Milind Dixit & Anr vs Elecon Engineering Company Ltd & Ors

[Arising out of order dated 27th March, 2019 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, in MA 1096/2019 in CP(IB)1319(MB)/2017]

IN THE MATTER OF:

1. Milind Dixit, Promoter, Shareholder and Ex Director of Enviiro Bulkk Handling Systems Pvt. Ltd. Residing at Plot No. 100 Pratham, Near Wakad, Telephone Exchange Wakad, Pune - 411 057.

2. Prashant Puppal, Promoter and Shareholder of Enviiro Bulkk Handling Systems Pvt. Ltd. Address: "Dwarka" Bungalow, Sector 27, Plot No. 332, Nigadi Pradhikaran, Pune - 411 044. ....Appellants

Vs

1. M/s Elecon Engineering Company Ltd., Address: Anand Sojitra Road, Vallabh Vidyanar, Gujarat - 388 120.

2. Invent Assets Securitization and Reconstruction Pvt. Ltd., Registered Office at: 107, Jolly Maker, Chamber No. 2, 225, Nariman Point, Mumbai - 400 021.

3. Saraswat Co operative Bank, Address: C-2 Kohinoor Estate Co-op Housing Society, Plot No. 12, Mula Road, Sangarnwadi, Pune - 411 003.

4. R. L. Mogra, Interim Resolution Professional w.e.f. 18/06/2017 Address: 24, 3rd Floor, Bombay Mutual Annexe, 17 Rustom Sidhwa Marg, Fort, Mumbai - 400 001. -2-

5. Vipul Choksi, Substituted Resolution Professional, Address: 38, Bombay Mutual Building, Dr. D. N. Road, Fort, Mumbai - 400 001.

6. Rajat Mukherjee, Liquidator, w.e.f. 27/03/2019 Address: Office No.30, 2nd Floor, Lawyer Chamber, Picket Road, Marin Lines. PIN - 400 002. ....Respondents

Present:

For Appellants: Ms. Anannya Ghosh, Mr. Aayush Singhvi and Mr. Udayaditya Banerjee, Advocates. For Respondents: None.

BANSI LAL BHAT, J.

Appellants, claiming to be Promoters/ Shareholders and erstwhile

Directors of 'Enviiro Bulkk Handling Systems Pvt. Ltd.' (Corporate Debtor)

have preferred the instant appeal impugning the order dated 27th March, 2019

passed by the Adjudicating Authority (National Company Law Tribunal),

Mumbai Bench in MA 1096/2019 in CP (IB) 1319 (MB)/2017 by virtue

whereof MA 1096/2019 filed by the Resolution Professional under Section 33

of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as 'I&B

Company Appeal (AT) (Insolvency) No. 500 of 2019 -3-

Code') for liquidation of the Corporate Debtor based on approval of Committee

of Creditors (hereinafter referred to as 'COC') was allowed and the Corporate

Debtor was ordered to be liquidated. The impugned order has been assailed

on a variety of grounds including alleged irregularity in appointment of

Resolution Professional, collusion between the Resolution Professional and

the COC, bias and fraud.

2. Heard learned counsel for Appellant at the pre-admission stage and

waded through the record. It appears that on an application filed under

Section 9 of I&B Code by M/s Elecon Engineering Company Ltd.' (Operational

Creditor) the Adjudicating Authority initiated Corporate Insolvency Resolution

Process by passing order of admission dated 4th December, 2017. However,

the Interim Resolution Professional came to be appointed vide order dated

18th June, 2018. Since the Corporate Insolvency Resolution Process could

not be completed within the statutory period of 180 days, the Adjudicating

Authority extended time by 90 days in terms of order dated 19th December,

2018. It is not in dispute that the extended statutory period expired well

before the impugned order of liquidation was passed by the Adjudicating

Authority at the instance of the Resolution Professional.

3. It emerges from record that the COC constituted by the Resolution

Professional held as many as ten meetings between 16th July, 2018 and 8th

March, 2019. After deliberations the resolution plan submitted by 'Jyotiba

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Developers' was rejected with 100 percent vote share as in the opinion of COC

its value was less than the average liquidation value as assessed by the

valuers. The COC recommended that the Corporate Debtor be liquidated as

a going concern. Since the Resolution Professional - Mr. Vipul K. Choksi

conveyed his unwillingness to continue and act as a Liquidator, Shri Rajat

Mukherjee came to be appointed as the Liquidator with the consent of

stakeholders.

4. Learned counsel for Appellant vehemently argued that collusion

between the Resolution Professional and the COC paved the way for

liquidation of the Corporate Debtor. However, he was unable to demonstrate

any material irregularity of substance to substantiate his argument.

