Vijay Kumar Singh vs Sandeep Kumar Bhatt & Ors

IN THE MATTER OF: Vijay Kumar Singh ...Appellant Versus Sandeep Kumar Bhatt & Ors. ...Respondents Present: For Appellant : Dr. Pankaj Garg, Mr. Milind Garg, Mr. Yaksh Garg Advocates For Respondents : Mr. Mohit Nandwani, Advocate for R-1 CMA Sandeep Kr. Bhatt, CMA Kamal Deep Tyagi for the liquidator Mr. Sanjay Jain, Advocate for R-2, 3, 4 & 6.

ORDER

01.12.2022: Heard Dr. Pankaj Garg, Ld. Counsel for the Appellant. Mr.

Mohit Nandwani, Ld. Counsel for Respondent No.1 and Mr. Sanjay Jain, Ld.

Counsel for Respondent No. 2 to 4 and 6.

2. At the very outset, after noticing the fact that since the appeal was

preferred against auction notice dated 24.02.2021 and in absence of any order

of stay passed in this appeal the said auction notice/proceedings had already

taken final shape, we requested Ld. Counsel for the parties that in such situation

appeal appears to has become infructuous. However, Mr. Garg, Ld. Counsel for

the Appellant persuaded the court to hear the appeal in detail. Accordingly, we

permit Mr. Garg, to place his argument as per his convenience.

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3. Before proceeding, it is appropriate to note as to what actual reliefs were

sought for in the present appeal. The reliefs sought for in the Memo of Appeal

are reproduced below:

"i. Admit the present appeal and set aside the impugned order dated 16.03.2021 passed by the National Company Law Tribunal, New Delhi Bench-III, at New Delhi in Interlocutory Application No. 1309/2021 filed by the appellant herein in C.P. (IB) No. 1251/ND/2018, in the matter of M/s Dynamic Star Securities & Allied Services vs. M/s Newgen Speciality Plastics Limited;

ii. Set aside the auction notice dated 24.02.2021 published by the Respondent No.1 as illegal, null and void ab-initio,

iii. Set aside the auction proceedings held on 13.03.2021 as illegal, null and void ab-initio,

iv. Set aside all the actions of the Respondent No.1 subsequent to auction dated 13.03.2021 as illegal, null and void ab-initio,

v. Set aside all the subsequent auctions conducted by the Respondent No. 1 as illegal, null and void ab-initio".

4. Ld. Counsel for the Appellant admits that in respect of the Company in

question earlier CIRP was initiated. However, subsequently liquidation

proceeding was initiated and it was admitted on 06.01.2020. After the initiation

of the liquidation proceeding, the appellant herein preferred an appeal before

this tribunal in the month of January, 2020 itself which was numbered as

Company Appeal (AT) (Ins) No. 391 of 2020. Ld. Counsel for the Appellant has

taken this tribunal to an interim order dated 05.03.2020 passed in the said

appeal by this tribunal. It is apt to reproduce the interim order, passed in the

earlier appeal which was preferred by the Appellant i.e. order dated 05.03.2020.

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"Heard. Delay of 12 days in filing the appeal is condoned. I.A. No. 1025/2020 stands disposed of.

Issue Notice in this appeal.

Ld. Advocate Shri Rajendra Beniwal appears on Behalf of R-1. Notice be served on rest of the Respondent Banks and Financial Institutions who are said to have been the 'Committee of Creditors'. Notice is not necessary to be served o R-7 (original 'Operational Creditor').

Ld. Advocate Shri Ankit Raj appears on behalf of R-2. Respondents to file reply.

Ld. Counsel for Appellant states that in this matter the Adjudicating Authority has passed liquidation order in (CA- 962/C-III/ND/2019) filed in CP/IB/1251/ND/2018 by 'Committee of Creditors' before the ('National Company Law Tribunal'), Division Bench, Delhi, pointing out to the Adjudicating Authority various acts which was objectionable according to the 'Committee of Creditors' relating to conduct of the Respondent who was then working as 'Resolution Professional'. The Counsel for Appellant states that before the Adjudicating Authority such application (Annexure A12) was filed putting up case by the 'Committee of Creditors' that the 'Corporate Debtor' was a going concern and the 'Resolution Professional' had suddenly stopped functioning of the 'Corporate Debtor' and put the Company to losses and that the 'Resolution' got recorded of 'Committee of Creditors' on 19.06.19 to seek liquidation was by misrepresentation. Counsel states that this application was filed for replacement of the 'Resolution Professional' Mr. Anil Kumar. Ld. Counsel states that in spite of the objection from the Committee of Creditors, the Adjudicating Authority has proceeded to pass the impugned order directing liquidation of the Company.

