Mr Ashok Kumar vs Ktc Foods Private Limited

[Arising out of orders dated 18.05.2020 in CA No. 1189/2019 & IA No. 132/2020 in CP(IB) No. 136/Chd/Hry/2018 passed by the Ld. Adjudicating Authority (National Company Law Tribunal), Chandigarh Bench, Chandigarh.]

IN THE MATTER OF: Mr. Ashok Kumar For M/s Ashok Kumar & Brothers Having Registered Office at 29, Anaj Mandi, Dhand, Kaithal, Haryana-136020 ...... Appellant. (Operational Creditor)

Versus

1. KTC Foods Private Limited Through Liquidator, Mr. Anup Kumar Singh Having Registered Office at 5 Milestone, Karnal Road, Nissing, Haryana-132024. ..... Respondent No. 1. (Corporate Debtor)

2. Shiv Shakti Inter Globe Exports Pvt. Ltd. Registered Office At: 578/11, Link Road, Taraori, Karnal, Haryana-132116. ....... Respondent No. 2.

3. Anup Kumar Singh, Resolution Professional of KTC Foods Private Limited Having Registered Office At 5 Milestone, Karnal Road, Nissing, Haryana-132024. ....... Respondent No. 3. 2

Present: For Appellant: Mr. Rakesh Kumar Ms. Preeti Kashyap and Mr. Ankit Sharma, Advocates. For Respondents: Ms. Vijaya Singh and Mr. Vijay K. Singh, Advocates for R-1& 2. Mr. Krishnendu Datta, Sr. Advocate with Mr. Anup Kumar Singh, Mr. Debarshi Dutta, Mr. Aayush Kevlani, Ms. Mehak Khurana, Advocates for R-3.

JUDGMENT

(25th February, 2022)

Justice Anant Bijay Singh;

This Appeal has been preferred by the Appellant (Operational Creditor)

being aggrieved and dissatisfied by the order dated 18.05.2020 passed by the

Ld. Adjudicating Authority (National Company Law Tribunal), Chandigarh

Bench, Chandigarh in CA No. 1189/2019 & IA No. 132/2020 in CP(IB) No.

136/Chd/Hry/2018 whereby and where under the Application filed by Mr.

Anup Kumar Singh (Respondent No. 3 herein) through Liquidator in the

matter of K.T.C. Foods Pvt. Ltd (Respondent No. 1 herein) to approve the

closure of the liquidation process of K.T.C. Foods Pvt. Ltd. under Regulation

45 (3)(a) read with Regulation 32A and 33(1) of the Insolvency and Bankruptcy

Board of India (Liquidation Process) Regulations, 2016 whereby the prayer

made in the Application was for directions to Respondent No. 2 to make the

payment of claim. The said Application was rejected.

2. The facts giving rise to this Appeal are as follows:

i) The Appellant (Operational Creditor) is a commission agent under the

name and style of M/s Ashok Kumar and Brothers. The Corporate Debtor is

Company Appeal (AT) (Insolvency) No. 607 of 2020 3

an exporter and doing business of exporting rice and paddy. The Corporate

Debtor approached the Operational Creditor for the supply of paddy.

ii) The Appellant (Operational Creditor) was regularly supplying paddy to

the Corporate Debtor from the year 2012 and the last such consignment was

delivered on 09.11.2015. The Corporate Debtor had been making payments

partly and since April 2017, the payments became irregular and in small

amounts. The Corporate Debtor even issued a cheque dated 30.12.2017 for

an amount of Rs. 20,00,000/- which was bounced at the Bank and a

dishonour memo dated 28.03.2018 was issued by the Bank.

iii) The Appellant (Operational Creditor) filed Application under Section 9

of the Insolvency and Bankruptcy Code, 2016 before the Ld. Adjudicating

Authority in which the Ld. Adjudicating Authority vide order dated

29.08.2018 initiated the Corporate Insolvency Resolution Process (for short

IBC) against the Respondent No. 1 Company.

