Namdeo Hindurao Patil vs Indrajit Mukherjee Liquidator Warana ...

Comp. App. (AT) (Ins) No. 858 of 2023 & I.A. No. 2925 of 2024

(Arising out of the Order dated 19.04.2023 passed by the National Company Law Tribunal, Mumbai Bench, Court-IV in I.A./2972/2022 in CP (IB) 477/C- IV/MB/2020)

IN THE MATTER OF:

Namdev Hindurao Patil Having his address at: Patil Building, Pargaon Padali Road, Plot No. 801 & 802, Nave Pargaon, South East Side, Pargaon, Kohlapur Maharashtra - 416 113 ...Appellant

Versus

1. Virendra Kumar Jain, Liquidator, Warana Dairy and Agro Industries Limited Having address at: Tatyasaheb Kore Nagar, Post. Warananagar, Tal. Panhala Dist. Kohlapur, Warananagar 416 112 E-mail ID : vkj310@gmail.com; vkj@kanchansobha.com ...Respondent No. 1

2. IDBI Bank Limited Having registered office at: Matorshree Plaza, Ist Floor, Winson Corner, Kolhapur E-mail ID :S-KAUL@idbi.co.in ; aditya.gajbhiye@idbLco.in ...Respondent No. 2

3. Punjab National Bank (International Limited) London, Having Address at: 1 Moorgate London, EC2R 6LH E-mail ID: puneet.kumar@pnbint.com; recovery@pnbint.com; moorgate.loans@pnbint.com SachinJindal@pnbint.com; Prashant.kumar@pnbint.com ...Respondent No. 3

4. Shri Warana Mahila Sahakari Panth Sanstha Limited, -2- Comp. App. (AT) (Ins.) No. 858 of 2023

Having Address at: Shree Tatyasaheb Kore Warana Sahkari Navshakti Nirman Sanstha Limited, Warananagar, Taluka, Panhla 416 113 E-mail ID: ahujahra@gmai1.com ...Respondent No. 4

5. Amrut Sevak Sah Pat Sanstha Limited Having Address at: Warana Nagar, Tatyasaheb Kore Nagar, Post. Warnanagar, Tal. Panhala, Dist. Kolhapur, Warnanagar 416 112 E-mail ID : amrutwarana@gmai1.com ...Respondent No. 5

Present

For Appellant: Mr. Krishnendu Datta, Sr. Advocate along with Ms. Neha Agarwal & Mr. Nipun Gautam.

For Respondents: Mr. Udita Singh, for R-1. Mr. Abhishek Sharma, Mr. Kritya Sinha & Mr. Shawaiz Nisar, for R-2. Mr. Mithilesh Kumar Pandey, for R-3.

JUDGEMENT

( 23.04.2024)

NARESH SALECHA, MEMBER (TECHNICAL)

1. The present Appeal i.e., Company Appeal (AT) (Insolvency) No. 858 of

2023 has been filed under Section 61 of the Insolvency & Bankruptcy Code, 2016

(in short 'Code') by the Appellant herein i.e., Namdev Hindurao Patil, who is the

Suspended Director and one of the Resolution Applicant of the Corporate Debtor

i.e., Warana Dairy and Agro Industries Ltd. against the Impugned Order dated

19.04.2023 passed by the National Company Law Tribunal, Mumbai Bench, -3- Comp. App. (AT) (Ins.) No. 858 of 2023

Court-IV (in short 'Adjudicating Authority') in I.A./2972/2022 in CP (IB)

477/C-IV/MB/2020 .

2. Mr. Virendra Kumar Jain is the Respondent No. 1, who is the Liquidator

of the Corporate Debtor and IDBI Bank Limited is the Respondent No. 2, Punjab

National Bank (International Limited) London is the Respondent No. 3, Shri

Warana Mahila Sahakari Panth Sanstha Limited is the Respondent No. 4 and

Amrut Sevak Sah Pat Sanstha Limited is the Respondent No. 5, wherein

Respondent No. 2, Respondent No. 3 and Respondent No. 4 are Financial

Creditors of the Corporate Debtor.

3. Heard the Counsel for the Parties and perused the records made available

including the cited judgements.

4. It has been brought out that in I.A. No. 464 of 2023 filed before the

Adjudicating Authority, the Appellant sought direction to the Resolution

Professional and the Committee of Creditors (in short 'CoC') to consider his

Resolution Plan.

5. The Appellant also brought out that the Adjudicating Authority has

erroneously allowed I.A No. 2972 of 2022 filed by the Resolution Professional

for liquidation of the Corporate Debtor.

6. The Appellant submitted that the Respondent No. 3 filed an application

under Section 7 of the Code in CP (IB) 477/C-IV/MB/2020 before the -4- Comp. App. (AT) (Ins.) No. 858 of 2023

Adjudicating Authority which was admitted and CIRP commenced against the

Corporate Debtor vide order dated 16.09.2021.

