M/s Vimal Oils And Foods Ltd Thro M/s Arrhum Tradelink private Limited By Rakesh Baluram Lahoti vs State Of Gujarat

R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

R/CRIMINAL MISC.APPLICATION NO. 11557 of 2021

With

CRIMINAL MISC.APPLICATION (FOR VACATING INTERIM RELIEF) NO. 1 of 2022

In

R/CRIMINAL MISC.APPLICATION NO. 11557 of 2021

FOR APPROVAL AND SIGNATURE:

HONOURABLE MS. JUSTICE GITA GOPI

================================================================

1 Whether Reporters of Local Papers may be allowed to see the judgment ?

2 To be referred to the Reporter or not ?

3 Whether their Lordships wish to see the fair copy of the judgment ?

4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ?

================================================================ M/S VIMAL OILS AND FOODS LTD THRO M/S ARRHUM TRADELINK PRIVATE LIMITED BY RAKESH BALURAM LAHOTI Versus STATE OF GUJARAT ================================================================ Appearance: MR YOGESH LAKHANI SENIOR ADVOCATE WITH MR. RAHUL R DHOLAKIA(6765) for the Applicant(s) No. 1 KULDEEP K ADESARA(9222) for the Respondent(s) No. 3 MR KM PARIKH(575) for the Respondent(s) No. 3 MR RC KODEKAR(1395) for the Respondent(s) No. 2 MR PRANAV TRIVEDI APP for the Respondent(s) No. 1 ================================================================

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CORAM:HONOURABLE MS. JUSTICE GITA GOPI

Date : 24/08/2022

CAV JUDGMENT

1. The present petition has been filed by M/s.

Vimal Oils & Foods Ltd., through its buyer M/s. Arrhum

Tradelink Private Ltd., under section 482 of the Code of

Criminal Procedure, 1973, (for short "the Cr.P.C.")

praying to quash and set aside FIR No.RC2222021A0002

of 2021, lodged by first informant - Deputy General

Manager at Bank of India Large Corporate Bank,

Ahmedabad with AC-IV (VYAPAM) Bhopal Police Station,

Bhopal under section 120B read with section 420 of

Indian Penal Code and section 13(2) read with section

13(1)(d) of the Prevention of Corruption Act, 1988 (for

short ' PC Act') qua the present petitioner - M/s. Vimal

Oils & Foods Ltd.

2. The facts narrated in the memo of petition can

be enumerated as under:

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R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022

2.1 M/s. Vimal Oil & Foods Ltd. (for short 'VOFL')

has been bought by M/s. Arrhum Tradelink Pvt. Ltd.,

registered under the Companies Act, 1956, on

04.12.2020, in the liquidation process conducted by

Liquidator appointed by the N.C.L.T. Ahmedabad Bench

through public e-auction.

2.2 M/s. Vimal Oils & Foods Ltd., registered under

the Companies Act, 1956 having office at Mehsana, had

availed loan facilities from a consortium of 9 banks. It is

alleged that the said company and its erstwhile directors

in collusion have caused wrongful loss of Rs.678.92

crores plus uncharged interest to the lending banks. The

loan accounts were declared by Bank of India as NPA on

30.09.2015 and other banks declared the same on

different dates. It is alleged that various audits pertaining

to the accounts of M/s. Vimal Oil & Foods Ltd. was

conducted and from time to time findings or conclusion

were noted in Joint Lenders Meetings (JLM) of bankers

and in one of the meeting conducted on 13.01.2016, it

was decided to conduct forensic audit and on 06.04.2016,

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in 8th JLM meeting it was noted that, none of the banks

have red flagged the account or declared the company as

willful defaulter.

2.3 It is stated that on 09.11.2016, in 12 th JLM, M/s.

S.P. Mangal & Co. for conducting Forensic Audit and on

05.06.2017, the banks have discussed the Forensic Audit

report and noted that the forensic auditor has certified

that there is no diversion of funds. Thereafter, M/s.

R.S.Patel & Co. Charted Accountants, was appointed for

conducting of forensic audit of VOFL from 01.04.2016 to

19.12.2017, the report was discussed and noted on

29.08.2018 to the effect that no material transactions

under section 66 of Insolvency and Bankruptcy Code,

2016 ( in short "IB Code) for fraudulent trading or

wrongful trading, was observed.

2.4 It is stated that after selling the Vimal Oil &

Foods Ltd. through public e-auction and receiving the

sale proceeds amount, the Bank of India on 21.05.2021

has complained about fraud perpetrated by VOFL and its

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erstwhile directors. Thereafter, SARFEASI action was

initiated against it and recovery suits were filed by the

banks before the DRT, Ahmedabad. It is stated that one of

the creditors, Bank of Baroda approached the NCLT for

initiating the Corporate Insolvency Resolution process of

the Company under Insolvency and Bankruptcy Code,

2016 (hereinafter referred to as 'IB Code' for short),

which was admitted on 19.12.2017. An application was

moved for passing an order under section 33(1)(a) of the

IB Code for liquidation of the corporate debtor and vide

its order dated 19.12.2019, the NCLT passed liquidation

order appointing a liquidator.

2.5 The e-auction process was started of VOFL and

M/s. Arrhum Tradelink Pvt. Ltd. paid the deposit amount

on 09.11.2020 and on 04.12.2020, public e-auction was

conducted and M/s. Arrhum Tradelink Pvt. Ltd. emerged

as highest bidder of Rs.69.95 Crores. Thereafter, M/s.

Arrhum Tradelink Pvt. Ltd. deposited the amount of bid

and with prior permission of banks, the liquidator

executed the sale agreement on 03.03.2021 for sale of

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VOFL and on 11.03.2021, sale certificate of VOFL as

going concern was executed. The NOCs were arranged to

the effect of undertaking from the banks to withdraw the

name of VOFL from willful defaulter list as maintained by

the Bank and RBI, and, shall withdraw all the cases, suits,

application filed against VOFL for recovery of loans and

interest amount.

2.6 It is stated that the liquidator had also

conducted public e-auction for selling of the outstanding

receivables of VOFL and in the said process M/s. Arrhum

Tradelink Pvt. Ltd. had given final bid amount of Rs.5.25

Crores to acquire the said outstanding receivables thus

the sale agreement of the same was executed on

11.03.2021.

2.7 In the meanwhile, during a meeting of JLM on

21.01.2020, it was resolved to file a complaint with CBI in

terms of Office Memorandum No.25016/10/2017 dated

12.10.2018 issued by the Ministry of Home Affairs, Govt.

of India, which is in relation to look-out circulars. It is

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contended that the circular dated 01.07.2016 issued by

the Reserve Bank of India states that within 30 days of

RBI reporting, the bank commissioning the forensic audit

should lodge a complaint with the CBI on behalf of all

banks in the consortium, while here, the bank has

classified account as Fraud on 21.02.2018 and filed the

complaint with CBI on 21.05.2021.

