National Company Law Appellate Tribunal
Epitome Components Private Limited vs Divyesh Desai And Anr on 7 July, 2023
Author: Ashok Bhushan
Bench: Ashok Bhushan
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
PRINCIPAL BENCH, NEW DELHI
Company Appeal (AT) (Insolvency) No.565 of 2023
& I.A. No. 1857, 1860 of 2023
IN THE MATTER OF:
Epitome Components Pvt. Ltd.
The prospective resolution applicant of
Trend Electronics Limited,
Plot No.5, 17 MIDC, Ahmednagar - 414001 ...Appellant
Versus
Divyesh Desai,
The Liquidator of Trend Electronics Ltd. &
the erstwhile Resolution Professional
of Trend Electronics Ltd.
Moore Stephens Singhi Advisors LLP, B2-402,
Marathon Innova, 4th Floor,
Off Ganpatrao Kadam Marg,
Lower Parel, Mumbai - 400 013 ...Respondent No.1
Committee of Creditors of Trend
Electronics Limited, through State Bank of India,
Stressed Assets Management Branch-II,
Raheja Chambers, B-Wing, Ground Floor,
Free Press Journal Marg, Nariman Point,
Mumbai - 400021 ...Respondent No.2
Present:
For Appellant: Mr. Abhijeet Sinha and Ms. Meghna Rao, Advocates.
For Respondent: Mr. Krishnendu Datta, Sr. Advocate with Mr. Anand
Varma, Mr. Kaustubh Prakash, Ms. Hita Sharma, Ms. Kirti
Gupta and Ms. Apoorva Pandey, Advocates for R-1.
Mr. Bishwajit Dubey, Mr. Madhav Kanokia, Mr. Prafful
Goyal and Ms. Neha Shivhare, Advocates for R-2.
Company Appeal (AT) (Insolvency) No.565 & 528 of 2023
Page 1 of 31
With
Company Appeal (AT) (Insolvency) No.528 of 2023
& I.A. No. 1715 of 2023
IN THE MATTER OF:
Marathwada Audogik And General Kamgar Sanghtan,
Through its President Subhash Patil,
Plot No.3, Sunem Residency, Rachnakar Colony,
Railway Station Road, Aurangabad - 431003 ...Appellant
Versus
Divyesh Desai,
Liquidator of Trend Electronics Ltd.
Moore Stephens Singhi Advisors LLP,
Marathon Innova, 4th Floor,
Off Ganpatrao Kadam Marg,
Lower Parel, Mumbai - 400 013 ...Respondent No.1
Committee of Creditors of Trend
Electronics Limited, through State Bank of India,
Stressed Assets Management Branch-II,
Raheja Chambers, B-Wing, Ground Floor,
Free Press Journal Marg, Nariman Point,
Mumbai - 400021 ...Respondent No.2
Present:
For Appellant: Mr. Rahul Totala and Rajat Malu, Advocates.
For Respondent: Mr. Krishnendu Datta, Sr. Advocate with Mr. Anand
Varma, Mr. Kaustubh Prakash, Ms. Hita Sharma, Ms. Kirti
Gupta and Ms. Apoorva Pandey, Advocates for R-1.
Mr. Bishwajit Dubey, Mr. Madhav Kanokia, Mr. Prafful
Goyal and Ms. Neha Shivhare, Advocates for R-2.
Company Appeal (AT) (Insolvency) No.565 & 528 of 2023
Page 2 of 31
JUDGMENT
[Per: Barun Mitra, Member (Technical)] Present is a set of two appeals filed under Section 61 of Insolvency and Bankruptcy Code, 2016 ("IBC" in short) arising out of the common order dated 10.03.2023 (hereinafter referred to as "Impugned Order") passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench, Court- II) in CP (IB) No. 559/(MB)/2018. By the impugned order, the Adjudicating Authority ordered the liquidation of the Corporate Debtor - Trend Electronics Limited, as a going concern under section 33 of the IBC. Aggrieved by this impugned order, one set of appeal vide Company Appeal (AT) (Insolvency) No. 565/2023 (herein referred to as the 'first appeal') has been preferred by one of the prospective resolution applicants, Epitome Components Pvt. Ltd. ('Epitome' in short) on the ground that there have been material irregularities in the Corporate Insolvency Resolution Process ('CIRP' in short) of the Corporate Debtor. The other set of appeal has been filed vide Company Appeal (AT) (Insolvency) No. 528/2023 (herein referred to as the 'second appeal') by Marathwada Audogik and General Kamgar Sanghatan ('Sanghathan' in short) under Section 61 of the IBC against the same impugned order aggrieved with the fact that the impugned order does not take into account the interests of all stakeholders of the Corporate Debtor and that the livelihood of nearly 134 families which are dependent on the operations of the Corporate Debtor have been imperilled.
Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 3 of 31
2. The brief facts of the case which are common to both set of appeals and necessary to be noticed are as follows:
CIRP was initiated against the Corporate Debtor by the Adjudicating Authority on 25.09.2018 and an Interim Resolution Professional ('IRP' in short) was appointed who was later appointed as the Resolution Professional ('RP' in short). Subsequently on applications having been filed for consolidation of the CIRP of the Corporate Debtor with other companies of the Videocon Group, the Adjudicating Authority passed another order on 08.08.2019 whereby the CIRP of the present Corporate Debtor was not consolidated and directed to be started afresh.
