Sun Paper Ltd vs S. Dhanapal

Sun Paper Ltd. No. 11/6, Ratnapuri 2nd Street, Koyambedu, Chennai- 600 107. ...Appellant Vs S. Dhanapal, Liquidator, M/s. Servalakshmi Paper Ltd. (under Liquidation) Kodaganallur Village Vaduganpatti Post, I.C. Pettai Tirunelveli - 627 010. ...Respondent

(Arising out of Order dated 12.05.2023 passed by the Adjudicating Authority (National Company Law Tribunal, Chennai Bench) in IA/846(CHE)/2020 in CP/514(IB)/CB/2017)

Present :

For Appellant : Mr. TK Bhaskar, Advocate For Respondent : Mr. Karthik Seshadri, Advocate

JUDGMENT

(Hybrid Mode)

Per: Justice N. Seshasayee, Member (Judicial)

This appeal is preferred by the appellant, a scheme proponent,

during the liquidation of the corporate debtor, challenging the

Comp. App. (AT) (CH) (Ins) No. 205/2023 Page 1 of 9 impugned order of the learned Adjudicating Authority

directing the appellant to deposit the bank guarantee amount

of ₹.2.0 crores to the liquidation estate of the corporate debtor,

which, according to the appellant, it is not liable to pay as it

had withdrawn from the race.

2. The material facts relevant for the current purpose are:

a) The corporate debtor was ordered to be liquidated, and

during the liquidation process, schemes were invited for

the sale of the corporate debtor as a going concern in

terms of Regulation 2B of the IBBI (Liquidation Process)

Regulation. In response to the same, the appellant

herein and M/s Seshasayee Paper and Boards Limited

submitted their respective schemes. Both these schemes

were eventually placed before the Adjudicating

Authority, who directed the liquidator to place them

before the CoC for evaluation of the viability of the

schemes submitted. CoC evaluated both the schemes

and approved the scheme of the appellant. It appears

that the liquidator appeared to have expressed his

opinion in favour of the scheme of M/s. Seshasayee

Comp. App. (AT) (CH) (Ins) No. 205/2023 Page 2 of 9 Papers. He would now move C.A 1266 of 2019, seeking

to approve either of the two schemes submitted by the

proponents.

b) The Adjudicating Authority would approve neither, and

vide its Order dated 13.03.2020, it remanded the matter

back to the CoC for a de novo consideration. This Order

of the Adjudicating Authority came to be challenged by

the appellant in C.A No 451 of 2020.

c) While things stood thus, Covid wave swept the country

which according to the appellant, delayed things for the

appellant as hearing of C.A.451 of 2020 was getting

delayed due to it. On 28.08.2020, the appellant withdrew

the appeal.

d) Be that as it may, even the scheme of M/s. Seshasayee

Papers could not go through, but the reasons thereof are

not very germane for the present. What is relevant is that

the corporate debtor was eventually liquidated, and

Seshasayee Papers eventually purchased the same in

liquidation.

Comp. App. (AT) (CH) (Ins) No. 205/2023 Page 3 of 9

3. It may be now stated that when both the appellant and

Seshasayee Papers submitted their respective schemes as

referred to in paragraph 2(a) above, both of them had given

a guarantee for EMD to the tune of ₹.2.0 crores. Upon the

appellant withdrawing his appeal in C.A.451 of 2020, the

liquidator moved the Adjudicating Authority with I.A. 846 of

2020 and I.A.844 of 2020 respectively against the appellant

and Seshasayee Papers, for realising the said EMD amount.

These applications came to be listed together. According to

the appellant, it could not appear in I.A.846 of 2020 as the

matter came to be listed during covid days whereas

Seshasayee Papers contested the application that was filed

against it through its counsel. Ultimately, on 12.05.2023,

I.A 846 of 2020 came to be allowed, and the appellant was

directed to pay a sum of ₹.2.0 crores to the liquidation estate

of the corporate debtor. This order is now under challenge.

4. The learned Counsel for the appellant now makes two-fold

submissions:

(a) That the counsel whose name is noted in the order as

representing the respondents before the Adjudicating

Comp. App. (AT) (CH) (Ins) No. 205/2023 Page 4 of 9 Authority, was never engaged by the appellant but

was appearing only for the respondent in I.A

No.844/2020.