3. Learned Senior Advocate Mr. Yogesh Lakhani

with Mr. Rahul R.Dholakia, learned advocate for the

petitioner submits that, M/s. Arrhum Tradelink Pvt. Ltd.

purchased the VOFL as going concern and outstanding

receivables in public e-auction but was not informed

about classification as 'Fraud' by liquidator or by banks.

Senior Advocate submits that the petitioner is innocent

and has not committed any offence as alleged in the

impugned FIR and the same is false, frivolous and the

same causes undue harassment to the petitioner as a

subsequent buyer.

3.1 Senior advocate Mr. Lakhani stated that no

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person or entity with an ordinary prudence would have

invested such a large sum of money, had the fact of the

resolution pertaining to registration of FIR been disclosed

prior to e-auction in information memorandum and in any

other documents. It is stated that the order under section

91 Cr.P.C. dated 18.06.2021 substantiates that they are

subjected to undue hardships and destitution, despite no

fault of theirs and now they are subjected to investigation

process at Bhopal, Madhya Pradesh.

3.2 Mr. Lakhani, senior advocate further submitted

that being kept in dark about the resolution and

subsequent filing of FIR has put the entire transaction for

the subsequent buyer, in jeopardy. He submits that

consortium of banks has acted in complete violation of

the circular of the RBI, they appears to have sat over the

resolution dated 21.01.2020 to file a complaint with CBI

till e-auction of the company was concluded and the

amount gets recovered.

3.3 Senior advocate Mr. Lakhani submitted that the

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offence is alleged to have been committed between the

period from 2014 to 2017 and the resolution to file the

complaint is taken in the meeting dated 21.01.2020, yet

the FIR in question is filed on 30.05.2021 i.e. after the

sale transaction was concluded and amount was received.

He submits that post the sale transaction of the company,

the banks have provided 'No Objection Certificates' in

favour of the company and have declared that the

company be deemed to be discharged from all

proceedings initiated against it before any Tribunal,

Court or authority and had resolved to withdraw all legal

cases, suits, applications filed against the company for

recovery of loans and its interest amount. He submits that

despite the same, the respondent no.3 has initiated

criminal proceedings against the company, which in turn

is detrimental, and damages the investment made by the

subsequent buyer.

3.4 Mr. Lakhani, senior advocate further submitted

that being a public limited company, it would have to face

immense hardships in this scenario and would render the

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entire purchase transaction futile, as being a listed

company, which is under suspension, in order to revoke

the same, all details including the registration of the

present FIR has to be mentioned, which would hamper

the entire process. He submits that regular investigation

updates needs to be given on BSE and NSE, which

creates a negative sentiment in the market; the goodwill

and reputation of VOFL would be severely affected. He

submits that due to the pendency of such investigation, it

would be very difficult for the company to conduct

business with trust. He submits that it is very difficult for

the company to hire and or retain new staff and appoint

independent directors etc., as the searches are being

conducted by CBI at the factory and office premises of the

company.

3.5 Senior advocate stated that company is a

person as defined under section 11 of the IPC and as held

by Hon'ble Apex Court in case of Standard Chartered

Bank v. Directorate of Enforcement, reported in AIR

2005 SC 2622, subjected to fine in criminal proceedings

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and therefore by no fault of the subsequent buyer, it has

to face the trauma of trial and the over-looming threat of

conviction resulting into fine and shall also have to

comply with the provisions of section 305 of the Cr.PC.

3.6 Mr. Lakhani, senior advocate further submitted

that the company is constrained to file the present

petition only to protect and safeguard the investment

made by the subsequent buyer M/s. Arrhum Tradelink

Private Limited and not the erstwhile directors of the

company, who are already facing prosecution in

connection with the said FIR and with whom the

subsequent buyer has no connection whatsoever.

3.7 Learned Senior Advocate Mr. Lakhani has

referred to the contents of the communication dated

06.03.2021 of Bank of India that, "We Bank of India,

Ahmedabad Large Corporate Branch, also undertake to

withdraw the name of VOFL from the willful defaulter list

as maintained by the bank and RBI and we shall withdraw

all legal cases, suits, application filed against VOFL for

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recovery of loans and its interest amount by us from time

to time" to bring home the point that Bank of India had

already received the entire amount, which fact has been

acknowledged by the Bank too. It was contended by the

learned Senior Advocate that until 06.03.2021, the Bank

of India had not contemplated to file any complaint and it

was only on 30.05.2021 that the impugned complaint

came to be filed. The Bank ought to have informed the

said fact to the Liquidator of the Company In Liquidation,

before doing so. He submitted that M/s. Arrhum

Tradelink Private Limited is a bonafide purchaser of the

Company In Liquidation and therefore, no criminality

could be attributed to the said Company. Further, the

impugned complaint ought to have been lodged any

where in Gujarat State but, has been lodged at Bhopal,

Madhya Pradesh with some ulterior motive, when the

complaint has been lodged by Deputy General Manager of

Bank of India, Large Corporate Branch, Ahmedabad.

3.8 The learned Senior Advocate placed reliance

upon the instructions laid down by the Reserve Bank of

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India in the form of "Reserve Bank of India (Frauds

classification and reporting by commercial banks and

select Financial Institutions) Directions 2016" to submit

that under Clause - 8.9.5 therein, in case a decision is

taken to classify any account as a 'fraud' on completion of

forensic audit, then the Red Flagged Account (RFA)

status shall be changed to Fraud in all banks and

reported to the Reserve Bank of India and on the relevant

platform within a week of such decision. Besides, within

30 days of the RBI reporting, the bank commissioning /

initiating the forensic audit should lodge a complaint with

the CBI on behalf of all banks in the consortium. In this

case, the Reserve Bank of India was intimated about the

alleged fraud in the year 2018; however, the complaint in

question came to be filed only in May 2021. No

explanation is forthcoming regarding the delay of more

than two years in lodging the impugned complaint. He

vehemently submitted that the impugned complaint is in

fact a fraud committed by the Bank on the successful

bidder, who is a bonafide purchaser.

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3.9 Learned advocate relied on the amended

provision of Section 32A of the Insolvency and

Bankruptcy Code, 2016 to submit that after the resolution

plan is approved by the Adjudicating Authority, there

would be change in the management and control of the

Corporate Debtor. He submitted that the provision of

Section 32A makes its clear that if prosecution has been

instituted during the Corporate Insolvency Resolution

Process, the Corporate Debtor shall stand discharged

from the date of approval of the resolution plan subject to

requirements of the said sub-section having been fulfilled.

It is submitted that in this case, the resolution and / or

liquidation process as a going concern has been accepted.

Thus, in accordance with the provisions of the IBC, VOFL

would have immunity from prosecution. He further

submitted that the authority concerned is duty bound to

cooperate so that the wrong doers do not get away. The

learned Senior Advocate drew attention of the Court to

the clauses of the Sale Agreement, and more particularly,

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to clause-2.7, to submit that the Company is being

transferred to the Buyer on "as is where is, whatever

there is" and "no recourse" basis. Though, the Company

has been transferred as a Going Concern basis, the

Company has not been able to conduct its business

smoothly on account of the initiation of prosecution.

