T.Johnson vs St. John Freight Systems Ltd., Through ...

(Arising out of the impugned order dated 21.11. 2019 passed by the National Company Law Tribunal, Chennai Bench in C.P. No.759/IB/2018)

IN THE MATTER OF:

T. Johnson, Of St. John Freight Systems Limited (Company under Insolvency) Majority Shareholder and Managing Director (Suspended) ... Appellant of St. John Freight Systems Limited (Company under Insolvency) S-98, SIPCOT Industrial Complex Harbor Express Road Tuticorin-628008.

Vs

1.St. John Freight Systems Limited ) Through Mr. R. Venkatakrishnan ) (Resolution Professional of St.John Freight Systems Limited) ) Partner of RVKS and Associates, Chartered Accountants ) 'Rangas', ¼, 4th Main Road, R.A. Puram, Chennai 600028 ) ... Respondents 2.Phoenix ARC Private Limited ) Dani Corporate Park, 5th Floor ) 158, CST Road, Kalina, Santa Cruz (E) ) Mumbai-400098 ) (Added as per order dated 04.03.2020 made in C.A.No.282/2020) )

For the Appellant : Mr. Amit & Chadha, Sr. Advocate, with Mr.Pushkar Sood, Mr. S.C.Das and Mr.Sahil Mongia, Advocates.

For Respondent No.1 : Mr.Darpan Wadhwa,Sr.Advocate,with Mr.Aditya Verma, Mr. Shrey Patnaik, Ms.Aishwarya Nabh and Ms. Priyamvada Mishra, Advocates. For Respondent No.2 : Ms. Sonnakshi Dhiman, Advocate. 2

JUDGMENT

VENUGOPAL, M, J.

1. The Appellant (Majority Shareholder and Managing Director)

(Suspended) of St. John Freight Systems Limited (Company under

Insolvency) has preferred the Appeal being dissatisfied with the

impugned order dated 21.11.2019 in MA/989/2019 in

CP/759/IB/2018 passed by the Adjudicating Authority (National

Company Law Tribunal, Chennai). The Adjudicating Authority on

21.11.2019, had passed an order for 'Liquidation of the Corporate

Debtor' etc., and appointed Mr. R. Venkatakrishnan, a 'Resolution

Professional', as 'Liquidator' for the purpose of 'Liquidation' of the

Corporate Debtor, etc.

2. Challenging the impugned order of the Adjudicating Authority

whereby a Liquidation Order was passed under Section 33 of the I &

B Code in respect of the Corporate Debtor/Company, the Learned

Counsel for the Appellant submits that the Adjudicating Authority

was not correct in not directing the 'Committee of Creditors' to

reconsider the Resolution Plan, especially in the light of the fact that

the 'Earnest Money Deposit' was arranged by the Resolution

Applicant in the form of 'Bank Transfer' of Rs.50,00,000/- (Fifty

lakhs) and 'Title Deed' of the property for Rs.6.6 crores. In this

connection, it is the plea of the Appellant that the Resolution Plan 3

ought not to have been rejected for failure to pay the 'Earnest Money

Deposit'.

3. The Learned Counsel for the Appellant contends that the 'Adjudicating

Authority' had failed to appreciate that the 'Resolution Professional' had not

released the 'Original Title Deeds' of the property in question even at the time

of filing of the present Appeal in spite of the fact that the 'Resolution' was

rejected on 28.9.2019 and thus it prevented the 'Resolution Applicant' from

raising money in open market, to submit the 'Demand Draft' or RTGS of

balance of Rs.4.5 crores.

4. It is represented on behalf of the Appellant that the Adjudicating

Authority had failed to appreciate that after filing of M.A. No.989/2019 by the

Resolution Professional u/s 33 of the I & B Code. Further developments took

place in the 'Resolution Process' such as filing of a fresh Resolution Plan by

the Learned Applicant on 20.9.2019 and that the 'Resolution Applicant' had

also transferred Rupees Fifty lakhs by RTGS transfer on 27.9.2019 and

further gave the Original Title Deeds of a prime property along with the

'Valuation Report' and 'Legal Opinion' worth Rs.6.6 crores, on or before

26.9.2019. However, these facts were not brought to the notice of the

Adjudicating Authority by the Resolution Professional and hence the

impugned order is not valid in the eye of Law.

