Naresh Kumar Sharma & Ors vs Shekhar Resorts Ltd & Anr

[Arising out of Order dated 24th July, 2020 passed by the National Company Law Tribunal, Division Bench, Delhi Bench III in CA-441/ND/2019 filed in CP No.(IB)/22/ND/2018]

IN THE MATTER OF:

1. Naresh Kumar Sharma Ex-Management of the Shekhar Resorts Ltd. J-1817, GF, Chittranjan Park, New Delhi - 110019.

2.Shri Chandra Shekar Sharma J-1817, GF, Chittranjan Park, New Delhi - 110019.

3. Shri K. K. Sharma J-1817, GF, Chittranjan Park, New Delhi - 110019. ...Appellants

Vs

1. Shekhar Resorts Ltd., Through Mr. Vikram Kumar, IRP Having its Registered Office at:- J 6A, Kailash Colony, National Capital Territory of Delhi, New Delhi - 110048.

2. NCJ Infrastructure Pvt. Ltd., Having registered office at Basement Floor, D-5/7, Vasant Vihar, New Delhi - 110057. ....Respondents -2-

Present:

For Appellants: Mr. Virender Ganda, Senior Advocate with Mr. Rakesh Kumar, Ms. Preeti Kashyap and Ms. Akansha Kaul, Advocates. For Respondents: Mr. A. S. Chandhiok, Senior Advocate with Ms. Priya Agarwal, Mr. Viren Sharma, Ms. Sweta Kakad and Mr. Abhishek Anand, Advocates for Respondent No.1.

Mr. Arun Kathpalia, Senior Advocate with Mr. Abhishek Garg, Advocate for Respondent No.2.

BANSI LAL BHAT, J.

This appeal has been preferred by the suspended Board of Directors of

'M/s Shekhar Resorts Limited' (Corporate Debtor) assailing order dated 24th

July, 2020 passed in CA-441/ND/2019 filed in CP No.(IB)/22/ND/2018 by

the Adjudicating Authority (National Company Law Tribunal) Division

Bench, Delhi, Bench III, by virtue whereof Resolution Plan submitted by

Respondent No. 2 - 'M/s NCJ Infrastructure Pvt. Ltd.', approved by the

Committee of Creditors in its 15th Meeting convened on 4th June, 2019 with

a voting percentage of 100%, was approved by the Adjudicating Authority.

The approval was accorded by the Adjudicating Authority at the instance of

Resolution Professional who had filed application under Section 31(1) of the

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

Code') while no application under Section 60(5) of the I&B Code was pending

consideration before the Adjudicating Authority.

2. Before adverting to the factual matrix of the case in hand, it is apt to

mention that the Resolution Plan submitted by Respondent No. 2

(Resolution Applicant) has been approved by the Committee of Creditors

with 100% voting share, Performance Bank Guarantee as required under

the Regulations has been deposited by the Resolution Applicant and all

statutory and regulatory compliances have been made. The main issue

raised in this appeal is in regard to the valuation of assets of the Corporate

Debtor and same will be adverted to as we proceed further.

3. Adverting to the factual position as emerging from record

it appears that CP No. 22/ND/2018 under Section 7 of the I&B Code came

to be filed by 'Oriental Bank of Commerce' (Financial Creditor) seeking

initiation of Corporate Insolvency Resolution Process against 'Shekhar

Resorts Pvt. Ltd.' (Corporate Debtor) for default in regard to payment of

financial debt amounting to Rs.19,67,64,134/- including interest. The

Adjudicating Authority, in terms of order dated 11th September, 2018,

admitted the application, appointed Mr. Vikram Kumar as Interim

Resolution Professional (IRP) and slapped moratorium against the assets of

the Corporate Debtor. The Corporate Insolvency Resolution Process

proceeded with public announcement being made by the Interim Resolution

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Professional and Expressions of Interest invited from Prospective Resolution

