M/S Global Enterprise Logistics Pte. ... vs Vivek Shukla & Anr

NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI COMPANY APPEAL (AT) (INSOLVENCY) NO. 727 of 2021 (Arising out of the Order dated 20th July, 2021 passed by National Company Law Tribunal, New Delhi, Bench - II, in IA No. 2084/ND/2021, in Company Petition (IB) No. - 1373(ND)/2019

IN THE MATTER OF:

M/s. Global Enterprise Logistics Pte. Ltd. 10-Anson Road, 14-06 International Plaza, Singapore - 079903. ...Appellant

Versus

1. Vivek Shukla E-301, Central Park - 1, Golf Course Road, Sector - 42, Gurugram - 122002, Haryana. ...Respondent No. 1

2. Mohan Lal Jain, Liquidator of SBS Transpole Logistics Private Limited F-2/28, Sector - 15, Rohini, Delhi - 110089. ...Respondent No. 2

Present

For Appellant: Mr. Rajshekhar Rao, Sr. Advocate with Mr. Divyanshu Rai & Ms. Sonal Sarda, Advocates.

For Respondent No. 1: Mr. Shohit Chaudhry & Mr. Sojhant Singh, Advocate for R-1.

For Respondent No. 2: I.P.S Oberoi, Advocate for R-2.

(JUDGEMENT)

[Per; Shreesha Merla, Member (T)]

1. Challenge in this Appeal is to the Impugned Order dated 20.07.2021 passed

by the Learned Adjudicating Authority (National Company Law Tribunal, New

Delhi, Bench - II), in IA 2084/ND/2021 in Company Petition (IB) No.-

1373(ND)/2019, whereunder the Adjudicating Authority has allowed the IA No. 2084/2021 preferred by Mr. Vivek Shukla, Ex-Director and Shareholder of the

'Corporate Debtor' seeking a direction to the Liquidator to reconstitute the

Stakeholders Consultation Committee ('SCC') by directing M/s. Global

Enterprises Logistics Private Limited /the Appellant herein.

2. Briefly put, facts in the instant Appeal are that Mr. Vivek Shukla the first

Respondent, and Ex-Director and Shareholder holding 8.33% of the total paid-up

Share Capital of the 'Corporate Debtor' sought for reconstitution of the SCC

constituted by the Liquidator of the 'Corporate Debtor'. The shareholding pattern

of the 'Corporate Debtor' as on the Insolvency commencement date is as follows:

S. No. Name of Shareholders Number % 1 Vivek Shukla 404716 8.33 2 Anant Kumar Choudhary 404705 8.33 3 Pravin Chand Rai 404706 8.33 4 Rajiv Kathuria 225000 4.63 5 SBS Logistics Holdings Singapore Pte. Ltd. 3417723 70.37 Total Shares 4856850 100

3. It was averred that while including the Appellant herein in the SCC as

representative of the Shareholders, the Liquidator has overlooked the fact that out

of the 5 Shareholders of the 'Corporate Debtor', 3 Shareholders including Mr.

Vivek Shukla, the Respondent herein have nominated the Respondent in terms of

Regulation 31A(3) of the Insolvency and Bankruptcy Board of India (Liquidation

Process), Regulations, 2016, as the representative of the Shareholders which is a

clear majority of 60%. Ignoring the majority nomination the Liquidator included

the Appellant herein as the representative of the Shareholders ignoring the factum

of cross conflict of interest between the Appellant herein with the 'Corporate

-2- Comp. App. (AT) (Ins.) No. 727 of 2021 Debtor' on account of pending Arbitration Proceedings before the Singapore

International Arbitration Centre in Arbitration No. ARB 105/2019/ARK. It was

stated that the Appellant herein is an entity hostile to the interest of the 'Corporate

Debtor' and that it has given up its rights and interest as a Shareholder of the

'Corporate Debtor' and therefore cannot be allowed to be a representative of the

Shareholders during the Liquidation process.

4. The Adjudicating Authority while allowing the Application observed as

follows:

"24. That from perusal of the Regulation 31A(3), which reads as "The liquidator may facilitate the stakeholders of each class to nominate their representatives for inclusion in the consultation committee", we observe that the said Regulation is silent on both "the criteria as well as process of nomination" of a Representative. However, the Regulation 31A(3) has bestowed a duty on the Liquidator to facilitate the stakeholders of each class to nominate their representatives for inclusion in the SCC.

25. That we further notice that the Liquidator, while facilitating nomination of the Shareholders in class through his mail dated 06.02.21, has not informed the shareholders that the representative shall be unanimously nominated by all the shareholders or the representative shall be decided on the basis of majority of shareholding in number or value. Such criteria ought to have been declared upfront to the all concerned.