5. The Learned Counsel for the Appellant submits that the date of

admission of 'Appeal' against the Admission Order dated 10.12.2018 before

this Tribunal was 10.1.2019 and that the Appeal was dismissed on 7.5.2019

and that 117 days are required to be excluded. Further, '330 days' after 4

exclusion of 117 days expired on 2.3.2020. Moreover, the 'Committee of

Creditors' meeting dated 4.9.2019 clearly established that the members of the

'Committee of Creditors' had agreed to seek further extension of time but the

Resolution Professional projected M.A. No.989/2019 on 6.9.2019 (filed under

Section 33 of the Code for liquidation) and in this regard, the 'Resolution

Professional' had committed an error in not complying with the directions of

the 'Committee of Creditors' for seeking 15 days extension to examine the

Resolution Plan in detail. And that apart, the Adjudicating Authority (NCLT,

Chennai) had failed to take into account the same at the time of passing the

impugned order.

6. The Learned Counsel for the Appellant brings to the notice of this

Tribunal that the I & B Code was amended on 16.8.2019 and after

amendment, proviso 2 and 3 were added in Section 12 and as per third proviso

'all CIRP processes pending on the said date were to be completed within a

period of 90 days from the date of commencement of the amended Act, that

is from 16.8.2019. Moreover, in the instant case, 'CIRP process' would have

been completed on 16.11.2019, whereas the Resolution Professional during

the COC meeting on 4.9.2019, represented to the 'Committee of Creditors'

that the 'CIRP process' would come to an end on 6.9.2019. Therefore, it is

the precise stand of the Appellant that neither 117 days extension of time

available nor the amendment granting extension of 90 days was brought to

the notice of the 'Committee of Creditors'. Also, it is the plea of the Appellant

that even though the 'Committee of Creditors' wanted time to examine the

Resolution Plan in detail, the 'Committee of Creditors' was urged to urgently 5

take the decision on the facts and information available by the 'Resolution

Professional' and this aspect was not considered either by the Resolution

Professional or by the Adjudicating Authority at the time of passing the

impugned order.

7. The Learned Counsel for the Appellant points out that the Hon'ble

Supreme Court in ESSAR Steel India Ltd through authorised signatory vs.

Satish Kumar Gupta & 7 Ors. 2019 (16) SCALE 319 has held that the word

"mandatorily" as it exists in Section 12 of the Code is arbitrary under Article

14 of the Constitution of India and has struck down the said word. As a

consequence thereof, ordinarily, the time taken in relation to the 'Corporate

Resolution Process' must be 330 days from the Insolvency commencement

date', including extensions and time taken in Legal proceedings. However,

on the facts of a given case, the Adjudicating Authority/Appellate Authority,

under the I & B Code, can put back the 'Corporate Debtor' on its feet, instead

of sending it into 'Liquidation' beyond 330 days.

8. The Learned Counsel for the Appellant takes a stand that the Corporate

Debtor/Company was certified to be a 'Small Scale Ancillary Undertaking', as

per the registration certificate issued by the District Industries Centre dated

12.7.1993 and that the MSME certificate dated 23.1.2019 confirmed the date

of commencement of activities of the 'Corporate Debtor' company from

21.06.1991. In this connection, the Learned Counsel for the Appellant refers

to the Hon'ble Supreme Court decision in Arcelor Mittal India Pvt. Limited

vs. Satish Kumar Gupta ((2019) 2 SCC 1) 109 para 46) wherein it is

observed as under:

6

"According to us, it is clear that opening word of Section 29A furnish a clause as to the time at which clause (c) is to operate. The opening words of Section 29A state, 'a person shall not be eligible to submit a resolution plan..."

