National Company Law Appellate Tribunal
Amit Suresh Bhatnagar vs Mr. Dharit Kishorbhai Shah on 31 January, 2022
NATIONAL COMPANY LAW APPELLATE TRIBUNAL,
PRINCIPAL BENCH, NEW DELHI
Company Appeal(AT) (Ins)No. 625 of 2021
IN THE MATTER OF:
Amit Suresh Bhatnagar
Suspended Management of
Maktel Power Limited,
R/o 6, Green Park, Nizampura
Vadodara -390002 ....Appellant
Vs.
1. Mr. Dharit Kishorbhai Shah
Resolution Professional
Maktel Power Limited
Bipin & Co, Chartered Accountants,
302, Centre Point, R.C.Dutt Road,
Alkapuri, Vadodara - 390007 ...Respondent No.1
2. Elcen Machines Pvt. Ltd.
270 GIDC Estate
Makarpura,
Vadodara, Gujarat ...Respondent No.2
Present:
For Appellant: Mr. Malak M. Bhatt, Ms. Neeha Nagpal and Mr. Udbhav
Nanda, Advocates.
For Respondents : Mr. Atul Sharma and Mr. Arjun Padhiyar, Advocates
for R-1
J U D G M E N T
DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER
1. The appeal has been filed by the Appellant- 'Amit Suresh Bhatnagar' 'Suspended Management/Ex-Director of Maktel Power Limited', under Company Appeal(AT) (Ins)No. 625 of 2021 Page 1 of 18 Section 61 of the 'Insolvency and Bankruptcy Code, 2016' (in short 'Code') against the impugned order dated 05.05.2021 passed by the 'Adjudicating Authority' (National Company Law Tribunal), Ahmedabad Bench Court No.2 in I.A No.268(AHM) 2021 in CP (IB) No.482/2019.
2. The Appellant has challenged the 'liquidation order' as well as the action of the 'Resolution Professional' (RP) to the extent that the Appellant was disallowed to participate in the 'Committee of Creditors' (CoC) meeting of the 'Corporate Debtor' (CD) and has sought the following reliefs:
a. To set aside the impugned order as stated above; b. To direct the RP to set aside all the CoC meetings and conduct them afresh;
c. To direct that the CIRP be re-initiated etc.
3. The CD is a manufacturer of diversity switch gear products, relay panels etc. The CD was admitted to CIRP on 11.09.2020. The 1st CoC meeting was conducted on 09.10.2020 for which the Appellant was neither issued a notice for the said meeting nor provided any agenda etc. The Appellant was issued notice for the first time in 2nd CoC meeting on 22.10.2020. The Appellant asked for the 'minutes' of the 1st CoC meeting. The RP didn't provide him. However, even for the 2nd CoC meeting, no way link was provided to the Appellant and the RP told he is obtaining legal opinion as to the participation to the Appellant. The Appellant was further disallowed to participate in all Company Appeal(AT) (Ins)No. 625 of 2021 Page 2 of 18 further CoC meetings. In the meantime, in 8th CoC meeting held on 08.03.2021, it was decided by the CoC to liquidate the CD and authorized the RP to file requisite application before the Adjudicating Authority.
4. The Appellant has also submitted that as a result of his non-participation in the CoC meeting, the Appellant was aggrieved since it affected the revival of the CD. Since no notice was given for CoC meetings to the Appellant, he didn't get an opportunity to pursue the Resolution Plan which were considered or not considered by the CoC. The Appellant has cited the Judgment of Hon'ble Apex Court in Vijay Kumar Jain Vs. Standard Chartered Bank (2019) 20 SCC 455, held in para 9 read as follows:
"9. This statutory scheme, therefore, makes it clear that though the erstwhile Board of Directors are not members of the committee of creditors, yet, they have a right to participate in each and every meeting held by the committee of creditors, and also have a right to discuss along with members of the committee of creditors all resolution plans that are presented at such meetings under Section 25(2)(i)".
