Muhamad Yavar Dhala vs Kavita Surana, Liquidator Of Forward ...

[Arising out of Order dated 31st January, 2020 passed by the Adjudicating Authority (National Company Law Tribunal), Division Bench - I, Chennai in MA/1322/2019 & MA/1323/2019 in MA/406/2018 in TCP/205/IB/2017]

IN THE MATTER OF: Muhamad Yavar Dhala Resident of: 4/6, Casurina Drive, Sri Kapaleeswara Nagar Neelankarai Chennai - 115. ...Appellant.

Versus Kavita Surana, Liquidator of Forward Shoes (India) Pvt. Ltd. (The Corporate Debtor) At: 50, Raja Muthiah Salai, Periamet, Chennai - 600003. ...Respondent.

Present: For Appellant: Mr. Sumesh Dhawan and Ms. Ankita Bajpai, Advocates. For Respondent: Mr. Krishnendu Datta, Sr. Advocate with Mr. Naveen Kumar and Ms. Kavitha Surana (Liquidator), Advocates.

ORAL JUDGMENT

08.12.2020 A.I.S. Cheema, J. :

1. This Appeal has been filed by the Appellant/Muhamad Yavar Dhala

against Impugned Orders dated 31st January, 2020 passed in MA/1322/2019

& MA/1323/2019 in MA/406/2018 in TCP/205/IB/2017. The Corporate

Debtor/M/s. Forward Shoes (India) Pvt. Ltd. is under Liquidation since 2

Liquidation Orders dated 11th December, 2018. The Appellant is admittedly

promoter of the Corporate Debtor which has gone in Liquidation.

2. It is stated that earlier when Liquidation Order was passed it was

challenged before this Appellate Tribunal and Appeal got dismissed. During the

course of Liquidation Proceedings, the Appellant claims to have filed two

schemes. One is Annexure -6 (Page 75) and other scheme is Annexure-7 (Page

106). Both are dated 25th September, 2019. The Learned Counsel for the

Appellant submits that in both the schemes which are otherwise similar, in

scheme at Annexure -6 the scheme was proposed with one M/s. Sri Ram

Properties who had agreed to invest. The other scheme at Annexure -7 was

proposed with M/s. Vijay Raja Homes Pvt. Ltd. The schemes were proposed

under Section 230 of the Companies Act, 2013.

3. It is stated that the Respondent/Liquidator filed M.A./1322/2019 before

the Adjudicating Authority (National Company Law Tribunal, Division Bench -I,

Chennai seeking relief to condone delay of 35 days in filing Application for

extension of a period of 90 days to follow the entire process under Section 230

of the Companies Act with regard to the Corporate Debtor. The delay was

condoned. It appears that MA 1323 of 2019 was filed by the Liquidator under

Section 35 (n) and Section 60 (5) of Insolvency and Bankruptcy Code, 2016

(IBC in short) read with Section 230 of the Companies Act and Regulation 32 of

IBBI (Liquidation Process) Regulations 2016 and Rule 11 of NCLT Rules, 2016

for orders to call, hold and conduct meeting of the secured creditors. Further

directions were also sought.

Company Appeal (AT) (Insolvency) No. 384 of 2020 3

4. The Adjudicating Authority appears to have heard the parties and in the

process noticed that during pendency of the Liquidation Proceedings, the

Appellant had obtained MSME Certificate (Annexure -10 Page 153) showing

investment (Plant & Machinery/Equipment) as only two lakhs while the

schemes proposed itself stated the value of the property itself to be around Rs.

67 crores. The Adjudicating Authority observed in Paragraph 8 (as at Page 11

of the Impugned Order which has 3 para '8'), as under:-

"8. The Learned Counsel for the Respondent, contradicting the submissions made by the Learned Counsel for the Liquidator has emphatically contended that the Corporate Debtor is an MSME and as such the ineligibility in relation to Section 29 A of the IBC, 2016 would have no bearing upon them by virtue of Section 240A of the IBC, 2016. A perusal of the MSME Certificate attached with the typed set filed by the Respondent would goes on to show that the said Certificate was obtained on 02.04.2018, which is after the initiation of the CIRP by this Tribunal. Further, it may be seen in the said MSME Certificate that the Investment (Plant & Machinery/Equpiments) is shown as Rs. 2 Lakhs, whereas the Liquidation value as per the Scheme itself is stated to be around Rs. 67 Crores. Thus, it can be seen that the Respondent is trying to play a fraud upon this Tribunal, in order to gain backdoor entry to the assets of the Corporate Debtor in the guise of projecting themselves as MSME. Thus, this Tribunal is of the view that the Respondents are trying to deceive this Tribunal by claiming themselves as an MSME, so as to enable them to submit the Scheme before the Liquidator, which is nothing short of an abuse of process of IBC."