9. The Learned Counsel for the Appellant refers to the Hon'ble Supreme

Court decision in Swiss Ribbons and Another Vs. Union of India (AIR 2019

at page 739) wherein the ingredients of Sec 29A of the I & B Code were

upheld.

10. The Learned Counsel for the Appellant submits that 'MSME Certificate

is only regarding the status of the company from 21.6.1991 onwards and it is

pertinent to mention that as per notification S.O. No.2052 (e), dated

30.7.2017, issued by the Ministry of MSME, Government of India, in clause

13, it is mentioned that it is the General Manager of the District Industries

Centre of the concerned District, who is the competent authority to cancel the

'MSME Certificate'. Further it is pleaded that in Note (i) of the notification of

the MSME it is clear that the enterprises that have filed Small Scale Industries

Registration are not required to file UAM (Udyog Aadhar Memorandum) which

is also called the MSME Certificate, but may file it, if it so desires. As such,

it is the contention of the Appellant that as per the said Note, there was no

requirement of the 'Corporate Debtor' to secure MSME Certificate to be

provided to Vendors as per MCA requirements.

11. The Learned Counsel for the Appellant also contends that the

Resolution Professional by preferring his own opinion during the 10th

'Committee of Creditors', meeting dated 28.8.2019, had planted confusion in

the minds of the 'COC members' and added further in the 13th meeting of the

'Committee of Creditors' that took place on 17.9.2019, some of the COC 7

members had expressed their displeasure as regards voting on the eligibility

under Section 29A. Moreover, one of the members of the Committee

specifically stated that the 'Committee of Creditors' does not have the power

to vote on eligibility under Section 29A. At this stage, the Learned Counsel

for the Appellant proceeds to point out that the 'Committee of Creditors' in

the meeting held on 4.9.2019 voted on the 'Resolution Plan' and in fact, the

Appellant's Resolution Plan secured 55.49 per cent votes out of 92.66 per cent

voting which come to 60 per cent effective/affirmative vote.

12. Yet another plea projected on the side of the Appellant is that any

'Committee of Creditors' meeting after 6.9.2019, viz. after the Resolution

Professional had preferred M.A. No.989/2019 (under Section 33 of the Code

for Liquidation) is not relevant. The Learned Counsel for the Appellant comes

out with an argument that the 'Corporate Debtor' is a freight forwarding

Company started by the Appellant (Entrepreneur) with a Capital of

Rs.10,000/- during the year 1991 and there was no other 'Resolution

Applicant'/'Resolution Plan' except for the Plan submitted by the Appellant as

the Corporate Debtor Company is a 'MSME company'.

13. It is the version of the Appellant that in the Resolution Plan by the

Appellant, the 'Resolution value' was mentioned as Rs.242/- crores and that

the Liquidation value as determined by the 'Resolution Professional' is

Rs.161.25 crores as mentioned in the impugned order. Besides this, out of

Rs.242/- crores, Rs.222.5 crores would go to the 'Financial Creditors' thus

moving forward on 'Resolution Plan' makes more sense than going for

Liquidation of Company in issue. Further, that much more than the principal 8

sum of the 'Financial Creditors' is being given under the Resolution Plan. It

is brought to the fore before this Tribunal that in respect of 'Earnest Money

Deposit' of Rs.5 crores asked by the 'Committee of Creditors', Rs.50 crores

was deposited with the Resolution Professional by means of 'RTGS' on

27.9.2019 by the Appellant and that the 'Original Title Deeds' of a property

valued at Rs.6.6 crores was submitted with the 'Resolution Professional' on

26.9.2019, in terms of the discussions that took place on 24.9.2019 by the

'Committee of Creditors'. As a matter of fact, the receipt of 'Earnest Money

Deposit' as property in Lieu of cash/Bank Guarantee was circulated by the

'Resolution Professional' to the 'Committee of Creditors' with copy to the

'Resolution Applicant' and none of the 'COC members' had communicated any

objections.