It is stated that the 'Corporate Debtor is MSME and the Appellant wants to submit 'Resolution Plan'.

During the pendency of the appeal, the liquidator is directed to keep the 'Corporate Debtor' as going concern and not to create any encumbrance on the properties of the 'Corporate Debtor' or to dispose any moveable or immoveable property of the 'Corporate Debtor'.

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List the appeal in 'Admission (After Notice)' category on 08.04.2020".

5. It has also been admitted that finally the appeal i.e. CA (AT) (Ins) No. 391/

2020 was disposed of on 09.11.2020. According to Ld. Counsel for the Appellant

the interim order, which was earlier passed particularly to the effect of

continuing the company as a going concern, was merged with the final order.

According to him that once it was desire of this Appellate Tribunal to continue

the company as going concern there was no reason for the liquidator to

subsequently proceed for auction sale of the property of the company in

question. To substantiate his submission that the interim order was merged with

the final order. Ld. Counsel for the Appellant has referred to order dated

09.11.2020 i.e. final order passed by this Tribunal and same has been brought

on record in the Counter affidavit filed by the Appellant which starts from Pg-11

onwards.

6. Ld. Counsel for the Appellant has also taken this court to the finding

recorded by this tribunal which is at Page -35 of the Counter affidavit and

internal page-25, 26 of the order dated 09.11.2020. Thus, it would be profitable

to reproduce the same.

"i. The liquidation order passed by the Adjudicating Authority is maintained.

ii. The order passed by Adjudicating Authority dismissing C.A. (AT) No. 962/C-III/ND/2019 is set aside.

iii. The matter is remitted back to appoint another Insolvency Professional as Liquidator replacing Respondent No. 1.

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iv. Adjudicating Authority may appoint Mr. Sandeep Kr. Bhat as Proposed by CoC as Liquidator, or may call for name of any other Insolvency Professional from IBBI, if felt necessary by Adjudicating Authority. The Adjudicating Authority is requested to pass Orders for proper handing over of charge from Respondent No. 1 to the Insolvency Professional to be appointed as Liquidator for replacing the Respondent No.1. Other orders necessary may also be passed in this regard.

v. The Appeal is disposed of accordingly".

7. Ld. Counsel for the Appellant further argued that while preceding with the

liquidation and auction sale it was mandatorily required to follow statutory

provision particularly contain in Regulation 32 A of Insolvency and Bankruptcy

(Liquidation Process Regulation 2016). The same regulation is reproduced herein

below:

"32-A. Sale as a going concern. - (1) Where the committee of creditors has recommended sale under clause (e) or (f) of regulation 32 or where the liquidator is of the opinion that sale under clause (e) or (f) of regulation 32 shall maximise the value of the corporate debtor, he shall endeavour to first sell under the said clauses.

(2) For the purpose of sale under sub-regulation (1), the group of assets and liabilities of the corporate debtor, as identified by the committee of creditors under sub-regulation (2) of regulation 39-C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 shall be sold as a going concern.

(3) Where the committee of creditors has not identified the assets and liabilities under sub-regulation (2) of regulation 39-C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the liquidator shall identify and group the assets and liabilities to be sold as a going concern, in consultation with the consultation committee.

(4) If the liquidator is unable to sell the corporate debtor or its business under clause (e) or (f) of regulation 32 within 90 Company Appeal (AT) (Ins) No. 353 of 2021 6

days from the liquidation commencement date, he shall proceed to sell the assets of the corporate debtor under clauses (a) to (d) of regulation 32".

8. Orally it has candidly been admitted that regarding violation of the said

provision there is no specific pleading in the memo of appeal but it was argued

that it was duty on the part of the liquidator itself to follow the same. He

reiterated that the same was not followed. On aforesaid ground it was argued

that this tribunal may pass appropriate order.