4. Mr. R.C. Kodekar, learned advocate for

respondent no.2 - Central Bureau of Investigation

submits that, the FIR has been registered on the basis of

complaint of Deputy General Manger, Bank of India,

Large Corporate Branch, Ahmedabad alleging that the

directors and some other persons have committed fraud

against Bank of India an other 8 consortium banks to the

tune of Rs.678.93 crores during the period from 2014 to

2017, by resorting to various malafide activities such as

diversion of loan funds, transactions / sales / purchases

with same/related parties/sister concerns. It is submitted

that majority of sales made with certain selective parties

and accommodative in nature, company maintained the

bank accounts outside the consortium member banks and

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transacting sales with parties, which are not in activities

of trading and/or manufacturing of edible oil, and

purchasing at inflated invoice prices, routing of revenue

proceeds in the bank accounts outside the consortium

banks.

4.1 Mr. Kodekar, learned advocate, submits that

prima facie it appears that the cognizable offence has

been committed by the Company and its directors in

criminal conspiracy with unknown public servants and

unknown private persons during the period from 2014 to

2017 in the loan accounts of VOFL, which is required to

be investigated. It is submitted that the I.O. of CBI issued

notice under section 91 Cr.P.C. well within his powers as

as to investigate the cognizable offences alleged to have

been committed.

4.2 Mr. Kodekar further submitted that the

consortium banks acted as per the guidelines of the RBI

and declared the loan accounts of the borrower company

VOFL as NPA on the dates mentioned in the complaint.

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Further the Bank of India declared the loan account of

VOFL as red flagged on 05.07.2016 and thereafter the

forensic audit of the account was got to be done by the

forensic auditor, which submitted its forensic audit report

dated 08.05.2017 observing various irregularities in the

accounts. He submits that during 2014-15, the statutory

auditor had also submitted its audit report by observing

irregularities in the accounts of VOFL and further a

special audit report was also done for the year 2014-2015

and the same also pointed out the irregularities in the

loan accounts of the borrower company VOFL; thereafter

for the period 2016-2017, forensic audit of the loan

accounts of the said company was also done and the

irregularity was pointed out in the said account.

4.3 Mr. Kodekar further submitted that the Fraud

Monitoring Group of consortium banks declared the loan

account of the said company under the fraud category

and in the joint lender meetings, they decided to file joint

FIR with CBI in terms of OM No.25016/10/2017 dated

12.10.2018 of MHA, Government of India. In regard to

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the delay, Mr. Kodekar submitted that CBI registered the

case on the basis of the complaint dated 24.05.2021

received from Dy. General manager, Bank of India. He

submits that criminal proceedings based on fraud and

cheating may not be a subject matter of an

NOC/agreement. He submitted that a company is a

perpetual person which cannot be sold or purchased; the

directors and other office bearers may come and go but

the company remains the same as a legal person and by

entering into the company, one cannot evade civil or

criminal liability of the company.

4.4 Learned advocate Mr. Kodekar further

submitted that FIR is not registered against the present

office bearers of the VOFL including Shri Rakesh Baluram

Lahoti or the Directors of M/s. Arrhum Tradelink Private

Limited. He submitted that no coercive action is

intended / proposed on the part of CBI against the office

bearers of M/s. Arrhum Tradelink Private Limited and the

present office bearers of VOFL. He submitted that since

the loan amount was obtained in the name of the

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Company, VOFL has been made a formal accused in the

FIR for which the criminal liability shall be borne by the

then office bearers of the company, and, directors of M/s.

Arrhum Tradelink Private Limited will not be criminally

liable as office bearers of the company. Mr. Kodekar

further stated that since Shri Rakesh Lahoti has entered

into the company by way of liquidation proceedings, only

after 19.12.2019, and therefore he is not liable to

represent the company in criminal proceedings for the

acts done before the liquidation proceedings, and as such

not being affected person he is having no locus standi to

challenge the FIR.

5. Mr. K.M. Parikh, learned advocate appearing

for the respondent no.3 - Bank of India relying on the

affidavit, submitted that, the offence allegedly committed

is between the period from 2014 to 2017, however, the

petitioner has purchased the property of VOFL on

03.03.2021. Mr. Parikh submits that the present petition

is not maintainable since the petitioner has not been

shown as accused in the FIR nor in the order dated

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18.06.2021 issued under section 91 of the CRPC, nor any

criminal proceedings are initiated by the Bank against

M/s. Arrhum Tradelink Pvt. Ltd., and therefore the

petitioner is not entitled to raise any grievance as alleged

in the present petition, as the same is instituted against

VOFL and its erstwhile directors.

5.1 Mr. Parikh stated that the petitioner has

purchased the VOFL as going concern from liquidator

under the provisions of I.B. Code, 2016. He submitted

that as per the provisions of Regulation 32A of IBBI

(Liquidation Process) Regulations, 2016, for sale of a

company as going concern, the only identification of its

assets and liabilities of the company is identified. The

provisions of the I.B. Code nowhere restrain the Bank

from initiating criminal proceedings against the company

sold as a going concern, by filing an FIR under section

154 of the Cr.P.C. It is submitted that it is not required to

mention about initiation and/or of any fraud committed by

corporate debtor and its directors in the auction sale

notice and therefore the arguments canvassed by the

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petitioner that the liquidator had not disclosed such facts

is of no relevance.

5.2 Mr. Parikh stated that petitioner has wrongly

misconceived and interpreted the provisions of the I.B.

Code, by considering the fact that if the company is

purchased as going concern in the auction proceedings,

the purchasing company is also liable for the fraud

committed by the liquidated company with its financial

creditors. He submits that the petitioner is free to carry

out its business at its own whims and wishes and

respondent no.3 - Bank has no role to play in the

commercial wisdom of the petitioner in carrying out the

business of its company. He submits that the order dated

18.06.2021 under section 91 Cr.P.C. is passed only for

production of original documents of liquidated company -

VOFL; section 91 emphasizes on production of document

to be produced which are necessary for further

investigation and no order has been passed against the

petitioner.

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5.3 Mr. Parikh further submitted that there is no

requirement under the statutory provisions of the I.B.

Code, to inform the liquidator about the classification of

the account as fraud by the banks. He submitted that all

the books, records, documents accounts and materials of

VOFL are in the custody and physical possession of the

petitioner and therefore respondent no.2 had called upon

the petitioner to produce documents in its possession. He

submits that when law does not impose statutory

obligation upon the liquidator and the banks, such

questions are not required to be adjudicated by this Court

at the instance of the petitioner. Mr. Parikh submitted

that on the basis of the amended provisions of the I.B.

Code, 2016 no proceedings can be initiated against the

successful auction purchaser after the approval of

resolution plan for an offence committed by earlier

management and therefore, the contention of the

petitioner that proceedings in relation to fraud are

initiated against them is completely misconceived and the

successful auction purchaser is only required to provide

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assistance and documents, as required and called for

pertaining to earlier management, as the company is

purchased by the successful auction purchaser as going

concern.