7. It has brought out that the CoC consist of Respondent No.2 - IDBI Bank

Limited with voting share of 35.66%, Respondent No. 3- Punjab National Bank

(International Limited) London with voting share of 30.71%, Respondent No. 4 -

Shri Warana Mahila Sahakari Panth Sanstha Limited with voting share of 23.87%

and Respondent No. 5- Amrut Sevak Sah Pat Sanstha Limited with voting share

of 9.76%.

8. It has been further brought out that IRP published Expression of Interest

(in short 'EOI') on 24.12.2021 wherein the last dated of submission of EOI was

23.01.2022 and only one application came forward. Subsequently, the IRP

extended the period of EOI and a fresh form 'E' was published on 19.02.2022 and

in response thereto the Appellant filed Form 'G' and submitted his Resolution

Plan on 12.05.2022.

9. The Resolution Plan submitted by the parties were discussed in the 11 th

CoC Meeting held on 26.05.2022 and PRAs were asked to modify their plan. .

10. The Appellant alleged that the Respondent No. 2 wrongly declared the

Appellant as wilful defaulter on 19.07.2021 and on 04.10.2021, which was

challenged by the Appellant before the appropriate court and the Resolution

Professional permitted the Appellant to submit the Resolution Plan subject to

outcome of the challenge by the Appellant.

-5-

Comp. App. (AT) (Ins.) No. 858 of 2023

11. The Appellant pointed out that issue regarding his eligibility to submit the

Resolution Plan was infact discussed in several CoC Meeting including 17 th CoC

held on 15.09.2022, 18th Coc Meeting held on 22.09.2022 and 19th CoC meeting

held on 27.09.2022.

12. It is the case of the Appellant that Civil Judge granted the stay on

19.09.2022 as such CoC agreed to consider the Resolution Plan submitted by him

in 20th CoC Meeting held on 03.10.2022 and the Resolution Plan of the Appellant

was discussed. The Appellant was given another opportunity to give amended

improved the Resolution Plan and accordingly during 21st CoC Meeting was held

on 06.10.2022- 07.10.2022 to consider amended plan submitted by the Appellant.

The improved offer of the Appellant was considered wherein CoC decided the

Appellant to be ineligible to submit the Resolution Plan on account of his willful

defaulter declaration and did not consider the Resolution Plan on merits and

further resolved to liquidate the Corporate Debtor. Aggrieved by this action of

CoC arising out of 21st CoC Meeting held on 06.10.2022 & 07.10.2022, the

Appellant filed an I.A. No. 464 of 2023 before the Adjudicating Authority and

finally the Impugned Order dated 19.04.2023 was passed discarding the pleadings

of the Appellant.

13. It is the case of the Appellant that he always wanted to revive the Corporate

Debtor, whereas the Respondent No. 2 and 3 on wants to liquidate to Corporate

Debtor. It has been informed that the Corporate Debtor is going concern -6- Comp. App. (AT) (Ins.) No. 858 of 2023

employing more than 400 employees and procuring milk from more than 4700

farmers and is also in MSME unit.

14. The Appellant submitted that the Adjudicating Authority rejected his I.A.

No. 464 of 2023 primarily on account of him being wilful defaulter, wrongly done

by the Respondent No. 3. The Appellant alleged that the Impugned Order is

perverse since it seeks to send a going concern corporate entity into liquidation

against the spirit of the Code which is for the resolution and revival of the

corporate entity and not for liquidation.

15. The Appellant also alleged violation the principles of natural justice and

non considering his pleadings before the Adjudicating Authority.

16. It is the case of the Appellant that at the time when 21 st CoC was held on

06.10.2022 to 07.10.2022, ad-interim relief in favour of the Appellant vide order

dated 19.09.2022, extended vide order dated 03.10.2022 was continuing and

remained in force and therefore the wilful defaulter status of the Appellant being

non-est, the Appellant was eligible as the Resolution Applicant on 06.10.2022

when his Resolution Plan was not consider by CoC on the ground of wilful

defaulter.

17. The Appellant submitted that one of the CoC Members pointed out that the

stay was granted on 12.10.2022 and further informed as per online status that till

next date the same continued. However, CoC ignored these vital facts and

wrongly assumed that there was no stay in favour of the Appellant. -7-

Comp. App. (AT) (Ins.) No. 858 of 2023

18. The Appellant alleged that CoC was bound to consider his Resolution Plan

in terms of 39(3)(c) of the Insolvency and Bankruptcy Board of India (Insolvency

Resolution Process for Corporate Persons) Regulations, 2016 (in short 'CIRP

Regulations').

19. The Appellant also alleged failure on the part of the Resolution

Professional in terms of 36-A (8) of CIRP Regulations which casts duty on

Resolution Professional to conduct due diligence and examine whether the

Resolution Plan is in compliance with the provisions of the code and cited the

judgment of the Hon'ble Supreme Court of India in the matter of Arcelormittal

India Private Limited Vs. Satish Kumar Gupta and Others. [(2019) 2 SCC 1] in

support of his case.