14. The Learned Counsel for the Appellant brings it to the notice of this

Tribunal that the 'Resolution Professional' wrote to the Appellant seeking

return of the original property papers, after filing of the instant Appeal on

11.12.2019 and since the matter is 'sub judice', the 'Original Title Deeds' are

lying with the 'Resolution Professional' and that the 'Appellant' can deposit

Rs.5.5 crores, within a week of return of 'Original Title Deeds' by

monetising/leveraging the property submitted in lieu of Cash/Bank

Guarantee being returned.

15. Continuing further, the Learned Counsel for the Appellant submits that

during the 'CIRP', the 'Corporate Debtor' was doing business of 'International

Logistic and Freight Forwarding', contributing substantial Forex earning to

the country and maintaining average turnover of Rs.20 crores per month from 9

the last one year during the CIRP, with the able assistance/cooperation of the

suspended Directors. Apart from that, the 'suspended Directors', in spite of

not being paid Salaries/Travel Expenses had extended unstinted support to

the Resolution Professional in ensuring that the Corporate Debtor remains an

ongoing concern to safeguard the long-term interest of over 300 dedicated

clients/1400 committed employees, besides providing indirect employment to

over 4000 persons and therefore, in the interest of justice, rather than

liquidation of the Company, one may go for a Resolution.

16. In response, it is the submission of the Learned Counsel for the

Respondent that by virtue of the impugned order of the Adjudicating Authority

(NCLT, Chennai Bench), dated 21.11.2019 (delivered on 26.11.2019), the

'Liquidation proceedings' were initiated against the Respondent/Corporate

Debtor under Section 33(1) of the I & B Code and it is on record that no

'Resolution Plan' was received by the 'Adjudicating Authority' before the expiry

of the Respondent's 'Corporate Insolvency Resolution Process period' on

6.9.2019.

17. On the side of the Respondent, it is contended that the Adjudicating

Authority dismissed the Appellant's M.A. No.995/19, dated 14.9.2019,

wherein the Appellant had prayed that the Resolution Plan dated 25.8.2019

be reconsidered by the members of the 'Committee of Creditors' and it is quite

evident that the Plan was not approved by the 'Committee of Creditors' on

4.9.2019 and no 'Appeal' was filed against the order of dismissal passed in

M.A. No.995/2019. At this juncture, the Learned Counsel for the Respondent

points out that the CIRP of the Respondent was initiated by the Adjudicating 10

Authority on 10.12.2018 and in fact, the Appellant had not filed any

application seeking exclusion of any period of time before any Court or

Tribunal and that there was no stay of 'CIRP' at any stage; also that no time

was excluded from the Respondent's 'CIRP' period of 270 days (including 90

days extension granted by the Adjudicating Authority on 7.6.2019).

18. Advancing his argument, the Learned Counsel for the Respondent

contends that the Appellant's Plan was not approved by the 'Committee of

Creditors' after a full consideration on merits of its 'commercial viability and

feasibility'. In terms of the ingredients of Section 30(4) of the Code, at least

66 per cent of the 'Committee of Creditors' should vote in favour of a

Resolution Plan for it to be approved. However, with respect to the Appellant's

Plan, only 55.49 per cent of the COC voted in favour and 37.17 per cent voted

against and 7.17 per cent abstained. More importantly, in the absence of any

exclusion of any period, the 'CIRP' period lapsed on 6.9.2019 and the

'Resolution Professional' filed M.A. No.536/19 praying that an order of

Liquidation be passed under Section 33(1) of the I & B Code. Later, on

17.9.2019, while considering the Appellant's MA No.995/2019, the

Adjudicating Authority orally observed that the 'Committee of Creditors'

should reconsider the Appellants Plan and report its decision on 1.10.2019

and that the Appellant submitted a Revised Plan dated 20.9.2019 which was

not approved by the 'Committee of Creditors' on 28.9.2019. In reality, only

20.54 per cent of the Committee of Creditors voted in favour of the Revised

Plan and 63.02 per cent of the COC voted against it and 12.74 per cent

abstained from voting.