iv) The Appellant submitted his proof of claims under FORM-B, being an

Operational Creditor before the Interim Resolution Professional (for short

IRP) along with an affidavit and the documents required to furnish the prove

of claim for an amount of Rs. 5,49,73,699/- which includes Rs. 3,43,21,069/-

due as Principal amount and Rs. 2,06,52,630/- due as interest on the delayed

payment as agreed by the Corporate Debtor, thereafter, the IRP has admitted

the claim by the Appellant.

v) Further case is that the Minutes of the Second Meeting of the

Committee of Creditors dated 23.10.2018 clearly admits the claim of the

Company Appeal (AT) (Insolvency) No. 607 of 2020 4

Appellant/Operational Creditor under the Agenda 4, for a total sum of Rs.

5,49,73,699/- (Annexure A-4 at page 71 to 82 of the Appeal).

vi) The CIRP process was being conducted, since there was no Resolution

Plan received till 15.04.2019, the Committee of Creditors in its meeting held

on 25.04.2019 passed the resolution with 100% voting rights approving the

liquidation of Respondent No. 1 Company/Corporate Debtor. The Ld.

Adjudicating Authority passed the liquidation order vide its order dated

31.05.2019 (Annexure A-5 at page 83 to 89 of the Appeal).

vii) Whereafter, the valuation reports were obtained which showed the fair

value at Rs. 24.63 crores and liquidation value of the Corporate

Debtor/Respondent No. 1 Company at Rs. 18.45 crores.

viii) The Appellant came to know that the Liquidator has moved an

application before the Ld. Adjudicating Authority bearing CA No. 1189 of 2019

in C.P. (IB) No. 136/CHD/HRY/2018 wherein the liquidator was seeking

closure of the liquidation process of the Corporate Debtor and the Respondent

No. 2 has opted to buy the Respondent No. 1 Company/Corporate Debtor as

a going concern. The Ld. Adjudicating Authority issued notice in the said

application and the same was fixed for hearing on 24.02.2020.

ix) The Respondent No. 2 has already remitted the entire bid value of Rs.

18,45,86,646/- under e-auction process and the Respondent No. 2 has

acquired all its assets and liabilities but through the impugned order dated

18.05.2020, the Ld. Adjudicating Authority has rejected the prayer for

directions to Respondent No. 2 to make the payment of claim to the Applicant

(Appellant herein). Hence this Appeal.

Company Appeal (AT) (Insolvency) No. 607 of 2020 5

Submissions on behalf of the Appellant

3. The Learned Counsel for the Appellant during the course of argument

and in his memo of Appeal along with Written Submissions submitted that

the Liquidator in its Application i.e. C.A. No. 1189 of 2018 had sought the

closure of the liquidation process and sought the sale of the Corporate Debtor

as a going concern without any liabilities.

4. It is further submitted that the Liquidation Process Amendment

Regulation, 2019 was notified on 25.07.2019. In reference to IBBI Circular

No. IBBI/LIQ/024/2019 dated 26.08.2019 clarifying, that the process of

Liquidation Process Amendment Regulation, 2019 is not applicable to

Liquidation Process before 25.07.2019. The date of Liquidation order in the

present matter was passed on 31.05.2019.

5. It is further submitted that in terms of new amended regulation, if the

assets and liabilities are going to be sold as a going concern, it is needed to

be identified by the consultation committee. The consultation committee in

the present matter was not formed. So, the observation was made by the Ld.

Adjudicating Authority that despite, the non-constitution of the Stakeholders

Committee, the going concern sale process in the present matter can be

followed under Regulation 45(3) (a) with Regulation 32A and 33(1) of the

Liquidation Process Regulation, 2016.

6. It is further submitted that since the Corporate Debtor has been sold

as a going concern, therefore, it should own both of its assets and liabilities.

