Bdr Builders And Developers Pvt.Ltd & ... vs Mohan Lal Jain & Anr

BIOMADE FOODS PVT. LTD. Registered Office at: 4/180, Ground Floor, Backside Subhash Nagar, Delhi, West Delhi - 110027. .... Respondent No. 2

Company Appeal (AT) (Ins) No. 997 of 2021

Page 1 of 18 Present

For Appellants: Shri Rakesh Kumar, Ms. Preeti Kashyap, Mr. Ankit Sharma, Advocates.

For Respondents:Mr. Anirban Bhattacharya, Advocate for R-1.

Mr. Sumesh Dhawan, Advocate for R-2.

JUDGMENT

(DATE: 18.01.2022) (Virtual Mode)

[ Per.: Dr. Alok Srivastava, Member (Technical)]

1. This appeal has been filed under section 61 of the Insolvency and

Bankruptcy Code, 2016 (hereafter called "IBC") wherein the Appellant has

assailed the order of the Adjudicating Authority (NCLT, New Delhi) dated

24.9.2021 in IA No. 4328/2021 in CP (IB) 228(ND)/2018.

2. In brief, the facts of the case are that an application under section 7

of IBC was filed by financial creditor Relan Buildwell Pvt. Ltd. against

Kaliber Associates Private Ltd. (Corporate Debtor)which was admitted on

18.1.2019. Since no resolution of the corporate debtor could be effected

during the CIRP, liquidation order dated 2.1.2020 was passed by the

Adjudicating Authority.

Company Appeal (AT) (Ins) No. 997 of 2021

Page 2 of 18

3. The Appellants, who claim to have stake in the liquidation of the

Corporate Debtor as unsecured financial creditors, have stated and

argued in the appeal that during the liquidation process, the liquidator did

not consult and take advice of the members of the Stakeholders

Consultation Committee in accordance with legal provisions, on issues

relating to the sale of the assets of the Corporate Debtor. According to the

Appellants, after the liquidation order was passed, the Stakeholders

Consultation Committee was constituted by the liquidator, and in its first

meeting held on 7.3.2020, the liquidator obtained the approval of

Stakeholders Consultation Committee to sell the Corporate Debtor as a

going concern, as stipulated under Regulation 32 of the Insolvency and

Bankruptcy Board of India (Liquidation Process) Regulations, 2016

(hereafter called "Liquidation Regulations‟). The 1st e-auction took place

on 31.3.2020,in which no bids were received. Thereafter, in the second

meeting of the Stakeholders Consultation Committee (SCC) it was

decided to conduct one more round of e-auction. Accordingly, the second

e-auction was held on 31.7.2020, wherein a Honda car owned by the

Corporate Debtor was sold. The other item which was put up for bidding in

the second round of e-auction viz. "short term loans and advances" could

not be sold.

4. The Learned Counsel for Appellants has stated that the Liquidator

Company Appeal (AT) (Ins) No. 997 of 2021

Page 3 of 18 did not follow the stipulated procedure under IBC in the third and fourth

rounds of e-auction and he did not inform the SCC members about the

result of the second round of e-auction in time, nor the proposed strategy

of sale in the third round of e-auction in time. For instance, the result of

the second round of e-auction, which took place on 31.7.2020, was

informed to the SCC members in the third SCC meeting on 9.11.2020. It

was decided in this meeting to hold third round of e-auction, which took

place on 20.3.2021. The result of third round of e-auction was placed for

information before the SCC only on 24.5.2021.

5. The Learned Counsel for Appellants has further stated that in the

third round of e-auction Corporate Debtor‟s assets were grouped into five

groups namely Groups A, B, C, D and E (refer sale notice attached at

page 172 of Appeal Paper Book Volume I) by the liquidator on his own

without consulting the SCC or informing the stakeholders in advance. Due

to such conduct of the liquidator, the Appellants filed IA No. 4328/2021

requesting the Adjudicating Authority to replace the liquidator for not

conducting the liquidation proceedings following the letter and spirit of the

IBC, 2016 and the Liquidation Regulations with complete fairness and

transparency. He also prayed for quashing the sales made by the

liquidator to the Respondent No.2 (successful bidder)in the third round of

the e-auction and also quash the fourth e-auction notice dated 25.8.2021 Company Appeal (AT) (Ins) No. 997 of 2021

Page 4 of 18 (which was yet to take place) for the sale of assets in Groups B, C, E, F,

G, H and I that had been published in the newspapers. The Learned

Counsel of Appellant has claimed that the liquidation process as it is being

carried on is taking much more time than should normally be taken and as

is provided in regulations, and liquidator is more focused on realizing

CIRP and liquidation costs without attention on timely liquidation of assets

of the corporate debtor.