20. The Appellant reiterated his pleadings regarding the rights of the Corporate

Debtor as MSME for its continuation in existence in view of the Report of the

Insolvency Law Committee of March 2018 contained in paragraphs 27.1, 27.3,

27.4 of the Report and also in view of the judgment of the Hon'ble Supreme Court

of India in the matter of Swiss Ribbons Private Limited and Anr. Vs. Union of

India [(2019) 4 SCC 17] his case is covered.

21. Finally the Appellant submitted that his Resolution Plan should have been

considered and voted upon by the CoC in terms of Regulation 39(3)(c) of CIRP

Regulation for either approving his plan or rejecting his plan on merits and also

it was duty of the Resolution Professional to do proper due diligence for -8- Comp. App. (AT) (Ins.) No. 858 of 2023

examination regarding Appellant ineligibility under Section 29(A) of the Code,

which he failed to do.

22. Concluding his remarks the Appellant urged this Appellate Tribunal to set

aside the Impugned Order and allow his appeal.

23. Per contra, the Respondent No. 2 denied all the averments made by the

Appellant treating these to be misleading, mischievous, devoid of any merit and

only to derail the process of resolution of the Corporate Debtor.

24. The Respondent No. 2 pleaded that the Appellant was not eligible to

submit the Resolution Plan since the Appellant was declared a wilful defaulter

and disqualified under Section 29(A) of the Code. In this connection, the

Respondent No. 2 stated that ad-interim relief obtained by the Appellant in Civil

Suit No. 710 of 2022 on 19.09.2022 was conditional relief i.e., interim relief was

granted till the filing of the Reply by the defendant which included the

Respondent No. 2. The Respondent No. 2 highlighted that the order dated

19.09.2022 clearly stipulated that "the defendant Nos. 1, 3 & 4 or any body

through them are hereby restrained by way of temporary injunction from acting

upon the order dated 19.07.2021 and 04.10.2021 till filed their say to the

application for temporary injunction".

25. The Respondent No. 2 further submitted that subsequent order dated

03.10.2022 did not record any extension of the temporary injunction granted to -9- Comp. App. (AT) (Ins.) No. 858 of 2023

the Appellant and the same order further observed that the Reply of the

Respondent No. 2 has been filed.

26. The Respondent No. 2 gave the background under which the Appellant was

declared as a wilful defaulter under Master Circular of RBI dated 01.07.2015 and

stated that the Appellant availed a loan of Rs. 67 Crores from the Respondent No.

2 and did not use it for the purpose for which it was sanctioned, misused the

money and defaulted on repayments.

27. The Respondent No. 2 stated that during 21st CoC Meeting held on

06.10.2022 and 07.10.2022, the Resolution Plan of the Appellant was not

considered due to his wilful defaulter status and ad-interim stay was not in

operation since the Respondent No .2 had filed his Reply in Civil Suit No. 710 of

2022 and after discussion the CoC passed the Resolution for non consideration of

the Resolution Plan submitted by the Appellant which was voted by 66.37%

majority voting.

28. It is the case of the Respondent that an ad-interim stay is not a final

conclusion regarding the wilful defaulter status of the Appellant and it was meant

only for not taking any further adverse action by the Respondent No. 2 against

the Appellant and it did not absolve wilful defaulter status of the Appellant and

therefore Section 29 (A) of the Code was clearly applicable to the Appellant

barring Appellant from submitting the Resolution Plan. -10-

Comp. App. (AT) (Ins.) No. 858 of 2023

29. The Respondent No. 2 further submitted that on 19.12.2022 the Civil

Judge dismissed the Civil Suite No. 710 of 2022 and appeal preferred by the

Appellant against this order dated 19.12.2022 was also dismissed by District

Judge, Kolhapur on 01.04.2023. Thus, there is no valid ground raised by the

Appellant which absolve him from ineligibility attracted under Section 29A due

to wilful defaulter.

30. The Respondent No. 2 also refuted the contention of the Appellant that

eligibility was considered by CoC and he was permitted to submit the Resolution

Plan and in this regard drew attention to minutes of 17th CoC Meeting held on

15.09.2022 which took place prior to grant of alleged ad-interim stay order dated

19.09.2022, where it has been clearly recorded that the CoC was unwilful to

consider the plan of the Appellant since the Hon'ble High Court of Bombay had

refused to interfere with the wilful defaulter stay of the Appellant vide order dated

24.08.2022.

31. During the same meeting, the Erstwhile Resolution Professional informed

the CoC that he has received the summon in Civil Suit No. 710 of 2022 filed by

the Appellant, CoC decided not to take any final decision regarding Resolution

Plan of the Appellant and decided to await the outcome of Civil Suit.

32. Similarly, in the 18th CoC Meeting held on 22.09.2022, after the issuance

of ad-interim stay order dated 19.09.2022, the CoC briefly discussed the -11- Comp. App. (AT) (Ins.) No. 858 of 2023

eligibility of the Appellant as PRA but decided to wait for the copy of judicial

order for ad-interim stay order.