The Ld. Adjudicating Authority relied decision on the Bank of India Vs.

Southern Online Biotechnologies Ltd. has observed that any liability prior

Company Appeal (AT) (Insolvency) No. 607 of 2020 6

to E-auction during the liquidation process would not be applicable to the

person who is purchasing the Corporate Debtor as a going concern.

7. It is further submitted that in the present case no stakeholders

committee was formed and the Ld. Adjudicating Authority on its own had

allowed the sale of Corporate Debtor as a going concern in the terms of

amended regulations. When the auction purchaser is taking benefit of

purchasing the Corporate Debtor as going concern, its assets and liabilities

should also be owned by it.

8. The Learned Counsel for the Appellant further in the additional Written

Submissions submitted that the Ld. Adjudicating Authority has completely

overlooked Regulation 39C of the CIRP Regulations; 32 and 32A of the

Liquidation Process, Regulation 2016 by passing the impugned order.

9. It is further submitted that the Liquidator (Respondent No. 3) was

completely at default of following the mandated statutory procedure provided

under the IBC and the Ld. Adjudicating Authority has completely overlooked

the said aspect by passing the impugned order. Therefore, based on these

submissions the impugned order is liable to be set aside.

Submissions on behalf of the Respondent No. 1

10. The Learned Counsel for the Respondent No. 1 during the course of

argument and in his Reply Affidavit along with Written Submissions

submitted that since no resolution plan was received during the CIRP Period,

the Corporate Debtor was ordered to be liquidated vide an order dated

31.05.2019. The Liquidator conducted the liquidation process as prescribed

Company Appeal (AT) (Insolvency) No. 607 of 2020 7

under the law. In response to the public advertisement, the Appellant lodged

its claim and the same was duly admitted by the Liquidator.

11. It is further submitted that the liquidation process progressed in

compliance with the IBBI (Liquidation Process) Regulations, 2016 and further

summary of Valuation Reports received during the CIRP Period reflected the

Fair Value at 24.63 crores and Liquidation Value at 18.45 crores. The

Liquidator conducted an E-auction sale and accordingly a company named

Shiv Shakti Inter Globe Exports Pvt. Ltd. (Respondent No. 2) participated in

the e-auction and was declared as the highest bidder for its successful bid for

an amount of Rs. 18,45,86,646/- being 100% of the reserve price. So, in view

of the same, the sale was completed and accordingly proceeds were

distributed as stipulated under Section 53 of the IBC.

12. It is further submitted that subsequently, the Liquidator (Respondent

No. 1) filed an application under Regulation 45(3) (a) read with Regulation 32A

and Regulation 33(1) of IBBI (Liquidation Process) Regulations, 2016 with a

specific prayer to approve the sale of the Corporate Debtor as a going concern

without any liabilities including contingent liabilities.

13. It is further submitted that vide an order dated 18.05.2020, the Ld.

Adjudicating Authority approved the closure of the liquidation process of the

Corporate Debtor. Subsequent to the closure of the liquidation process, the

Appellant has filed an Appeal against the closure of the liquidation process

claiming that he is entitled to his dues for which he has lodged his claim

before the Liquidator.

Company Appeal (AT) (Insolvency) No. 607 of 2020 8

14. It is further submitted that sale as a 'going concern' or 'as is where is

whatever there is' basis can be only with assets and not liabilities. As per the

Regulation 32A of IBBI (Liquidation Process) Regulations, 2016, the

Liquidator is authorized to sell a company on a 'going concern' basis.

Accordingly, the e-auction notice clearly enumerates sale of the Corporate

Debtor as a 'going concern'. In this case, the sale as a going concern basis has

been further defined by the clause "as is where in whatever there is basis"

which defines a going concern sale and if both are read together then it

signifies a sale of only assets and not liabilities. In this context, it is well

settled and has been upheld in numerous proceedings/decisions that the sale

of the company as a 'going concern' is without previous liabilities or

encumbrances. The said decisions had passed in the case of "Official

Liquidator, High Court Vs. Ujjain Nagar Palika Nigam and Ors., (2009)

SCC Online Cal. 322 at para 12 & 14 and Jamshedpur Cements Ltd. Vs.

