Manish Jain vs Rakesh Bhatia

NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI COMPANY APPEAL (AT) (INSOLVENCY) No. 49 of 2022 (Arising out of Order dated 16.11.2021, passed by National Company Law Tribunal, New Delhi, Special Bench, Court-II, in C.P. (IB) No.-417(ND)/2017, I.A. 5278 of 2021)

IN THE MATTER OF:

Manish Jain, Ex-Director, M/s. P K Sales Company Pvt. Ltd. S/o Shri Sagar Chand Jain R/o A-2/30, Sector 5, Rohini, Delhi - 110085. ...Appellant

Versus

Sh. Rakesh Bhatia (Liquidator of P K Sales Company Pvt. Ltd.) B-8 Street No. 14, New Gobind Pura, Delhi - 110051. Email: liquidator.pksalescompany@gmail.com ...Respondent

For Appellant: Mr. Manan Batra, Dr. Amit George Advocate.

For Respondent: Mr. Sumant Khatri, Advocate for Liquidator.

JUDGEMENT

(Per: Shreesha Merla, Member (T))

1. Challenge in this Appeal preferred under Section 61 of the Insolvency

and Bankruptcy Code, 2016, (hereinafter referred to as 'the Code'), against

the Impugned Order dated 16/11/2021 in C.P. (IB) No.- 417(ND)/2017

passed by the Learned Adjudicating Authority (National Company Law -2-

Tribunal, New Delhi, Special Bench, Court-II) dismissing the I.A. 5278 of

2021 filed by the Appellant Mr. Manish Jain, the Ex-Director of M/s. P.K.

Sales Company Private Limited under Section 60(5) of the Code for

'Contempt' against the Liquidator/the Respondent alleging wilful

disobedience of the Order dated 08/01/2020 passed by the Coordinate

Bench of the Adjudicating Authority.

2. The Learned Adjudicating Authority, by the Impugned Order has

observed as follows:

"On 8th January 2020, this Bench has passed an order directing the Liquidator not to proceed to confirm the sale of the assets of the company until the permission is obtained. This particular order was passed on the submission made by the Ld. Counsel for the ex-promoters that a scheme under Section 230- 232 of the Companies Act should be considered before proceeding towards liquidation.

Subsequently, the present application for initiation of contempt proceedings has been filed on the ground that the liquidator had sold away the assets of the company. The point to be noted here is that it is 2 years that the applicant has not proceeded to file any scheme and petition under Section 230-232 of the Companies Act and has been dragging the matter. As there is no scheme/petition filed by the Applicant under Section 230-232 of the Companies Act, the action taken by the Liquidator in regard to the assets of the company cannot be considered as 'contempt'.

In view of the same this IA-5278/2021 is Dismissed."

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

Appellant:

• Learned Counsel for the Appellant submitted that the Liquidation

Order was passed against the 'Corporate Debtor'/M/s. P.K. Sales

Company Private Limited on 10/10/2018; that the Appellant along

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with the sister concern i.e., M/s. P.K. Industries and Dreamland

Realtors Private Limited (also in liquidation) entered into an OTS with

the sole Manager 'Financial Creditor'/the Karnataka Bank for Rs.30

Cr./- on 17/08/2019; that on an Appeal preferred against the

Liquidation Order, this Tribunal vide Order dated 30/05/2019

directed the Liquidator to take steps as laid down in terms of the

Order 'Y Shivaram Prasad' V/s. 'S. Dhannapal and Ors.' in

Company Appeal (AT) (Insolvency) No. 224 of 2018 that the

Appellant herein has indifferent intervals till 20/02/2021 paid a total

sum of Rs.11 Crs./- to the Karnataka Bank in accordance with the

terms of Settlement of the OTS; that vide email dated 18/08/2019,

pursuant to the OTS, the Appellant had requested the Liquidator to

file appropriate an Application before the Adjudicating Authority for

necessary sanction/approval in terms of the Code and revive the

'Corporate Debtor'; that the Appellant was constrained to file an

Application under Section 230-231 of the Companies Act, 2013,

(hereinafter referred to as 'The Act') individually before the

Adjudicating Authority which was opposed by the Liquidator despite

the settled law; the Appellant filed an Application in CA 1064/2019

bringing on record the additional documents pertaining to the

payment made to the Karnataka Bank in accordance with the OTS

and sent an email dated 15/11/2019 requesting the Liquidator to

forward the Settlement Scheme in the interest of the stakeholders.