26. Therefore, the nomination of the Applicant as the Representative of Shareholders cannot be rejected by the Liquidator on the ground that the said nomination was not made unanimously by all the shareholders.

27. Since the Applicant has been nominated by the majority i.e., 3 out of 5 Shareholders as the

-3- Comp. App. (AT) (Ins.) No. 727 of 2021 Representative of the Shareholders-in-class, which was duly communicated by the Applicant to the Respondent No. 1, the question of applicability of the provision under Regulation 31A(4) did not arise. Therefore, we hold that the nomination of the Respondent No. 2 as to represent Shareholders-in-class in the Stakeholders Consultation Committee of the Corporate Debtor made by the Respondent No. 1/Liquidator is not valid in terms of the provision of Regulation 31A (3) read with Regulation 31A (4) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.

28. Accordingly, the nomination of Respondent No. 2 to the Stakeholders Consultation Committee of the Corporate Debtor, made by the Respondent No. 1/ Liquidator in terms of Regulation 31A(4) of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, is set aside and the Liquidator is directed to accept the nomination of the Applicant as the Representative of Shareholders-in-class for the purpose of constitution of the Stakeholders Consultation Committee (SCC) of the Corporate Debtor."

5. Submissions of the Learned Counsel appearing on behalf of the

Appellant:

• Learned Counsel for the Appellant submitted that the 'existence of dispute'

between the 'Corporate Debtor' and its majority Shareholder cannot be a

basis to prevent a Stakeholder from exercising its right to be included in

the SCC under the Liquidation Regulations.

• It is submitted that the Liquidator in his capacity as a Resolution

Professional of the 'Corporate Debtor' has filed an Application under

Section 19(2) & Section 19(3) of the Insolvency and Bankruptcy Code,

2016, (hereinafter referred to as 'The Code') against the suspended Board

-4- Comp. App. (AT) (Ins.) No. 727 of 2021 of Directors of the 'Corporate Debtor' which includes Mr. Vivek

Shukla/the first Respondent after avoidance of transactions under Section

43 and Section 44 of the Code seeking avoidance and reversal of the

preferential transactions.

• It is summitted that an Application alleging mismanagement and siphoning

off funds by those in charge of Management and Affairs of the 'Corporate

Debtor' was also filed by one of the Shareholders of the 'Corporate Debtor'

before the Adjudicating Authority. It is argued that if the rationale used by

the first Respondent to allege that the Appellant is conflicted to be included

in the SCC, is applied here then the first Respondent who is a representative

of the 'Unsecured Financial Creditors' and one of the suspended Board of

Directors would be conflicted in more ways than the Appellant by being

included in the SCC. Further, the proceedings against the first Respondent

are for preferential and avoidance transactions and siphoning of monies

which are matters of utmost significance under the Code.

• It is also contended that the first Respondent is wearing three different hats

in relation to the 'Corporate Debtor' i.e., of a Shareholder, suspended

Director of the Board of the 'Corporate Debtor' and an 'Unsecured

Creditor'. The Appellant's ouster from the SCC will enable the first

Respondent to have a significant impact on the SCC and consequently the

Liquidation process.

-5-

Comp. App. (AT) (Ins.) No. 727 of 2021 • Regulation 31A(9) of the Liquidation Regulations provides that the SCC

should comprise of representatives from each class of Stakeholders to

advise a Liquidator by a vote of not less than 66% of the representative of

the SCC, present and voting i.e., a Liquidator will consider any advice of

the SCC only after 66% vote of the representatives, is obtained. Therefore,

the Appellant cannot independently advise or influence the Liquidator in

any manner.

• The Appellant had filed a Reply to the IA on 20.03.2021 and the Written

Submissions on 07.07.2021 and also appeared before the Adjudicating

Authority on 24.05.2021. The Rejoinder was also filed to the Reply. Orders

dated 11.06.2021 and 05.07.2021 record that the Counsel for the Appellant

is present and the matter was taken up by the Adjudicating Authority. But

the Impugned Order erroneously implies that no Affidavit in Reply or

Written Submissions were filed by the Appellant which is factually

incorrect.

6. Submissions of the Learned Counsel appearing for the first

Respondent:

• It is submitted that vide Order dated 16.12.2020, the Adjudicating

Authority initiated Liquidation process of the 'Corporate Debtor' and the

Liquidator invited nominations from the class of Shareholders to the SCC

vide email dated 06.02.2021. Vide email dated 10.02.2021, the first

Respondent informed the Liquidator that he had been nominated to the

-6- Comp. App. (AT) (Ins.) No. 727 of 2021 SCC by himself, Mr. Anant Kumar Chaudhary and Mr. Praveen Chand

Rai. The other Shareholders failed to nominate any person. Vide email

dated 15.02.2021, the Liquidator informed the first Respondent that the

Appellant too would be a Member of the SCC, subsequent to which, the

first Respondent raised his objections which were rejected by the

Liquidator on 20.02.2021.