The Committee of Creditors ('CoC' in short), the present Respondent No. 2 in the first appeal and sole Respondent in the second appeal, accordingly approved re-invitation of Expression of Interest ('E0I' in short). However, on two occasions, the potential resolution applicants who submitted their EOI having chosen to withdraw their resolution plan, the CoC resolved to reissue EOI once again on 31.01.2020.
Epitome, the present Appellant in the first appeal, through its promoter expressed its interest to submit a resolution plan following which the CoC extended the last date for submission of resolution plans by all resolution applicants till 31.08.2020. Dissatisfied with resolution plans received from the potential resolution applicants including Epitome, the CoC invited EOIs afresh with the last date fixed as 31.12.2020.
Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 4 of 31 Three resolution plans were received but all the three potential resolution applicants including Epitome were thereafter requested to submit revised resolution plans by 29.05.2021. A resolution plan was submitted by Epitome on 05.05.2021 and pursuant to a query raised by the RP, furnished their final signed resolution plan on 05.06.2021. The RP again sent an email on 08.06.2021 seeking certain further clarifications from Epitome as to whether it was barred by Section 29A of the IBC to which Epitome clarified in the negative.
On 08.07.2021, the RP informed Epitome that the CoC had decided to place compliant resolution plans for voting on 13.07.2021 and sought specific information regarding alleged ineligibility of Mrs Sushma Dhoot ('Sushma' in short) and Ms Nalini Dhoot ('Nalini' in short) to submit a resolution plan on account of their being classified as promoters of Videocon Industries Limited ('VIL' in short).
Epitome thereafter sent an email on 14.07.2021 clarifying that Sushma and Nalini cannot be considered to be promoters of VIL. This clarification was however not accepted by the RP and the resolution plan of Epitome was not placed for consideration of the CoC as conveyed in their email dated 16.07.2021. This decision of the RP, to not place their resolution plan before the CoC, according to the Appellant, was allegedly in excess of powers conferred upon the RP by the IBC.
After various rounds of negotiations, only the resolution plan received from one prospective resolution applicant, namely, Puneet Advisory Services Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 5 of 31 Private Limited ('PASPL' in short), was placed before the CoC for voting, along with a separate settlement proposal submitted by Mr. P.N. Dhoot, Promoter of the Corporate Debtor under Section 12A of the Code. Both the resolution plan and the Section 12A proposal were considered and evaluated by the CoC and put to vote. Eventually in pursuance of the discussions in the 30th CoC meeting and voting held on 19.07.2021, the resolution plan of PASPL was not found to be feasible and viable as per their commercial wisdom and not approved. Further in the same meeting, the Section 12A proposal of Mr. P.N. Dhoot for restructuring the Corporate Debtor was also rejected unanimously by the CoC. The CoC further unanimously approved the Liquidation of Corporate Debtor as a going concern.
The RP placed the decision of the CoC for initiation of the liquidation process of the Corporate Debtor on an 'as is where is' 'as is what is' 'as is how is' and without any recourse basis before the Adjudicating Authority for its approval.
The Adjudicating Authority ordered the liquidation of the corporate debtor as a going concern and also dismissed an interlocutory application filed before it directly by Mr. Venugopal Dhoot, the ex-promoter of the Corporate Debtor for restructuring/resettlement of the Corporate Debtor for having been filed without following the IBC procedure.
Sanghatan, the Appellant, in the second appeal, is a registered labour union is aggrieved with the impugned order in that the CoC failed to take Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 6 of 31 appropriate steps to revive the Corporate Debtor and that initiation of liquidation proceedings would jeopardise the livelihood of families dependent on the operations of the Corporate Debtor and cause them undue hardship.
The liquidation process of Corporate Debtor is near completion and the letter of intent issued by the liquidator on 12.05.2023 has been accepted by the successful bidder.
Aggrieved by this impugned order, the present set of appeals have been preferred by Epitome in the first appeal and Sanghatan in the second appeal.
Company Appeal (AT)(Insolvency) No.565/2023
3. Making his submissions, the Learned counsel for the Appellant submitted that the Appellant from the very beginning had persistently made genuine and sincere attempt towards the successful and beneficial resolution of the Corporate Debtor by repeatedly expressing before the RP its bona fide interest and willingness to revive the business of the Corporate Debtor. It was added that the Appellant is still interested in submission and implementation of the resolution plan for the purpose of revival and rehabilitation of the Corporate Debtor. It was contended that it was wrong and misconceived on the part of the RP to unilaterally reject the resolution plan of the Appellant by holding that Sushma and Nalini were part of the promoter group of VIL. Merely because both of them held some negligible share-holding in VIL and that they were relatives of some Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 7 of 31 shareholders of the Appellant, the Appellant could not be treated as disqualified and ineligible under Section 29A of the IBC. The RP had failed to consider in the correct perspective the clarifications provided by the Appellant on 14.07.2021 on the issue of purported ineligibility raised with regard to submission of resolution plan in terms of Section 29A of the IBC. It was contended that both Sushma and Nalini had negligible and inconsequential shareholding in VIL which shares had in any case already been disposed of. There is nothing on record to show that they are connected to or related to either the Appellant or the Corporate Debtor or exercised any influence in their business affairs and therefore cannot be held to be related party. It was also clarified to the RP through an email dated 14.07.2021 that the two were classified as a "promoter group" simply for the purpose of fulfilling the SEBI Regulations and that they have been wrongly held to be related parties by the RP at a time when they could have been so classified as a related party only if they fell within the definition of related parties as set out in the IBC. Thus the manner in which the resolution plan of the Appellant was considered by the RP was in complete violation of the provisions of the IBC.