6. The Learned Counsel for Liquidator (Respondent No. 1) has

argued that the Impugned Order was passed on 24.9.2021, whereas the

appeal has been filed on 8.11.2021,which is after the limitation period, and

therefore, the appeal is barred by limitation. He has adverted to Para 36 in

the reply to the application IA No. 4328 of 2021 filed by the Appellants,

wherein the Appellants have claimed to represent more than 77% of the

members of the Committee of Stakeholders whereas the fact is that only

one Appellant, namely Paradise Systems Pvt. Ltd.(Appellant No. 3) is a

member of the SCC, while Appellants No. 1 and 2, namely, BDR Builders

and Developers Pvt. .Ltd., and Columbia Buildtech Pvt. Ltd. are not

members of SCC. Hence, he has claimed, the Appellants jointly represent

only 25% of the voting share in SCC, which has four members, namely

Paradise Systems, Aadhar Infraholding, Income Tax Department and Lalit

Modi HUF. Thus, the Appellants have given incorrect information in their

Company Appeal (AT) (Ins) No. 997 of 2021

Page 5 of 18 application IA No. 4328 of 2021 and they have no locus standi in

preferring this appeal as they represent only 25% voting rights in the SCC.

7. The Learned Counsel for Respondent No. 1 has further argued that

the sale notices for various rounds of e-auction were sent to members of

the SCC as follows: -

(i) Sale notice of first e-auction published in newspapers on

17.3.2020 and sent to SCC members vide email dated

17.3.2020 of the Liquidator (attached at pg. 46 of reply of

Respondent No. 1),

(ii) Sale notice of second e-auction published in newspapers on

13.7.2020 and sent to SCC members vide email dated

13.7.2020 of the Liquidator (attached at pg. 47 of reply of

Respondent No. 1),

(iii) Sale notice of third e-auction published in newspapers on

6.3.2021 sent to SCC members vide email dated 9.3.2021 of

the Liquidator (attached at pg. 48 of reply of Respondent No.

1), and

(iv) Sale notice of fourth e-auction published in newspapers on

25.8.2021 sent to SCC members vide email dated 26.8.2021

of the Liquidator (attached at pg. 49 of reply of Respondent

Company Appeal (AT) (Ins) No. 997 of 2021

Page 6 of 18 No.1).

8. Thus, the Ld. Counsel of Liquidator has claimed, the information

about various rounds of e-auctions was duly provided to the members of

SCC. Moreover, he has urged, the representative of Appellant Paradise

Systems was present during discussion in all the meetings of SCC and

the minutes of the meetings of the SCC were sent to the stakeholders

(minutes of meetings attached at pp. 38 - 45 of reply of Respondent No.

1) wherein decisions taken in the respective SCC meetings have been

duly recorded and informed to its members. He has further claimed that

the request for providing minutes of first SCC meeting was made by the

Appellants, whereupon they were requested to submit application in

writing along with confidentiality undertaking on stamp paper of Rs.100

(refer to email dated 23.3.2020, attached at page 34 of reply of

Respondent No. 1), but since no one submitted any undertaking of

confidentiality, the minutes were not provided. He has urged that, looking

to the facts presented by the Liquidator, he has carried out all the four

rounds of e-auction in accordance with Liquidation Regulations with full

transparency and as per decisions taken in SCC meetings, and hence,

there is no ground for replacing the liquidator nor canceling/quashing the

e-auctions carried out in third and fourth rounds.

Company Appeal (AT) (Ins) No. 997 of 2021

Page 7 of 18

9. We notice that the Impugned Order dated 24.9.2021 records that

the stake claimed by the three applicants is not to the extent of 75% in the

SCC, but is limited to only 25%, as only Applicant No. 3, Paradise

Systems Private Limited (appellant in this appeal) is a member of the

SCC. The Impugned Order also records the finding that no exceptional

circumstances have been made out in the application which would warrant

the change of liquidator using inherent powers under rule 11 of NCLT

Rules, 2016.