• It is contended that the decision of the Liquidator in the SCC is bad as it

includes an erroneous interpretation of Regulation 31A of the Liquidation

Process Regulations, Regulation 31A(4) cannot be applied in the present

case as three Shareholders have nominated the first Respondent whereas

the Appellant did not vote during the said nomination process.

• It is submitted that Regulation 31A(4) and Regulation 31A(1) have been

amended with effect from 30.09.2021 and that the Impugned Order has

been passed on exactly the same principles as that of the amendment.

7. Submissions of the Learned Counsel appearing on behalf of the second

Respondent:

• Learned Counsel appearing for the Liquidator contended that the

Liquidator had sent Email to all the five Shareholders to the names were

appearing as Shareholders in the records of the 'Corporate Debtor' and had

sought the nomination for including the representative of the category of

'Shareholder'. None of the five Shareholders have filed the claim as the

Liquidator in terms of the Regulation 20 of the Liquidation Regulations.

-7-

Comp. App. (AT) (Ins.) No. 727 of 2021 Three Shareholders having a combined Shareholding of 24.99% had

nominated the first Respondent as that representative. Other two

Shareholders having 75.01% combined shareholding including the

Appellant had not made any nomination. Relying on Regulation 31A(3)

the Liquidator was of the view that the term 'Stakeholders of each class'

and Regulation 31A(3) would not mean some of the Stakeholders in the

class but would mean 'all the Stakeholders in the class'.

• It was also the view of the Liquidator that if some Stakeholders in the class

failed to nominate the representative, it would mean that the Stakeholders

(as the group) in the class have failed to nominate their representative. In

such scenario the Stakeholders with the highest amount in that class shall

be included in the SCC in terms of Regulation 31A(4) for Representative

of the absence of nomination in his favour. The Appellant being the

Stakeholders in the class of Shareholders with the highest Shareholding of

70.37% was included in the SCC going by the interpretation of the relevant

Regulations.

• IBBI has amended the Regulation 31A(4) of the Liquidation Regulation

with fact from 30.09.2021 which reads as follows:

"31A(4) : If the stakeholders of any class fail to nominate their representatives, under sub regulation (3), such representatives shall be selected by a majority of voting share of the class, present and voting."

-8-

Comp. App. (AT) (Ins.) No. 727 of 2021 • Regulation 31A(4) at the relevant time before the aforesaid amendment

reads as hereunder:

"(4) : If the stakeholders of any class fail to nominate their representatives, the required number of stakeholder with the highest claim amount in that class shall be included in the consultation committee."

• It was due to this grey area which has since been verified by IBBI, that the

Appellant has been nominated to the SCC. It is submitted that the present

position is that the inclusion in the SCC is on the basis of Members present

and voting (meaning only the Members who had nominated the

representative). It is argued that if such a clear Regulation had been in place

at the time when the Liquidator was constituting the SCC, the Appellant

would not have been nominated as the representative.

Assessment:

8. At the outset, the Shareholding pattern of the 'Corporate Debtor' is detailed

as hereunder to examine the effect of Regulation 31A of the Liquidation Process

Regulations:

S. No. Name of Shareholders Number % 1 Vivek Shukla 404716 8.33 2 Anant Kumar Choudhary 404705 8.33 3 Pravin Chand Rai 404706 8.33 4 Rajiv Kathuria 225000 4.63 5 SBS Logistics Holdings Singapore Pte. Ltd. 3417723 70.37 Total Shares 4856850 100

9. It is the case of the Appellant that Regulation 31A(3) of the Liquidation

Regulations provides that a Liquidator may facilitate the Stakeholders of each

class to nominate their representatives for inclusion in the SCC while Regulation

-9- Comp. App. (AT) (Ins.) No. 727 of 2021 31A(4) of the Liquidation Regulation provides the consequence of failure to

nominate a representative under Regulation 31A(3) of the Regulations. It is the

case of the Appellant that the amendment has been introduced to Regulation

31A(4) effect from 30.09.2021 regarding the process to be followed on failure to

nominate representatives by Stakeholders class which in the present case is the

Shareholder class. It is strenuously contended that the said 'Amendment' will not

apply to the facts of the present case as it has been introduced subsequent to the

Impugned Order. The Regulation 31A(4) prior to 30.09.2021 and with effect from

30.09.2021 is detailed as hereunder:

Regulation 31A(4) Prior to 30.09.2021 With effect from 30.09.2021 If the stakeholders of any class fail to If the stakeholders of any class fail to nominate their representatives, the nominate their representatives, under required number of stakeholders with sub regulation (3), such the highest claim amount in that class representatives shall be selected by a shall be included in the consultation majority of voting share of the class, committee. present and voting.

