Sunil S. Kakkad vs Atrium Infocomm Pvt Ltd & Anr

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI Company Appeal (AT) (Insolvency) No. 194 of 2020 [Arising out of Impugned Order dated 05th December 2019 passed by the Adjudicating Authority/National Company Law Tribunal, Ahmedabad Bench, Ahmedabad in IA No. 758 of 2019 in CP No. 181/NCLT/AHM/2019]

IN THE MATTER OF:

Sunil S. Kakkad Promoter and Shareholder of M/s Sai Infosystems (India) Ltd (Company under liquidation) F/103, Satellite, Center Co-operative Housing Society, 'C' Block, Ground Floor, Opp. Management Enclave Vastrapur, Ahmedabad - 380015 (Currently in Sabarmati Jail, Ahmedabad) ...Appellant

Versus

1. Atrium Infocom Private Limited Through: Sunil Kumar Aggarwal Liquidator 20, First Floor, Super Plaza, Sandesh Press Road, P.O. - Bodakdev Vastrapur, Ahmedabad - 380054 ...Respondent No.1

2. Manish Kumar Bhagat Erstwhile Interim Resolution Professional For Atrium Infocom Private Limited 244/6-7, GIDC Industrial Estate Waghodia, Vadodara, Gujarat ...Respondent No.2

3. State Bank of India Lead Bank of Consortium of Banks Committee of Creditor Atrium Infocomm Private Limited Stressed Asset Management Branch 2nd Floor, Param Siddhi Complex Opp V.S. Hospital Ashram Road, Ellisbridge Ahmedabad - 380006 ...Respondent No.3

Present: For Appellant : Mr Abhijeet Sinha, Mr Chirag Gupta, Mr Rajendra Baniwal and Kumar Sumit, Advocates

For Respondent : Mr Sumit Kansal, Advocate

Company Appeal (AT) (Insolvency) No. 194 of 2020 1 of 14

[Per; V. P. Singh, Member (T)]

1. The Appeal emanates from the Impugned Order dated 05th December

2019 passed by the Adjudicating Authority/National Company Law

Tribunal, Ahmedabad Bench, Ahmedabad in IA No.758 of 2019, in CP No.

181/NCLT/AHM/2019. Parties are represented by their original status in

the company petition for the sake of convenience.

2. The Appellant has filed this Appeal under Section 61 of Insolvency and

Bankruptcy Code, 2016 (in short "I&B Code") praying for setting aside the

Impugned Order dated 05th December 2019.

3. Brief facts of the case are as follows:

The Learned Adjudicating Authority by its order dated 10th July 2019

triggered Corporate Insolvency Resolution Process (from now on referred to

as „CIRP‟) against the Corporate Debtor in CP No. 181/NCLT/AHM/2019.

During CIRP, the Interim Resolution Professional (from now on referred to as

„IRP‟) after receiving the claims, formed the Committee of Creditors (in short

„CoC‟). After that, three meetings of CoC took place. In the second meeting,

the Committee of Creditors resolved to defer the publishing of Expression of

interest till the next CoC meeting. After that, in the third CoC meeting dated

21st September 2019, the CoC passed the Resolution that Corporate Debtor

Company is not working for the last five years and there is no

possibility/hope of Resolution Plan, therefore decided to liquidate the

Corporate Debtor, i.e. Atrium Infocomm Private Limited. It was further

Company Appeal (AT) (Insolvency) No. 194 of 2020 2 of 14 resolved by the CoC with 100% vote share to apply for initiation of

liquidation of the Corporate Debtor.

4. Based on the unanimous decision of the CoC, the IRP applied for the

liquidation of Corporate Debtor which was allowed by the impugned order of

the Adjudicating Authority dated 05th December 2019. Being aggrieved by

order of the Adjudicating Authority dated 05th December 2019 under

Sections 33(1), 33(2) and 33(3) of the I&B Code, 2016, the Appellant has

preferred this Appeal.