Admittedly, statutory Corporate Insolvency Resolution Period of 180 days

further extended by 90 days computed from the date of appointment of

Interim Resolution Professional has elapsed and there is no legal scope for

extension of the period. Any irregularity or illegality right from order of

admission till passing of the order of liquidation, if any, should have been

challenged before the competent forum at the appropriate stage. The

Corporate Insolvency Resolution Process is time bound and the timelines set

out by I&B Code, Rules and the Regulations framed thereunder have to be

adhered to scrupulously. It is not open to the Promoter/ Director/

Shareholder of Corporate Debtor to assail the very edifice of the process or

subsequent events when the entire process is over and has culminated in

Company Appeal (AT) (Insolvency) No. 500 of 2019 -5-

Liquidation. There can be no dispute with the proposition that I&B Code

primarily seeks to achieve the objective of insolvency resolution of Corporate

Persons and liquidation is the last resort. However, such resolution process

is time bound. The object of maximization of value of assets of Corporate

Persons can be achieved only by strict adherence to the time schedule

provided under the I&B Code. Once the Corporate Insolvency Resolution

Process period has expired before the order of liquidation is passed, as in the

instant case, no authority or forum created under I&B Code is vested with the

jurisdiction to order extension of such period or start a denovo process

thereby frustrating the object of I&B Code. It is not open to the Appellants to

assail the order of admission of application under Section 9 of the I&B Code

or the subsequent orders culminating in passing of impugned order of

liquidation. If no feasible or viable resolution plan was forthcoming and the

only resolution plan found worth consideration by COC was placed by the

Resolution Professional before COC for consideration which came to be

rejected with 100 percent vote share on the ground that the same was not

feasible and viable besides being below the average liquidation value, no fault

can be found with the decision of the COC recommending liquidation of

Corporate Debtor. Such decision of COC being purely a commercial/

business decision of an expert body of Financial Creditors having expertise in

the relevant field is not amenable to judicial scrutiny. The dictum of law laid

down by the Hon'ble Apex Court is loud and clear on the aforesaid aspect. We

may profitably refer to their lordship's observations in Civil Appeal No.

Company Appeal (AT) (Insolvency) No. 500 of 2019 -6-

10673 of 2018 titled 'K. Shashidhar Vs. Indian Overseas Bank and Ors.'

decided on 5th February, 2019.

"33. As aforesaid, upon receipt of a "rejected" resolution

plan the adjudicating authority (NCLT) is not expected to do

anything more; but is obligated to initiate liquidation

process under Section 33(1) of the I&B Code. The legislature

has not endowed the adjudicating authority (NCLT) with the

jurisdiction or authority to analyse or evaluate the

commercial decision of the CoC muchless to enquire into the

justness of the rejection of the resolution plan by the

dissenting financial creditors. From the legislative history

and the background in which the I&B Code has been

enacted, it is noticed that a completely new approach has

been adopted for speeding up the recovery of debt due from

the defaulting companies. In the new approach, there is a

calm period followed by a swift resolution process to be

completed within 270 days (outer limit) failing which,

initiation of liquidation process has been made inevitable

and mandatory. In the earlier regime, the corporate

debtor could indefinitely continue to enjoy the

protection given under Section 22 of Sick Industrial

Companies Act, 1985 or under other such enactments which

Company Appeal (AT) (Insolvency) No. 500 of 2019 -7-

has now been forsaken. Besides, the commercial

wisdom of the CoC has been given paramount status

without any judicial intervention, for ensuring completion of

the stated processes within the timelines prescribed by the

I&B Code. There is an intrinsic assumption that financial

creditors are fully informed about the viability of the

corporate debtor and feasibility of the proposed resolution

plan. They act on the basis of thorough examination of the

proposed resolution plan and assessment made by their

team of experts. The opinion on the subject matter

expressed by them after due deliberations in the CoC

meetings through voting, as per voting shares, is a collective

business decision. The legislature, consciously, has

not provided any ground to challenge the "commercial

wisdom" of the individual financial creditors or their

collective decision before the adjudicating authority.

That is made non­justiciable."

5. In view of the settled proposition of law and for the reasons recorded in

the foregoing paras, we find no ground for interference with the impugned

order of liquidation. However, the direction enumerated in clause (g) of

para 11 of the impugned order is repugnant to law and virtually conflicts with

the recommendation of CoC for liquidation of Corporate Debtor as a going

Company Appeal (AT) (Insolvency) No. 500 of 2019 -8-

concern. The Adjudicating Authority landed in error in directing that the

liquidation order shall be deemed as a notice of discharge to the officers,

employees and workmen of the Corporate Debtor. This cannot be supported

either in law or on the facts of this particular case. The aforesaid direction is

accordingly set aside. The appeal is disposed of with aforesaid observations.

[Justice Bansi Lal Bhat] Member (Judicial)

[Mr. Balvinder Singh] Member (Judicial)

NEW DELHI

3rd July, 2019

AM

Company Appeal (AT) (Insolvency) No. 500 of 2019