The Appellant has also cited the judgment of this Tribunal in Amit Suresh Bhatnagar Vs. Bhuvan Madan, RP for Diamond Power Infrastructure Ltd. In CA(AT) (Ins) No. 1029 of 2020, held in para 32 & 33 as follows:
Company Appeal(AT) (Ins)No. 625 of 2021 Page 3 of 18 "32. We are of the considered view that without affording opportunity to the ex-directors of the Corporate Debtor, 9th 10th and 11thCoC meetings were convened and Resolution of Liquidation of Corporate Debtor has been passed. Which is in contravention to Section 24 (3) (b) of I&B Code and Regulations 19(1), 21 (3) (iii) and 23 of the IBBI Regulations.
Thus, the RP has failed to perform the duties of Resolution Professional as provided under Section 25 of the I&B Code.
33. With the aforesaid, it is apparent that there has been material irregularity in exercising of powers by the RP during the Corporate Insolvency Resolution Period. Therefore, the Impugned order as well as the Resolution Passed in 9th 10th and 11thCoC meetings are not sustainable in law. Hence, they are hereby set aside."
5. The Appellant has also submitted that his disqualification as Director of the company was only qua the defaulting Company i.e., Apex Power Equipments Pvt. Ltd. In Mukut Pathak and Ors. Vs. Union of India (2019) 265 DLT 506 (see Sandeep Agarwal Vs. Union of India W.P.(C) 5490/2020 decided on 02.09.2020, ) it was held that the proviso cannot have retrospective effect and would only apply if the disqualification took place after 07.05.2018, in the following terms:-
Company Appeal(AT) (Ins)No. 625 of 2021 Page 4 of 18 "98. In view of the above, the petitioners would not demit their office on account of disqualifications incurred under Section 164 (2) of the Act by virtue of Section 167(1)(a) of the Act prior to the statutory amendments introduced with effect from 07.05.2018. However, if they suffer any of the disqualifications under Section 164(2) on or after 07.05.2018, the clear implication of the provisos to Section 164(2) and 167(1)(a) of the Act are that they would demit their office in all companies other than the defaulting company."
6. In Anjali Bhargava and Anr. Vs. Union of India and Anr. 2021 SCC Online Del 195, the Hon'ble High Court of Delhi followed Mukut Pathak (Supra) and directed for reactivation of DIN as well as directing that such directors be treated as part of the suspended management in the following terms:
"4... Since there is no stay on the judgment in Mukut Pathak (supra), it continues to hold the field. Thus, in cases where directors have been disqualified prior to 7th May, 2018, the proviso to Section 167(1)(a) would not apply and the directors would continue to be directors in companies other than the defaulting company. The Company Appeal(AT) (Ins)No. 625 of 2021 Page 5 of 18 disqualification of such directors qua active companies would therefore be liable to be set aside and their DIN and DSC's reactivated."
7. The Appellant has also submitted that the RP has failed to take adequate steps for revival of the CD which is spirit an objective of the Code and has failed for liquidation within 237 days of commencement of CIRP which is much earlier prescribed time limit. Hence, the impugned order dated 05.05.2021 ought to be set aside.
8. The Adjudicating Authority has stated at para 4, 3 & 5 of the impugned order dated 05.05.2021 (appearing at page 30 of the Appeal paper book) as stated below:
"4. No one appeared on behalf of the Suspended Management even after issuance of notice. The Suspended management is also found absent in the said meeting held on 08.03.2021.
3. The CoC in its 8th meeting held on 08.03.2021 resolved to liquidate the CD authorizing the RP to file application under Section 33 of the Code before this Adjudicating Authority.
5.In view of the above situation, it is also pertinent to mention herein that recently the Hon'ble Supreme Court of India in its judgment passed in Civil Appeal No. 8766-67 of 2019 - Committee of Creditors of Essar Steel India Limited through Company Appeal(AT) (Ins)No. 625 of 2021 Page 6 of 18 Authorized Signatory Vs. Satish kumar Gupta & Ors. Observed as follows:
The commercial wisdom of the CoCs cannot be interfered into by the adjudicating authority nor the appellate authority has been endowed with the jurisdiction to reverse the commercial wisdom of the CoC.
The Hon'ble Supreme Court took the view that the commercial wisdom has been exercised by the CoC after taking into account all the factors leading to maximization of asset value of the CD, but the ultimate discretion of what to pay and how to pay each class or sub-class or creditors lies with the CoC".
Based on above observations, the Adjudicating Authority has passed the order of liquidation of the CD and has appointed the RP as 'Liquidator'.