5. The Appeal is filed mainly on the ground that the Adjudicating

Authority has failed to acknowledge the fact that the Respondent No.2/IRP

Mr Manish Kumar Bhagat was unable to perform any of the necessary steps

under the CIR Process, i.e. to prepare Information Memorandum, evaluation

matrix, evaluation of assets etc. which are significant towards achieving the

objective of the Code, i.e. maximization of the assets of the Corporate

Debtor; the Adjudicating Authority failed to appreciate that the IRP

completely overlooked the process for inviting Expression of Interest. Despite

that, one of the prospective Resolution Applicants in a meeting dated 09th

September 2019 showed its willingness to submit EOI; the Adjudicating

Authority failed to adhere to the timeline as prescribed under the Code to

conduct CIR Process to afford a chance for Resolution of the Corporate

Debtor, somewhat intentionally delayed the required process to push the

Corporate Debtor into liquidation; the Adjudicating Authority has failed to

appreciate that I&B Code is not a forum for recovery proceeding, and

Resolution is the prime objective of the Code when there are viable prospects

Company Appeal (AT) (Insolvency) No. 194 of 2020 3 of 14 of revival of a Corporate Debtor; the Adjudicating Authority erred in passing

the impugned order of liquidation under Section 33 of the Code ex-parte

without affording a chance to the Appellant herein to put facts. The

Adjudicating Authority failed to appreciate that liquidation is not a general

rule but is as an exception as a part of the Code. The liquidation fetches

corporate death to the Corporate Debtor while I&B Code, 2016 strongly

propagates Resolution qua CIRP in order to take the Corporate Debtor out of

the financial woes.

6. The Learned Counsel for the Respondents submits that the

Adjudicating Authority has passed the impugned order under Sections 33(1),

33(2) and 33(3) of the I&B Code, 2016 based on the Resolution passed by

the CoC with 100% vote share to liquidate the Corporate Debtor.

7. The Learned Counsel for the Respondents has placed reliance on the

judgment of this Appellate Tribunal in case of Global Business Corporation

Vs. Punjab National Bank 2020 (117) Taxman.com162 (NCLAT) dated 23rd

January 2020 wherein it is held :

―In their commercial wisdom, COC have decided not to accept the Resolution Plan with conditions contained therein. Even though the suspended Board of Directors has a right to attend the meeting and may offer any suggestion but they cannot force their decision on their terms to Committee of Creditors especially when the suspended Board of Directors has no right to vote on the Resolution Plan. We also note that Committee of Creditors has rejected the resolution plan with 100% voting‖.

‗Verbatim copy'

Company Appeal (AT) (Insolvency) No. 194 of 2020 4 of 14 It is further contended that the commercial decisions of the Committee

of Creditors are non-justiciable; therefore, they cannot be assailed in this

Appeal.

8. We have heard the arguments of the Learned Counsel for the parties

and perused the record.

9. The issue, which arises for our consideration is as under:

Can the Resolution Professional, with the approval of CoC with 66%

vote share, directly proceed for the liquidation of Corporate Debtor

Company without taking any steps for Resolution of the Corporate

Debtor?

Issue No.1;

10. Appellant shareholder/promoter and erstwhile Director of the

Corporate Debtor, „Atrium Infocomm Private Limited‟ has assailed the

liquidation order passed under Section 33(2) of the I&B Code by the

Adjudicating Authority. The Appellants contends that liquidation is the last

resort and it cannot and should not be passed without following due process

of Resolution of the Corporate Debtor. It is alleged that impugned order is

passed in gross violation of the Principles of Natural Justice. It is further

contended that the Learned Adjudicating Authority has failed to appreciate

that the Committee of Creditors with 100% vote share took a decision to

liquidate the Corporate Debtor, without even issuing notice in Form-G for

inviting Expression of Interest for submission of Resolution Plan. It is also

pointed out that neither the Resolution Professional nor the CoC took any

steps for Resolution of the Corporate Debtor.