Company Appeal (AT) (Insolvency) No. 384 of 2020 4

5. Now the Learned Counsel for the Appellant has taken us to the schemes

Annexures -6 and 7. He referred to Annexure -6 (at Page 78) where it is

mentioned that the Applicant, i.e, the Appellant has received offer from M/s.

Sri Ram Properties a leading Real Estate Developer in Chennai to construct

Residential Complex in the property owned by the Corporate Debtor. The

proposed scheme of settlement states that the Applicant is interested in using

the services of M/s. Sri Ram Properties in developing the

Residential/Commercial Properties on the land of the Corporate Debtor. In the

other scheme in place of M/s. Sri Ram Properties the other entity shown is

M/s. Vijay Raja Homes Pvt. Ltd. (Page 109). It is argued by the Learned

Counsel for the Appellant that the Adjudicating Authority proceeded on wrong

premise as if the Appellant was making back-door entry, although hit by

Section 29-A of IBC. The argument is that the Appellant who submitted these

schemes to the Liquidator is merely a facilitator for the scheme being proposed

and for execution of the same. For the sake of convenience, we refer to the

averments made in Annexure-6. The Learned Counsel referred to Part-I of the

scheme Paragraph 2 (Page 84) where it is recorded that the Applicant "shall not

interfere in the current business or management status of the Corporate

Debtor". The Learned Counsel also referred to Status Report which was filed by

the Liquidator (Annexure -9 Page 146) at Page 151 where it was mentioned in

Paragraphs 8 and 9 as under:

"8. The Respondent in the proposed scheme is only facilitator of the development of the property of the

Company Appeal (AT) (Insolvency) No. 384 of 2020 5

Corporate Debtor. The Respondent expects to realize a sum of around Rs. 150 Crores from the development of the property which will be put in an escrow and distributed to the creditors of the Corporate Debtor as well as its sister concerns namely Conceria Virginia and M/s. Forward Leather. It is submitted that the proposed scheme is almost identical to the settlement filed before the DRT at Chennai with the financial creditor as well as the earlier resolution plan which was approved by this Hon'ble Tribunal.

9. The scheme does not seek to restore the management nor is it one which seeks to reclaim the assets of the Corporate Debtor but it is only to settle the dues of the Corporate Debtor. Since an outright sale of the property would fetch only Rs. 60 Crores at maximum and none of the other creditors apart from the financial creditor would be settled. Therefore it is submitted that the proposed scheme takes into consideration all the stake holders of the Corporate Debtor and outright rejection on the ground of disqualification under section 29-A of the Code would indeed be gravely prejudicial to the various other creditors and stake holders of the Respondent apart from the Respondent herein who would also be put in irreparable loss."

6. The argument is that the Liquidator had also agreed with the Appellant

that the Appellant is only a facilitator of the development of the property. Thus,

according to the Learned Counsel, the schemes could not have been thrown

out by the Adjudicating Authority without examining them in details and

Company Appeal (AT) (Insolvency) No. 384 of 2020 6

without giving opportunity to the Appellant on the basis that the Appellant was

hit by Section 29-A of IBC.

7. It is further argued by the Learned Counsel for the Appellant that

Annexure 10 (Page 153) entry No. 18 in Certificate mentions "Investment (Plant

& Machinery/Equipment's) as Rs. 2 lakhs. The Learned Counsel referred to

another document at Page 122 to show that in 2017 the value of the Plant and

Machinery was shown around Rs. 59 lakhs which would have further gone

down thus according to him the Adjudicating Authority erred in comparing

value of the property of Corporate Debtor and reading the same also in the

column of Plant & Machinery/Equipment. The Learned Counsel for the

Appellant states that there is no bar to the Appellant applying for the MSME

Certificates even during the course of Liquidation Proceedings.

8. Against this, the Learned Counsel for the Respondent has referred to the

contents of the two schemes. The Learned Counsel referred to Annexure - 7

where in the preamble itself the Appellant is shown as Applicant. Even the

scheme was tendered to the Liquidator by the Appellant under his signature as

can be seen from the Letter submitted on 25th September, 2019 (Page 106). The

Learned Counsel also took us to various contents of the scheme. For instance,

Part-I (The Scheme of Settlement) - Paragraph 4 and referring to the same it is

argued that the Appellant who is Applicant in the scheme stated that the

Applicant wanted to sell the said project under RERA. Learned Counsel also

referred to Part-III Division II at Page 124, to submit that it is the Applicant

who would be taking all the possible/necessary steps to implement the project

Company Appeal (AT) (Insolvency) No. 384 of 2020 7

and mobilize the expected funds as mentioned, considering the volatility in the

Real Estate. Reference was also made to Part-V of the scheme (Page 128) where

rights, duties and responsibilities of the Applicant are specified. Learned

Counsel reminded us that in Paragraph 1.11 of the scheme (Page 113) the

Definition of "Applicant" was given as present Appellant "Muhamad Dhala"

alone. Learned Counsel referred to the contents of Part V to point out that the

Appellant would be getting Power of Attorney in his favour and he would be

developing and executing the scheme. Learned Counsel referred to contents of

Part VI where there are recitals that the Corporate Debtor shall ensure transfer

of said property in favour of the Applicants, nominees, purchaser etc. Referring

to all these contents, the averment is that in effect it is the Appellant alone who

would be doing everything and thus, the argument is that the Adjudicating

Authority rightly found to the effect that the Appellant who was ineligible under

Section 29-A was trying to make back-door entry.