11

19. The clear stand of the Respondent is that the Appellant's Resolution

Plans (the Plan dated 25.8.2019 and the Revised Plan dated 20.9.2019) were

considered and not approved by the 'Committee of Creditors' on 4.9.2019 and

28.9.2019 respectively. According to Section 33(1) of the Code, if an

'Adjudicating Authority' does not receive a Resolution Plan before the expiry

of CIRP period, 'an order of Liquidation' can be passed and owing to the expiry

of the Respondent's CIRP on 6.9.2019, the Adjudicating Authority had

correctly allowed the Resolution Professional's M.A. No.536/2019 in

accordance with the mandate and hence the Appeal is liable to be dismissed.

20. The Learned Counsel for the Respondent contends that the

Adjudicating Authority had already extended the CIRP by 90 days by virtue of

the order dated 7.6.2019 and as per the first proviso to Section 12 of the Code,

the 'Resolution Professional' is barred from applying to the 'Adjudicating

Authority' seeking further extension of time. Apart from that, on 21.11.2019,

'Adjudicating Authority' passed an order dismissing the Appellant's M.A.

No.955/2019 for reconsideration of the Plan and the said order has become

final. Therefore, it is the submission of the Learned Counsel for the

Respondent that no prejudice was caused to the 'Appellant' since the 'Revised

Plan' was considered by the 'Committee of Creditors' on 28.8.2019 and the

same was not approved. When that being the fact situation, the aspect of

'CIRP period', the 'Committee of Creditors' request for 15 days extension and

the eligibility of the 'Appellant' as per Section 29A of the I & B Code on account

of 'MSME' registration are not relevant.

12

21. The plea on behalf of the Respondent is that the 'Resolution

Professional' had discharged his duties as per Section 25 of the I & B Code by

filing a 'Miscellaneous Application' before the 'Adjudicating Authority' for the

determination of 'MSME status' of the Respondent and by bringing to the

attention of the 'Committee of Creditors' without making an adjudication in

this regard. Further, in the order dated 6.8.2019, of the Adjudicating

Authority (NCLT, Guwahati Bench), in Bank of India v M/s Maxim

Infrastructure & Real Estate Limited and Others, it is observed as under:

"...act of obtaining the MSME status by the ex-promoter is not but another attempt to submit a Resolution Plan through back-door entry which is not at all as per the true letter and spirit of 240 A of IBC. I the true spirit of 240A is to protect genuine MSME entrepreneurs which are MSME entrepreneurs from the beginning and not the entities like the present applicant. If that is the true spirit of the legislation, every ex-promoter or director will get himself registered as an MSME unit to get over the clutches of section 29 A and if the said acts and attempts of ex- promoters and directors are allowed, it would amount to clear abuse of the process of the Code and would amount to achieving something in an indirect manner which cannot be done directly."

22. It is to be relevantly pointed out that on the occurrence of default in

repayment of the 'Debts' due and payable to Phoenix ARC Private Limited

(acting as the Trustee of Phoenix Trust FY-16-26), 'Phoenix' preferred a

Petition in CP/759(IB)/2018 (under Sec 7 of the I & B Code, 2016) before the

Adjudicating Authority(Chennai Bench), under the caption 'Phoenix ARC

Private Limited v. St. John Freight System Limited and the said Petition was

admitted on 10.12.2018 and that CIRP of 'Corporate Debtors' was initiated.

It must be borne in mind that in the present case, the Appellant has not

impleaded 'Phoenix' as a necessary and proper party. It transpires that the 13

Appellant earlier filed Company Appeal (AT)(Ins) No.32/2019 dealing with the

order dated 10.12.2018 passed by the Adjudicating Authority for initiating

CIRP of Corporate Debtors wherein Phoenix was impleaded as the First

Respondent and that the said Appeal was dismissed by this Tribunal on

7.5.2019. However, in this Appeal, Company Application No.282/2020 is filed

by the Applicant/Phoenix ARC Pvt. Ltd. seeking to implead in the present

Company Appeal (AT)(Ins) No.1402/2019 as a necessary and proper party for

an adjudication of the issues and because of the reason that the

Applicant/Phoenix ARC Pvt. Ltd. figured as petitioner in

C.P./759/IB/CB/2019 before the Adjudicating Authority, (NCLT, Chennai),

to prevent an aberration of justice and to promote substantial cause of justice,

this Tribunal allows the impleading Application. The Learned Counsel for the

Appellant is directed to carry out necessary corrections in the Cause Title of

the Main Appeal and further directed to submit a fresh Memo of Parties for

the purpose of record.