Company Appeal (AT) (Insolvency) No. 194 of 2020 5 of 14

11. It is important to mention that the impugned order is passed under

Section 33(2) of the I&B Code, which is given as under:

―33. Initiation of liquidation -- (1) Where the Adjudicating Authority,--

(a) before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the corporate insolvency resolution process under Section 12 or the fast track Corporate Insolvency Resolution Process under Section 56, as the case may be, does not receive a resolution plan under sub- Section (6) of Section 30; or

(b) rejects the resolution plan under Section 31 for the non-compliance of the requirements specified therein, it shall--

(i) pass an order requiring the corporate debtor to be liquidated in the manner as laid down in this Chapter;

(ii) issue a public announcement stating that the corporate debtor is in liquidation and

(iii) require such order to be sent to the authority with which the corporate debtor is registered.

(2) Where the Resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors [approved by not less than sixty-six per cent. of the voting share] to liquidate the corporate debtor, the Adjudicating Authority shall pass Company Appeal (AT) (Insolvency) No. 194 of 2020 6 of 14 a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).

[Explanation.--For the purposes of this sub-section, it is hereby declared that the committee of creditors may take the decision to liquidate the corporate debtor, any time after its constitution under sub- Section (1) of Section 21 and before the confirmation of the resolution plan, including at any time before the preparation of the information memorandum.]

Prior to amendment by Insolvency and Bankruptcy Code (Amendment) Act, 2019 (Act 26 of 2019), Section 33 read as:

Chapter III LIQUIDATION PROCESS

33. Initiation of liquidation.-(1) Where the Adjudicating Authority,--

(a) before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the corporate Insolvency resolution process under Section 12 or the fast track corporate Insolvency resolution process under Section 56, as the case may be, does not receive a resolution plan under sub-section (6) of Section 30; or

(b) rejects the resolution plan under Section 31 for the non-compliance of the requirements specified therein, it shall--

(i) pass an order requiring the corporate debtor to be liquidated in the manner as laid down in this Chapter;

Company Appeal (AT) (Insolvency) No. 194 of 2020 7 of 14 (ii) issue a public announcement stating that the corporate debtor is in liquidation; and

(iii) require such order to be sent to the authority with which the corporate debtor is registered.

(2) Where the Resolution professional, at any time

during the corporate Insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors [approved by not less than sixty-six per cent. of the voting share] to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order as referred to in sub-

clauses (i), (ii) and (iii) of clause (b) of sub- section (1).

12. The explanation to sub-section (2) of Section 33 of the I&B Code,

which is added by the amendment in the I&B Code w.e.f 16th August 2019,

specifically provides that "the Committee of Creditors may take the

decision to liquidate the Corporate Debtor, any time after its

constitution under sub-section (1) of Section 21 and before the

confirmation of the Resolution Plan, including at any time before the

preparation of the information memorandum."

13. Based on the added explanation to sub-section (2) of Section 33 of the

I&B Code, 2019, it is evident that the Committee of Creditors after its

constitution under sub-section (1) of Section 21 of the Code, at any stage

during Corporate Insolvency Resolution Process and before the confirmation

of Resolution plan, including at any time before preparation of Information

Company Appeal (AT) (Insolvency) No. 194 of 2020 8 of 14 Memorandum, is authorized to take a decision to liquidate the Corporate

Debtor.

14. Admittedly, in this case, only three meetings of Committee of Creditors

took place, and without making any endeavour for inviting Expression of

Interest, the CoC unanimously resolved to liquidate the Corporate Debtor.

15. In the Minutes of the second CoC meeting, it is stated that the IRP

apprised CoC that EOI for Resolution Plan, evaluation matrix and eligibility

criteria had been documented.

16. The extract of Minutes of CoC meeting in this regard is as follows;

―4. To provide approval on Expression of Interest, resolution plan, eligibility criteria for resolution applicant, last date for submission of resolution plan, evaluation matrix, location of publishing EOI.