(b) That I.A.846 of 2020 filed against the appellant herein

was filed, prosecuted, and decided during the Covid

wave, in the proceedings of which the appellant could

not participate effectively due to the restrictions

imposed by Covid Pandemic. But, at any rate, when

the appellant had challenged the Order of the

Adjudicating Authority dated 13.03.2020 remanding

the appellant's scheme back to the desk of the CoC, it

meant that the appellant's scheme was not accepted.

Secondly, when this Order of remand was initially

challenged by the appellant in C.A.451 of 2020, and

was subsequently withdrawn, it only restored the

issue back to where it was after the order of the

Adjudicating Authority dated 13.03.2020. In other

words, the appellant was left at the stage where its

scheme was not accepted. Therefore, no legal

obligation can be created against the appellant after

its scheme was not accepted.

Comp. App. (AT) (CH) (Ins) No. 205/2023 Page 5 of 9

5. Per contra, Mr. Karthik Seshadri, the learned counsel for

the liquidator, would submit that a mere withdrawal of

C.A.451 of 2020 does not amount to withdrawing from the

participation in submitting the scheme and hence the

appellant is liable. He, however, fairly submitted that the

corporate debtor was eventually sold as a going concern to

M/s. Seshasayee Paper & Boards Ltd.

6. We gave careful consideration to the arguments advanced

by the rival side and find the contention of the appellant to

be reasonable and legally sustainable. The EMD in question

is for submitting the scheme. The scheme of the appellant's

choice indeed was submitted, but it was not accepted. Once

the scheme was not accepted, it was for the appellant to

decide whether to participate in the process or not. A

scheme proponent only undertakes to submit a scheme of

his/its design and not any scheme to the satisfaction of the

CoC or the Adjudicating Authority. In that situation, once

the initial scheme was not accepted, it then becomes a

Comp. App. (AT) (CH) (Ins) No. 205/2023 Page 6 of 9 choice of the scheme proponent to continue to participate in

the process or not.

7. Further, there is a commercial angle where time may be a

factor. No businessman or business entity that participates

in a resolution or liquidation process are not doing charity

to redeem the corporate debtor with their money but only to

secure a commercial advantage when they smell a business

opportunity for them. But they cannot be forced to look at

the food in the plate without eating it for long. This is the

reality of commerce. On the other hand, howsoever one may

intend to have a fast-tracked dispute resolution

mechanism, given the size of the population and the

number of litigations instituted, it is a humungous task to

actually resolve every dispute within a time frame. This is

the reality of our legal system. But in the world of commerce

time invariably is considered critical. Given these

conflicting realities, a man in business only attempts to

optimize his advantage within a time frame, and if he

becomes impatient, he cannot be sentenced to force-stay in

the race. The liquidator tries to maximise the advantage he

Comp. App. (AT) (CH) (Ins) No. 205/2023 Page 7 of 9 can secure. The appellant will try to maximise the

advantage whatever he can within the time frame it had in

his scheme of things. Whereas the liquidator may have to

wait till the legal process is concluded, driven by pure

commercial consideration, a scheme proponent has an

option not to wait. And, both are realities of life, and they

cannot be ignored.

8. Hence we are constrained to hold that when the appellant,

impelled by its commercial acumen, opts to withdraw from

the race when its scheme was not accepted for reasons

which it considers relevant to its scheme of commercial

decision, it only deserves to be respected and not punished.

Set in the context, the liquidator, in requiring the appellant

to pay the EMD guarantee amount, has not demonstrated

how and why the appellant is liable in law to pay the EMD

amount. We find that the claim of the liquidator is wholly

unsustainable in law.

9. It is therefore, not so much about whether the appellant

was justly set ex-parte or the application of the liquidator

Comp. App. (AT) (CH) (Ins) No. 205/2023 Page 8 of 9 was proceeded ex-parte unjustly. It is about its

fundamental liability in law.

10. To conclude, we allow the appeal and set aside the order

of the Adjudicating Authority dated 12.05.2023 passed in

IA/846/2020 in CP/514/IB/2017. All pending

interlocutory applications, if any, would stand closed. No

costs.

[Justice N. Seshasayee] Member (Judicial)

[Jatindranath Swain] Member (Technical) VG/MS/AK

Comp. App. (AT) (CH) (Ins) No. 205/2023 Page 9 of 9