4. It is further submitted by the Learned Counsel for the Appellant that the RP had no power to unilaterally reject the resolution plan of the Appellant. The RP by declaring the Appellant to be ineligible in terms of Section 29A of IBC acted ultra vires of the powers conferred on the RP. It was the bounden duty of the RP in terms of the provisions of the IBC to place the resolution plan before the CoC after conducting whatsoever due diligence on their part since the competent authority to determine whether a resolution applicant is eligible is the CoC and Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 8 of 31 not the RP. The RP failed to substantiate by way of their examination that these two persons, Sushma and Nalini attracted clauses (a) to (j) of Section 29A of the IBC which rendered the Appellant ineligible to submit a resolution plan. The RP thus failed to appreciate the true scope of the provisions of the IBC and exceeded his authority by suo motu rejecting the resolution plan.
5. It was also submitted that the objective behind the IBC is to seek the revival and rehabilitation of an insolvent corporate debtor and to not push it into liquidation. In the present case, the RP by scuttling a genuine attempt at resolution acted contrary to the overarching framework of IBC which contemplates liquidation only as a last resort. Furthermore, it was submitted that though the Corporate Debtor fell within the definition of a MSME company as the value of its plant and machinery did not exceed Rs. 50 Crores nor its turnover exceeded Rs. 250 crores, yet, the RP failed to disclose this critical input to the potential resolution applicants including the Appellant at the time of the EOI or thereafter. This was yet another ground to show that the CIRP of the Corporate Debtor clearly suffered from material irregularity and therefore has the effect of vitiating the order of liquidation passed by the Adjudicating Authority.
6. It was therefore emphatically asserted that the RP exceeded the power and authority cast upon him under the provisions of the IBC in rejecting the resolution plan of the Appellant without placing the same before the CoC, thereby irregularly driving the Corporate Debtor into liquidation. In support of Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 9 of 31 their contention, the Learned Counsel for the Appellant relied on the judgement delivered by the Hon'ble Apex Court in the matter of Arcelor Mittal India (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1 ('Arcelor' in short) which outlined the limited scope for the RP while dealing with the resolution plans received from the prospective resolution applicants and postulated that the sole decision- making power regarding the approval or rejection of the resolution plan vested with the CoC and not with the RP.
7. Rebutting the above arguments made on behalf of the Appellant, the Learned Senior Counsel of the Respondent No.1 stated that two companies, Silvercon Realty Pvt. Ltd. ('Silvercon' in short) and Silverplatter Foods & Beverages Pvt. Ltd. ('Silverplatter' in short) were 'Promoters' of Epitome, the present Appellant which had submitted a resolution plan. Furthermore, Sushma and Nalini, were Directors of both Silverplatter and Silvercon at the time of submission of resolution plan by the Appellant on 06.06.2021. Silverplatter and Silvercon in turn were shareholders of Epitome having 34.92% stake in Epitome. Sushma and Nalini, also being Promoters of VIL, were ineligible to submit a resolution plan under Section 29A (c) of IBC since accounts of VIL have been declared NPA and undergoing CIRP. Therefore, the Appellant being connected with Sushma and Nalini, stood disqualified under Section 29A of IBC. Being Promoters, Silvercon and Silverplatter fell within the definition of "connected persons" under Explanation I to Section 29A (j) of IBC.
Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 10 of 31
8. Advancing their arguments further, it was submitted on behalf of CoC/Respondent No. 2 that the RP vide email dated 16.07.2021 had informed the Appellant of its ineligibility to submit a resolution plan. Thereafter RP vide email dated 12.08.2021 asked the Appellant to provide the bank account details for refund of their Bid Bond amount. The Appellant not only voluntarily provided the bank account details but on 18.08.2021 followed up with RP for the refund amount and unconditionally received the same on 21.08.2021. Having received the refund of the Bid Bond amount, it was submitted that the Appellant had waived its right to reopen the matter. The Learned Counsel of the CoC/Respondent No. 2 also reiterated that the Appellant having accepted the refund of Bid Bond Amount without any protest or prejudice is estopped from challenging the Liquidation Order at this stage.
9. It was also contended by the Learned Senior Counsel of Respondent No. 1 that the action of the RP was not in violation of the settled law laid down by the Arcelor judgement. It was asserted that the RP was willing to submit the resolution plan submitted by the Appellant before the CoC but several CoC members having insisted on the specific views of the RP on the eligibility of the Appellant during their deliberations, the RP had no choice before it but to place its views. Based on facts before it, the RP in the discharge of its responsibilities had expressed that Epitome did not meet the eligibility criteria for Section 29A compliance. The CoC members having clearly informed the RP during the 29th CoC meeting that only Section 29A compliant plan should be placed before CoC for consideration and voting, the RP was obligated to act accordingly. The same Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 11 of 31 stance was adopted in the submissions made by the Learned Counsel for Respondent No. 2 that the RP had placed the relevant material on the Appellant's ineligibility under Section 29A before the CoC which was deliberated upon by the CoC in the 29th CoC meeting held on 15.07.2021. In the said meeting, the CoC in its commercial wisdom unanimously decided not to place Epitome's resolution plan for voting as it was found to be non-compliant with Section 29A of the IBC. The contention of both the Respondents is that submission of the Appellant that the RP had unilaterally rejected their resolution plan in violation of the statutory provisions of the IBC is unsubstantiated and untenable.