23. The Resolution Professional of the Corporate Debtors, pursuant to the

order dated 10.12.2018, in CP/759/(IB)(CB)/2018 passed by the

Adjudicating Authority made a public announcement of CIRP and on

13.12.2018 and 14.12.2018, publications were effected in numerous

newspapers as per Sec 15 of the Code, inviting claims from the 'Creditors' of

the 'Corporate Debtor'. Although the management of the affairs of the

Corporate Debtor vested in the hands of the Resolution Professional on

23.1.2019 (after the initiation of CIRP), the promoters who were employees of

the Corporate Debtor, without the knowledge of the Resolution Professional, 14

had applied for and obtained a Registration Certificate under the MSME Act

to circumvent the ingredients of Sec 29A of the Code.

24. The first meeting of the 'Committee of Creditors' of 'Corporate Debtor'

took place on 8.1.2019. After obtaining the nod of the 'Committee of Creditors'

on 23.2.2019, the 'Resolution Professional', in terms of Form-G as per the

IBBI (Insolvency Resolution Process of Corporate Persons) Regulations, 2016,

invited 'Expression of Interest' from interested and eligible Resolution

Applicants to submit their respective Resolution Plans and ten such interests

were received, out of which only two were found eligible. That apart, the said

the two Resolution Applicants had not complied with the terms mentioned in

I & B Code. The Appellant had to deposit the 'Earnest Money Deposit' of

Rs.Five Crores by way of Demand Draft or Bank Guarantee and that the

Appellant had failed to deposit the same and also failed to submit principle

letter from investors to submit their Resolution Plan. But in the 12th COC

meeting of the 'Corporate Debtor' that took place on 4.9.2019 itself, the

'Committee of Creditors', in regard to the feasibility and viability of the said

Resolution Plan, initiated 'voting' and 55.66% voted in favour of the

Resolution Plan, 37.17% voted against the Resolution Plan and 7.17%

abstained from voting relating to the Resolution Plan. The Resolution Plan of

the Appellant was not approved, as per Section 30 of the Code, with the

minimum vote of 66% of voting share of the 'Committee of Creditors' and

resultantly, the Resolution Plan of the Appellant was rejected as per the I & B

Code.

15

25. The Appellants filed MA No.995/IB/2019 (under Sec 60(5) of the Code),

seeking permission of the 'Adjudicating Authority' for reconsideration of the

'Resolution Plan' submitted by it, in the meeting of the 'Committee of

Creditors' that took place on 17.9.2019. The Adjudicating Authority, by

means of an oral direction dated 17.9.2019, granted opportunity to the

Resolution Applicants to present the 'Resolution Plan' before the 'Committee

of Creditors' for their reconsideration and on 24.9.2019 (14th meeting of COC

of the Corporate Debtor), the 'Committee of Creditors' discussed in regard to

the Revised Resolution Plan submitted by the Resolution Applicants whether

it conforms with the requirements of the request for the Resolution Plan and

that the Committee of Reporters, after deliberations, the Appellant offered

some land as 'Security Deposit' and offered to make an additional deposit of

Rs.Fifty Lakhs to establish 'Bonafides'. At the end of the aforesaid meeting,

the Resolution Applicant was required to submit the 'Revised Plan' for

incorporating the requisite changes and also for obtaining the mandate by the

COC members to vote on 28.9.2019 for accepting/rejecting the Revised

Resolution Plan to be submitted by the Appellant.