9. While the Respondent has strongly submitted that the Appellant is not the member of Suspended Board of Director of CD as par MCA website and does not have any locus standi to file the present appeal. The Appellant was Director of the CD till 01.11.2016 which is much prior to initiation of CIRP which commenced on 11. 09. 2020. He has also submitted that Director Identification Number (DIN) of the Appellant has been disqualified by the Registrar of Companies in accordance with Section 164(2) of the Companies Act, 2013 as one of the Company i..e Apex Power Equipments Pvt. Ltd. Company Appeal(AT) (Ins)No. 625 of 2021 Page 7 of 18 Where the Appellant was one of the Director was struck off by the Registrar of Companies vide order dated 21.06.2017 passed in STK-7 pursuant to the notice issued by the Registrar of Companies Ahmedabad in STK-5 dated 25.04.2017.
10.The Respondent has also submitted that as per Section 167 r/w Section 164 of the Companies Act, 2013 that the office of the Director from the Company shall become vacant in case if the said director incurs disqualifications as specified in Section 164 of the Companies Act. Section 164 & 167 of the Companies Act, 2013 read as under:
"Section 164 - Section 164: Disqualifications for appointment of director.
(1) A person shall not be eligible for appointment as a director of a company, if --
(a) he is of unsound mind and stands so declared by a competent court;
(b) he is an undischarged insolvent;
(c) he has applied to be adjudicated as an insolvent and his application is pending;
(d) he has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence: Provided that if a person has been convicted of any offence and sentenced in respect thereof to Company Appeal(AT) (Ins)No. 625 of 2021 Page 8 of 18 imprisonment for a period of seven years or more, he shall not be eligible to be appointed as a director in any company;
(e) an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force;
(f) he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;
(g) he has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years; or
(h) he has not complied with sub-section (3) of section 152. 1 [(i) he has not complied with the provisions of sub-section (1) of section 165.] (2) No person who is or has been a director of a company which--
(a) has not filed financial statements or annual returns for any continuous period of three financial years; or
(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more, shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so.
Company Appeal(AT) (Ins)No. 625 of 2021 Page 9 of 18 [Provided that where a person is appointed as a director of a company which is in default of clause (a) or clause (b), he shall not incur the disqualification for a period of six months from the date of his appointment.] (3) A private company may by its articles provide for any disqualifications for appointment as a director in addition to those specified in sub-sections (1) and (2):
[Provided that the disqualifications referred to in clauses (d),
(e) and (g) of sub-section (1) shall continue to apply even if the appeal or petition has been filed against the order of conviction or disqualification."
Section 167 - Vacation of office of director.
(1) The office of a director shall become vacant in case--
(a) he incurs any of the disqualifications specified in section 164;
((Inserted by the Companies (Amendment) Act, 2017, w.e.f. 07.05.2018[S.O. 1833(E) dated 07.05.2018].)) [Provided that where he incurs disqualification under sub- section (2) of section 164, the office of the director shall become vacant in all the companies, other than the company which is in default under that sub-section.]
(b) he absents himself from all the meetings of the Board of Directors held during a period of twelve months with or without seeking leave of absence of the Board;
(c) he acts in contravention of the provisions of section 184 relating to entering into contracts or arrangements in which he is directly or indirectly interested;
Company Appeal(AT) (Ins)No. 625 of 2021 Page 10 of 18
(d) he fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested, in contravention of the provisions of section 184;
(e) he becomes disqualified by an order of a court or the Tribunal;
(f) he is convicted by a court of any offence, whether involving moral turpitude or otherwise and sentenced in respect thereof to imprisonment for not less than six months: ((Substituted by the Companies (Amendment) Act, 2017, w.e.f. 07.05.2018[S.O. 1833(E) dated 07.05.2018], for the proviso "Provided that the office shall be vacated by the director even if he has filed an appeal against the order of such court;".)) [Provided that the office shall not be vacated by the director in case of orders referred to in clauses (e) and (f)-- (i) for thirty days from the date of conviction or order of disqualification;
(ii) where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting in sentence or order, until expiry of seven days from the date on which such appeal or petition is disposed of; or (iii) where any further appeal or petition is preferred against order or sentence within seven days, until such further appeal or petition is disposed of.]