Adityapur Industrial Area Development Authority and Ors. (2011) SCC

Online Cal 1098 : (2011) 164 Comp Cas 72 at para 26" which are as under:

" 12. We are unable to comprehend that the expression "as is where is whatever there is basis" comprises within its ambit the liability to clear statutory charges as might have accrued and are in arrears. The terms and conditions of the sale do specify that the Official Liquidator shall not provide any guarantee and/or warranty as to quality, quantity or specification of the assets sold and the intending purchaser is required to satisfy himself in this regard after physical inspection of the assets of the company in liquidation and no complaint as to defects, if any, in the description, quality or quantity of the assets sold would be entertained after the

Company Appeal (AT) (Insolvency) No. 607 of 2020 9

sale is over and that any mistake in the notice inviting tender shall not vitiate the sale.

14. It would be, in our opinion, thoroughly unreasonable to foist the liability on a purchaser without first letting him know prior to the sale about such liability. Enquiries at site must have been made by the ultimate purchaser before he offered his bid. The purchaser could have been informed there of the encumbrances. He could have also been told about it prior to his depositing the balance sale consideration.

26. At this stage I would like to state that the phrase "as it where is basis" does not include any property being sold or demised with a defective title but refers to the state of the property at the time it is sold. eg: with tenants, occupants structures and so on."

15. It is further submitted that the sale of a company as a going concern,

provides the leeway to define the company as eligible to be liquidated with its

whole assets. Going by the prevailing law and terms of e-auction notice, the

present owner be given a clean slate and be exempted from all pre-liquidation

liabilities.

16. It is further submitted that claims of third parties has to be distributed

in the manner stated in Section 53 of the IBC. It is submitted that allowing

claims or liabilities is de hors the provisions enumerated under the Code.

Commencement of Liquidation proceedings compels public advertisement to

be made in compliance with the provisions of the IBC read with relevant

Regulations. Duty is casted upon the Liquidator to invite submission of claims

from all the stakeholders of the Corporate Debtor. The Liquidator upon

Company Appeal (AT) (Insolvency) No. 607 of 2020 10

receiving the claims verified and collated the same and prepared the lists of

stakeholders. Subsequently, upon taking custody and control of all the assets

of the Corporate Debtor, the Liquidator prepared the asset memorandum and

put up the Corporate debtor on sale. Therefore, any proceeds out of sale will

be governed under the provisions of Section 53 of the IBC.

17. It is further submitted that in the present case, the total amount of

claims received from all stakeholders was 162.67 crores out of which 151.78

crores were admitted. The sale of the Corporate Debtor was for consideration

of 18.45 crores and as per the waterfall mechanism prescribed under Section

53 of the Code, the same has been appropriated towards the debt of the

Financial Creditors. Therefore, the Operational Creditors including the

present Appellant is not entitled to any payment. Based on these submissions

the Appeal is fit to be dismissed.

Submissions on behalf of the Respondent No. 2

18. The Learned Counsel for the Respondent No. 2 during the course of

argument and in his Reply Affidavit submitted that merely because the

Respondent No. 2 purchased the Respondent No. 1/Corporate Debtor as a

going concern would not entitle the Appellant to claim its alleged amount from

the Respondent No. 2. The Ld. Adjudicating Authority in para 10 of the

impugned order recorded that the Liquidator has sold the Corporate Debtor

as a going concern and also distributed the proceeds as per Section 53 of the

Code. The Ld. Adjudicating Authority did not find any illegality in the

distribution of proceeds.