10. Sub-section 5(c) of Section 60 of IBC gives jurisdiction to National

Company Law Tribunal for disposing any question of law or facts arising in

relation to liquidation proceedings, and thus the Adjudicating Authority can

consider such a matter on point of facts of law. Sub-section 5 of section

60 is reproduced below for ready reference -

" 60. Adjudicating Authority for corporate persons (5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of -

xx xx xx

(c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code."

xxx xxx xxx

Company Appeal (AT) (Ins) No. 997 of 2021

Page 8 of 18

11. The Learned Counsel for Respondent No. 2 (successful bidder)

has claimed that he has bid successfully through the e-auction which was

carried out in a fully fair and transparent manner, and therefore no case

for cancellation of any auction process is made out.

12. We have considered the pleadings and documents submitted by

the Appellants and Respondents and also duly considered the oral

arguments put forth by respective Learned Counsels.

13. The grounds pleaded in the appeal for replacing the liquidator are

that the liquidator did not carryout the process of liquidation insofar as sale

of assets through the e-auction is concerned, in a fair and transparent

manner. It is also urged in the grounds of appeal that the liquidator did not

discuss the process and details of liquidation with the stakeholders as well

as Appellants, who are also stakeholders in the liquidation proceedings,

with an admitted claim of Rs.40,32,98,554 in the „list of stakeholders

version I‟(attached at pp.67-79 of Appeal Paperbook, Vol.I ).

14. Insofar as constitution of the SCC is concerned, the relevant extract

of regulation 31A of the Insolvency and Bankruptcy Board of India

Company Appeal (AT) (Ins) No. 997 of 2021

Page 9 of 18 (Liquidation Process) Regulations, 2016 is as follows -

"31-A. Stakeholders' consultation committee. - (1) The liquidator shall constitute a consultation committee within sixty days from the liquidation commencement date, based on the list of stakeholders prepared under regulation 31, to advise him on the matters relating to sale under regulation 32."

Further Regulation 31-A also gives in detail the representatives who are to be co-opted as members of the SCC.

15. We find that the liquidator has constituted the Stakeholders‟

Consultation Committee in accordance with regulation 31A of the

Liquidation Regulations and as such, only one of the Appellants, Paradise

Systems Private Limited is a member of the SCC as representative of

unsecured creditors holding 25% voting right. Be that as it may, we are of

the opinion that while the other two Appellants, while they are not

members of the SCC, they do have a stake in the liquidation of the

Corporate Debtor by virtue of being unsecured creditors and hence are

entitled to prefer an appeal under Section 60(5) of IBC.

16. The Ld. Counsel for Respondent No.1 has also claimed that the

appeal has been filed beyond the limitation period and is, therefore,

barred by limitation. We note that the Impugned Order was passed on

24.9.2021 and the appeal was filed on 8.11.2021. Thus, the appeal is filed

Company Appeal (AT) (Ins) No. 997 of 2021

Page 10 of 18 15 days after the expiry of 30 days‟ limitation period. In view of the

prevailing conditions of corona pandemic and the suo moto order of

Hon‟ble Supreme Court in Misc. Application No. 665/2021 in SMW(C) No.

3/2020, in computing the period of limitation for any suit, appeal,

application or proceeding, the period from 15.3.2020 till 2.10.2021 shall

stand excluded from limitation period. Since the Impugned Order was

passed on 24.9.2021, the period of limitation for this appeal shall begin to

be counted from 3.10.2021. Thus the appeal was filed on 37 th day after

the start of limitation period. Looking to the difficult circumstances due to

corona pandemic, as classified by the Appellants, we are inclined to

condone the delay in filing the appeal beyond 30 days. In light of this

condonation of delay, the appeal is considered to be within limitation.

17. The relevant provision in Insolvency and Bankruptcy Board of India

(Liquidation Process) Regulations, 2016 regarding sale of assets is given

in regulations 32 and 32A, which are reproduced below:-

"32. Sale of Assets, etc. - The liquidator may sell -

(a) an asset on a standalone basis;

(b) the assets in a slump sale;

(c) a set of assets collectively;

(d) the assets in parcels;

(e) the corporate debtor as a going concern; or

(f) the business(s) of the corporate debtor as a going concern.