26. The 'Committee of Creditors', on 28.9.2019, among other things, voted

on the 'Revised Resolution Plan' and 20.54 per cent voted in favour of the

Resolution Plan and the members (including the Applicants/Phoenix) voted

with 63.02% voting share voted against the Resolution Plan and balance

12.74% abstained from voting in regard to the Resolution Plan. Therefore,

the said Resolution Plan projected by the Appellants, could not secure the

minimum required vote of 66% of the voting share of the Committee of 16

Creditors and the Resolution Plan submitted by the Appellant came to be

rejected. The Resolution Professional filed an Application under Sec 33(1) of

the Code for initiation of 'Liquidation Process of Corporate Debtor' and the

'Adjudicating Authority' passed an order on 21.11.2019 whereby a direction

was issued for initiation of the 'Liquidation Process of the Corporate Debtor'.

In short, the present Appeal filed by the Appellant is only to stifle the

'Liquidation Process' of the 'Corporate Debtor'.

27. It will not be out of place for this Tribunal to make a significant mention

that a 'Liquidation' can be triggered under the following circumstances:

(i) Where no 'Resolution Plan' is received by an

'Adjudicating Authority' from the 'Resolution

Professional' prior to the expiry of the Insolvency

Resolution Process period

(ii) Where the 'Adjudicating Authority' rejects the

Resolution Plan under Sec 31 of the Code for

noncompliance of the requirements specified therein

(iii) Where the 'Committee of Creditors' at any time before

confirmation of the Resolution Plan decide to liquidate

the Corporate Debtor and the same is intimated by a

'Resolution Plan' to an Adjudicating Authority

(iv) Where the 'Corporate Debtor' violates a 'Resolution

Plan' as approved by the 'Adjudicating Authority' and

any person other than the 'Corporate Debtor'

prejudicially affected by such breach files an 17

application seeking a 'Liquidation Order' before an

'Adjudicating Authority'.

28. Suffice it for this Tribunal to point out explicitly that a 'Corporate

Debtor' can be pushed into 'Liquidation' only if any of the aforesaid

circumstances exist and in fact, there is no power available with an

'Adjudicating Authority' to order 'Liquidation' on any other reason. It

is to be remembered that under Sec 271(e) of the Companies Act, 2013,

power is showered on the 'Tribunal' to order winding up, if in the

opinion of the 'Tribunal' it is just and equitable that the 'Company' is to

be wound up. But, the I & B Code, 2016 has no such residual ground.

Moreover, in a suitable case, an 'Application' can be projected by an

'Applicant' under the relevant provisions of the 'Companies Act, 2013'

for a 'just and equitable reason'.

29. It cannot be lost sight of that where no 'Resolution Plan', is

approved by the 'Committee of Creditors', an Adjudicating Authority is

bound to order 'Liquidation' of a Company. If the time prescribed under

Sec 12 of the I & B Code had lapsed, an 'Adjudicating Authority' will

pass an 'Order of Liquidation' against 'Corporate Debtor' regardless of

whether the management of Corporate Debtor or the Resolution

Applicant had enough opportunity to come up with viable/suitable

Plan, as the case may be. Notwithstanding the fact that 'Resolution of

Corporate Insolvency' is meant for survival of a Company as a Going

Concern, it cannot be ignored that 'Timely Liquidation' is a

palatable/desirable one too over an 'Indefinite Resolution Proceedings'. 18

To put it precisely, when a 'Resolution Plan' was negatived by the

'Committee of Creditors' and the time enunciated under Sec 12 of the

Code had come to an end, the time limit prescribed is to be followed in

stricto sense, failing which the aim of 'maximising' the 'value of Assets'

of the Company will get defeated.

30. When the 'Committee of Creditors' is of the view that no useful

purpose will be served in continuing/elongating the Insolvency

Resolution Process because of the fact that there was no 'Resolution

Plan' to the satisfaction of the 'Committee of Creditors', then an

'Adjudicating Authority' is undoubtedly to pass necessary orders as per

Sec 33(1)(a) and Sec 34(1) of the I & B Code for announcement of

'Liquidation' in respect of a 'Corporate Debtor'.