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• It is further submitted by the Counsel for the Appellant that in light of

the pendency of CA 1064 of 2019 under Section 230-231 of the Act,

the Appellant filed CA No. 166 of 2020 seeking directions for stay of

auction of the property of the 'Corporate Debtor' and to direct the

Liquidator to proceed in terms of Section 230 of the Act and also to

decide CA 1064/2019 expeditiously. The Learned Counsel drew our

attention to the Order dated 08/01/2020 passed by the Adjudicating

Authority in CA 166/2020 which reads as follows:

"2 applications have been filed by Ex-Promoters relying upon the judgement of Hon'ble NCLAT which ordains that a scheme under Section 230-232 should be considered before proceeding towards Liquidation. It is not open to the ex-promoters to consider the same as the decision lies in the hands of the liquidator.

Pending any decision on any proposed scheme being accepted by the Liquidator, the sale of the assets of the Corporate Debtor shall only be confirmed after due permission from this Bench. All records necessary for considering the scheme shall be tendered by the Corporate Debtor to the Liquidator to enable him formalise the same.

To come up for further consideration on 29th January 2020."

• It is the case of the Appellant that there was a clear direction to the

Liquidator vide this Order to formalise the Scheme on the basis of the

records available with the Appellant pertaining to the said OTS. It is

submitted that in light of the Order dated 06/01/2020, the Liquidator

convened a meeting with all the stakeholders in order to formalise a

Scheme, but erroneously recorded the Minutes of the Meeting without

the knowledge and consent of the Appellant. It is further submitted

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that the Appellant has also paid a sum of Rs.2,58,420/- towards the

cost and fees of the Liquidator for convening the said meeting.

• It is the case of the Appellant that subsequently on account of the

pandemic situation, Application CA 1064 of 2019 was not taken up.

IA 2075 of 2020 was filed seeking expeditious disposal of CA 1064 of

2019 which shows that the intention of the Ex-Director was never to

delay the proceedings. On 15/06/2020, the Appellant approached the

Hon'ble High Court by which Order, the deadline of settling the loan

with Karnataka Bank was extended till 31/07/2020. It is the case of

the Appellant that without considering the fact that the 'Corporate

Debtor' is an MSME, the Special Bench of the Adjudicating Authority,

solely on the submissions advanced by the Counsel for the Liquidator,

recorded that the Scheme under Section 230 of the Act was not

maintainable as the Appellant was hit by Section 29-A of the Order

which makes him ineligible. Thereafter the Appellant sent an email on

28/08/2020 and on 31/08/2020 to the Liquidator that the Applicant

has a buyer who is ready to purchase the said property for a sum of

Rs.11 Crs./- and therefore requested the Liquidator to allow the

prospective buyer to inspect the said property at a suitable date and

time; that the Liquidator vide email dated 02/09/2020 refused to

adhere to the request of the Appellant and with an intention to

frustrate the scheme of the Appellant, issued an auction notice dated

20/09/2020 reserving the price of the said property for a sum of Rs.6

Company Appeal (AT) (Insolvency) No. 49 of 2022 -6-

Crs./-, though the prospective buyer was ready to purchase the

property for a sum of Rs.11 Crs./-.

• It is the main case of the Appellant that despite an Order of this

Tribunal directing the Liquidator to comply with the terms laid down

in 'Y Shivaram Prasad' (Supra) the Liquidator has sold the asset for

a much lesser price. It is further contended that the Appellant had

made a payment of Rs.2.60 Crs./- in compliance of the terms of the

said OTS against which the Karnataka Bank issued an NOC dated

15/02/2021 which goes to show that the said OTS was valid till

15/02/2021, that, the Liquidator without the permission of the

Adjudicating Authority sold the said property at an extremely low

price to the same buyer who had approached the Appellant and the

Appellant had sought the permission of the Liquidator to inspect the

said property. Due to the complete defiance of the Order dated

08/01/2020, the Appellant filed Contempt Application vide

I.A.5278/2021, which was dismissed by the Adjudicating Authority.

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

Liquidator:

• It is submitted that vide Order dated 07/08/2020, the Adjudicating

Authority had given permission to the Liquidator to liquidate the

assets and subsequently the Appellant vide email dated 28/08/2020

requested the Liquidator to arrange for physical inspection of the

property.

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Company Appeal (AT) (Insolvency) No. 49 of 2022 -8-

• The Liquidator complied with the Order of the Adjudicating Authority

and disposed of the assets conducting a public auction. It was also

submitted that a local commissioner was appointed by the

Adjudicating Authority on account of complete non-cooperation of the

'Corporate Debtor'. Learned Counsel for the Liquidator further

contended that the 'Corporate Debtor' did not attend the meeting of

the concerned stakeholders held on 17/01/2020, wherein the

Liquidator requested the representatives of the Suspended Board of

Directors to furnish the copy of the MSME Certificate as submitted on

06/01/2020, as they initially denied having such a Certificate, but

had later furnished the copy of the Certificate applied on 06/01/2020,

which was on the same day as that of the Order of the Adjudicating

Authority. The Liquidator has recorded in the Minutes that the

Certificate was to be produced for examination. Learned Counsel drew

our attention to the 'Complaint' given by the 'Financial

Creditor'/Karnataka Bank on 01/05/20/19, at S.H.O Patel Nagar, on

the ground that the 'Corporate Debtor' had forged the 'Settlement

Letter'.