Company Appeal (AT) (Ins) No. 997 of 2021

Page 11 of 18 Provided that where an asset is subject to security interest, it shall not be sold under any of the clauses (a) to (f) unless the security interest therein has been relinquished to the liquidation estate.

32-A. Sale as a going concern. - (1) Where the committee of creditors has recommended sale under clause (e) or (f) of regulation 32 or where the liquidator is of the opinion that sale under clause (e) or (f) of regulation 32 shall maximize the value of the corporate debtor, he shall endeavor to first sell under the said clauses.

(2) For the purpose of sale under sub-regulation (1), the group of assets and liabilities of the corporate debtor, as identified by the committee of creditors under sub-regulation (2) of regulation 39-C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 shall be sold as a going concern.

(3) Where the committee of creditors has not identified the assets and liabilities under sub-regulation (2) of regulation 39-C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the liquidator shall identify and group the assets and liabilities to be sold as a going concern, in consultation with the consultation committee.

(4) If the liquidator is unable to sell the corporate debtor or its business under clause (e) or (f) of regulation 32 within ninety days from the liquidation commencement date, he shall proceed to sell the assets of the corporate debtor under clauses (a) to (d) of regulation 32."

18. We find that in the first meeting of the Stakeholders‟ Consultation

Company Appeal (AT) (Ins) No. 997 of 2021

Page 12 of 18 Committee held on 7.3.2020, the liquidator sought and obtained approval

of the SCC for selling the Corporate Debtor as a going concern. In the

first round of e-auction held on 31.3.2020 (page 136 of appeal paperbook,

Volume I), no bids were received. Subsequently, in the second meeting of

SCC held on 23.6.2020,the sale of assets was discussed (as item number

12, pg. 136 of Appeal paperbook), when it was decided to make renewed

efforts for sale of assets of Corporate Debtor. The second round of e-

auction resulted in the sale of Honda car at Rs.1,51,500/-. Thereafter,

again the SCC authorized the liquidator to conduct the third round of e-

auction process for sale of assets of the Corporate Debtor (pg. 167 of the

Appeal paperbook).

19. The Appellants have raised objection about the procedure adopted

in 3rd and 4th e-auction processes. The third meeting of SCC took place

on 9.11.2020, and in the agenda note item No. 2 of Part B which includes

„list of issues to be voted upon after discussions‟ wherein the sale of

remaining assets was also discussed in the third SCC meeting (agenda

note of third SCC meeting at pgs.141-170 of Appeal paperbook Vol I).

20. On perusing the agenda note for the third SCC meeting held on

9.11.2020 (supra), we find that the proposed resolution in the agenda note

is as follows: -

Company Appeal (AT) (Ins) No. 997 of 2021

Page 13 of 18 "RESOLVED FURTHER THAT the committee hereby authorize(s) the Liquidator to conduct e-auction process for the sale of the assets of the Corporate Debtor under the aforesaid provisions and undertake debt transactions for payment of said fees/costs/expenses. The said expense be treated as the Liquidation expenses of Kaliber Associates Private Limited.

RESOLVED FURTHER THAT the committee hereby agrees to reimburse the said expenses by debiting the bank accounts maintained by the corporate debtor and authorize Mr. Mohan Lal Jain, Liquidator to do all acts, deeds and matters as may be necessary to give effect to this resolution."

21. The minutes of the third SCC meeting record the approval of these

resolutions (extract at pp.40-42 of the Reply of Respondent No. 1).

Thereafter, the liquidator sent an e-mail dated 17.3.2020 to SCC

members, which was actually after the sale notice had been published in

newspapers on 17.3.2020. This sale notice (attached at pp. 171-173 of

Appeal Paperbook) shows that the assets have been grouped in five

groups namely groups A, B, C, D and E. Such a grouping of assets does

not seem to have been discussed as it is not recorded in the minutes of

meeting of third SCC.

22. In the fourth meeting of SCC held on 24.5.2021,the minutes

recorded are as follows (attached at pp. 43-45 of the reply of Respondent

No. 1) :-

Company Appeal (AT) (Ins) No. 997 of 2021

Page 14 of 18 "Then, the Chairman informed the Committee that keeping in view of the efforts made for sale of assets under clause (a) to (d) of Regulation 32 of the IBBI (Liquidation Process) Regulations, 2016, the Liquidator proposes to continue his efforts for sale as per clause (a) to (d) of regulation 32 and go for further E-auction processes as may be deemed necessary in order to realize maximum value from the assets of the Corporate Debtor."