5.4 Mr. Parikh further stated that the ground of

delay in filing the FIR cannot be raised by the petitioner,

because the petitioner was neither director nor promoter

or guarantor of VOFL during the period from 2014 to

2017 and the said contention is not available to the

petitioner. He submits that the petitioner is not

concerned with the alleged offence committed prior to

purchase of the said company under the proceedings

before the NCLT under IB Code and therefore he cannot

raise such grievance in the present quashing petition on

behalf of the erstwhile directors of VOFL.

5.5 Mr. Parikh relied on the judgment in case of

Neeharika Infrastructure Pvt. Ltd. Vs. State of

Maharashtra, in Criminal Appeal No.330 of 2021, and

placed reliance on the judgment dated 23.12.2021 in

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Letters Patent Appeal No.1043 of 2021 with Letters

Patent Appeal No.1047 of 2021 in Special Civil

Application No.9508 of 2021. He submitted that one of

the Director of VOFL had challenged the order of the

learned single Judge dated 20.07.2021 in Special Civil

Application No.9508 of 2021, whereby the learned single

Judge declined to entertain the writ application. He

submits that both the appeals were disposed of and CBI

was permitted to continue the investigation of the alleged

offences pursuant to the FIR lodged by the Bank and it

was directed to the appellants not to take undue

advantage of the order and try to interfere or scuttle the

investigation in any manner undertaken by the CBI, or

else a strict view shall be taken by the Court, and thus

Mr. Parikh submitted that the present petitioner would

have no locus to file the present petition.

6. Having heard learned Advocates on record,

before considering the case on merits, it would be

appropriate to note here, that, in the Letters Patent

Appeals under Clause 15, the order of the learned single

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came to be modified to the extent keeping it open for the

appellants being the directors of the company to file

detail representation addressing the competent authority

of the Bank within a period of three weeks from the date

of order, directing that on receipt of the representation

the same may be considered by the appropriate authority

or committee of the Bank and take an appropriate

decision on the same by passing an appropriate order.

The issue was raised that no opportunity of hearing was

given to any of the directors of the Company before

taking the decision to declare the account as fraud and

that it was incumbent upon the Bank to issue notice

calling upon company and its director to show cause as to

why the account should not be declared as fraudulent

account or fraud account.

6.1 The documents produced on record suggests

that the loan account was declared by Bank of India as

NPA on 30.09.2015 and the account was red flagged on

05.07.2016. Other Banks have declared the account as

NPA on other dates, and in the financial year 2016-2017,

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the Bank of India declared the Account as NPA. Various

audits pertaining to account of VOFL was conducted and

from time to time findings or conclusion were noted in

Joint Lenders Meetings (JLM) of bankers. The summary of

audit and noting in JLM meeting are as under:

(i) On 18.06.2015, the statutory auditor

of Bank of India, namely, M/s. M.M. Nissim &

Co., Chartered Accountant, Mumbai has

observed several irregularities in the account

of VOFL and has given various observation in

their report.

(ii) Thereafter, based on the adverse

findings of the statutory audit report for the

year 2014-15, the bankers decided to conduct

special audit from 01.04.2014 to 31.03.2015.

M/s. R.R. Tibrewal & Co., Chartered

Accountants, Ahmedabad submitted its report

on 10.08.2015 to the banks of the special

audit.

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(iii) On 13.01.2016, the bankers in their

5th JLM meeting, discussed the special audit

report and unanimous view was that, the

company's operations cannot be termed as

fraudulent in view of observations of special

audit report, unless a forensic audit is

conducted.

(iv) On 06.04.2016 in 8th JLM meeting it

was also noted that, none of the banks had red

flagged the account or declared the company

as wilful defaulter.

(v) On 09.11.2016, in 12th JLM, the banks

appointed M/s. S.P. Mangal & Co. for

conducting forensic audit of the company.

Issuance of SARFESAI notice under section

13(4) by Bank of India on 29.10.2016 was

informed to the house.

(vi) On 05.06.2017 in 16th JLM, the banks

discussed the Forensic Audit report and it was

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noted by consortium of the forensic auditor

certifying of no diversion of funds.

(vii) On 24.08.2017, in 17th meeting of

JLM, finally it was agreed to go with the

findings of forensic audit report. It was advised

to lift the Red Flag in the account after closure

of the report and permission from H.O.

6.1.1 During Corporate Insolvency Resolution

Process,M/s. R.S. Patel & Co. Chartered Accountants was

appointed to conduct the forensic audit of VOFL from

01.04.2016 to 19.12.2017, under the provision of IB Code.

On 29.08.2018 in 6th Committee of creditors

meeting, the forensic audit report of M/s. R.S. Patel & Co.

Chartered Accountants was discussed and it was noted

that, no material transactions under section 66 of I.B.

Code, were observed. Section 66 of I.B. code, 2016 is

relating to fraudulent trading or wrongful trading.

6.2 It was argued by Senior Advocate Mr. Lakhani

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that the special audit and two forensic audit was

conducted by independent auditors and the bankers has

concluded in the JLM, and even in COC, it was noted that

the Company's operations cannot be termed as

fraudulent. Forensic auditor has certified that there is no

diversion of funds, none of banks has red flagged the

account. The grievance is raised that after the sale of

VOFL through public e-auction and receiving the sale

proceeds, the Bank of India has made complaint alleging

fraud perpetrated by VOFL and its erstwhile directors.

7. M/s. Arrhum Tradelink Private Ltd. purchased

VOFL under liquidation on 03.03.2021 from company's

liquidator - Mr. Manoj Khattar appointed, by NCLT,

Ahmedabad Bench, in terms of section 34 of the

Insolvency and Bankruptcy Code, 2016. The e-auction

was conveyed on 04.12.2020 for the sale of the company

on a 'going concern' basis. The buyer submitted a bid

amounting to Rs.69.95 Crores, which was declared as

highest bid in the e-auction and further purchased the

outstanding receivable of VOFL by final bid amount of

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Rs.5.25 Crores for the sale agreement executed on

11.03.2021.

7.1 Mr. Abhay N.Manudhane, Resolution

Professional (for short 'RP') of VOFL - corporate debtor,

as an applicant had moved before the National Company

Law Tribunal (NCLT) by filing M.A. No.17 of 2018 in

Company Petition (IB) No.135 of 2017 for liquidation of

the corporate debtor under section 33(1)(a) of the IB

Code, 2016 and for the appointment of liquidator.

7.2 Facts as emerged shows that CP(IB)

No.135/2017 was filed by Corporate Creditor, Bank of

Baroda against the Corporate Debtor VOFL under section

7 of the IB Code, 2016 seeking initiation of Corporate

Insolvency Resolution Process ('CIRP' for short), which

was admitted by the NCLT as adjudicating authority vide

order dated 19.12.2017, and appointed Mr. Abhay

N.Manudhane as Interim Resolution Professional ('IRP'

for short) of the Corporate Debtor. The Committee of

Creditors ('CoC' for short) in its first meeting held on

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22.01.2018 decided for continuation of the IRP as RP.