IRP apprised CoC that form-G (Invitation for Expression of Interest) (Under Regulation 36A (1) of the Insolvency and Bankruptcy (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 has been prepared. IRP has to make public announcement to invite interest resolution Applicants to submit resolution plan. The committee after discussion passed the following Resolution:

"RESOLVED THAT the decision to publish EOI has been deferred till next CoC meeting."

Thus, it is evident that the Resolution Professional sought approval for

inviting Expression of Interest for submission of Resolution Plan and for

Company Appeal (AT) (Insolvency) No. 194 of 2020 9 of 14 fixing eligibility criteria for the Resolution Applicant. However, the CoC

deferred the matter and passed the Resolution to the effect stating that;

"the decision to publish EoI has been deferred till next

CoC meeting".

17. It is also on record that in the third CoC meeting held on 01st October

2019, wherein Agenda item No 5 was for the approval of Expression of

Interest for inviting Resolution Plan, fixing eligibility criteria for Resolution

Applicant and for fixing the last dates for submission of Resolution Plan, the

CoC with requisite vote share resolved to Liquidate the Corporate Debtor.

The extract of the relevant copy of Minutes are as under;

Agenda Item No. 5 alongwith the Resolution passed by the CoC is

given below for ready reference:

To provide approval on Expression of Interest for Resolution Plan, eligibility criteria for resolution applicant, last date for submission of Resolution Plan, evaluation matrix, location of publishing EOI.

IRP briefed CoC to publish Form-G - Invitation for Expression of Interest as per Insolvency and Bankruptcy Code, 2016. IRP also briefed about evaluation matrix, eligibility criteria and other procedural documents relating to resolution plan. It was resolved that;

"since Company is not working since last five years and there is no possibility/hope for resolution plan, it is decided to liquidate the corporate debtor, i.e. Atrium Infocomm Private Limited the CoC also requested the IRP

Company Appeal (AT) (Insolvency) No. 194 of 2020 10 of 14 for filing an application before the Adjudicating Authority."

18. Based on the Resolution passed by CoC with 100% vote share, the IRP

filed the Application under Section 33(2) of the I&B Code for liquidation of

the Corporate Debtor. The Adjudicating Authority has allowed the

Application filed by IRP and passed an order of liquidation of the Corporate

Debtor based on the Resolution passed by the CoC with 100% vote share.

19. It is pertinent to mention that explanation to sub-section (2) of Section

33 of the I&B Code, 2016 depicts that the CoC is fully empowered to order

for liquidation at any stage of the CIRP, but before the confirmation of the

Resolution Plan.

20. In the circumstances, it is apparent that statutory provision permits

CoC to take the decision for liquidation of Corporate Debtor at any stage of

CIRP, but before confirmation of Resolution Plan. In the instant case, the

CoC intentionally deferred the matter for approving EoI for inviting the

Expression of Interest for submission of Resolution Plan and unanimously

decided to liquidate the Corporate Debtor. As per the explanation added to

sub-clause (2) of Section 33 of the I&B Code, it is clear that the CoC has the

power to order for liquidation at any stage of CIRP but before confirmation of

Resolution Plan.

It is germane to mention that CIRP of the Corporate Debtor was

initiated on 10th July 2019 and during Corporate Insolvency Resolution

Process, the CoC unanimously, with 100%vote share took the commercial

Company Appeal (AT) (Insolvency) No. 194 of 2020 11 of 14 decision to liquidate the Corporate Debtor, which is non-justiciable as per

the law laid down by Hon‟ble the Supreme Court of India in case of K.

Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150: (2019) 4 SCC

(Civ) 222: 2019 SCC OnLine SC 257 at page 187.

In the above case Hon‟ble the Supreme Court held;

"58. Indubitably, the inquiry in such an appeal would be limited to the power exercisable by the Resolution professional under Section 30(2) of the I&B Code or, at best, by the adjudicating authority (NCLT) under Section 31(2) read with Section 31(1) of the I&B Code. No other inquiry would be permissible. Further, the jurisdiction bestowed upon the appellate authority (NCLAT) is also expressly circumscribed. It can examine the challenge only in relation to the grounds specified in Section 61(3) of the I&B Code, which is limited to matters ―other than‖ enquiry into the autonomy or commercial wisdom of the dissenting financial creditors. Thus, the prescribed authorities (NCLT/NCLAT) have been endowed with limited jurisdiction as specified in the I&B Code and not to act as a court of equity or exercise plenary powers.