10. It was further submitted on behalf of Respondent No. 1 that liquidation of the Corporate Debtor was unanimously approved by the CoC with 100% votes in favour of liquidation in the 30th CoC meeting held on 19.07.2021. Further, the RP had explored all possibilities under CIRP before the decision was taken by the CoC in the 30th meeting to sell the Corporate Debtor as a going concern. Resolution plans received from prospective resolution applicants were discussed in the CoC meetings. The CoC had also examined the Section 12A proposal before it and only after due consideration and voting, had unanimously resolved to liquidate the Corporate Debtor as a going concern with 100% majority. During the e-auction held on 11.05.2023, the Corporate Debtor has been sold as a going concern to a successful bidder. It was therefore asserted that the Appellant has only made bland averment about material irregularity and in the absence of any substantiation thereof, no illegality or impropriety can be attributed to RP or in the conduct of the CIRP. Further on the issue of MSME status of the Corporate Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 12 of 31 Debtor, it was contended that having not undertaken any proceedings before the Adjudicating authority to prove otherwise, the Appellant cannot raise such issues now.
11. The Learned Counsel for the CoC/Respondent No. 2 contended that the appeal is hit by delays as the Appellant slept over the matter for almost two years since being informed of its ineligibility under Section 29A on 16.07.2021. The Appellant having chosen to not challenge the email dated 16.07.2021 for so long is now estopped from challenging the same after almost two years as it aims to delay the liquidation of the Corporate Debtor as a going concern. Further while the impugned order was passed on 10.02.2023 the appeal was filed before this Tribunal on 26.03.2023 but not prosecuted for hearing until 04.05.2023 which was one week before the scheduled date of e-auction on 11.05.2023. This demonstrates that the Appellant timed the appeal in such a manner so as to stall the e-auction process which is prejudicial to the principles enshrined under the IBC. It was submitted that this is an attempt to disrupt the resolution process through liquidation of the Corporate Debtor as a successful bidder has been declared pursuant to the auction conducted in terms of the impugned order and the successful bidder is in the process of implementing its bid. Company Appeal (AT) (Insolvency) No. 528/2023
12. The Learned Counsel for the Appellant submitted that Sanghatan is a registered labour union which is aggrieved with the impugned order for initiation of liquidation proceedings on the ground that it does not take into account the Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 13 of 31 interests of all stakeholders of the corporate debtor and that the livelihood of nearly 134 families which are dependent on the operations of the Corporate Debtor have been imperilled. It is further submitted that the CoC by rejecting the resolution plans as well as the restructuring proposal received from the ex- promoter, Mr. Venugopal Dhoot had not taken a commercially sound decision and instead put the corporate debtor into liquidation with ulterior motives. It was emphatically asserted that the IBC expects the CoC to take into account all material facts, the best interest of the corporate debtor and to make genuine attempts at reviving and maximising the value of the corporate debtor which however did not happen in the present case. The CoC failed to take any steps to revive the corporate debtor and operate it as a going concern and instead brought about its corporate death. Holding that the Adjudicating Authority has proceeded to summarily and mechanically allow the application for liquidation of the corporate debtor, it also contended that it has failed to appreciate that the payment towards provident fund and gratuity cannot form a part of the liquidation estate of the corporate debtor and such payments cannot be made subject to realisation from the assets of the corporate debtor. It has also been further stated that the Hon'ble Supreme Court of India in the matter of Swiss Ribbons (P) Ltd Vs. Union of India (2019) 4 SCC 17 has reiterated that primary focus of the IBC is revival and not liquidation of the corporate debtor.
13. Refuting the above contentions, the Learned Senior Counsel for the CoC stated that the appeal is filed on baseless premises, with malafide intent, and is intended to be disruptive of the resolution process through liquidation of the Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 14 of 31 Corporate Debtor as it aims to delay the liquidation of the Corporate Debtor as a going concern. The decision to initiate liquidation proceedings of the Corporate Debtor was taken by the CoC in its commercial wisdom within the ambit of powers granted to it under the provisions of the Code, pursuant to failure of Corporate Debtor to achieve successful resolution under the provisions of the Code. Both the resolution plan and the 12A Proposal were considered and evaluated by the CoC, however, were not found to be feasible and viable as per their commercial wisdom. Consequently, the CoC approved the liquidation of Corporate Debtor as a going concern and the liquidator, the erstwhile RP issued an advertisement inviting EOI for liquidation of the Corporate Debtor, wherein the invitation to the bidders for sale of the Company was made on a going concern basis on an 'as is where is' 'as is what is' 'as is how is' and without any recourse basis.