7.3 RP received six Eols after the public

advertisement, out of which only four resolution plans

were found eligible. It was submitted that Resolution Plan

submitted by M/s. Parixit Irrigation Ltd., one of the four

Applicant, was found higher in offer value by the RP. The

CoC informed the representatives of M/s. Parixit

Irrigation Ltd. that their plan would be approved, if they

increase the offer at 15%. The same was agreed upon and

therefore the plan was revised. Similar process of such

suggestions of CoC and revision of Resolution Plan took

place in subsequent CoC meetings. The RP also got the

extension of 90 days' time beyond 180 days vide order

dated 19.06.2018, which expired on 16.06.2018. After the

extension of time, revised Resolution Plan of M/s. Parixit

Irrigation Ltd. was rejected by CoC with 70.69% voting

result. Since no Resolution Plan was approved, RP moved

the application before the Adjudicating Authority for

passing an order under section 33(1)(a) of the IB Code for

liquidation of the corporate debtor.

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7.4 During the pendency of the application under

section 33(1)(a) of the IB Code, one I.A. being I.A. No.453

of 2018 was filed by M/s. Parixit Irrigation Ltd., with

prayer to quash and set aside the decision of CoC

rejecting the Resolution Plan submitted by it, and further

for a direction to the CoC to reconsider the resolution

plan.

7.5 The Adjudicating Authority (NCLT) on perusing

the record found that, CoC took the resolution plan for

fresh consideration of M/s. Parixit Irrigation Ltd.; still the

same was rejected by 70.69% voting, under that

circumstances, the Adjudicating Authority were of the

view that it had no jurisdiction to interfere with the

commercial wisdom of the CoC, as observed in K.

Sasidhar's case and subsequently reiterated by the

Hon'ble Supreme Court in the judgment passed in Civil

Appeal No.8766-67 of 2019 in the case of Committee of

Creditors of Essar Steel India Limited through

Authorised Signatory Vs. Satish Kumar Gupta &

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Ors.. The commercial wisdom of the Committee of

Creditors, thus, was not interfered by the Adjudicating

Authority and under this circumstances, the authority

passed order of ceasing moratorium declared under

section 14 of the IB Code, from the date of order of

liquidation. The liquidator was directed to send certified

copy of the order with which the Corporate Debtor was

registered; further it was ordered that no suit or other

legal proceedings shall be instituted by or against the

Corporate Debtor subject to section 52 of the IB Code

with liberty granted to the liquidator to file Suit or other

legal proceedings on behalf of Corporate Debtor with

prior approval of the NCLT. Further, it was made clear by

the authority that said direction shall not apply to legal

proceedings in relation to such transactions as notified by

the Central Government in consultation with any financial

sector regulator. The Order of the Adjudicating Authority

was made to be a notice of discharge to the officers,

employees and workmen of the Corporate Debtor, except

for the time the business of the Corporate Debtor was

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continued by Liquidator of the Corporate Debtor during

the liquidation process. The powers of the Board of

Directors, key managerial personnel and the Partners of

the Corporate Debtor was ordered to be ceased, with

further direction, that it shall be vested with the company

liquidator. In addition to that, company liquidator was

empowered to exercise the powers and duties as

enumerated in Sections 35 to 50, 52 to 54 of the IB Code,

2016, read with Insolvency and Bankruptcy Board of

India (Liquidation Process) Regulations, 2016. The

personnel of the Corporate Debtor were required to

extend all assistance and cooperation to the Liquidator as

may be required in managing the affairs of the Corporate

Debtor.

7.6 In consequences, the application being I.A.

No.453 of 2018 of M/s. Parixit Irrigation Ltd. came to be

rejected and M.A. No.17 of 2018 was allowed. The

Adjudicating Authority passed an order for initiation of

liquidation of the Corporate Debtor - VOFL under section

33 of the IB Code and Mr. Manoj Khattar (Reg. No.

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IBBI/IPA-002/IP-N00748/2018-2019/12264) was

appointed as liquidator for the purpose of liquidation of

the Corporate Debtor.

8. The provisions of section 32A of the IB Code,

2016 was relied upon by Senior Advocate Mr. Lakhani to

submit that sub-section (2) of section 32A does not permit

any action against the property of the corporate debtor

when the property is covered under a resolution plan

approved by the Adjudicating Authority under section 31,

for the offence committed prior to the commencement of

CIRP, or sale of liquidation assets under the provisions of

Chapter III of Part II to a person, who do not fall within

the exceptions added to sub-section(2).

8.1 It appears that section 32A does not

differentiate between CIRP (Corporate Insolvency

Resolution Process) and sale of liquidated assets.

Immunity is granted to the corporate debtor for any of

the liability of the corporate debtor for the offences

committed prior to the commencement of the corporate

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insolvency resolution process when property is covered

by CIRP approved by Adjudicating Authority under

section 31 or sales of liquidation assets under the

provisions of Chapter III of Part II of IB Code.

8.2 Section 32A of the IB Code, 2016 (inserted by

Act 1 of 2020, section 10 (w.e.f 28.12.2019), is

reproduced hereunder for ready reference:

"32A. Liability for prior offences, etc. -

(1) Notwithstanding anything to the contrary contained in this Code or any other law for the time being in force, the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted for such an offence from the date the resolution plan has been approved by the Adjudicating Authority under section 31, if the resolution plan results in the change in the management or control of the corporate debtor to a person who was not-

(a) a promoter or in the management or

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control of the corporate debtor or a related party of such a person; or

(b) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court:

Provided that if a prosecution had been instituted during the corporate insolvency resolution process against such corporate debtor, it shall stand discharged from the date of approval of the resolution plan subject to requirements of this sub- section having fulfilled:

Provided further that every person who was a "designated partner" as defined in clause (j) of section 2 of the Limited Liability Partnership Act, 2008 or an "officer who is in default", as defined in clause (60) of section 2 of the Companies Act, 2013, or was in any manner in-charge of, or responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor in any manner and who was directly or indirectly involved

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in the commission of such offence as per the report submitted or complaint filed by the investigating authority, shall continue to be liable to be prosecuted and punished for such an offence committed by the corporate debtor notwithstanding that the corporate debtor's liability has ceased under this sub-section.

(2) No action shall be taken against the property of the corporate debtor in relation to an offence committed prior to the commencement of the corporate insolvency resolution process of the corporate debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority under section 31, which results in the change in control of the corporate debtor to a person, or sale of liquidation assets under the provisions of Chapter III of Part II of this Code to a person, who was not -

(i) a promoter or in the management or control of the corporate debtor or a related party of such a person; or

(ii) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to

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believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court.

Explanation.- For the purposes of this sub-section, it is hereby clarified that,-

(i) an action against the property of the corporate debtor in relation to an offence shall include the attachment, seizure, retention or confiscation of such property under such law as may be applicable to the corporate debtor;

(ii) nothing in this sub-section shall be construed to bar an action against the property of any person, other than the corporate debtor or a person who has acquired such property through corporate insolvency resolution process or liquidation process under this Code and fulfils the requirements specified in this section, against whom such an action may be taken under such law as may be applicable.