33. The Respondent No. 2 submitted that only in the 19th CoC Meeting held

on 27.09.2022 after receipt of the copy of the stay order dated 19.09.2022 the

CoC decided to consider the Resolution Plan of the Appellant and accordingly

asked him to submit the same and even during this meeting, the Respondent

No. 2 recorded his objections and abstained from voting on Resolution Plan of

the Appellant.

34. The Respondent No. 2 submitted that 20th CoC Meeting held on

03.10.2022 and 04.10.2022, the other members of the CoC considered the

Resolution Plan of the Appellant and asked him to give improved Plan.

35. Subsequently, in the 21st Meeting CoC held on 06.10.2022 and

07.10.2022, the CoC member pointed that since ad-interim stay in favour of the

Appellant stood vacated pursuant to filing of Reply by the Respondent No. 2-

IDBI Bank in Civil Suit No. 710 of 2022 on 03.10.2022 and the CoC decided not

to consider the revised Resolution Plan of the Appellant.

36. The Respondent No. 2 emphasised that the ad-interim stay order dated

19.09.2022 was conditional and was in operation till the Respondent No. 2 as

contesting the Respondent No. 2 filed his Reply on 03.10.2022 and as such ad-

interim stay was deemed to have been vacated and therefore, the CoC was legally

entitled not to consider the Resolution Plan of the Appellant in view of provisions -12- Comp. App. (AT) (Ins.) No. 858 of 2023

of Section 29 (A) of the Code and accordingly in the 21st CoC Meeting held on

06.10.2022 and 07.10.2022 decided to treat the Appellant as ineligible which was

supported by 66.37% of the CoC. Thus, the CoC took all reasonable steps in

order to follow the judicial orders and only on deemed vacation of the stay order

CoC took a final decision in this regard in 21st CoC Meeting.

37. The Respondent No. 2 submitted that the decision taken in any case falls

within the ambit of the commercial wisdom of the CoC and hardly any judicial

review is required or permitted in view of several judgements of Hon'ble Supreme

Court of India as well as this Appellate Tribunal and cited the judgement of this

Appellate Tribunal held in Epitome Components Pvt. Ltd. vs. Divyesh Desai, The

Liquidator of Trend Electronics Ltd. & Ors. [(2022) SCC OnLine NCLAT 305].

38. The Respondent No. 2 refuted the allegations of the Appellant that

Resolution Professional did not perform his duties under the Code regarding

determination of eligibility of the Resolution Applicant and pointed out that the

Resolution Professional complied with all statutory requirements including

Regulation 36(A)(8)(b) of the Regulation. The Resolution Professional

categorically commented on the eligibility criteria of the Appellant and the status

of wilful defaulter proceeded before the Hon'ble High Court of Bombay and

placed the matter accordingly before the CoC for decision and therefore it was for

CoC to take the decision and to consider the Appellant as eligible Resolution -13- Comp. App. (AT) (Ins.) No. 858 of 2023

Applicant or other wise and hence, there was no fact of the Resolution

Professional in this regard.

39. The Respondent No. 2 submitted that none of the lenders would like to

see the Corporate Debtor into liquidation and it is only when all steps for

resolution of the Corporate Debtor failed, Financial Creditors were left with no

option but to recommend the liquidation of the Corporate Debtor and to precisely

the same happened in the present case.

40. The Respondent No. 2 also highlighted that the decision to liquidate a

Corporate Debtor also falls within the scope of commercial wisdom of the CoC

and not open to any judicial scrutiny which has been confirmed by judgements

of various courts including, this Appellate Tribunal and cited judgments of the

Hon'ble Supreme Court of India in the matter of Arcelor Mittal India Private

Limited Vs. Satish Kumar Gupta and Ors. [(2019) 2 SCC 1].

41. The Respondent No. 2 submitted that a show-cause notice dated

24.01.2020 was sent to the Appellant asking him reason why he should not be

declared as a wilful defaulter in terms of RBI Circular dated 01.07.2015 and after

long deliberation declared the Appellant as the wilful defaulter as decided by the

committee of the Respondent No. 2 vide its order dated 19.07.2021 which was

also confirmed by wilful defaulter review committee vide its order dated

04.10.2021.

-14-

Comp. App. (AT) (Ins.) No. 858 of 2023

42. The Respondent No 2 reiterated that the Appellant has been trying to evade

his status by challenging the declaration of wilful defaulter before the Hon'ble

High Court of Bombay and since the High Court was not inclined to grant any

relief to the Appellant, the Appellant withdrew the petition and filed Civil Suit

No. 710 of 2022 before the Civil Judge Junior Division, Kolhapur and the ad-

interim relief availed by him became nullified after filing of reply by the

Respondent No. 2 as per judicial order and therefore the Appellant is squarely

covered under the definition of wilful defaulter and ineligible under Section 29

(A) of the Code.

43. Concluding his arguments, the Respondent No. 2 requested this Appellate

tribunal to dismiss the appeal with exemplary cost.