14. It was contended that since the Corporate Debtor is being sold on a going concern basis, there was no question of any ulterior motive in that the liquidation order did not affect the livelihood of the workmen and employees as the operations of the Corporate Debtor would continue to run. Further, with respect to apprehensions of the Appellant with respect to the payment of gratuity and provident fund, it is submitted that the auction process document clearly provided that "The total gratuity liability of the Company amounts to around INR 3.75 Crores if the services of all the employees are terminated on March 31, 2023. The balance with gratuity fund as on March 31, 2022 was around INR 0.57 Crores resulting into unfunded gratuity liability of around INR 3.18 Crores. The Qualified Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 15 of 31 Bidders to note that the said liability shall be to the account of the Successful Bidder post the Transfer Date and shall not be included in the Bid Value." Therefore, the dues of the Appellant towards gratuity and provident fund payments have adequately been taken care of under the Liquidation and it is clear that the gratuity and provident fund payments will be made to the workmen and employees by the successful bidder as and when such payments are due and payable. The successful bidder was liable to make such payments over and above the value it is providing for acquisition of Corporate Debtor as a going concern.
15. It was also added that liquidation process of Corporate Debtor is near completion and the letter of intent issued by the liquidator on 12.05.2023 has been accepted by the successful bidder. Thus the CoC has ensured that the interests of the workmen and employees are met and the CoC has made all efforts to resurrect the operations of the Corporate Debtor rather than ensuring corporate death of the same. On the other hand, the reliefs sought by the Appellant to revive the Corporate Debtor only adds to the delay of the resolution process through liquidation. The delay not only hampers the resolution process of the Corporate Debtor, but also the interests of all the vigilant stakeholders.
16. We have duly considered the arguments and submissions advanced by the Learned Counsel for the parties in both the appeals and perused the records carefully.
Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 16 of 31
17. The moot point for consideration common to both appeals is whether in the facts of the present case the manner of rejection of the resolution plan of Epitome can be deemed to have been marred by material irregularity in the conduct of CIRP of the Corporate Debtor by the RP and whether the liquidation order passed by the Adjudicating Authority should continue to be implemented or be stayed.
18. As regards material irregularity in the conduct of CIRP of the Corporate Debtor, the primary contention of the Appellant in Company Appeal (AT) (Insolvency) No. 565/2023 is that on the resolution plan submitted by the Appellant, queries on the issue of eligibility under Section 29A was raised by RP to which due clarification was given by the Appellant on 14.07.2021, and yet the RP on its part gave an uninformed and random opinion to the CoC to the effect that the Appellant did not meet the criteria for Section 29A compliance under IBC. It has also been stated that the ineligibility report of the Appellant under Section 29A of the IBC was furnished by the RP without any documentary proof since the due diligence advisor, namely the Mazars Business Advisors Private Limited ('Mazars' in short) was yet to submit its conclusive findings having advised the RP to seek legal opinion. Thus the RP exceeded its jurisdiction in not placing the resolution plan before the CoC though it was not so empowered under IBC. Since the RP had failed to discharge its obligation of placing the resolution plan before the CoC and the CoC in turn having failed to consider the resolution plan, there was material irregularity in the CIRP of the corporate debtor which vitiated the liquidation order.
Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 17 of 31
19. Having perused the records and after hearing both parties, we find that it is an admitted fact that the RP had sought clarifications from the Appellant on 08.07.2021 regarding their eligibility under Section 29A of the IBC to submit a resolution plan as placed at page 172 of Appeal Paper Book ('APB' in short). It is also an undisputed fact that a detailed reply was given thereto by the Appellant on 14.07.2021 in their defence of being Section 29A compliant as seen at pages 168-171 of APB. It is, however, the case of the Appellant that the RP had wrongly declared them ineligible unilaterally and did not place the resolution plan before the CoC for their consideration and voting and that this action of the RP was in breach of the IBC and beyond the powers and authority vested upon the RP. In support of their contention, the Learned Counsel for the Appellant has adverted attention to a communication received from the RP on 16.07.2021 as placed at page 176 of APB. It may be relevant to notice the contents of the said communication which is to the effect:
From: Divyesh Desai [email protected] Date: 16 July 2021 at 7:20:41 PM IST To: CEO ceo@épitomeindia.com Subject: Resolution Plan Epitome - Trend Electronics Ltd Dear Mr Dhoot, As per the public filings made by Videocon Industries Limited read with Section 29A of Insolvency and Bankruptcy Code, 2016, Epitome Components Private Limited is not eligible to submit a resolution plan. We have received and reviewed clarifications provided by you on 29A eligibility of Epitome Components Private Limited. Clarifications provided by you do not negate the public filings made by Videocon Industries Limited. In view of this we are declaring Epitome as ineligible as per section 29A of Insolvency and Bankruptcy Code, 2016. The CoC has also been posted about Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 18 of 31 your ineligibility and the explanations provided by you. In the circumstances, the Resolution Plan submitted by Epitome is not placed before CoC for their consideration and voting.
We shall refund the Bid Bond Guarantee submitted by Epitome as provided in RFRP/Bid Document.
Regards, Divyesh Desai Resolution Professional - Trend Electronics Ltd (Emphasis supplied)
20. This brings us to the question whether the above email relied upon by the Appellant establishes beyond doubt that the RP had rejected the resolution plan unilaterally and thereby denied the CoC the opportunity of exercising its authority for determining the eligibility of the Appellant as resolution applicant.
21. For a proper appreciation of this issue, it may be useful to note how the facts were presented by the RP during the deliberations of the 29th COC meeting.