Assessment:

5. The Order dated 15/07/2020 passed by the Adjudicating Authority

directing the Liquidator to liquidate the assets is reproduced as hereunder;

"Counsel for the Applicant is present. Counsel for Liquidator is present. Counsel for Financial Creditor is present. It is brought to notice that a writ petition was filed by the applicant before the Hon'ble High Court of Delhi, wherein time up to 31st July 2020 is granted for making payment to the Financial Creditor. It is

Company Appeal (AT) (Insolvency) No. 49 of 2022 -9-

necessary to record the submission of the Counsel for Financial Creditor that the Applicant has approached to the Financial Creditor to give relaxation in relation to the payment. However, the Financial Creditor has taken a decision that there cannot be any relaxation as requested by the Applicant. It is also on record that Special Bench, NCLT, Delhi on 19.03.2020 directed the liquidator to proceed to liquidate the CD in accordance with the law. The matter stands adjourned.

List on 7th August 2020."

(Emphasis Supplied)

6. The Order of this Tribunal directing the Liquidator to proceed as per

terms of 'Y Shivaram Prasad' (Supra) is dated 21/05/2019. In this interim

period it is an admitted fact that there was no Scheme which was formalised

under Section 230 of the Act. It is the main case of the Appellant that the

Liquidator had acted in breach of the Order dated 29/01/2020 passed by

the Adjudicating Authority whereby the Learned Adjudicating Authority has

recorded that 'pending any decision on any proposed Scheme being accepted

by the Liquidator, the sale of asset of the 'Corporate Debtor' shall only confirm

after due permission from this Bench. All records necessary for considering

the Scheme shall be tendered by the 'Corporate Debtor' to the Liquidator to

enable him formalise the same'. It is the further case of the Appellant that in

an early hearing Application seeking early disposal of the Application I.A.

1064 of 2019, the Adjudicating Authority had passed the Order on

26/06/2020 observing that all the Petitions were admitted under Section 10

of the Code and no settlement under Section 230 was arrived at, and

Section 12-A proceedings cannot be invoked once the Liquidation Order is

passed.

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7. This Tribunal in 'Ramesh Kumar Chaudhary Through its authorised

representative Gautam Chaudhary & Anr.' Vs. 'Anju Agarwal Liquidator of

Shree Bhawani Paper Mills Ltd. & Ors.' considered the 'Corporate Debt

Restructuring' under the Scheme of Compromise & Arrangement. While

observing that a 'Debt' given by a lender can be restructured by the lender

by any 'Scheme' issued by the lender or RBI or Central Government, held as

follows:

"230. Power to compromise or make arrangements with creditors and members.-- .................(2) The company or any other person, by whom an application is made under subsection (1), shall disclose to the Tribunal by affidavit--

(a) all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company and the pendency of any investigation or proceedings against the company;

(b) reduction of share capital of the company, if any, included in the compromise or arrangement;

(c) any scheme of corporate debt restructuring consented to by not less than seventy-five per cent. of the secured creditors in value, including--

(i) a creditor's responsibility statement in the prescribed form;

(ii) safeguards for the protection of other secured and unsecured creditors;

(iii) report by the auditor that the fund requirements of the company after the corporate debt restructuring as approved shall conform to the liquidity test based upon the estimates provided to them by the Board;

(iv) where the company proposes to adopt the corporate debt restructuring guidelines specified by the Reserve Bank of India, a statement to that

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effect; and (v) a valuation report in respect of the shares and the property and all assets, tangible and intangible, movable and immovable, of the company by a registered valuer."

..............................................................................

"23. Section 230(2)(c) uses expression 'any scheme of corporate debt restructuring consented to by not less than seventy-five per cent of the secured creditors in value'. Sub-clause (c) of sub- section (2) of Section 230 is attracted when there is a scheme of corporate debt restructuring. The expression used in sub-clause

(c) is 'corporate debt restructuring'. Debt restructuring is well known concept. Debt given by a lender can be restructured by the lender by any scheme issued by the lender or Reserve Bank of India or Central Government. Debt restructuring scheme which are issued by the Reserve Bank of India or Central Government from time to time are to mitigate the hardship of the borrowers."

