution of the CoC and prior to the approval of the resolution plan.

7. As regards the issuance of show cause notice under Section 65 of the

Code is concerned, it is argued that the said provision has been invoked

without application of mind because it provides that it can be invoked if the

proceedings have been initiated with malicious intent for any purpose other

than for the liquidation. Whereas in the present case, the proceedings have

been initiated for the liquidation, therefore, the said provision would not

apply and has been wrongly invoked for the purpose of issuance of show

Comp. App. (AT) (Ins) No. 447 of 2023 7

cause notice and in this regard, reliance has been placed upon the orders

passed in Unigreen Global Pvt. Ltd. Vs. Punjab National Bank CA (AT) (Ins)

No. 81 of 2017 in which it has been held that no such penalty under sub-

Section (1) or (2) of Section 65 can be imposed by the Adjudicating Authority

without recording opinion for coming to the conclusion that a prima facie

case is made out to suggest that the person fraudulently or with malicious

intent for the purpose other than the resolution of the insolvency or

liquidation or with the intent to defraud any person has filed the

application. It is submitted that the Adjudicating Authority has though

observed that it has found prima facie that a case has been made out

against the Appellant but the reason to frame the opinion much less prima

facie is conspicuous by its absence in the impugned order.

8. Counsel on behalf of the RP has also appeared in this case.

9. We have heard Counsel for the parties and perused the record with

their able assistance.

10. There is no dispute that the CoC took a decision for liquidation of the

CD after holding five meetings and by voting share of 88.48 per cent which

meets the criteria laid down in Section 33(2) of the Code. There is an error in

the approach of the Adjudicating Authority that for the purpose of taking a

decision regarding the liquidation of the CD, the CoC has to complete all the

steps regarding resolution of the CD because it would be against the spirit of

Section 33(2) and explanation appended to it wherein the legislature has

used the word any time twice i.e., firstly, in Section 33(2) and secondly, in

the explanation of Section 33(2) of the Code that the CoC has the

Comp. App. (AT) (Ins) No. 447 of 2023 8

jurisdiction to pass the order of liquidation of the CD, approving it by not

less than sixty six per cent of the voting share, but it should be before the

confirmation of the resolution plan. In the case of Sunil S. Kakkad (Supra),

this Court has categorically framed a question as to whether the RP, with

the approval of the CoC with sixty six per cent vote share, directly proceed

for the liquidation of CD without taking any steps for resolution of the CD.

In the said case, there were three meetings of CoC in which without making

endeavour for inviting EOI, the CoC unanimously resolved to liquidate the

CD and that issue came for adjudication before this Court in which while

referring to Section 33(2) and the explanation appended thereto it has been

ordered that the CoC has the power to liquidate the CD before confirmation

of the resolution plan. The said decision in the case of Sunil S. Kakkad

(Supra) has further been affirmed by the Hon'ble Supreme Court when the

appeal was filed by Sunil S. Kakkad was dismissed on 07.01.2021 and in so

far as the issuance of notice under Section 65 is concerned, firstly, the

issuance of notice was stayed by this Court vide its order dated 13.04.2023

and secondly, the Adjudicating Authority has not given any reason for

forming an opinion much less prima facie that it was a case of malicious

intent on the part of the Applicant/RP with the connivance of assenting

members of CoC to whom the show cause notice was given and finally the

provision of Section 65 has no application because it would apply if the

application is filed for the purpose other than liquidation.

11. Thus, from the aforesaid discussion and looking from any angle, the

impugned order does not deserve to survive and hence, the present appeal is

Comp. App. (AT) (Ins) No. 447 of 2023 9

allowed and the impugned order is set aside though without any order as to

costs.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

New Delhi

17th January, 2024.

Sheetal

Comp. App. (AT) (Ins) No. 447 of 2023