(g) he is removed in pursuance of the provisions of this Act;
(h) he, having been appointed a director by virtue of his holding any office or other employment in the holding, subsidiary or associate company, ceases to hold such office or other employment (2) If a person, functions as a director even when he knows that the office of director held by him has become Company Appeal(AT) (Ins)No. 625 of 2021 Page 11 of 18 vacant on account of any of the disqualifications specified in subsection (1), he shall be punishable ((Omitted by the Companies (Amendment) Act, 2020, w.e.f. 21.12.2020[S.O. 4646(E) dated 21.12.2020], the words "with imprisonment for a term which may extend to one year or".) with fine which shall not be less than one lakh rupees but which may extend to ((Substituted by the Companies (Amendment) Act, 2020, w.e.f. 21.12.2020[S.O. 4646(E) dated 21.12.2020], for the words "five lakh rupees, or with both".))[five lakh rupees]. (3) Where all the directors of a company vacate their offices under any of the disqualifications specified in sub-section (1), the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in the general meeting.
(4) A private company may, by its articles, provide any other ground for the vacation of the office of a director in addition to those specified in sub-section (1)."
11.The Respondent has also stated that till date the DIN of the Appellant is disqualified for a period from 01.11.2016 to 31.10.2021 as per website. It is to be noted that on account of the said disqualification, the Appellant is no longer the Director of the CD w.e.f. 01.11.2016 and therefore, the present appellant is having no locus standi to file the present appeal at such a belated stage. It is also stated that as per the mandate required under Section 24(3) of Company Appeal(AT) (Ins)No. 625 of 2021 Page 12 of 18 the Code, the RP shall only issue notice and further invite the Suspended Board of Directors of the CD to participate in the meeting of CoC who were forming the part of Board of Directors at the time when the CIRP came to be initiated by the Adjudicating Authority. He has further submitted that the mandate of Section 24(3) (b) of the Code, the RP is only supposed to give notice to members of the 'Suspended Board of Directors' as distinguished from disqualified 'Directors'. There is no provision to give notice to the disqualified 'Directors'. Even under Section 5(23) of the Code does not include disqualified 'Directors' and hence, the Appellant cannot be treated as a part of 'Suspended Board of Directors'. Even if the CIRP of the CD was not initiated by the Adjudicating Authority even in that scenario the Appellant cannot form the part of the 'Board of Directors' of the CD. This appeal is not for restoration of his DIN. His DIN is still not activated & hence continue to be not a member of board of director of CD. The RP has also stated that he has issued proper and valid notice of meetings of the CoC to all the requisite entitled person. He has also stated the present appeal is not maintainable as the Appellant has also sought similar reliefs in IA/464(AHM) 2021 in CP(IB) / 482(AHM) 2019 before the Adjudicating Authority which was disposed off by Adjudicating Authority.
12.He has also stated that he has made every attempt for Revival/Resolution of the CD and has submitted the followings:
Company Appeal(AT) (Ins)No. 625 of 2021 Page 13 of 18 a. The RP of the CD in 3rd meeting of CoC dated 11.11.2020 placed the agenda for initiation of EOI Process, however, the members of CoC in the said meting wished to take approval from their higher authorities, deferred to vote the said resolution and further requested to place the same in the next meeting. Thereafter, he has called for 4th meeting of CoC on 23.11.2020, wherein again the said resolution for initiation of EOI process was placed before the CoC for consideration. It is submitted that in the said meeting, the members of the CoC resolved for initiation of EOI process. It is submitted that pursuant to the said resolution, he has made public announcement in Form-G on 25.11.2020 in Times of India (English Edition) and Loksatta Jansatta (Gujarati Edition).