We notice that the RP had indubitably highlighted the red flag raised by Mazars with regard to eligibility of the Appellant under Section 29A of the IBC since Sushma and Nalini who were shareholders of Epitome were also classified as promoters of the VIL which had come under CIRP. The RP also highlighted that it had adverted the attention of the Appellant to the fact that both Sushma and Nalini are classified as Promoters on Stock Exchange and MCA filings. We also find that the RP on his part had conveyed to the CoC members the clarificatory response as received from Epitome vide email dated 14.07.2021 wherein it was inter-alia clarified that Sushma and Nalini were not promoters of VIL and that Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 19 of 31 the two cannot be held responsible for such "wrongful" and "incorrect classification" by VIL.
22. The minutes of the 29th CoC meeting also records that Mazars advised the RP to take a legal opinion on the eligibility of the Appellant under Section 29A. The legal opinion was accordingly obtained and the legal opinion tendered by the legal counsel of the RP was also placed before the CoC. We also notice that it is recorded in the said minutes that in the opinion of the legal counsel of the RP, strictly as per law, Epitome did not appear to be qualified under Section 29A but since Epitome had disputed the classification of Sushma and Nalini as promoters of VIL, the CoC could discuss the matter and take action accordingly. In fact, it deserves particular attention that the minutes clearly record that the RP was even ready to place the resolution plan of Epitome for consideration of the CoC. It may be pertinent to reproduce here the relevant excerpts of the 29th CoC meeting: "The RP then stated that considering the Section 29A undertaking the subsequent clarifications provided by Epitome and the technical nature of determining the eligibility involved, he is willing to place the resolution plan of Epitome which is otherwise compliant as per IBC for CoC's consideration. The RP also highlighted the waiver sought by Epitome in the plan for submission of Performance Bank Guarantee of Rs. 10 crores, which is a condition under the RFRP." From the minutes reproduced above, again in all fairness, clearly the RP cannot be said to have denied an opportunity to the CoC to consider the Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 20 of 31 resolution plan or be blamed for having prejudiced the CoC to reject the resolution plan.
23. However, since some of the members of the CoC noted that no legal steps had been taken by Sushma and Nalini to remove their names from the list of promoters of VIL and no documents had been submitted either by Epitome depicting any legal action having been taken by them to remove their names from the list of promoters, the RP was urged to clearly indicate whether a plan could be submitted without Section 29A compliance certificate by the RP and in the event such a plan is submitted by the RP, whether CoC could vote on the same. The query raised by one of the creditors, Canara Bank, as recorded in the minutes reads as: "Representative of Canara Bank inquired with RP whether a plan can be submitted without Section 29A compliance certificate by the RP. Further if such plan is submitted by the RP, can CoC vote on the same." SBI, the leading creditor, also categorically sought RP's views on Section 29A eligibility of Epitome to which RP had opined that Epitome does not meet the criteria for Section 29A compliance under IBC. The minutes have recorded as follows: "SBI representative asked the RPs view on Section 29A eligibility of Epitome. The RP informed that considering the response of Epitome and eligibility criteria for Section 29A compliance under IBC, the RP is of the view that Epitome doesn't meet the criteria for Section 29A compliance under IBC. After deliberation, CoC members informed the RP that only Section 29A compliant plan should be placed before CoC for consideration and voting." Perusal of the above minutes leaves no doubt in Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 21 of 31 our mind that the RP had not demurred at any stage in presenting the facts before the CoC in a transparent manner with all requisite details available before it. The RP cannot be said to have been found wanting in parting with the information, documents, opinions and records in his possession and knowledge about the Appellant to the CoC in the context of Section 29A compliance. In doing so, the RP had also done full justice to the Appellant by providing all the explanation offered by the Appellant before the CoC to enable the CoC to take a well-considered and holistic view. We are fully satisfied with the conduct of the RP and the endeavours made by him to keep the CoC properly apprised on the eligibility aspect of Epitome.
24. Given this background, it is noteworthy that after due deliberations, it is the CoC members who advised the RP that only Section 29A compliant plan should be placed before CoC for consideration and voting. Given that CoC had decided that only Section 29A compliant resolution plan can be placed for consideration of CoC members and further that the CoC had sought the opinion of the RP on the Section 29A eligibility of Epitome, it cannot be said that the RP had exceeded his jurisdiction or had acted unilaterally or that RP had supplanted the commercial wisdom of the CoC. Further, the fact that the RP had opined that the Appellant was not eligible in terms of Section 29A criteria cannot be held against the RP simply because the opinion of the RP did not suit the interest of the Appellant. The RP had formed his opinion on the basis of available material on record which was clearly placed before the CoC in a most candid and Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 22 of 31 forthright manner and the CoC in its wisdom had relied upon the opinion so tendered. And only thereafter the CoC decided that the resolution plan of Epitome cannot be placed for CoC members' consideration or voting. Further it is the CoC which took the decision to intimate the decision of the RP to Epitome which the RP carried out dutifully vide their email dated 16.07.2021. It is significant to note that the 29th CoC meeting was held on 15.07.2021 which pre- dated the letter from the RP to the Appellant informing them about their ineligibility which was dated 16.07.2021. Thus what was conveyed by the RP to the Appellant also clearly had the sanction of the CoC.