Applicants. 22 Prospective Resolution Applicants came forward with

Expression of Interest received from (1) 'Alchemist ARC' and (2) 'NCJ

Infrastructure Pvt. Ltd.' alongwith demand drafts of Rs.50 Lakh. As the

timelines were extended, 5 Prospective Resolution Applicants submitted

Expression of Interest. The two Resolution Plans emanating from 'M/s NCJ

Infrastructure Pvt. Ltd.' and 'M/s Krishna Constructions' were subjected to

evaluation by the consultants. After analysis and evaluation, the Committee

of Creditors approved the Resolution Plan submitted by 'M/s NCJ

Infrastructure Pvt. Ltd.' (Respondent No. 2 herein). This happened in 15th

meeting of Committee of Creditors convened on 4th June, 2019 with a voting

percentage of 100% through e-voting. On consideration of the application

filed by Resolution Professional under Section 31(1) of I&B Code, the

Adjudicating Authority approved the Resolution Plan of Respondent No. 2 in

terms of the impugned order which has been assailed in this appeal.

4. Appellants, being the ex-management of the Corporate Debtor, have

assailed the impugned order on various grounds. Their primary objection to

the approved Resolution Plan before the Adjudicating Authority was that the

Resolution Plan of Respondent No. 2 offered Rs.143 Crores whereas the

actual value of the properties of Corporate Debtor was Rs.490 Crores.

According to Appellants, the assets of the Corporate Debtor comprises of

three properties including Hotel Orient Taj at Fatehabad Road, Agra and

some plots of land in Mauja Basai Mustakil, Agra and Greater Noida. It was

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claimed that the Corporate Debtor has ownership of the above named five

star Hotel at Agra in addition to having two more valuable properties and

the Appellants had sought the valuation reports in relation thereto from

Respondent No. 1 during the Corporate Insolvency Resolution Process and

filed the applications in this regard. However, same were rejected by the

Adjudicating Authority vide order dated 26th August, 2019 against which

Company Appeal (AT) (Insolvency) No. 953 of 2019 was preferred in this

Appellate Tribunal which came to be disposed of vide order dated 16th

September, 2019 with direction to the Adjudicating Authority to look into

the Hotel operation and valuation of the properties of the Corporate Debtor.

The Adjudicating Authority passed orders dated 19th November, 2019 and

4th February, 2020 for ascertaining the valuation of such properties. Before

consideration of Resolution Plan, the Adjudicating Authority was to examine

the issue of valuation of properties. Meanwhile there was outbreak of

COVID -19, the matter was listed on 8th June, 2020 and then adjourned to

22nd June, 2020. The Adjudicating Authority did not entertain the plea of

Appellants for treating the matter urgent for hearing through virtual mode

and put the matter for consideration of Resolution Plan on 3rd July, 2020,

on which date it was pointed out that the performance guarantee given in

the Resolution Plan had expired. The Adjudicating Authority directed the

Respondent No. 1 to rectify the defects, the matter was adjourned to 20th

July, 2020 though the order uploaded on 3rd July, 2020 stated that the

order was reserved. Meanwhile, Appellants filed I.A. No. 2388 of 2020. The

Appellants joined the virtual hearing on 20th July, 2020 when the

Company Appeal (AT) (Insolvency) No. 689 of 2020 -6-

Adjudicating Authority observed that the matter had been reserved on 3rd

July, 2020. The application for oral hearing was not listed for consideration

and the same was projected before the Adjudicating Authority. However, on

24th July, 2020, despite circulating an urgency letter by Appellants, the

impugned order came to be pronounced.

5. Learned counsel for Appellants submits that the Resolution Plan is

approved of Rs.143 Crores while as per circle rate value of the property is

Rs.410 Crores. It is further submitted that the actual outlay is only of

Rs.105 Crore and rest of the Resolution Plan is window dressed. It is

further submitted that the fair value has been ascertained at Rs.157 Crores

while the liquidation value has been ascertained at Rs.125 Crores.