(3) Subject to the provisions contained in sub-sections (1) and (2), and

notwithstanding the immunity given in this section, the corporate debtor and any

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person, who may be required to provide assistance under such law as may be applicable to such corporate debtor or person, shall extend all assistance and co- operation to any authority investigating an offence committed prior to the commencement of the corporate insolvency resolution process.]

8.3 In the case of Manish Kumar Vs. Union of

India And Another, reported in (2021) 5 SCC 1, the

Hon'ble Supreme Court of India, in its original civil

jurisdiction while dealing with the provisions of sections

3, 4 and 10 of the Insolvency and Bankruptcy Code

(Amendment) Act, 2020 has dealt with section 32A as

section 10 of the amendment inserts section 32A in the

Code; challenge was given to section 32A by allottees

under real estate project and the creditors. After

considering the statement, objects and reasons, it was

held that no case was made out whatsoever to seek

invalidation of Section 32A. The relevant observation is as

under:

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R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022

"We are of the clear view that no case whatsoever is made out to seek invalidation of Section 32A. The boundaries of this Court's jurisdiction are clear. The wisdom of the legislation is not open to judicial review. Having regard to the object of the Code, the experience of the working of the code, the interests of all stakeholders including most importantly the imperative need to attract resolution applicants who would not shy away from offering reasonable and fair value as part of the resolution plan if the legislature thought that immunity be granted to the corporate debtor as also its property, it hardly furnishes a ground for this Court to interfere. The provision is carefully thought out. It is not as if the wrongdoers are allowed to get away. They remain liable. The extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate. We must also not overlook the principle that the impugned provision is part of an economic measure. The reverence courts justifiably hold such laws in cannot but be applicable in the instant case as well. The

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provision deals with reference to offences committed prior to the commencement of the CIRP. With the admission of the application the management of the corporate debtor passes into the hands of the Interim Resolution Professional and thereafter into the hands of the Resolution Professional subject undoubtedly to the control by the Committee of Creditors. As far as protection afforded to the property is concerned there is clearly a rationale behind it. Having regard to the object of the statute we hardly see any manifest arbitrariness in the provision."

8.4 It was observed in the said judgment that the

corporate debtor and its property in the context of the

scheme of the Code constitute a distinct subject matter

justifying the special treatment accorded to them.

Erecting a bar against the property of the corporate

debtor when viewed in the larger context of the

objectives sought to be achieved at the forefront of which

is maximisation of the value of the assets which again is

to be achieved at the earliest point of time cannot become

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the subject of judicial veto on the ground of violation of

Article 14. Creation of a criminal offence as also

abolishing criminal liability must ordinarily be left to the

judgment of the legislature.

9. Here, in the present matter, the meeting of the

committee of creditors of VOFL had been held time to

time under the chairperson - Mr. Abhay N.Manudhane.

The CIRP was further extended for 90 days and the NCLT

granted the extension making it effective from

16.06.2018; and in the meeting held on 16.08.2018, the

CoC members were circulated with the order of the

NCLT, where it was observed that RP had conducted

visits of various debtors which included seven major

debtors. The valuation report of current and other assets

submitted by valuer M/s. Pipara & Co. LLP, Chartered

Accountants, Ahmedabad, at Item No.A5 was put for

notice. After obtaining the confidentiality undertaking

from each of the CoC members, the chairperson

circulated valuation report and also placed on table the

comparative statement of earlier two valuers and

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corresponding valuation by third valuer, and after a long

discussion, the members unanimously adopted the

valuation report submitted by M/s. Pipra and Company

LLP; and accordingly after the adoption of the valuation

report the liquidation value according to the provision of

IB Code, 2016 & CIRP regulations was revised.

9.1 At Item No.A4, Forensic Audit Report of M/s.

R.S. Patel & Co. were taken into consideration and it was

decided that the erstwhile director and managing director

(CMD of the company) would be requested to attain the

next CoC meeting to explain the query and observation of

Forensic Audit Report and therefore, decided to call CoC

meeting on 23.08.2018.

9.2 In the 5th CoC meeting on 23.08.2018, the

Forensic Audit Report of M/s. R.S. Patel & Co. Chartered

Accountant was put for discussion. The CoC expressed

the view that the Forensic Audit Report was not

conclusive nor it gives specific observation on the

transaction covered under IBC, as specified in the scope

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of audit. So, after discussion, the CoC on the basis of the

observation of Forensic Audit Report requested the

forensic auditors to issue clarificatory report to the

queries, so raised, which came to be noted in the minutes.

To that, Mr. Shah partner of M/s. R.S. Patel & Co.

assured to submit the required report/information within

a week, which was tabled in the next meeting.

9.3 On 29.08.2018, 6th CoC meeting was held and

at item no.A5, further submission of Mr. Rajan Shah,

Forensic Auditor (partner of M/s. R.S. Patel & Co.) was

put for notice and discussion; conclusion in the report

was drawn on conduct of the Forensic Audit, which reads

as under:

"Mr. S.V. Shah representing CFM Asset Reconstruction Pvt. Ltd. enquired to the Forensic Auditor as to whether any fraudulent/wrongful transaction was found during the forensic audit.

Mr. Rajan clarified that the matter was also covered in sec.66 of IBC 'Fraudulent trading or wrongful trading'

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and his comment on the same has been that no material transactions under following provisions of IBC were observed which were already covered in his report.

Thereafter, Mr. Rajan Shah requested the CoC to consider the fresh Report submitted by him in this meeting as his Final Forensic Audit Report in place of the earlier report. The CoC noted all the above points and accepted this revised report as the Final Forensic Audit Report.

During the course of discussion, representative of IDBI enquired with erstwhile CMD about routing of transactions through non consortium

banks. Mr. Jayesh Patel, informed that for last several years the company was transacting through the various banks and after earlier forensic auditors' report, the transactions with these banks discontinued except SBI."

The revised resolution plan submitted by M/s.

Parixit irrigation Ltd. was also taken up for discussion, at

item no.A6.

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9.4 On the basis, M.A. No.17 of 2018 was moved by

Abhay N.Manudhane RP of VOFL before the NCLT and

counter objection by M/s. Parixit Irrigation Ltd. by I.A.

453 of 2018, after the observation, order was passed by

Adjudicating Authority under section 33(1)(a) for

liquidation of VOFL.

10. I.B. Code, 2016 provides for three modes of

revival:

(a) the CIRP under Chapter II;

(b) sale of a company in liquidation as a going concern

(read with Regulation 32(e) and (f)); and

(c) a scheme of compromise or arrangement under

section 230 of the Act of 2013, following upon an order

for liquidation being passed under Chapter III of the IBC.