44. The Respondent No. 3 gave the background of the case and supported the

averments made by the Respondent No. 2, which we have noted earlier.

45. The Respondent No. 3 pointed that the Appellant has neither taken the

ground for exemption as MSME under section 240 A of the Code in appeal No.

853 of 2023 not before the Adjudicating Authority in I.A. No. 2972 of 2022. The

Respondent No. 3 submitted that the Appellant also did not qualify the conditions

to be covered under Section 240 A of the Code.

46. The Respondent No. 3 also submitted that Appellant was required to

challenge the status of wilful defaulter as RBI per Guidelines, within 15 days from

the date of issue of notice by the Respondent No. 2, which the Appellant did not -15- Comp. App. (AT) (Ins.) No. 858 of 2023

challenge and therefore the status of the Appellant as wilful defaulter attained the

finality.

47. The Respondent No. 3 submitted that the Appellant is chronical and

habitual litigant and filed various litigation before the Adjudicating Authority,

this Appellate Tribunal, Hon'ble High Court of Bombay, Civil Judge Kolhapur,

District Judge Kolhapur and also Hon'ble Supreme Court of India and did not get

any support in judicial fora. In fact all the application and SLP were decided in

favour of the Financial Creditors including the Hon'ble Supreme Court of India

who did not find any ground against the Order of this Appellate Tribunal and the

Appeal of the Appellant was dismissed on 25.08.2023 in Civil Appeal No. 4135

of 2023.

48. The Respondent No. 3 submitted that the Appellant and one consortium,

namely - 'RNP Scaffolding & Framework Pvt. Ltd, M/s RNO Infracon Pvt. Ltd.

& RN Paints and Engineering Works & M/s Alliance Infra' were the two parties

who submitted the Resolution Plans, which were discussed and deliberated by the

CoC in its meeting on 26.05.2022.

49. The Respondent No. 3 stated that vide its order dated 19.09.2022 the City

Civil Court restrained the Respondents by way of temporary injunction from

acting upon the notices dated 19.07.2021 and 04.10.2021 till they file their reply

to the application for temporary injunction and the suit was ultimately dismissed

by the Civil Judge on 19.12.2022 holding the same to be not maintainable. The -16- Comp. App. (AT) (Ins.) No. 858 of 2023

Regular First Appeal (being Regular Civil Appeal No.4 of 2023) against the

aforesaid order dated 19.12.2022 filed by the Appellant before District Court,

Kolhapur was also dismissed vide order dated 01.04.2023.

50. The Respondent No. 3 further stated that the second appeal moved by the

Appellant challenging the order dated 01.04.2023 remains pending before the

High Court of Bombay (being Second Appeal No. 322/2023), however, till date

no stay has been granted by the High Court on the Willful Defaulter declaration.

51. The Respondent No. 3 informed that that it was in the meantime in the 2I'

COC meeting dated 06/07.10.2022, the CoC resolved that the Appellant was

ineligible to submit the Resolution Plan on account of Willful Defaulter

Declaration and further resolved to liquidate the Corporate Debtor after detailed

discussion. The Respondent No. 3 stated that the Financial Creditors were not

even satisfied with the amount offered by the Appellant as part of Resolution Plan

and the eligibility of the Appellant was also discussed in light of the Willful

Defaulter Declaration made by Respondent No.2.

52. The Respondent No. 3 highlighted the relevant observation made by the

member of CoC recorded in the said minutes , which reads as under :-

" Mr. Aditya stated that as of now there was no permanent

stay or vacation order by the Hon'ble Civil Court in the said

order and since IDBI was restrained and granted temporary

injunction for acting further on the order for declaration of -17- Comp. App. (AT) (Ins.) No. 858 of 2023

willful defaulter. The order mentioned that the temporary

injunction was given till 03-10-2022 and up to filling of the

reply by the IDBI. The order said that the reply to be filed by

IDBI till 03-10-2022 and accordingly the reply was filed by

IDBI and as per the order dated 19-09-2022 it seems that at

present there was no stay and as of now they were not in

receipt of the order of the hearing dated 03-10-2022.

53. The Respondent No. 3 highlighted that even if the COC was to hold the

Appellant eligible, dismissal of the Appellant's Civil Suit subsequently on

19.12.2022 would have again made him ineligible to submit a Resolution Plan

under the relevant provisions of the Code.

54. The Respondent No. 3 submitted that the CIRP process could further not

have been kept pending only to wait for the Appellant to possibly succeed in

overturning his Willful Defaulter declaration. The Resolution Professional as well

as CoC had to conduct and proceed with the CIRP proceedings within the given

statutory timelines which could not have been breached.

55. The Respondent No. 3 submitted that the issue of eligibility has been

considered and decided by the Adjudicating Authority in the impugned order

wherein it has observed that it felt the CoC had discussed both the eligibility and

resolution plan of the Appellant and the Appellant was satisfied with CoC -18- Comp. App. (AT) (Ins.) No. 858 of 2023

recommendation not to consider the Resolution Plan of the Appellant and also

found the Corporate Debtor fit for liquidation.