Therefore, it is pointed out, that the value of Resolution Plan of Respondent

No. 2 is Rs.50 Crore less than the fair value of Rs.157 Crore. Learned

counsel for Appellants further submits that the impugned order cannot be

sustained as the same has been passed by one member quorum while at the

hearing there was quorum of two judges. It is submitted that the Appellants

were not provided opportunity of hearing as regards rectification of defects

by Resolution Professional. It is further submitted that this Appellate

Tribunal is required to render its finding on the aspect of the Resolution

Plan satisfying all criteria of Section 61(3) (i) to (v). Harping upon the issue

of valuation as the main ground of appeal, it is submitted that the impugned

order has been passed without taking complete note of the comparison of

the fair value, liquidation value and the actual outlay in Resolution Plan. It

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is further submitted that 100% claims of the Financial Creditors comprising

the Committee of Creditors have been satisfied in terms of the approved

Resolution Plan consuming about Rs.90 Crores, while the total liability of

Corporate Debtor did not exceed Rs.120 Crores. If the assets of the

Corporate Debtor had been sold at correct valuation price of Rs.410 Crores,

Appellants would have got substantial surplus amount being the

stakeholder of Corporate Insolvency Resolution Process. Thus, the

Appellants have suffered prejudice.

6. Per contra it is argued on behalf of Respondent No. 1 - Resolution

Professional that the appeal is not maintainable and the Appellants have

failed to demonstrate as to how the Resolution Plan of Respondent No. 2 is

in contravention of law or that there has been any material irregularity in

exercise of powers by the Resolution Professional during CIRP. It is further

submitted that in terms of law laid down in 'Maharashtra Seamless

Limited vs. Padmanabhan Venkatesh & Ors.' (Civil Appeal No. 4242 of

2019) decided on 22nd January, 2020 challenge by Appellants to the

liquidation value of Corporate Debtor cannot be sustained and the

Appellants cannot also question the commercial wisdom of Committee of

Creditors. It is further pointed out that the Appellants did not cooperate

with the Resolution Professional during entire CIRP and it was at the

instance of Resolution Professional that the Adjudicating Authority had to

issue bailable warrants against the Appellants for seeking their cooperation.

As regards, the passing of impugned order by a single bench, it is submitted

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that the Bench hearing the matter was reconstituted by the Hon'ble

President NCLT and Special Bench comprising of Shri Mohd. Sharief Tariq,

Hon'ble Member Judicial was reconstituted, who passed the impugned order

after hearing the parties.

7. Respondent No. 2 has reiterated the arguments advanced on behalf of

Respondent No. 1. It is further submitted that the law has been settled by

the Hon'ble Apex Court in 'Maharashtra Seamless Limited' (supra) as

regards valuation. It is pointed out that in SARFAESI proceedings initiated

by the Financial Creditor - Oriental Bank of Commerce, way back in 2016,

auction was conducted for the Hotel Property with reserve price fixed at

Rs.110 Crores but not even a single buyer came forward at such reserved

price. It is further pointed out that the Appellants have throughout tried to

obstruct the entire Corporate Insolvency Resolution Process and failed to

provide documents and information. The performance guarantee, bank

guarantees had been provided to Resolution professional well within time,

the Resolution Plan was compliant with provisions of I&B Code and

opportunity was given to Appellants to file response to the additional

affidavit filed by Resolution Professional on 9th July, 2020 but they did not

file any response. However, their submissions were heard and considered.

It is further pointed out that the Resolution professional has filed

application under Section 66 of I&B Code for fraudulent transactions

against the Appellants which are still pending before the Adjudicating

Authority. The Resolution Plan of Respondent No. 2 approved by the

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Adjudicating Authority takes into account the interest of all stakeholders

with total amount of Rs.143.5 Crores offered by the Resolution Applicant in

the Resolution Plan which exceeds the claims admitted by the Resolution

Professional. It is lastly pointed out that 100% payment to all Financial

Creditors, Operational Creditors, Workmen and Employees and even to

Other Creditors who had not submitted their claims have been provided for

in the Resolution Plan.