10.1 In the judgment of Arun Kumar Jagatramka

Vs. Jindal Steel and Power Ltd. & Anr., in Civil Appeal

No.9664 of 2019 with Writ Petition (C) No.269 of 2020

And with Civil Appeal No.2719 of 2020, the Hon'ble Apex

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Court by its judgment dated 15.03.2021, has affirmed

about three modes of revival of the corporate debtor as

contemplated under the provisions of IB Code. While

elaborating on the 'clean slate' concept in the said

judgment, it has been observed that section 35(1)(f)

applies to the liquidator but does not applies to NCLT,

acting as either the Adjudicating Authority or as the

Tribunal. Further held that, under Regulation 32, of the

Liquidation Process Regulations, two modes are

contemplated for the sale of corporate debtor as 'going

concern', while four modes are contemplated for the sale

of the assets of the corporate debtor. The prohibition

under Section 35(1)(f) will apply only to a sale which is

governed by Regulation 32.

10.2 Section 35(1)(f) reads thus:

"(f) subject to section 52, to sell the immovable and movable property and actionable claims of the corporate debtor in liquidation by public auction or private contract, with power to transfer such property to any person or body corporate, or to sell the same in parcels in such

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manner as may be specified:

Provided that the liquidator shall not sell the immovable and movable property or actionable claims of the corporate debtor in liquidation to any person who is not eligible to be a resolution applicant.

11. Learned advocate Mr. Kodekar for the CBI has

referred to two judgments, (i) Sunil Bharti Mittal Vs.

Central Bureau Of Investigation, reported in (2015) 4

SCC 609 (ii) Iridium India Telecome Ltd. v. Motorola

Inc., reported in (2011) 1 SCC 74, to contend that the

criminal intent of person(s) controlling company can be

imputed to company based on the principle of "alter-ego".

Section 29A of the IB Code is an answer to the corporate

criminality liability and the immunity provided under

section 32A of liability for the prior offences etc., and lays

down that despite anything contrary contained in the IBC

or any other law for the time being inforce, the liability of

the corporate debtor for the offence committed prior to

the commencement of the Corporate Insolvency

Resolution Process shall cease, and the corporate debtor

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shall not be prosecuted for such an offence from the date

the resolution plan, has been approved by the

Adjudicating Authority under section 31, if the resolution

plans results in the change of management or control of

the corporate debtor to a person who was not, a promoter

or in the management or control of the corporate debtor

or related party of such a person; or a person with regard

to whom the relevant investigating authority has, on the

basis of material in its possession, reason to believe that

he had abetted or conspired to the commission of offence

and has submitted and filed a report before the relevant

statutory authority or Court.

12. The proviso to sub-section (1) clarifies, that, if a

prosecution had been instituted during the Corporate

Insolvency Resolution process against such corporate

debtor, it shall stand discharged from the date of

approval of the resolution plan subject to fulfilling the

requirements as laid down in the sub-section. The 2 nd

proviso to sub-section (1) further clarifies that every

person who was a "designated partner' as defined in

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clause (I) of section 2 of the Limited Liability Parnership

Act, 2008 (6 of 2009), or an "officer who is in default", as

defined in clause (60) of section 2 of Companies Act, 2013

(18 of 2013), or was in any manner incharge of, or

responsible to the corporate debtor for the conduct of its

business or associated with the corporate debtor in any

manner and who was directly or indirectly involved in the

commission of such offence as per the report submitted

or complaint filed by the investigating authority, shall

continue to be liable to be prosecuted and punished for

such an offence committed by the corporate debtor

notwithstanding that the corporate debtor's liability has

ceased under section 32A.

12.1 Law is clear that as soon as a resolution plan

has been approved by the Adjudicating Authority under

section 31 and the resolution plans results in the change

in control of the corporate debtor, it stands discharge for

any of the offences committed prior to the

commencement of the Corporate Insolvency Resolution

Process. All persons, referred in second proviso, shall

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continue to liable to be prosecuted and punished for the

offence committed by the corporate debtor, even though,

the liability of the corporate debtor ceases.

12.2 Section 29A makes provision for persons not

eligible to be resolution applicant. Section 29A(g) with

proviso is reproduced hereinbelow to understand the

criminal liability:

"29A(g): has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under this Code:

[Provided that this clause shall not apply if a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place prior to the acquisition of the corporate debtor by the resolution applicant pursuant to a resolution plan approved under this Code

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or pursuant to a scheme or plan approved by a financial sector regulator or a court, and such resolution applicant has not otherwise contributed to the preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction;]"

13. Here, in this case as observed herein, the

resolution plan could not be finalized and therefore the

resolution professional, Abhay N.Manudhane, moved the

Adjudicating Authority by MA No.17 of 2018 for an order

for liquidation under section 31(1)(a) of the IB Code.

Chapter-III of the IB Code deals with liquidation process.

13.1 Liquidation process is dealt with in Chapter-III

of IB Code. Section 33 is for the initiation of liquidation.

Before the expiry of the Insolvency Resolution period or

to the maximum period permitted for completion of the

Corporate Insolvency Resolution process under section-

12 or the fast track corporate insolvency resolution

process under section 56, as the case may be, the

Adjudicating Authority does not receive a resolution plan

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under sub-section (6) of section 30; or rejects the

resolution plan under section 31 for the non-compliance

of the requirements specified therein; it shall pass an

order requiring the corporate debtor to be liquidated in

the manner as laid down in Chapter III. Sub-section (2) of

section 33 further clarifies that where the resolution

professional, at any time during the corporate insolvency

resolution process but before the confirmation of

resolution plan, intimates the Adjudicating Authority of

the decision of the committee of creditors [approved by

not less than 66% of the voting share] to liquidate the

corporate debtor, the Adjudicating Authority shall pass a

liquidation order as referred to in sub-clauses (i), (ii) and

(iii) of clause (b) of sub-section (1).

13.2 Section 33, thus, reads as under:

33. Initiation of liquidation - (1) Where the Adjudicating Authority,-

(a) before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the

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corporate insolvency resolution process under section 12 or the fast track corporate insolvency resolution process under section 56, as the case may be, does not receive a resolution plan under sub-

section (6) of section 30; or

(b) rejects the resolution plan under section 31 for the non-compliance of the requirements specified therein,

it shall-

(i) pass an order requiring the corporate debtor to be liquidated in the manner as laid down in this Chapter;

(ii) issue a public announcement stating that the corporate debtor is in liquidation; and

(iii) require such order to be sent to the authority with which the corporate debtor is registered.

(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

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not less than sixty-six per cent. of the voting share] to liquidate the corporate debtor, the Adjudicating Authority shall pass 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.]

(3) Where the resolution plan approved by the Adjudicating Authority [under section 31 or under sub-section (1) of section 54L,] is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).

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(4) On receipt of an application under sub-section (3), if the Adjudicating

Authority determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order as referred to in sub-

clauses (i), (ii) and (iii) of clause (b) of sub- section (1).

(5) Subject to section 52, when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor:

Provided that a suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority.

(6) The provisions of sub-section (5) shall not apply to legal proceedings in relation to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.