10. The amended Regulation 31A(4) provides that the representative shall be

selected by a majority of Voting Share of the class, present and voting if the

Stakeholders of any class fails to nominate the representatives. Learned Sr.

Counsel Mr. Rajshekar Rao strenuously argued that the criterion for the

Shareholder to be 'present and voting' for nominating the representatives under

Regulation 31A(4) was not provided for prior to the amendment. This amendment

extinguishes a vested right of the Shareholders of the highest share to be the

Member of the Shareholder class and that it is settled position of law that an

-10- Comp. App. (AT) (Ins.) No. 727 of 2021 amendment which affects vested rights adversely is to be construed as

prospective. It is also the case of the Appellant that the second Respondent in his

email dated 06.02.2021 while facilitating the Shareholders class to nominate their

representative in the SCC requested the Shareholders to send their nomination of

one representative after mutual discussions. It is contended that the Appellant

failed to be present and voting only because of the unpleasant relation amongst

the Appellant and other Shareholders and also because prior to the amendment,

Regulation 31A(4) did not require the Appellant to be 'present and voting' and

therefore the Appellant abstained from casting it's vote.

11. Regulation 31A(1) of the Liquidation Process Regulations, as it stood, at

the time when the matter was pending before the Hon'ble NCLT, is reproduced

hereunder for the sake of convenience:

..." (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."

12. For the sake of completion, Regulation 31A(1) of the Liquidation Process

Regulations amended with effect from 30.09.2021 vide the Insolvency and

Bankruptcy Board of India (Liquidation Process) (Second Amendment)

Regulations, 2021 reads as under:

..."(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 matters relating to -

-11-

Comp. App. (AT) (Ins.) No. 727 of 2021

(a) appointment of professionals and their remuneration under regulation 7;

(b) sale under regulation 32, including manner of sale, pre-bid qualifications, reserve price, amount of earnest money deposit, and marketing strategy:

Provided that the decision(s) taken by the liquidator prior to the constitution of consultation committee shall be placed before the consultation committee for information in its first meeting."

13. Regulation 31(1) of the Liquidation Process Regulations mandates that the

List of stakeholders shall be prepared by the Liquidator on the basis of proof of

claims submitted and accepted by the Liquidator, Regulation 31(1) of the

Liquidation Process Regulations is reproduced hereunder for the sake of

convenience:

"(1) The liquidator shall prepare a list of stakeholders, category-wise, on the basis of proofs of claims submitted and accepted under these Regulations, with -

(a) the amounts of claim admitted, if applicable,

(b) the extent to which the debts or dues are secured or unsecured, if applicable,

(c) the details of the stakeholders, and (d) the proofs admitted or rejected in part, and the proofs wholly rejected."

14. Regulation 31A(3) of the Insolvency and Bankruptcy Board of India

(Liquidations Process) Regulations, 2016 reads as follows:

"31A. Stakeholders' consultation committee.

-12-

Comp. App. (AT) (Ins.) No. 727 of 2021 (3) The liquidator may facilitate the stakeholders of each class to nominate their representatives for inclusion in the consultation committee."

15. It is the case of the Respondent that the SCC has to be constituted based on

the list of Stakeholders which in turn is prepared on the basis of the claims

received and accepted by the Stakeholders. The list of Stakeholders present in the

case does not contain the name of the Appellant and therefore the Liquidator has

erred in adding the Appellant as a representative of the Shareholder.

16. It is also the case of the first Respondent that the Appellant now claiming

to be a major Shareholder of the 'Corporate Debtor' was absent since 2016 and

has now showed up claiming a right to be a Member of the SCC by virtue of being

a majority Shareholder. It is also brought to the notice of this Tribunal that one of

the group entities of the Appellant namely SBS Logistics Singapore Pte Ltd. itself

attempted to initiate CIRP against the 'Corporate Debtor', which was disposed of

since a separate Application under Section 7 was already admitted on 04.09.2019

and subsequently a Liquidation Order was also passed. It is also brought to our

notice that the Second Respondent/Liquidator was also the RP in that Petition. It

is strenuously contended that it would be highly prejudicial to the interest of the

'Corporate Debtor' if the Appellant, an adversary of the 'Corporate Debtor', be

allowed to participate in the SCC as the representative of the Shareholders of the

'Corporate Debtor', merely on the basis that it holds the highest percentage of the

shares of the 'Corporate Debtor'. It is also submitted that it is only because of the

abrupt exit of the Appellant from the 'Corporate Debtor Company' in violation

-13- Comp. App. (AT) (Ins.) No. 727 of 2021 of the Shareholder Agreement that led to the Insolvency and now Liquidation of

the 'Corporate Debtor'.