8. Having heard learned counsels for the parties as regards

maintainability of the appeal, we are of the considered opinion that the

appeal does not raise any question for determination with reference to

grounds of appeal qua approval of a Resolution Plan as contemplated under

Section 61(3) (i) to (v) of the I&B Code. It is not the Appellants' case that the

Resolution Plan is in conflict with any extant law or that there has been any

material irregularity at the hands of Resolution Professional during the

conduct of Corporate Insolvency Resolution Process. The record, on the

contrary, portrays a very dismal and distressing picture of the Appellants,

being in ex-management of the Corporate Debtor, who have been playing

truant and holding back while their cooperation was sought by the

Resolution Professional in carrying forward the Corporate Insolvency

Resolution Process. It is not in controversy that at one stage the

Adjudicating Authority had to issue bailable warrants against the Appellants

for thwarting the Corporate Insolvency Resolution Process in not extending

cooperation to the Resolution Professional who had to file application before

Company Appeal (AT) (Insolvency) No. 689 of 2020 -10-

the Adjudicating Authority praying for adopting of legally permissible

coercive methods to compel obedience by the Appellants. The Committee of

Creditors found the Resolution Plan emanating from Respondent No. 2

compliant in all respects, providing for the interests of all stakeholders as

also the Resolution Costs and meeting the criteria specified by the IBBI in

regard to various parameters including financial matrix, feasibility and

viability. The Adjudicating Authority, on consideration of the application of

the Resolution Professional under Section 31(1) of the I&B Code, found the

Resolution Plan compliant with all statutory and regulatory parameters and

providing for all stakeholders besides, not being in conflict with any extant

law. Approval of Resolution Plan is a business decision taken by the

Committee of Creditors with requisite majority based on their commercial

wisdom and the same is non-justiciable. While dealing with approval of

Resolution Plan, the Hon'ble Apex Court in 'K. Shashidhar Vs. Indian

Overseas Bank and Ors.' (Civil Appeal No. 10673 of 2018) decided on

5th February, 2019 (2019 SCC Online SC 257) observed that the

commercial wisdom of the Committee of Creditors 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. It

was further observed that there is an intrinsic assumption that Financial

Creditors are fully informed about the viability of the Corporate Debtor and

the feasibility of the proposed resolution plan and they act on the basis of

thorough examination of the proposed resolution plan and assessment made

Company Appeal (AT) (Insolvency) No. 689 of 2020 -11-

by their team of Experts. In para 44 of the judgment, the Hon'ble Apex

Court observed as under:-

"44. ........... At best, the Adjudicating Authority (NCLT)

may cause an enquiry into the "approved" resolution plan

on limited grounds referred to in Section 30(2) read with

Section 31(1) of the I&B Code. It cannot make any other

inquiry nor is competent to issue any direction in relation

to the exercise of commercial wisdom of the financial

creditors be it for approving, rejecting or abstaining, as the

case may be. Even the inquiry before the Appellate

Authority (NCLAT) is limited to the grounds under Section

61(3) of the I&B Code."

As noticed hereinabove no irregularity, much less a material

irregularity at the hands of Resolution Professional in Corporate Insolvency

Resolution Process or infraction of any of the grounds enumerated under

Section 61(3) (i) to (v) have been raised in this appeal to dislodge and disturb

the commercial wisdom of Committee of Creditors in approving the

Resolution Plan of Respondent No. 2 nor has the Appellant been able to

establish any lapse on the part of Adjudicating Authority in examining and

determining that the approved Resolution Plan did in any manner not

conform to conditions under Section 30(2) of the I&B Code and that the

Company Appeal (AT) (Insolvency) No. 689 of 2020 -12-

same was in conflict with any extant law. We would thus have no hesitation

in holding that the appeal is not maintainable

9. As regards quorum, suffice it to say that a Special Bench of Judicial

Member had been reconstituted by the Hon'ble President, NCLT during

outbreak of COVID 19 for hearing of the matter through virtual mode and

the matter has been heard by the Special Bench culminating in passing of

the impugned order. Objection raised to the constitution of the Bench as

also same not being an urgent matter has to be repelled, regard being had to

the timelines prescribed under I&B Code and justice being accessible.