(7) The order for liquidation under this section shall be deemed to be a notice of discharge to the officers, employees and

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workmen of the corporate debtor, except when the business of the corporate debtor is continued during the liquidation process by the liquidator.

13.3 According to the provisions when the

Adjudicating Authority before the expiry of the insolvency

resolution period or to the extended period does not

receive resolution plan under sub-section (6) of section 30

or rejects resolution plan under section 31 for the non-

compliance of the requirements prescribed therein, it

shall pass an order requiring the corporate debtor to be

liquidated. Sub-section (2) lays down that resolution

professional at any time during the corporate insolvency

resolution process and before the confirmation of the

resolution plan intimates the Adjudicating Authority of

the decision of the committee, approved by not less than

66% of the liquidate corporate debtor, the Adjudicating

Authority shall pass an liquidation order, as referred in

sub-sections (i) (ii) and (iii) of clause (b) of sub-section

(1). The committee may take a decision to liquidate the

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corporate debtor even before the confirmation of the

resolution plan including at any time before the

preparation of the information memorandum.

13.4 Here, in this case, the RP Abhay N.Manudhane

had moved the Adjudicating Authority for an order of

liquidation, as the submission of resolution plan and

revised resolution by M/s. Parixit Irrigation Ltd. was not

approved by the mandatory voting result of 70.69%.

14. Section 32A(2) clarifies that no action shall be

taken against the property of the corporate debtor in

relation to the offences committed prior to the

commencement of the corporate insolvency resolution

process of the corporate debtor when the property

covered under the resolution plan results into change of

control of corporate debtor or the sale of the liquidated

assets. Clause (ii) to the Explanation under sub-section

(2) of section 32A further clarifies that there would not be

a bar for action against the property of any person other

than the corporate debtor or a person, who has acquired

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such property through corporate insolvency process or

liquidation process under IB Code.

14.1 Section 29A stipulates the category of persons

who "shall not be eligible to submit a resolution plan".

The proviso to section 35(1)(f) incorporates the same

norms in the liquidation process, where it stipulates that

the liquidator shall not sell the immovable and movable

property or actionable claims of the corporate debtor in

liquidation "to any person who is not eligible to be a

resolution applicant". The purpose of the ineligibility

under Section 29A is to achieve a sustainable revival and

to ensure that a person who is the cause of the problem

either by a design or a default cannot be a part of the

process of resolution.

14.2 The prohibition, which has been enacted under

section 29A has extended to Chapter III while being

incorporated in the proviso to section 35(1)(f). Under

Liquidation Process Regulations, Chapter VI deals with

the realization of assets. Regulation 32 is in the following

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terms:

"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:

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."

Clause (a) to (d) of Regulation 32 deal with the sale

of assets on a stand-alone basis in a slump sale

collectively or in parcels. Clauses (e) and (f) deal with the

sale of the corporate debtor or its business as a going

concern. Regulation 32-A(1) lays down:

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"32A. 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."

Regulation 32-A(1) emphasizes the importance

placed on the transfer of the corporate debtor or its

business on a going concern basis. The purpose behind is

the revival of the corporate debtor.

15. It is to be noted that Regulation 37 under the

Resolution Regulations 2016 or Regulation 32 of the

Liquidation Regulations 2016, both enumerates similar

measures that may be adopted in the course of resolution

or liquidation, as the case may be. Both sanction the sale

of whole or part of the assets of the corporate debtor or

its sale as a going concern. The liquidation Regulations

2016, not only makes provision for its sale as a going

concern but also emphasises an possibility being explored

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before steps for sale of assets is attempted as per

Regulation 32A. If the corporate debtor facing liquidation

be sold as a going concern, it would not be liable to be

dissolved. When a corporate debtor undergoes liquidation

under Chapter III, it continues to exist as an entity. The

IBC essentially envisages the process of resolution or

liquidation to move forward unhindered. The legislature

in its wisdom has recognized the need to insulate the

implementation of measures for restructuring, revival or

liquidation of a corporate debtor from caprice of litigation

or prosecution once the process of resolution or

liquidation reaches the stage of the Adjudicating

Authority approving the course of action to be finally

adopted in relation to the corporate debtor. Section 32A

of the IBC gains importance upon the decision of the

Adjudicating Authority when it approves measures to be

implemented in order to take the process of liquidation or

resolution to its culmination.

16. In the case of Manish Kumar (supra), this issue

has been dealt with, where it was observed that, the

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extinguishment of the criminal liability of the corporate

debtor is apparently important to the new management to

make a clean break with the past and start on a clean

slate. The doctrine of clean slate becomes adoptable since

the very intent is revival of the corporate debtor and as

observed herein, one of the mode for revival is the sale of

the Company in liquidation as a going concern.

16.1 Section 32A also deals with the eventuality

where resolution plan of resolution applicant is not

approved by CoC, by not less than 66% of the voting

share. Here, in the instant case, the revised resolution

plan of M/s. Parixit Irrigation Ltd. was rejected by 70.69%

voting results. In the contingency of rejection of

resolution plan, the act authorises the Adjudicating

Authority to order for liquidation under Liquidation

Process Regulations. The liquidator is mandated to

endeavor first to sell the corporate debtor or businesses

of corporate debtor as going concern, with the absolute

purpose of revival of corporate debtor, if the Liquidator is

of an opinion that it would maximize the value of the

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corporate debtor.

16.2 Thus, through Section 32A of IB Code, the

insulation is provided to corporate debtor and to its

properties as they would be susceptible to investigations

or proceedings related to criminal offences committed by

its, prior to the commencement of a CIRP, which would

lead to imposition of liabilities and restrictions on the

corporate debtor and its properties even after they were

lawfully acquired by a resolution applicant or a successful

bidder respectively. Section 29A read with section 35(1)

(f), places restrictions on related parties of the corporate

debtor from proposing a resolution plan and purchasing

the property of the corporate debtor in the CIRP and

liquidation process respectively. The proceedings under

the IB Code are designed to ensure maximization of

value, that requires transfer of the corporate debtor to

bonafide persons, where position is safeguarded by

ring-fencing them from prosecution and liabilities under

offences committed by erstwhile promoter etc. When

bonafide persons, takes over the management of the

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corporate debtor, they should not be penalized for the

action of erstwhile management of the corporate debtor.

Thus, VOFL as a going concern and its properties would

not be liable for the alleged fraud of the earlier

management.

17. In the result, the petition is allowed. M/s. Vimal

Oil & Foods Ltd. (VOFL) stands discharge from the

offence registered against it in connection with FIR

No.RC2222021A0002 of 2021. Thus, the FIR

No.RC2222021A0002 of 2021, lodged with AC-IV

(VYAPAM) Bhopal Police Station, Bhopal is quashed and

set aside qua M/s. Vimal Oil & Foods Ltd. with direction

that VOFL shall extend all assistance and cooperation to

any authority investigating the offence.

18. In view of the above, no order in connection to

Civil Application, the same stands disposed of.

(GITA GOPI, J.) Pankaj

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