25. That the RP had placed all the resolution plans before the CoC is borne out from material records placed before us. We also notice that it was the CoC which had directed the RP to give his opinion on the Section 29A compliance of the Appellant and in terms of the IBC, the RP was duty-bound to give his views to the CoC. The CoC members having seconded the RPs opinion after due consideration of all facts presented before it by the RP, it can be safely inferred that this acquired the character of being the final and determinative opinion of the CoC based on the exercise of its own commercial wisdom and definitely not one which was foisted upon the CoC by the RP unilaterally. Thus there is no basis for holding this action on the part of the RP to be in breach of the settled proposition of law laid down in Arcelor by the Hon'ble Supreme Court. Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 23 of 31
26. Given these facts, we have no hesitation in holding that there is no substance in the contention of the Appellant that the RP had usurped the role of the CoC in rejecting the resolution plan of the Appellant and in suo motu determining ineligibility of the Appellant in terms of Section 29A of IBC. It was the CoC which had requested the RP to field his views on the Section 29A eligibility of the Appellant. Thus in giving the prima facie opinion as to whether the Appellant was Section 29A compliant or not, the RP did not tender the opinion on his own volition but on the specific directions and on behest of the members of the CoC. Thereafter, it was clearly the considered decision of the CoC that the resolution plan of the Appellant was not fit to be placed before it for its consideration and voting even though this decision may have been premised on the opinion expressed by the RP. This is sufficiently borne out from the minutes recorded during the 29th meeting which is to the effect: "As such Epitome's Resolution plan cannot be placed for CoC members' consideration or voting given that only Section 29A compliant resolution plan can be placed for consideration of CoC members. It was also decided to intimate RPs decision to Epitome."
27. This now brings us to the second part of the issue as to whether the liquidation order passed by the Adjudicating Authority should be allowed to be completed or be set aside. Both Epitome, the Appellant in the first appeal and Sanghathan, the Appellant in the second appeal have contended that the liquidation order passed by the Adjudicating Authority should be set aside on grounds of the alleged material irregularities in the CIRP of the Corporate Debtor. Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 24 of 31
28. It is the case of the Appellant in Company Appeal (AT) (Insolvency) No. 565/2023 that the RP exceeded the power and authority cast upon him under the provisions of the IBC by rejecting the Resolution Plan of the Appellant himself without placing the same before the CoC thereby driving the Corporate Debtor into liquidation. Further it is the contention of the Appellant that the claim made by the RP about the Appellant being ineligible under Section 29A of the IBC lacks foundation since the RP had failed to substantiate the same through any proper examination. The Appellant has also submitted an additional affidavit in which it has been stated that as per their limited knowledge, the amount being brought in by the liquidator through the e-auction process would be lower than the amount proposed to be brought in by the Appellant. Thus the RP and CoC having pushed the Corporate Debtor to liquidation without giving an opportunity to rehabilitate and recover from insolvency failed to ensure maximum recovery for the stakeholders. Further stating that the Appellant was still interested in submission and implementation of resolution plan of the Corporate Debtor, it has been urged that the liquidation order should be set aside.
29. We have already made a detailed analysis and recorded our findings in the foregoing paragraphs that given the facts of the present case, the RP cannot be said to have exceeded the powers vested upon it by the IBC. We reiterate that there is no sound basis to the claim of the Appellant that the RP unilaterally rejected the resolution plan leading to material irregularity in the CIRP of the Corporate Debtor. It was a duly considered and unanimous decision of the CoC Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 25 of 31 not to put the resolution plan of the Appellant for consideration and voting. Further we notice that the liquidation of the Corporate Debtor was unanimously approved by the CoC with 100% votes in favour of liquidation in the 30th CoC meeting held on 19.07.2021. Prima-facie on this count, no illegality or impropriety can be attributed to CIRP process undertaken by the RP.
30. The RP on his part had made all possible efforts for insolvency resolution of the Corporate Debtor before the decision was taken by the CoC to sell the Corporate Debtor as a going concern. It has not been challenged by the Appellant that Form G was issued by the RP to invite resolution plans. Further it as an undisputed fact that resolution plans were received from three prospective resolution applicants. The minutes of the 29th CoC meetings clearly show that all the three resolution plans having been examined by RP and inadequacies having been found therein, the resolution applicants including the Appellant were suggested to submit revised resolution plans. These resolution plans were discussed threadbare in the 29th and 30th CoC meetings by the creditors at length. Also, a Section 12A proposal received from Mr. P.N. Dhoot, one of the promoters of the Corporate Debtor for restructuring was also discussed and put up for voting during the 30th CoC meeting. The same was rejected by 100% voting share of the CoC on account of various commercial reasons including non- payment of CIRP cost, deferred payments proposed etc. Thus, we find adequate substance in the contention of both the RP and the CoC that the RP had undertaken all steps of CIRP envisaged under the IBC to ensure that Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 26 of 31 creditors/stakeholders of the Corporate Debtor achieved maximum recovery. It is only when the Section 12A proposal and the resolution plan of PASPL were not found to be feasible and compliant with the provisions of IBC that the CoC had unanimously resolved and voted in favour to liquidate the Corporate Debtor as a going concern with 100% majority. This has been clearly recorded in the minutes of the 30th meeting of the CoC which was placed on record before this Tribunal by the Respondents during the course of hearing. We also notice that only in pursuance of the decision taken in the 30th CoC meeting, IA No. 2104 of 2021 was filed by RP before the Adjudicating Authority on 08.09.2021 seeking initiation of liquidation of the Corporate Debtor.