31. It is true that the I & B Code is a social legislation not just to take

into account the stakeholders' interests (including the 'Corporate

Debtors', Employees and others who have stake in Business). Sec 29A

of the I & B Code mentions the persons who cannot be a 'Resolution

Applicant' (including an 'Undischarged Insolvent', 'Wilful Defaulter' of

loans, anyone who has an 'NPA loan' as per RBI Guidelines, etc.). In

fact, restrictions shall apply in respect of an ineligible individual or any

other person acting jointly with such person and submitting a plan.

32. As per Regulation 39(1) of IBBI (Insolvency Resolution Process)

for Corporate Persons) Regulations, 2016, a 'Resolution Plan' is to be

submitted to the Resolution Professional 30 days before the expiry of

maximum period of 180 days. Where no Resolution Plan was 19

submitted, period of 180 days is not to be extended. An order of

Liquidation is to be passed for the Liquidation of a 'Corporate Debtor'

and the Resolution Professional will act as a 'Liquidator'.

33. Coming to the aspect of Sec 240A of the Code to Micro, Small and

Medium Enterprises, it is to be pointed out that a 'Financial Creditor'

or an 'Operational Creditor' has a right to file necessary application for

'Insolvency'. The creditors of Micro, Small and Medium Enterprises can

take it to 'Insolvency'. In fact, Sec 240A (2) of the Code confers power

on the Central Government to direct by notification in 'Public Interest'

that any of the provisions of I & B Code shall not apply to MSMEs or

apply to them with such variations as may be mentioned in the

notification.

34. It is beyond one's comprehension as to how the

Promoters/Employees of the Corporate Debtor without the knowledge

of Resolution Professional and that too, after initiation of CIRP coupled

with the fact that the management of the affairs of the 'Corporate

Debtor' remained in the hands of the Resolution Professional, had

secured the Registration Certificate under the Micro, Small and Medium

Enterprises Development Act and obviously, the same was obtained

only to overcome the ingredients of Sec 29A of the Code. In the instant

case, even though one Johnson and Samuel Jefferson (Suspended

Directors and ex-promoters of Corporate Debtor) furnished a Resolution

Plan before the 'Resolution Professional' claiming to be eligible to

submit the said 'Resolution Plan' in lieu of Sec 240A of the I & B Code, 20

in the instant case, the Appellant had failed to deposit a sum of Rs.Five

Crores either by 'Demand Draft' or 'Bank Guarantee'. In any event, the

Resolution Plan of the Appellant was not approved with a minimum vote

of 66% of voting share of the 'Committee of Creditors' and resultantly,

the said Plan of the Appellant was rejected. That apart, the Appellant,

although filed MA 995/IB/2019 praying for permission of the

Adjudicating Authority for reconsideration of the Plan submitted by it

in the meeting of COC on 17.9.2019, the 14th meeting of the COC of

Corporate Debtor took place in which the Appellant offered some land

as Security Deposit and offered to make an additional deposit of Rs.Fifty

lakhs to prove his Bonafides. And on 28.9.2019, the 'Committee of

Creditors' vote on the Revised Plan and 63.6% voting share of the

members voted against the Resolution Plan, etc. to put it in emphatic

term, the Appellant had not secured the minimum required vote of 66%

of the voting share of COC and therefore, the Plan submitted by the

Appellant was rejected and considering the fact that the Resolution Plan

of the Appellant was rejected twice by the 'Committee of Creditors' and

in the absence of 'Resolution Plan' for 'Resolution Process of the

Corporate Debtor', the Adjudicating Authority, by taking into account

of these attendant facts and circumstances of the instant case, passed

the impugned order dated 26.11.2019 for initiation of the 'Liquidation

Process of the Corporate Debtor', which is free from any legal flaw.

Consequently, the instant Appeal is devoid of merits and the same is 21

dismissed. No costs. I.A. No.3973/2019 and I.A. No.3974/2019 are

closed.

(Justice Bansi Lal Bhat) Member (Judicial)

(Justice Venugopal, M) Member (Judicial)

(Justice Anant Bijay Singh) Member (Judicial) 4th, March, 2020

ssr/nn