Company Appeal (AT) (Insolvency) No. 607 of 2020 11

19. It is further submitted that the Code or the Regulation made thereunder

does not provide that if a Corporate debtor is sold as a going concern during

the liquidation process, the claim of the Financial Creditors or the Operation

Creditors would be alive or will be maintainable against the Corporate Debtor

(under liquidation) or the entity/purchaser of the Corporate Debtor. It is not

a case where the Respondent No. 1/Corporate Debtor's business has been

sold. Thus, the prayer sought for by the Appellant claiming the amount

against the Respondent No. 2 is not maintainable and as such no relief can

be granted to the Appellant.

20. It is further submitted that Section 53 of the Code is the substantive

provision which provides distribution of assets. Section 53 of the Code does

not distinguish or provide different mechanism for distribution of assets when

a company is sold as a going concern without dissolution or when a company

is dissolved. Thus, in the absence of any statutory provisions governing

distribution of assets where a company is sold as a going concern under

liquidation, relief claimed by the Appellant is not maintainable. Based on

these submissions the Appeal is fit to be dismissed.

Submissions on behalf of the Respondent No. 3

21. The Learned Sr. Counsel for the Respondent No. 3 during the course of

argument and in his Reply Affidavit along with Written Submissions

submitted that on 05.11.2019, the Respondent No. 3 issued a sale notice for

invitation of expression of interest for e-auction of Respondent No. 1 company

to be sold as a going concern per Regulation 32(e) of the Insolvency and

Bankruptcy Board of India (Liquidation Process) Regulation, 2016. The e-

Company Appeal (AT) (Insolvency) No. 607 of 2020 12

auction was conducted on 19.11.2019 in which Shiv Shakti Inter Globe

Exports Private Limited was the highest bidder of INR 18,45,86,646 (being

100% of the reserve price) and thus was declared successful in the e-auction

process for Respondent No. 1 company's sale as a going concern.

22. It is further submitted that the sale proceeds were released on

25.11.2019 and sale certificate dated 26.11.2019 was issued to Shiv Shakti

Inter Globe Exports Private Limited. The sale proceeds were then distributed

in accordance with section 53 of the IBC. Accordingly, the entire amount of

INR 18,45,86,646 was paid towards 13.17% of the admitted debt of

Respondent No. 1 sole Financial Creditor, Oriental Bank of Commerce.

23. It is further submitted that it is settled law that when the sale proceeds

of a Corporate Debtor are duly distributed in the order of priority and in the

manner prescribed by Section 53 of the IBC, no creditor of the Corporate

Debtor can claim any share in such proceeds contrary to its rank in the order

of priority under Section 53 of the IBC.

24. It is further submitted that Oriental Bank of Commerce was

Respondent No. 1 sole Financial Creditor and confirmed relinquishment of its

security interest over Respondent No. 1 fixed, current and non-current assets,

by its email dated 05.10.2019 sent to Respondent No. 3. Therefore, as a

secured creditor having relinquished security as per Section 52 of the IBC,

the Oriental Bank of Commerce ranked higher in priority to all the 8

Operational Creditors of Respondent No. 1 including the Appellant.

Consequently, none of the Operational Creditors, including the Appellant are

liable to any payment from the sale proceeds. Therefore, the Appellant has no

Company Appeal (AT) (Insolvency) No. 607 of 2020 13

locus standi to maintain the present Appeal which is accordingly liable to be

dismissed

FINDINGS

25. After hearing the parties and having gone through the pleadings made

on behalf of the parties, we are of the considered view that the following facts

are admitted in the instant Appeal.

 The Appellant (Operational Creditor) filed Application under Section 9

of the Insolvency and Bankruptcy Code, 2016 before the Ld.

Adjudicating Authority in which the Ld. Adjudicating Authority vide

order dated 29.08.2018 initiated the Corporate Insolvency Resolution

Process against the Respondent No. 1 Company.