9. Mr. Garg, has also referred to an order dated 21.12.2021 passed in I.A.

716 of 2021 in CP (IB) No. 1251/ND/2018 by the NCLT, New Delhi, Court-III. He

has referred to the said order which starts from page 159 of the counter affidavit

of the appellant filed on 25.02.2022. It has been argued that the NCLT had

noticed that the erstwhile liquidator had taken all steps to keep the company as

going concern and he was also directed to be paid remuneration from 06.01.2020

to 06.01.2021. We have also examined the order dated 21.12.2021. The said

order was mainly in relation to the claim made by erstwhile liquidator regarding

his fees and as such it was a dispute which was in relation to claim of Ex-

liquidator for his remuneration. Any submission made by the liquidator and

noticed by Ld. Tribunal may not be termed as if it was considered that the

concerned company was going concern, moreover, in view of the facts and

circumstances which we have noticed herein above.

10. In reply Mr. Mohit Nandwani, Ld. Counsel for the Respondent No.1, at the

very outset submits that there is no reason for entertaining the present appeal

since by efflux of time the appeal itself had become infructuous. Controverting

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to the submission of Ld. Counsel for the Appellant about interim order to

continue the company as a going concern, he has also referred to the same

judgment on which reliance was placed by the Ld. Counsel for the Appellant i.e.

Judgment dated 09.11.2020 passed in CA (AT) (Ins) No. 391 of 2020.

11. Mr. Nandwani, Ld. Counsel for Respondent No.1 has specifically drawn

our attention to paragraph 22, 23 of the order dated 09.11.2020. For just

decision in the matter it is appropriate to reproduce both the paragraphs which

are at running page 34 and 35 of the Reply dated 28.07.2021.

"22. Regarding liquidation order which has been passed, although, the Appellant has made various allegations against the Respondent No.1 to claim that the Losses being incurred by the Corporate Debtor were coming down and thus it was possible to make corporate debtor profitable, the Resolution Professional (Respondent No. 1) has pointed out that keeping the Corporate Debtor as a going concern was incurring more losses. The Appellant wants to claim that Appellant procured fresh orders for supply. However, the Respondent No.1 is pointing out that although the Corporate Debtor was incurring losses and the Appellant was aware that the working capital of the company were not sufficient to achieve the break-even sales, still the Appellant took Orders. Reply filed shows that there are allegations of Respondent No.1 against the Appellant and other promoters of the company regarding non-cooperation. The Appellant does not appear to have taken up these issues before the Adjudicating Authority when question of passing of liquidation order came up. In fifth CoC meeting dated 19.06.2019 (Page 340) these Minutes were approved. Once CIRP is initiated the management vests with the IRP/RP and under Section 20 the IRP/RP is to keep the company as a going concern. Thus, Appellant could not have acted in a manner not agreed to by the Resolution Professional and get orders when Resolution Professional did not agree. Record shows non- cooperation by Directors & Respondent No.1 placed facts before CoC. If there was grievance, it should have been taken up with CoC by the Appellant. The arguments of the Respondent No.2 show that the Corporate Debtor was a loss making entity and had accumulated ever Company Appeal (AT) (Ins) No. 353 of 2021 8

increasing losses since 2015-2016. For such reasons, we are not impressed by the arguments made by the Ld. Counsel for the Appellant that Respondent No.1 should have kept the Corporate Debtor as going concern even if it was incurring loss.

23. Minutes of 4th CoC dated 13.05.2019 (Appeal Page 300 @ page 303) has item No. A 5 relevant parts of which read as under:

Books and other information of the Corporate Debtor

The members were informed that even now, the books of accounts and data base of the Corporate Debtor claimed to be scattered among various consultants employed by the Company in the past have still not been made available to the RP despite repeated request. The Directors had undertaken in the previous CoC meeting that they would provide the necessary documents to the Transaction Authority by 26.04.2019. However, the record finally provided by them on 30.04.2019 when compiled and cross- verified by the RP, was found to be incomplete or unsatisfactory. Accordingly, upon request due to administrative difficulty, the RP has allowed them last opportunity to provide the requisite information to his satisfaction by 20.05.2019 positively.