56. Concluding his arguments, the Respondent No. 3 requested this Appellate

tribunal to dismiss the appeal with suitable cost.

Findings

57. We note that the Impugned Order, in fact, disposed off four I.A.s i.e., 2972

of 2022 filed by the Resolution Professional seeking liquidation of the Corporate

Debtor, I.A. No. 872 of 2023 filed by the Respondent No. 2 on appointment of

liquidator , I.A. No. 3372 of 2022 filed by the Respondent No. 3 for an order of

restrain qua Resolution Plan by the Appellant and I.A. No. 464 of 2023 filed by

the Appellant seeking the Appellant to be eligible under provisions of Section

29A of the Code.

58. We have already noted that the Corporate Debtor was admitted under CIRP

vide order of the Adjudicating Authority dated 16.09.2021 based on an

application filed by the Respondent No. 3. Subsequently, after appointment of

IRP public notice was issued and EoI were invited in response to which eight

participants shown their interest, however, only two applicants submitted their

EoI and only one applicant, namely, M/s Nalwa Steel and Power Limited was

found eligible. Therefore, another EoI was invited and the last date of submission

of EoI on 06.03.2022 in response to which, two PRA submitted their Resolution -19- Comp. App. (AT) (Ins.) No. 858 of 2023

Plan including the Appellant. We have noted that these were deliberated in

various meetings of the CoC and finally in the 21st CoC held on 06.10.2022 and

07.10.2022, it was decided not to accept the Resolution Plan of the Appellant and

also recommended liquidation of the Corporate Debtor.

59. The Appellant raised few issues in the present appeal including non

consideration of his pleadings by the Adjudicating Authority, legal protection on

declaration as wilful defaulter by the Respondent No. 2 by the Court order

liquidation being against the spirit of the Code, status of Corporate Debtor as

going concern giving employment to large number of people etc.

60. The Appellant also raised issue regarding the Corporate Debtor being

MSME and the violation of principles of natural justice.

61. The main issue which requires to be deliberated and decided in the present

appeal is regarding the eligibility of the Appellant to submit the Resolution Plan

under section 29 A of the Code and issue regarding commercial wisdom of the

CoC regarding non consideration of the Resolution Plan submitted by the

Appellant and resultant recommendation of the CoC for liquidation of the

Corporate Debtor which was accepted by the Adjudicating Authority in the

Impugned Order dated 19.04.2023.

62. Here, we would like to take into account the relevant portion of the

provision of the Code as contained in Section 29 A which reads as under :- -20-

Comp. App. (AT) (Ins.) No. 858 of 2023

"29A. Persons not eligible to be resolution applicant. - A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person--

(a) is an undischarged insolvent;

(b) is a wilful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949);"

(Emphasis Supplied)

63. Further, it would be desirable to look into Section 240 (A) of the Code i.e.,

application of the Code to the MSME and the relevant portion reads as under :-

"240A. Application of this Code to micro, small and medium enterprises. -

(1) Notwithstanding anything to the contrary contained in this Code, the provisions of clauses (c) and (h) of section 29A shall not apply to the resolution applicant in respect of corporate insolvency resolution process (Ins. by Act No. 26 of 2021, sec.17 (w.e.f. 04-04-2021). )[or pre-

packaged insolvency resolution process] of any micro, small and medium enterprises."

(Emphasis Supplied)

64. It will be pertinent to understand that Section 29A of the Code was added

by the Amendment Act of 2021 with the intent that any person who by his

misconduct contributed to the default of the Corporate Debtor or is otherwise -21- Comp. App. (AT) (Ins.) No. 858 of 2023

undesirable, should be prevented from gaining or regaining control of the

Corporate Debtor. In a way, Section 29A intents to give protection to the genuine

creditors of the Corporate Debtor by preventing unscrupulous persons from

rewarding themselves at the expenses of the creditors and undermine the process

and object of the Code.

65. We observe that first line of Section 29 A stipulates that "A person shall

not be eligible to submit a Resolution Plan, if such person" suffers from any of

the infirmity stated in sub- clauses (a) to (i) of Section 29 which makes it clear

that Section 29 A disqualifies those people who were cause or contributed for the

downfall of the Corporate Debtor and therefore they became unsuited to take rein

of the management of the Corporate Debtor.

66. It is also noted that in accordance with the guidelines of the RBI, a person

who though able to pay, does not pay, is declared as willful defaulter and is barred

by Section 29 A of the Code to submit Resolution Plan.

67. We also note that MSME entity were exempted partially from the

provisions of Section 29 A of the Code w.r.t. Section 29 A (c) and Section 29 A

(H) only with qua such Corporate Debtor which was done perhaps with thought

process that, other Resolution Applicant may not come forward which may not

be helpful in resolution of such MSME Corporate Debtor leading to its logical

liquidation. The objective of the Code is for the Resolution of the Corporate -22- Comp. App. (AT) (Ins.) No. 858 of 2023

Debtor and not for liquidation of the Corporate Debtor, hence these two

exemptions to MSME were granted w.r.t. Section 29A of the Code.