b. The RP has received two EOIs from the Prospective Resolution Applicants, after the last date of EOI i.e. 10.12.2020. It is pertinent to mention that the said prospective Resolution Applicants were only interested in the plant premises of the CD. It is submitted that for the resolution of the CD, the RP again on 19.12.2020, in the 5th meeting of CoC placed the agenda item to initiate fresh process of EOI. That the members of CoC deferred to vote the said agenda for taking the approval from the higher authorities and hence, the said resolution for fresh EOI was again placed for consideration for CoC in its 06 th meeting dated 01.01.2021. It is submitted that the members of CoC for the 2nd time Company Appeal(AT) (Ins)No. 625 of 2021 Page 14 of 18 resolved for initiation of Fresh EOI. The RP in compliance of the said Resolution passed in 06th meeting of CoC dated 01.01.2021, published fresh Form-G for the second time on 02.01.2021. The publication of fresh Form-G dated 02.01.2021 in Indian Express (English Edition) and Loksatta Janstta (Gujarati Edition) no EOIs came to be received by the RP. That as no EOIs came to be received by the CD even after publication of Form-G twice, the members of CoC suggested for liquidation and further directed the RP to place the Resolution for liquidation in its 08 th CoC meeting dated 08.03.2021. The members of the CoC in its 08th Meeting of CoC, resolved with 100% majority for liquidation of CD. It is submitted that pursuant to the resolution passed by the members of CoC in its 08 th CoC meeting, the RP filed an application for liquidation of the CD and accordingly, the said application came to be allowed by the Adjudicating Authority vide order dated 05.05.2021.
13.We have carefully gone through the submissions made by the Ld. Counsels for the parties and the order passed by the Adjudicating Authority and have the following observations:
a. The RP has tried twice for initiation of 'Expression of Interest' (EOI) process and at the first stage, he received two EOIs from the 'Prospective Resolution Applicants' who were only interested in the plant premises of the CD. However, it was not approved by the CoC and CoC decided again Company Appeal(AT) (Ins)No. 625 of 2021 Page 15 of 18 in the 6th CoC meeting for fresh EOI and the same were also published in Newspapers. However, no EOIs were received by the RP then the members of the CoC in its 8th meetings of CoC resolved with 100% majority for Liquidation of the CD on 08.03.2021. It is apparently clear from multiple decisions of Hon'ble Supreme Court in Committee Of Creditors Of Essar Steel India Limited Through Authorised Signatory Vs. Satish Kumar Gupta & Ors in Civil Appeal No.8766-67 of 2019 held that the decision of Coc's 'Commercial Wisdom' is made non-justiciable and also held as such in Kalpraj Dharamshi & Anr. Versus Kotak Investment Advisors Ltd. & Anr. Civil Appeal Nos.2943-2944 Of 2020 And Jaypee Kensington Boulevard Apartments Welfare Association & Ors. Versus Nbcc (India) Ltd. & Ors Civil Appeal No. 3395 Of 2020.
b. As far as Section 24(3)(b) of the Code is concerned, it is very much clear that the RP is to give notice for each meeting to the CoC members of the 'Suspended Board of Directors' and so is the case with 'Chapter-VI of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016'. Here the determining factor is that the Appellant was Director of the CD till 01.11.2016 and same was much prior to initiation of CIRP on 11.09.2020. The DIN of the Appellant has been disqualified by the Registrar of Companies (ROC) in accordance with provision of Section 164(2) of the Companies Act, 2013 vide order dated 21.06.2017 and hence, Company Appeal(AT) (Ins)No. 625 of 2021 Page 16 of 18 the Appellant has already vacated the office of the Director in accordance with section 167 of the Companies Act, 2013. The Appellant was not part of the suspended Board of Directors of the CD. Hence, the Applicability of Hon'ble Apex Court Judgment in Vijay Kumar Jain as stated (supra) is not applicable in the present case.
c. No records reflects that the Appellant has challenged his cancellation of DIN with any appropriate Authority. No board meeting in which he has participated since cessation of his vacation of office after DIN cancellation were produced before us. Hence, the Appellant is not part of the Suspended Board of Directors and he cannot challenge the decision of the CoC as Hon'ble Apex Court has made amply clear that the Commercial Wisdom of the CoC is non- justiciable.
d. In view of the above aforesaid facts and circumstance including the law laid down on the subject, we are not in a position to agree with the Appellant and accordingly, we are upholding the impugned order dated 05.05.2021 of the Adjudicating Authority. The Appeal is dismissed. All pending IA's ,if any , stands disposed off.
Interim order , if any ,stands vacated.
No order as to costs.
Company Appeal(AT) (Ins)No. 625 of 2021 Page 17 of 18 [Justice M.Venugopal] Member (Judicial) [V.P. Singh] Member (Technical) (Dr. Ashok Kumar Mishra) Member(Technical) 31st January, 2022 New Delhi Raushan.K Company Appeal(AT) (Ins)No. 625 of 2021 Page 18 of 18