17. A perusal of the material on record shows that as none of the Shareholders

have filed their claims before the Liquidator, in terms of Regulation 20 of the

Liquidation Regulations, their names do not appear in the list of Stakeholders

prepared in terms of Regulation 31 of the Liquidation Regulations. The

Liquidator constituted SCC in terms of the Regulation 31A based on the

Shareholding pattern of the 'Corporate Debtor' as per the available records. As

provided for under Regulation 31A(3) of the Liquidation Regulations, the

Liquidator, to facilitate the class of Shareholders to nominate the representatives

sent emails to all the five Shareholders on 06.02.2021. Admittedly, the first

Respondent has been nominated as a representative by three of the five

Shareholders, including himself having a combined shareholding of 24.99%. The

other two Shareholders having 75.01% combined shareholding have not

nominated the Appellant as their nominated representative and in fact did not

nominate anyone. Therefore, the Liquidator rejected the nomination of the first

Respondent on the ground that the nomination was not made unanimously by all

the Shareholders. Interestingly, the Liquidator in his Written Submissions has

submitted as follows:

"It is respectfully submitted that with the aforesaid amendment, the vagueness in the regulation 31A (4) as it earlier existed has been removed and complete clarity has been brought in. The present position is that the inclusion in the SC is to on the basis of members present

-14- Comp. App. (AT) (Ins.) No. 727 of 2021 and voting (meaning only the members who have nominated their representative). If such a clear regulation had been in place at the time when the respondent no. 2 as the liquidator was constituting the SC, the respondent no. 1 would have been nominated as the representative of shareholders instead of the appellant and such a situation would not have arisen."

18. Having regard to the factual matrix of the matter and the undisputed fact

that three out of the 5 Shareholders have nominated the first Respondent as the

representative of the Shareholders in class in compliance of Regulation 31A(3)

of the IBBI (Liquidation Process) Regulations, 2016, which was also duly

communicated by the first Respondent, the question of applicability of the

provision under Regulation 31A(4) does not arise in this matter. Regulation

31A(4) comes into the picture only when & if 'the Stakeholders of any class fail

to nominate their representatives under sub-Regulation (3)', which is not the case

here, as 3 out of 5 have already nominated the first Respondent. Therefore, the

contention of the Learned Sr. Counsel for the Appellant that 66% Voting is

required for any decision to be taken or that Regulation 31A(4) should be applied

prospectively, does not arise in the attendant case. The contention of the

Liquidator that 31A(4) ought to be invoked as only 24.99% of the Shareholders

nominated their representatives and the majority Shareholder did not represent or

nominate, cannot be sustained as if this view is taken then it would amount to

taking the value of the 'Shareholding' as the prescribed criteria for 'nomination'

which is not provided for under Regulation 31A(3). If this stand of the Liquidator

is accepted then in every case only the majority Shareholder would be

-15- Comp. App. (AT) (Ins.) No. 727 of 2021 automatically nominated, which is not the scope & objective of the Code. We are

also conscious of the ongoing Arbitration Proceedings at the Singapore

International Arbitration Centre between the 'Corporate Debtor' and the

Appellant herein and also that an entity of the Appellant group had chosen to file

an Application seeking to initiate CIRP against the very same 'Corporate Debtor'.

19. The Adjudicating Authority has rightly held that the nomination of the first

Respondent as the representative of the Shareholders cannot be rejected by the

Liquidator simply on the ground that the said nomination was not made

unanimously by all the Shareholders and has further held that as the first

Respondent was nominated by or i.e., the 3 out of 5 Shareholders, the question of

applicability of the provisions under Regulation 31A(4) does not arise.

20. We do not see any illegality or infirmity in the Order of the Learned

Adjudicating Authority and hence this Appeal fails and is accordingly dismissed.

Needless to add the Adjudicating Authority shall proceed in accordance with law.

[Justice Anant Bijay Singh] Member (Judicial)

[Ms. Shreesha Merla] Member (Technical)

Principal Bench, New Delhi 23rd September, 2022

himanshu

-16- Comp. App. (AT) (Ins.) No. 727 of 2021