Books Debts

As was brought to the notice of the members of the CoC in the previous CoC meeting, high values of book debts have been written off the CD in the previous financial year. In the Financial Year 2017-18, after writing book debts of nearly Rs. 16.18 Crores the total book debts outstanding in the balance sheet is Rs. 8.67 Crores. It was claimed in the books of the CD that only Rs. 1.25 Crore out of the total Book Debts of Rs. 7.43 Crores as on 30.04.2019 was recoverable. The Directors have till date not been able to provide the complete required information to ascertain their recoverability."

......................................................

"Operations of the CD

As explained in Item A10 and A11 below, the members were informed that contrary to the sales level of Rs. 80 lakhs for

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the month of March, 2019 expected to be achieved by the Directors which would have been sufficient to recover fixed cost of the CD, the company has continued to incur cash losses in the month.

Similarly, in the month of April, 2019, only sales of Rs. 12,28,239/- have been achieved mainly due to non- availability of working capital. In light of these circumstances, and the details mentioned in Item A 10 and Item A 11 below, the RP after taking required inputs from the Directors has taken a conscious business decision to temporarily suspending the operations of Corporate Debtor Members so as to avoid.

Restricting the involvement of the Directors in running the operations and entering the premises of the CD.

As explained above, the Directors have not been able to provide the satisfactory explanation, records and document with regard to past transactions and current operations of the company.

It was felt that restricting the rights of the directors might bring effective control expedite submission of information and documents. Accordingly, the RP has restricted the role of the Directors in running the day to day operations of the CD by asserting that all decisions of purchase and sales would be taken by RP based on the recommendations of directors along with facts and figures."

.............................................................

"After due discussion on the steps taken by the RP and the challenges being faced by him in running the operations of the CD and conducting the instant CIRP, the members acknowledged the various points presented by him and took note of the same."

Thus, Respondent No. 1 had updated CoC about the state of Accounts and non- cooperation and business decision to temporarily suspend operations and CoC took note of the same. Thus, losses were gradually coming down is poor reason to keep going. The Allegations not having been taken up by the Appellant before the CoC it would not be appropriate for us to consider them in Appeal".

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12. Taking clue from the order dated 09.11.2020 quoted herein above, it was

submitted by Mr. Nandwani, that in any event there was no reason to continue

the company as a going concern and as such in all fairness it was required to

take steps for auction sale so that the claim of creditors may be settled. He has

also referred to affidavit of the Respondent No. 1 filed on 21.01.2022 which was

filed in compliance with the order dated 22.12.2021 passed by this court. Ld.

Counsel for the Respondent No.1 has referred to paragraph 5 and 6 of the

affidavit which are reproduced herein below:

"5. That I say that all the assets of the Corporate Debtor have been sold vide e-auction process in a transparent and fair manner and in accordance with the provisions of Insolvency and Bankruptcy Code, 2016. The total six number of E-auctions were conducted wherein 14 bidders had participated. The details of assets along with their sale price and date of sale is as under:

SI. Asset Type Reserve Sale Price Date of No. Price (in Cr.) (in Cr.) Sale/Auct ion 1. Land & Building 1.1. E-24 & 25 Site -C, 3.00 3.03 13.03.202 Surajpur Industrial 1 Area, Greater Noida (1st E- auction) 1.2. F-46, Site-C, Surajpur 1.40 1.43 13.03.202 Industrial Area, 1 Greater Noida (1st E- auction) 1.3. G-24, Site-IV, UPSIDC 3.00 3.27 13.03.202 Kasna, Greater Noida 1 (1st E- auction) 2. Plant & Machinery 1.51 1.53 17.07.202 1 (6th E- auction)

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3. Inventory 0.13 0.14 10.04.202 1 (2nd E- auction) 4. Trucks 0.08 0.08 Sold by the HDFC Bank through Liquidator on 06.04.202 1 5. Cars 0.03. 0.03 13.03.202 1 (1st E- auction) 6. Finished Goods 0.07 0.07 13.03.202 1 (1st E- auction) Total 9.14 9.58

Out of all the above Assets, Pertinently the liquidation value of Land & Building is Rs. 5.02 Cr. and the realised sale is of Rs. 7.73 Cr. The trucks have been sold by HDFC Bank separately.