68. We have earlier discussed that the Promoters of MSME are exempted only

from sub-section (c) and (h) of the 29 A of the Code and other eligibility criteria

as stipulated under section 29 A of the Code will be applicable i.e., Section 29

A(b) is not carved out.

69. Thus, the exemption under Section 240 A of the Code is not applicable to

Section 29 A (b) of the Code which is the case under discussion in the present

Appeal.

70. It is well settled principle that the CoC has the powers to take informed

decision with regard to approval of the Resolution Plan and once, the Resolution

Plan is decided by the CoC, the Resolution Professional is required to file suitable

application before the Adjudicating Authority for approval. Thus, the CoC has

full powers to decide regarding approval or non approval of the Resolution Plan.

71. It is also viewed that the CoC is also duty bound to consider the eligibility

or ineligibility of the Resolution Applicant under section 29 A of the Code as

upheld in catena of the judgments passed by the Hon'ble Supreme Court of India

as well as by this Appellate Tribunal where it has been made clear that the

ineligibility for submission of the Resolution Plan, would be determinate w.r.t

date on which the Resolution Applicant submits his Plan. -23-

Comp. App. (AT) (Ins.) No. 858 of 2023

72. We note that the Appellant submitted the Resolution Plan on 12.05.2022

which was considered in 11th CoC meeting held on 26.05.2022 and in various

subsequent CoC meetings up to 21st CoC Meeting of CoC held on 06.10.2022 and

07.10.2022 where the Resolution Plan of the Appellant was not approved by

66.37% of the voting share of the members of the CoC.

73. It is also worth noting again that the Respondent No. 2 having the voting

rights of 35.66% objected and abstained from voting on the Resolution Plan of

the Appellant on the ground of being contesting party in Civil Suit No. 710 of

2021 in 19th CoC Meeting held on 27.09.2022.

74. We note that the Appellant filed Writ Petition No. 2885 of 2022 before the

Hon'ble High Court of Bombay and vide order dated 28.08.2022 the Hon'ble

High Court allowed the plea of the Appellant to withdraw the said Writ Petition

with a liberty to file a civil suit, primarily on issue of writ jurisdiction.

75. Subsequently, the Appellant filed Civil Suit No. 710 of 2022 before the

Civil Judge, Junior Division, Kolhapur challenging the willful defaulter

declaration by the Respondent No. 2 and Civil Judge granted ad-interim relief in

favour of the Appellant vide Order dated 19.09.2022 which was disposed on

19.12.2022 as not maintainable by Civil Judge. The Appellant filed a Civil

Appeal No. 4 of 2023 before the District Court, Kolhapur challenging Civil Judge

vide its order dated 19.12.2022 which was also dismissed vide order dated

01.04.2023.

-24-

Comp. App. (AT) (Ins.) No. 858 of 2023

76. The Appellant again filed Second Appeal No. 322 of 2023 which is still

pending before the Hon'ble High Court of Bombay.

77. The Appellant tried to defend his case regarding eligibility w.r.t. judicial

protection by way of ad-interim stay by Civil Judge, Junior Division, Kolhapur.

Hence, it would be desirable to look into the respective orders passed by the

judicial fora on the appeals by the Appellant from time to time.

(i) We have already observed from the pleadings as well from the appeal

that since the Hon'ble High Court of Bombay was not inclined to

interfere in the appeal made by the Appellant due to fact that the

Respondent No. 2 - IDBI Bank Limited is the private bank and

therefore, the writ jurisdiction was not available in such cases, the

Appellant choose to withdrew the petition and accordingly the Writ

Petition was disposed off as withdrawn on 24.08.2022. -25- Comp. App. (AT) (Ins.) No. 858 of 2023 -26- Comp. App. (AT) (Ins.) No. 858 of 2023

(ii) The Appellant filed Second Appeal No. 322 of 2023 before the Hon'ble

High Court of Bombay where the last order dated 02.05.2023, as made

available reads as under :-

(iii) This Appellate Tribunal vide its order dated 14.03.2023 dismissed the

application of the appellant filed in Company Appeal (AT) (Ins.) No.