8. On a pointed query from the Bench as to whether any 'Scheme' was

formalised or 'Debt Restructured' with consent as provided under Section

230(2)(c) of the Code and filed before the Adjudicating Authority or before

this Tribunal, Learned Counsel for the Appellant drew our attention to the

contents of the Application filed on 19.08.2019 in IB 417(ND)/2017, in

which the letter dated 17/08/2019 issued by the 'Financial Creditor' to M/s.

P.K. Group of Industries is detailed as hereunder:

"ARMB/ND/PF: 290,283,277/ OR: 228/2019-20 Dated17.08.2019

Mr. Parveen Kumar Jain (Suspended Director) C/o P K Group of Industries Delhi,

Dear Sir,

Sub: OTS offer given by Mr. Parveen Kumar Jain for Liabilities of M/s. P K Sales Pvt. Ltd. (at Delhi-GT

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Karnal Road (Branch), M/s. P K Industries (at Delhi- West Patel Nagar Branch), M/s. Dreamland Realtors (at Delhi-West Patel Nagar Branch), & individual accounts of Mr. Parveen Kumar Jain & Mr. Manish Jain (at Delhi-West Patel Nagar Branch).

Ref: Your letter dated 16.08.2019.

In terms of MD/IOTS/50/19-20 dated 17.08.2019, the offer of the borrower for settling the above accounts under OTS by paying Rs.30,00,00,000/- (Thirty Crores only) is accepted in-principle subject to the following condition.

1. OTS amount of Rs.3000.00 Lakh (Thirty Crores Only) should be paid as follows:

a) Rs.25.00 Lakhs immediately. (2 Demand Drafts amounting to Rs.25.00 Lakhs) received by the bank and the same is subject to realization).

b) Rs.25.00 Lakhs payable on or before 31.08.2019.

c) Rs.500.00 Lakhs payable on nor before 30.09.2019.

d) Remaining Sum of Rs.2450.00 payable on or before 31.01.2020. If you fail to remit the OTS on or before each scheduled date interest @12% will be charged for the delayed period of instalment. However, the time will not be extended beyond 31.03.2020.

2. This OTS acceptance is subject to approval of the NCLT/NCLAT.

3. The above offer is without prejudice to our right to take further action under SARFAESI Act, if the amount is not paid as per the settlement terms.

4. Time, is the essence of this settlement, if the agreed amount is not paid as agreed, this OTS offer automatically stands cancelled."

(Emphasis Supplied)

9. From the aforenoted, it is clear that an offer of settlement was given

by the 'Financial Creditor' on 17/08/2019 with a specific time frame

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extending upto 31/07/2020. It is clear that despite the extended time

granted by the Hon'ble High Court of Delhi, wherein time was extended up

to 31/07/2020 still the 'Corporate Debtor' did not pay the amount. The

Adjudicating Authority has observed in their Order dated 15/07/2020 as

follows:

"It is necessary to record the submission of the Counsel for the 'Financial Creditor' that the Applicant has approached the 'Financial Creditor' to give relaxation in relation to the payment. However, the 'Financial Creditor' has taken a decision that there cannot be any relaxation as requested by the Applicant."

10. This Order has attained finality and the Liquidator has proceeded to

auction the sale of the asset. It is an admitted fact that the property was

sold in 2021. It is seen from the Minutes of the Meeting dated 17/01/2020

that the Members of the stakeholders had recorded in the Minutes as

follows:

"The Corporate Debtor Company is not going concern since April 2017.

The Corporate Debtor Company is out of business from 2.5 years approximately.

There is no key managerial person available in Corporate Debtor Company.

There is no employee in the Corporate Debtor Company.

Assets against Liabilities and Claims are not favourable to restart and revival of Corporate Debtor Company, however the representative of suspended Board of Directors submitted that once the management is handed over to them they can clear all liabilities and claims of the Corporate Debtor Company."

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11. Keeping in view that admittedly the Scheme under Section 230 of the

Act was never formalised; the date extended by the Hon'ble High Court of

Delhi was only up to 31/07/2020; that more than two years has lapsed

subsequent to the Order of this Tribunal; that it is a Section 10 Application

under the Code filed by all three Companies together; that the Order dated

15/07/2020 has attained finality, the Liquidator has only complied with the

terms of the Order dated 15/07/2020 and lastly there is no Scheme which

has been filed till date under Section 230-232 of the Act; it cannot be said

that the action of the Liquidator in selling the asset by public auction, be

termed as contempt or any breach of the Order of the Adjudicating

Authority.

12. For all the aforenoted reasons, this Appeal fails and is accordingly

dismissed. No Order as to costs.

[Justice Ashok Bhushan] Chairperson

[Dr. Alok Srivastava] Member (Technical)

[Ms. Shreesha Merla] Member (Technical) New Delhi 19th April, 2022

himanshu

Company Appeal (AT) (Insolvency) No. 49 of 2022