10. As regards valuation it is apt to notice that the fair value being

ascertained at Rs.157.12 Crore and the liquidation value being ascertained

at Rs.125.92 Crore, respectively, Respondent No. 2 offered Rs.143.50 Crore

which in the opinion of Committee of Creditors was the best plan providing

for satisfaction of claims of all the stakeholders and being viable and

feasible, all aspects of the matter having been taken into consideration by

the Committee of Creditors based on their commercial wisdom, which is not

justiciable either before the Adjudicating Authority or before this Appellate

Tribunal. The Code does not provide that the value given by the Resolution

Applicant should match the fair value or the liquidation value. The law in

this regard has been settled in 'Maharashtra Seamless Limited' (Supra).

This is apart from the fact being pointed out by the Respondents that even

in 2016 in SARFAESI Proceedings not a single buyer offered bid even at the

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reserve price of Rs.110 Crores. On this aspect of the matter, it would be

profitable to refer to the observations of Hon'ble Apex Court in

'Maharashtra Seamless Limited' (Supra).

"26. No provision in the Code or Regulations has been

brought to our notice under which the bid of any

Resolution Applicant has to match liquidation value arrived

at in the manner provided in Clause 35 of the Insolvency

and Bankruptcy Board of India (Insolvency Resolution

Process for Corporate Persons) Regulations, 2016. This

point has been dealt with in the case of Essar Steel

(supra). We have quoted above the relevant passages from

this judgment.

27. It appears to us that the object behind prescribing such

valuation process is to assist the CoC to take decision on a

resolution plan properly. Once, a resolution plan is

approved by the CoC, the statutory mandate on the

Adjudicating Authority under Section 31(1) of the Code is

to ascertain that a resolution plan meets the requirement of

sub-sections (2) and (4) of Section 30 thereof. We, per se,

do not find any breach of the said provisions in the order

of the Adjudicating Authority in approving the resolution

plan.

Company Appeal (AT) (Insolvency) No. 689 of 2020 -14-

28. The Appellate Authority has, in our opinion, proceeded

on equitable perception rather than commercial wisdom.

On the face of it, release of assets at a value 20% below its

liquidation value arrived at by the valuers seems

inequitable. Here, we feel the Court ought to cede ground

to the commercial wisdom of the creditors rather than

assess the resolution plan on the basis of quantitative

analysis. Such is the scheme of the Code. Section 31(1) of

the Code lays down in clear terms that for final approval of

a resolution plan, the Adjudicating Authority has to be

satisfied that the requirement of sub-section (2) of Section

30 of the Code has been complied with. The proviso to

Section 31(1) of the Code stipulates the other point on

which an Adjudicating Authority has to be satisfied. That

factor is that the resolution plan has provisions for its

implementation. The scope of interference by the

Adjudicating Authority in limited judicial review has been

laid down in the case of Essar Steel (supra), the relevant

passage (para 54) of which we have reproduced in earlier

part of this judgment. The case of MSL in their appeal is

that they want to run the company and infuse more funds.

In such circumstances, we do not think the Appellate

Authority ought to have interfered with the order 35 of the

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Adjudicating Authority in directing the successful

Resolution Applicant to enhance their fund inflow upfront."

11. On consideration of the matter in entirety, we find that the appeal is

not maintainable and the Appellants have no case on merit. In our

considered opinion, the appeal deserves to be dismissed at the very

threshold stage and proceedings snipped at the very outset. The appeal is

accordingly dismissed.

[Justice Bansi Lal Bhat] Acting Chairperson

[Justice Jarat Kumar Jain] Member (Judicial)

[Dr. Ashok Kumar Mishra] Member (Technical)

NEW DELHI 14th September, 2020

AM

Company Appeal (AT) (Insolvency) No. 689 of 2020