9. Learned Counsel for the Liquidator further submitted that during

pendency of the Liquidation Proceedings, the Appellant made the E-Application

on 27th December, 2019to Ministry of MSME as can be seen from Annexure R-

8 of the Reply (Diary No. 22198). The argument is that Section 33 (7) of IBC if

considered, the Appellant had no authority to make the Application as the Sub-

Section 7 reads as under:

"33......................................................... (7) The order for liquidation under this section shall be deemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor, except when the

Company Appeal (AT) (Insolvency) No. 384 of 2020 8

business of the corporate debtor is continued during the liquidation process by the liquidator."

On this basis, the Learned Counsel is submitting that the

Applicant/Appellant could not have obtained such Certificate once the

Corporate Debtor was under 'CIRP' or in Liquidation Proceedings.

10. Mr. Sumesh Dhavan, Advocate for the Appellant has responded by

referring to the Report of Liquidator in compliance of order dated 11th

December, 2019 (Page 72) of the Reply (Diary No. 22198) Paragraph 2.1 where

it is mentioned that the Appellant has proposed and submitted the schemes on

25th September, 2019 in his position as Promoter/Ex-Director of the Corporate

Debtor on basis of offers received from two Real Estate Developers. It is also

argued that the Adjudicating Authority did not hold that the Appellant could

not have filed Application for obtaining Certificate of MSME.

11. We have heard Learned Counsel for both sides and gone through the

record. We do not find any substance in the submissions made by the Learned

Counsel for Appellant that the Appellant was merely facilitator of the two

schemes as stated. Having gone through the contents of the schemes, it is

quite clear that the Appellant was to remain in command. We do not find it can

be said that the Appellant is only a mere facilitator. The Schemes were of

Appellant and were fully centered and linked with Appellant who was ineligible

under Section 29-A of IBC.

12. Coming to the Certificate of MSME Annexure -10 there is no dispute

regarding the fact that Liquidation Proceedings started on 11th December, 2018

and the schemes were submitted by the Appellant On 25th September, 2019 Company Appeal (AT) (Insolvency) No. 384 of 2020 9

and the Application for obtaining Certificate of MSME was filed on 27th

December, 2019. We find substance in the submissions of the Learned Sr.

Counsel for the Liquidator that when Order of Liquidation is passed it would

amount to discharge the officers/employees/workmen of the Corporate Debtor,

except when and to the extent of the business of the Corporate Debtor to be

continued during the Liquidation Process by the Liquidator. Apart from this

once CIRP is initiated under IBC, the management vests in IRP/RP and if

Liquidation Order gets passed the Powers and Duties of the Liquidator as in

Section 35 of IBC vest with Liquidator. Without liquidator taking steps no such

application to obtain Certificate of MSME could have been filed by the

Appellant. The Learned Counsel for the Appellant has submitted that this was

not the reason for the Adjudicating Authority to hold against the Appellant. If

just by filing application Certificate is obtained and there are no verifications or

checks, it would be matter of concern. We find that it is a matter of record in

the present matter and matter of applying the law. We find that the

Applicant/Appellant could not have moved the Authorities for Certificate under

MSME by-passing the Liquidator and such action must be held as illegal.

13. It is argued that chance may be given to the other persons to propose

scheme and Appellant would not take the lead. However, Learned Counsel for

the Liquidator has pointed out that during the pendency of the Liquidation

Proceedings, auction has already taken place on 25th September, 2020 of the

property of the Corporate Debtor in Liquidation and on 27th November, 2020

Letter of Intent has already been issued to one Sri Balaji Vidyapith. It is stated

Company Appeal (AT) (Insolvency) No. 384 of 2020 10

that there were workmen's dues who were not satisfied with the action of the

Liquidator with regard to their dues and they have filed Writ Petition in the

High Court and the High Court has directed to keep the successful bid in cover

at the moment. Learned Counsel for Respondent says Liquidator will meet that

challenge in High Court.

14. These further developments will take their own course. We do not find it

appropriate to reverse the process to give any further opportunities of actions

under Section 230 of the Companies Act, 2013.

15. We do not find any substance in the Appeal. The Appeal is dismissed. No

costs.

[Justice A.I.S. Cheema] Member (Judicial)

[Dr. Ashok Kumar Mishra] Member (Technical)

Basant B./md.

Company Appeal (AT) (Insolvency) No. 384 of 2020