 The Appellant submitted his proof of claims under FORM-B, being an

Operational Creditor before the Interim Resolution Professional along

with an affidavit and documents required to furnish to prove my claim

for an amount of Rs. 5,49,73,699/- which includes Rs. 3,43,21,069/-

due as Principal amount and Rs. 2,06,52,630/- due as interest on the

delayed payment.

 From the perusal of the Minutes of the Second Meeting of the

Committee of Creditors dated 23.10.2018 clearly admits the aforesaid

claim of the Appellant/Operational.

 It is also an admitted fact that the CIRP process was being conducted,

since there was no Resolution Plan received till 15.04.2019, the

Committee of Creditors in its meeting held on 25.04.2019 passed

resolution with 100% voting rights approving liquidation of the

Company Appeal (AT) (Insolvency) No. 607 of 2020 14

Respondent No. 1 Company/Corporate Debtor. The Ld. Adjudicating

Authority passed the liquidation order vide its order dated 31.05.2019

(Annexure A-5 at page 83 to 89 of the Appeal).

 The valuation reports were obtained which showed the fair value at Rs.

24.63 crores and liquidation value of the Corporate Debtor/Respondent

No. 1 Company at Rs. 18.45 crores.

 The Respondent No. 2 has already remitted the entire bid value of Rs.

18,45,86,646/- under e-auction process and the Respondent No. 2 has

acquired all its assets and liabilities but through the impugned order

dated 18.05.2020 passed by Ld. Adjudicating Authority has rejected the

prayer for directions to Respondent No. 2 to make the payment of claim

to the Applicant (Appellant herein).

 The sale as a 'going concern' or 'as is where is whatever there is' basis

can be only with assets and not liabilities. As per the Regulation 32A of

IBBI (Liquidation Process) Regulations, 2016, the Liquidator is

authorized to sell a company on a 'going concern' basis.

 E-auction notice clearly enumerates sale of the Corporate Debtor as a

'going concern' is without previous liabilities or encumbrances which is

supported by the decisions passed in the case of "Official Liquidator,

High Court Vs. Ujjain Nagar Palika Nigam and Ors., (2009) SCC

Online Cal. 322 at para 12 & 14 and Jamshedpur Cements Ltd.

Vs. Adityapur Industrial Area Development Authority and Ors.

(2011) SCC Online Cal 1098 : (2011) 164 Comp Cas 72 at para 26"

which are quoted hereinabove.

Company Appeal (AT) (Insolvency) No. 607 of 2020 15

 The Oriental Bank of Commerce is the sole Financial Creditor and

confirmed relinquishment of its security interest over Respondent No.

1, current and non-current assets, by its email dated 05.10.2019 sent

to Respondent No. 3 and the Oriental Bank of Commerce higher in

priority to all the 8 Operational Creditors of Respondent No. 1 including

the Appellant. So, they paid the entire amount of INR 18,45,86,646

towards 13.17% of the admitted debt to Respondent No. 1 sole Financial

Creditor.

ORDER

26. Taking all these facts and circumstances of the case, we have no

occasion to interfere in the impugned order. The impugned order dated

18.05.2020 passed by the Ld. Adjudicating Authority (National Company Law

Tribunal), Chandigarh Bench, Chandigarh in CA No. 1189/2019 & IA No.

132/2020 in CP(IB) No. 136/Chd/Hry/2018 is hereby affirmed. There is no

merit in the Appeal. The Appeal is hereby dismissed. No order as to costs.

27. Registry to upload the Judgment on the website of this Appellate

Tribunal and send the copy of this Judgment to the Ld. Adjudicating Authority

(National Company Law Tribunal), Chandigarh Bench, Chandigarh, forthwith.

[Justice Anant Bijay Singh] Member (Judicial)

[Ms. Shreesha Merla] Member (Technical) New Delhi 25th February, 2022 R. Nath.

Company Appeal (AT) (Insolvency) No. 607 of 2020