59. In our view, neither the adjudicating authority (NCLT) nor the appellate authority (NCLAT) has been endowed with the jurisdiction to reverse the commercial wisdom of the dissenting financial creditors and that too on the specious ground that it is only an opinion of the minority financial creditors. The fact that substantial or majority per cent of financial creditors have accorded approval to the resolution plan would be of no avail, unless the approval is by a vote of not less than 75% (after amendment of 2018 w.e.f.

6-6-2018, 66%) of voting share of the financial creditors. To put it differently, the action of liquidation process postulated in

Company Appeal (AT) (Insolvency) No. 194 of 2020 12 of 14 Chapter III of the I&B Code, is avoidable, only if approval of the resolution plan is by a vote of not less than 75% (as in October 2017) of voting share of the financial creditors. Conversely, the legislative intent is to uphold the opinion or hypothesis of the minority dissenting financial creditors. That must prevail, if it is not less than the specified per cent (25% in October 2017; and now after the amendment w.e.f. 6-6-2018, 44%). The inevitable outcome of voting by not less than requisite per cent of voting share of financial creditors to disapprove the proposed resolution plan, de jure, entails in its deemed rejection.

62. The argument, though attractive at the first blush, but if accepted, would require us to rewrite the provisions of the I&B Code. It would also result in doing violence to the legislative intent of having consciously not stipulated that as a ground -- to challenge the commercial wisdom of the minority (dissenting) financial creditors. Concededly, the process of resolution plan is necessitated in respect of corporate debtors in whom their financial creditors have lost hope of recovery and who have turned into non-performer or a chronic defaulter. The fact that the corporate debtor concerned was still able to carry on its business activities does not obligate the financial creditors to postpone the recovery of the debt due or to prolong their losses indefinitely. Be that as it may, the scope of enquiry and the grounds on which the decision of ―approval‖ of the resolution plan by CoC can be interfered with by the adjudicating authority (NCLT), has been set out in Section 31(1) read with Section 30(2) and by the Appellate Tribunal (NCLAT) under Section 32 read with Section 61(3) of the I&B Code. No corresponding provision has been envisaged by the legislature to empower the Resolution professional, the adjudicating authority (NCLT) or for that matter the appellate authority (NCLAT), to reverse the ―commercial decision‖ of CoC much less of the dissenting financial creditors

Company Appeal (AT) (Insolvency) No. 194 of 2020 13 of 14 for not supporting the proposed resolution plan. Whereas, from the legislative history there is contra indication that the commercial or business decisions of the financial creditors are not open to any judicial review by the adjudicating authority or the appellate authority.‖

(emphasis supplied)

21. Thus, it is clear that the decision of CoC to liquidate the Corporate

Debtor without taking any steps for Resolution of the Corporate Debtor is

covered under explanation to sub-clause (2) of Section 33 of the I&B Code

and the same being decision on commercial wisdom, is non-justiciable given

the law laid by Hon‟ble Supreme Court of India in case of K. Sashidhar

(supra). Thus, it is clear that there is no illegality in the decision of CoC in

liquidating the Corporate Debtor before taking any steps for inviting

Expression of Interest for submission of Resolution Plan.

22. Therefore, we are of the considered opinion that there is no reason for

interference with the impugned order passed by the Adjudicating Authority.

Thus, Appeal is dismissed. No order as to costs.

[Justice Jarat Kumar Jain] Member (Judicial)

[Mr Balvinder Singh] Member (Technical)

[Mr V. P. Singh] Member (Technical) NEW DELHI 10th AUGUST, 2020 pks

Company Appeal (AT) (Insolvency) No. 194 of 2020 14 of 14