23. Thus, we find that while the provision of Regulation 32 of

Liquidation Regulations is recorded in the minutes in a general way, no

specific strategy or manner to be adopted in sale of assets such as

grouping of assets has been recorded therein. Moreover, we find that the

information about the third e-auction sale notice (attached at pg. 48 of

reply of Respondent No. 1) and fourth e-auction sale notice (attached at

pg. 49 of reply of Respondent No. 1) were sent to the members of SCC

after the publication of the sale notice in newspapers. We also find that

there is a significant lapse of time between the decision taken for e-

auction in the third meeting of SCC held on 9.11.2020 and the actual

auction taking place on 20.3.2021, which is about four and a half months.

Similarly, decision was taken for the fourth round of e-auction in the fourth

SCC meeting on 24.5.2021, whereas the actual auction took place on

18.9.2021, again after almost 4 months. Thus, there is a significanttime

gap between decisions taken for e-auctions in the third and fourth SCC

meetings and the holding of the e-auctions.

24. Regulation 47 of the Liquidation Regulations provides "Model time-

Company Appeal (AT) (Ins) No. 997 of 2021

Page 15 of 18 line for liquidation process". According to this regulation, from the date of

commencement of liquidation and appointment of liquidator under

sections 33 and 34 of IBC the time provided for completion of liquidation

process is 365 days. Further, sub-regulation (1) under Regulation 44, is

as follows:-

"44. Completion of liquidation. - (1) The liquidator shall liquidate

the corporate debtor within a period of one year from the liquidation

commencement date, notwithstanding pendency of any application

for avoidance of transactions under Chapter III or Part II of the

Code, before the Adjudicating Authority or any action thereof."

Thus if the liquidation of the Corporate Debtor is to be done as a going

concern, an additional 90 days is allowed beyond one year for completion

of liquidation process.

25. In the present case, from third meeting of SCC onwards, it was

decided that the Corporate Debtor or its business is not to be sold as a

going concern. Hence, a period of prescribed time limit for completion of

liquidation of 365 days should be counted from the date of 3rd meeting of

SCC held on 9.11.2020. Since there was no "lockdown" enforced by the

authorities in the period after 9.11.2020, no exclusion of time under

Company Appeal (AT) (Ins) No. 997 of 2021

Page 16 of 18 Regulation 47-A is necessary. With passage of more than 365 days after

9.11.2020 now, we feel that the liquidation of the Corporate Debtor should

have been completed by now. Therefore, in our view liquidation of the

Corporate Debtor should be done as quickly as possible to ensure that the

assets of the Corporate Debtor do not undergo deterioration resulting in

loss of their value.

26. On the basis of discussion in above mentioned paragraphs about

how various rounds of e-auctions have been carried out, we find that the

concerns of the stakeholders, who are Appellants in this appeal, are not

entirely misplaced and that the liquidation process has gone over a long

time with rather sketchy results. We also note the concern of the

Appellants that the cost of liquidation is also going up as the liquidation

process is getting prolonged.

27. In view of the above discussion and after perusing the documents

(agenda notes and minutes) related to meetings of SCC, we do not find

that the appellants have been able to convincingly advance their

arguments for replacement of the liquidator, particularly when no material

irregularities have been found in the functioning of the liquidator.

Company Appeal (AT) (Ins) No. 997 of 2021

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28. We are of view that the liquidation process which has now gone on

for a long time should be completed as early as possible, if not already

completed. The inordinate and unexplained delay between the dates

decisions are taken in SCC meetings regarding e-auctions and holding of

e-auctions are a cause of concern, and they should be reduced to the

minimum. Since the liquidation process has been prolonged and the

record of SCC meetings show there is a substantial amount of funds that

are being spent in liquidation, we are also of the view that the liquidation

costs should be restricted to the payment of actual costs incurred in

liquidation process. With these directions, the appeal is disposed off.

29. There is no order as to costs.

(Justice Ashok Bhushan) Chairperson

(Justice Jarat Kumar Jain) Member (Judicial)

(Dr. Alok Srivastava) Member (Technical)

New Delhi 18th January, 2022

/aks/

Company Appeal (AT) (Ins) No. 997 of 2021

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