31. Now this brings us to the primary contention of the Appellant in Company Appeal (AT) (Insolvency) No. 528/2023 that the liquidation order was allowed by the Adjudicating Authority summarily and mechanically without taking due care of the interests especially of the workmen and therefore deserves to be set aside. We however notice that the Adjudicating Authority passed a speaking order on 10.02.2023 wherein the developments in the CIRP process were adequately examined including the fact that the CoC discussed the prospects of selling the Corporate Debtor as a going concern at length in the 30th CoC meeting. The decision of initiation of liquidation proceedings of the Corporate Debtor was taken by the CoC in its commercial wisdom within the ambit of powers granted to it under the provisions of the Code, pursuant to failure of Corporate Debtor to achieve successful resolution under the provisions of the Code. Therefore, the Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 27 of 31 CoC had made all endeavors for resolution of the Corporate Debtor in the first place and had voted upon liquidation only as the last resort. The resolution process has run for more than 3 (three) years before the liquidation resolution was passed by the CoC. Thus reading any ulterior motive behind this decision is misconceived and lacks foundation. We are also not inclined to agree with the argument put forth by the Appellants in both set of appeals that no reasons were assigned by the Adjudicating Authority while passing the impugned order or that the Adjudicating Authority had failed to appreciate that the primary focus of IBC is revival and not liquidation of the Corporate Debtor.
32. We also notice that even after the restructuring proposal of Mr. P.N. Dhoot was rejected by the CoC, yet another ex-promoter came forward came up with a withdrawal proposal directly before the Adjudicating Authority bypassing the RP and the CoC which proposal was thus rightly rejected by the Adjudicating Authority. We are therefore inclined to agree with the Adjudicating Authority that there has been an attempt on the part of the ex-promoter of the Corporate Debtor to put forth a procedurally non-compliant withdrawal proposal to deliberately derail, disrupt and delay the commencement of the liquidation process. Moreover, we find no reasons to disagree with the Adjudicating Authority that the ex-promoter having brought the Corporate Debtor to its present state do not deserve another chance at revival especially when the liquidation process had made serious progress.
Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 28 of 31
33. It is also pertinent to note that Epitome was informed of its ineligibility under Section 29A of the IBC vide email dated 16.07.2021 sent by the RP. RP thereafter vide his email dated 12.08.2021 asked the Appellant to provide the bank account details for refund of Bid Bond amount. The Appellant on same date provided its bank account details. Further, on 18.08.2021, the Appellant followed up with RP for the refund. On 21.08.2021, the refund of Bid Bond amount was processed for payment to the Appellant. Hence, the very fact that the Appellant had already accepted the Bid Bond amount without any protest or prejudice and that the decision of their ineligibility was communicated way back in 2021, it does not stand to any cogent reasoning to allow them to belatedly revive their claim to submit a resolution plan afresh after hibernating for almost two years. To ignore this delay at this stage in allowing the Appellant to resurrect their claim to submit a resolution plan would tantamount to causing unjustified delay in the liquidation of the Corporate Debtor as a going concern. This acquires greater significance since a bidder had already been declared successful pursuant to the auction conducted in terms of the impugned order and the successful bidder is in the process of implementing its bid.
34. It is further the contention of the CoC, which happens to be the common Respondent in both appeals that it is a settled principle of law that the commercial wisdom of the CoC is paramount and the legislature has consciously not provided any ground to challenge the commercial wisdom. In support of their contention reliance has been placed on the judgement of the Hon'ble Supreme Court in K. Sashidhar v. Indian Overseas Bank & Ors (2019) 12 SCC 150 Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 29 of 31 and Maharashtra Seamless Ltd v. Padmanabhan Venkatesh & Ors (2020) 11 SCC 467. We entirely agree that it needs no emphasis that in a catena of cases, the Hon'ble Supreme Court has given primacy to the commercial wisdom of CoC and while vesting unlimited power on the CoC has observed that the judicial wisdom of the courts cannot encroach upon the commercial wisdom of the CoC. In such circumstances, there is no scope as such for examination by the Adjudicating Authority of the allegation raised by the Sangathan that the CoC did not take a commercially sound decision. It is not for the Adjudicating Authority to consider or evaluate on merits the rationale underlying the commercial decision of the CoC. With the limited powers of judicial review available to it, the Adjudicating Authority has not committed any error in ordering the liquidation of the Corporate Debtor as a going concern as the same was unanimously decided by the CoC. In doing so, the Adjudicating Authority has not only remained alive to limits set forth in Sections 30 and 31 of the IBC but also remained mindful of the overall aim and objective of the IBC for timely resolution of the Corporate Debtor and realising the maximum value while adhering to the commercial wisdom of the CoC.
35. In the result, given the sequence of events and the facts and circumstances of the case, for the reasons discussed above, we find no reasons to disagree with the decision of the Adjudicating Authority in passing the liquidation order of the Corporate Debtor as a going concern having been so voted and unanimously recommended by the CoC in the exercise of its commercial wisdom. In view of the foregoing discussions, we find no merit in both the appeals. The appeals Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 30 of 31 having failed to succeed are accordingly dismissed. Liquidator may take necessary steps to proceed with the process of liquidation. No order as to costs.
[Justice Ashok Bhushan] Chairperson [Barun Mitra] Member (Technical) Place: New Delhi Date: 07.07.2023 PKM Company Appeal (AT) (Insolvency) No.565 & 528 of 2023 Page 31 of 31