1080 of 2021challenging the CIRP of Corporate Debtor under Section -27- Comp. App. (AT) (Ins.) No. 858 of 2023

7 of the Code by the Order of the Adjudicating Authority dated

16.09.2021, reads as under :-

-28-

Comp. App. (AT) (Ins.) No. 858 of 2023 -29- Comp. App. (AT) (Ins.) No. 858 of 2023 -30- Comp. App. (AT) (Ins.) No. 858 of 2023

(iv) The order of this Appellate Tribunal dated 14.03.2023 was challenged

before the Hon'ble Supreme Court of India in Civil Appeal No. 4135 of

2023 which was dismissed vide its order dated 25.08.2023, which reads

as under :-

-31-

Comp. App. (AT) (Ins.) No. 858 of 2023

(v) In regular Civil Suit No. 710 of 2021 filed before the Civil Judge, Junior

Division, Kolhapur, the order was passed by Civil Judge on 19.09.2022

which reads as under :-

-32-

Comp. App. (AT) (Ins.) No. 858 of 2023 -33- Comp. App. (AT) (Ins.) No. 858 of 2023 -34- Comp. App. (AT) (Ins.) No. 858 of 2023

Note:- From the order dated 19.09.2022 it become clear that the

defendants (Financial Creditor) were restrained by way of temporary

injunction from any other adverse action based on the order of the

Respondent No. 2 dated 19.07.2021 and 04.10.2021 till defendant file

their say to the application for temporary injunction.

(vi) The Civil Judge order sheet dated 03.10.2022 and dated 21.11.2022 are

reproduced as under :-

Note : English translation as made available in the Appeal Paper Book -35- Comp. App. (AT) (Ins.) No. 858 of 2023

Note : English translation as made available in the Appeal Paper Book -36- Comp. App. (AT) (Ins.) No. 858 of 2023

78. For sake of clarity regarding eligibility of the Appellant under section 29

A of the Code, we will once again recapitulate relevant dates as under :-

(i) The Appellant was declared as wilful defaulter by the Respondent No. 2 on

19.07.2021 and 04.10.2021.

(ii) The Appellant submitted the Resolution Plan on 12.05.2022 .

(iii) The Appellant challenged the status of wilful defaulter by Writ Petition No.

2885 of 2022 before the Hon'ble High Court of Bombay which was dismissed as

withdrawn vide its order dated 24.08.2022.

(iv) The Appellant filed regular Civil Suit No. 710 of 2022 before the Civil

Judge, Kolhapur and for the first time ad-interim relief was granted in favour of

the appellant vide its order dated 19.09.2022, however, vide order dated

19.12.2022 the suit was held to be not maintainable by civil judge and disposed

off accordingly.

(v) The Appellant challenged Civil Judge order dated 19.12.2022 by regular

Civil Appeal No. 04 of 2023 before the District Judge, Kolhapur which was

dismissed on 01.04.2023.

(vi) The Appellant filed Second Appeal bearing 322 of 2023 challenging the

order of District Judge dated 01.04.2023 which currently being heard by the

Hon'ble High Court of Bombay.

Thus, it becomes clear that the Appellant was declared wilful defaulter way

back on 19.07.2021 and 04.10.2021 by the Respondent No. 2- IDBI Bank Limited -37- Comp. App. (AT) (Ins.) No. 858 of 2023

whereas the Appellant submitted his Resolution Plan on 12.05.2022. Thus, as per

Section 29 A of the Code on the date of submission of the Resolution Plan, the

Appellant was clearly ineligible to submit the Resolution Plan as per Section 29

A (b) of the Code.

(vii) We have already noted that Section 240 A of the Code does not give any

reprieve to the Appellant from applicability of Section 29A (b) of the Code. Thus

no legal remedy is available to the Appellant from being held as ineligible to

submit Resolution Plan which was rightly done by the CoC and adjudicated by

the Adjudicating Authority vide its Impugned Order dated 19.04.2023.

79. In this regard. we would also take into consideration the Judgment passed

by the Hon'ble Supreme Court of India in the matter of Hari Baby Thota in Civil

Appeal No. 4422/2023 vide its order dated 29.11.2023 and the relevant para of

the said judgment reads as under :-

"22. We certainly can look to the statement of the Minister

for purposes of a cut off date that "there is no other specific

provision providing for cut off date" which submits that it

should be the date of application of making a bid. Thus, to

opine that it is the initiation of the CIRP proceedings which

is the relevant date, cannot be said to reflect the correct legal

view and thus, we are constrained to observe that the law laid

down in Digambar Anand Rao Pigle (supra) case by the -38- Comp. App. (AT) (Ins.) No. 858 of 2023

Tribunal is not the correct position in law and the cut off date

will be the date of submission of resolution plan."

(Emphasis Supply)

80. From above relevant analysis, it is very clear that relevant date is the date

of submission of the Resolution Plan and the Appellant was not eligible to submit

the Resolution Plan on 12.05.2022, since he had already been declared as wilful

defaulters by the Respondent No. 2 on 17.07.2021 and 04.10.2021. i.e., much

prior to his submission of Respondent Plan. It is also fact that no judicial stay

existed in favour of the Appellant on 12.05.2022 regarding his status as wilful

defaulter. Hence, we hold that the Appellant was not eligible to submit the

Resolution Plan and this was rightly adjudicated by the Adjudicating Authority.

81. Thus, we do not find any error in the Impugned Order dated 19.04.2023.

The appeal devoid of any merit stand dismissed. No Costs. Interlocutory

Application(s), if any, are Closed.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

[Mr. Indevar Pandey] Member (Technical) Sim