6. That I say that I have received a total of Rs. 9.58 Cr. Plus interest of Rs. 0.09 Cr. amounting to Rs. 9.67 Cr. against the sale proceeds of the assets mentioned in Para 5, out of which a total sum of Rs. 5.81 Cr has already been distributed to the stakeholder plus Liquidation Cost has been paid to different professionals, Landlord and agencies approx.. Rs. 1.00 Cr and the balance sum of Rs. 2.86 Cr will also be distributed soon subject to disposal of the pending litigations before the Ld. Adjudicating Authority by the suspended directors, OCs, failed bidder and the Land Lord. The details of distribution to the stakeholders is as under:

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S Stakeholder Share Distribution Total No. (%) (in Cr.) Distrib Round 1 Round 2 Round 3 ution 10.05.21 26.06.21 11.08.21 till 11.08.

21 1. Punjab 68.42 1.57 1.24 1.21 4.02 National Bank

2. Exim Bank 23.75 0.46 0.43 0.42 1.31

3. Intec Capital 5.15 0.11 0.09 0.09 0.29

4. Hero Fincorp 2.68 0.09 0 0.09 0.19 Total 100 2.23 1.76 1.81 5.81

13. It was submitted by the Ld. Counsel for the Respondent No. 1 that in view

of fact disclosed in paragraph 5 and 6 which have been quoted herein above, in

normal course there is no reason for the appellant to further press the appeal

since the appeal has already become infructuous. He also tried to persuade the

court that right from the very beginning the appellant, who was promoter and

Ex- Director of the company, was creating number of petitions and complaints

which have been filed to deviate the proceeding. Even it is noticed that there was

complete non-cooperation by the Ex-Director who is Appellant. According to Ld.

Counsel for the Respondent No.1 the appeal is fit to be rejected with imposition

of exemplary cost.

14. Mr. Sanjay Jain, Ld. Counsel for the Respondent No. 2 to 4 and 6 adopts

the submissions of Ld. Counsel for the Respondent No.1.

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15. Besides, herein Ld. Counsel for the parties we have examined the materials

available on record and after going through the same particularly after noticing

facts disclosed in paragraph 22 and 23 of the Judgment dated 09.11.2020

passed in CA (AT) (Ins) No. 391 of 2020, we are of the opinion that there was no

substance in the argument of the Ld. Counsel for the Appellant that in view of

interim order it was required to keep the company as a going concern. Moreover,

on perusal of the final order dated 09.11.2020 it is evident that there is no

indication that interim orders i.e. order dated 05.03.2020 was required to be

taken note of. Otherwise also without any indication of merger of interim order

such interim order immediately lapses after final order is passed. As noticed in

the affidavit filed by the Respondent No.1 dated 21.01.2022 that after publication

of first auction notice dated 24.02.2021, subsequent auction notices were also

issued and property of the company has already been sold and number of

creditors have been paid. In such situation we are of the considered opinion that

to avoid the precious time of the court the Appellant was not required to press

the appeal but even then detailed argument was advanced by Ld. Counsel for

the Appellant.

16. In view of subsequent development as well as non- merger of earlier

interim order with the final order there is no reason to entertain the present

appeal. The appeal stands dismissed. Before dismissing the appeal we are of the

opinion that unnecessarily wasting precious time of the court amounts to abuse

of the process of the court.

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17. We are of the considered opinion that it is a fit case in which it can be

said that the Appellant has abused the process of the court and as such while

dismissing the appeal we propose to impose exemplary cost of Rs. One lakh on

the Appellant which must be paid within one month. The amount is to be

deposited in the Prime Ministers Relief fund. The Appeal stands dismissed.

18. This order was dictated in open court immediately after conclusion of

argument of Ld. Counsel for both the parties, however, at the time of signing of

the order we thought to re-examine on the point of imposition of cost.

Considering the fact that the appellant was Promoter and Ex-Director of the

Company, which was already liquidated, taking lenient view we decided to

exonerate the appellant from imposition of cost. Accordingly, imposition of cost

of Rs. One lakh on the appellant is waived.

19. The Appeal is dismissed without imposition of cost.

[Justice Rakesh Kumar] Member (Judicial)

[Dr. Ashok Kumar Mishra] Member (Technical)

sr/gc

Company Appeal (AT) (Ins) No. 353 of 2021