Gujarat High Court
M/S Vimal Oils And Foods Ltd Thro M/S ... vs State Of Gujarat on 24 August, 2022
Author: Gita Gopi
Bench: Gita Gopi
R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/CRIMINAL MISC.APPLICATION NO. 11557 of 2021
With
CRIMINAL MISC.APPLICATION (FOR VACATING INTERIM RELIEF) NO.
1 of 2022
In
R/CRIMINAL MISC.APPLICATION NO. 11557 of 2021
FOR APPROVAL AND SIGNATURE:
HONOURABLE MS. JUSTICE GITA GOPI
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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M/S VIMAL OILS AND FOODS LTD THRO M/S ARRHUM TRADELINK
PRIVATE LIMITED BY RAKESH BALURAM LAHOTI
Versus
STATE OF GUJARAT
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Appearance:
MR YOGESH LAKHANI SENIOR ADVOCATE WITH MR. RAHUL R
DHOLAKIA(6765) for the Applicant(s) No. 1
KULDEEP K ADESARA(9222) for the Respondent(s) No. 3
MR KM PARIKH(575) for the Respondent(s) No. 3
MR RC KODEKAR(1395) for the Respondent(s) No. 2
MR PRANAV TRIVEDI APP for the Respondent(s) No. 1
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Page 1 of 66
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R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022
CORAM:HONOURABLE MS. JUSTICE GITA GOPI
Date : 24/08/2022
CAV JUDGMENT
1. The present petition has been filed by M/s. Vimal Oils & Foods Ltd., through its buyer M/s. Arrhum Tradelink Private Ltd., under section 482 of the Code of Criminal Procedure, 1973, (for short "the Cr.P.C.") praying to quash and set aside FIR No.RC2222021A0002 of 2021, lodged by first informant - Deputy General Manager at Bank of India Large Corporate Bank, Ahmedabad with AC-IV (VYAPAM) Bhopal Police Station, Bhopal under section 120B read with section 420 of Indian Penal Code and section 13(2) read with section 13(1)(d) of the Prevention of Corruption Act, 1988 (for short ' PC Act') qua the present petitioner - M/s. Vimal Oils & Foods Ltd.
2. The facts narrated in the memo of petition can be enumerated as under:
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R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 2.1 M/s. Vimal Oil & Foods Ltd. (for short 'VOFL') has been bought by M/s. Arrhum Tradelink Pvt. Ltd., registered under the Companies Act, 1956, on 04.12.2020, in the liquidation process conducted by Liquidator appointed by the N.C.L.T. Ahmedabad Bench through public e-auction.
2.2 M/s. Vimal Oils & Foods Ltd., registered under the Companies Act, 1956 having office at Mehsana, had availed loan facilities from a consortium of 9 banks. It is alleged that the said company and its erstwhile directors in collusion have caused wrongful loss of Rs.678.92 crores plus uncharged interest to the lending banks. The loan accounts were declared by Bank of India as NPA on 30.09.2015 and other banks declared the same on different dates. It is alleged that various audits pertaining to the accounts of M/s. Vimal Oil & Foods Ltd. was conducted and from time to time findings or conclusion were noted in Joint Lenders Meetings (JLM) of bankers and in one of the meeting conducted on 13.01.2016, it was decided to conduct forensic audit and on 06.04.2016, Page 3 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 in 8th JLM meeting it was noted that, none of the banks have red flagged the account or declared the company as willful defaulter.
2.3 It is stated that on 09.11.2016, in 12 th JLM, M/s.
S.P. Mangal & Co. for conducting Forensic Audit and on 05.06.2017, the banks have discussed the Forensic Audit report and noted that the forensic auditor has certified that there is no diversion of funds. Thereafter, M/s. R.S.Patel & Co. Charted Accountants, was appointed for conducting of forensic audit of VOFL from 01.04.2016 to 19.12.2017, the report was discussed and noted on 29.08.2018 to the effect that no material transactions under section 66 of Insolvency and Bankruptcy Code, 2016 ( in short "IB Code) for fraudulent trading or wrongful trading, was observed.
2.4 It is stated that after selling the Vimal Oil & Foods Ltd. through public e-auction and receiving the sale proceeds amount, the Bank of India on 21.05.2021 has complained about fraud perpetrated by VOFL and its Page 4 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 erstwhile directors. Thereafter, SARFEASI action was initiated against it and recovery suits were filed by the banks before the DRT, Ahmedabad. It is stated that one of the creditors, Bank of Baroda approached the NCLT for initiating the Corporate Insolvency Resolution process of the Company under Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as 'IB Code' for short), which was admitted on 19.12.2017. An application was moved for passing an order under section 33(1)(a) of the IB Code for liquidation of the corporate debtor and vide its order dated 19.12.2019, the NCLT passed liquidation order appointing a liquidator.
2.5 The e-auction process was started of VOFL and M/s. Arrhum Tradelink Pvt. Ltd. paid the deposit amount on 09.11.2020 and on 04.12.2020, public e-auction was conducted and M/s. Arrhum Tradelink Pvt. Ltd. emerged as highest bidder of Rs.69.95 Crores. Thereafter, M/s. Arrhum Tradelink Pvt. Ltd. deposited the amount of bid and with prior permission of banks, the liquidator executed the sale agreement on 03.03.2021 for sale of Page 5 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 VOFL and on 11.03.2021, sale certificate of VOFL as going concern was executed. The NOCs were arranged to the effect of undertaking from the banks to withdraw the name of VOFL from willful defaulter list as maintained by the Bank and RBI, and, shall withdraw all the cases, suits, application filed against VOFL for recovery of loans and interest amount.
2.6 It is stated that the liquidator had also conducted public e-auction for selling of the outstanding receivables of VOFL and in the said process M/s. Arrhum Tradelink Pvt. Ltd. had given final bid amount of Rs.5.25 Crores to acquire the said outstanding receivables thus the sale agreement of the same was executed on 11.03.2021.
2.7 In the meanwhile, during a meeting of JLM on 21.01.2020, it was resolved to file a complaint with CBI in terms of Office Memorandum No.25016/10/2017 dated 12.10.2018 issued by the Ministry of Home Affairs, Govt. of India, which is in relation to look-out circulars. It is Page 6 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 contended that the circular dated 01.07.2016 issued by the Reserve Bank of India states that within 30 days of RBI reporting, the bank commissioning the forensic audit should lodge a complaint with the CBI on behalf of all banks in the consortium, while here, the bank has classified account as Fraud on 21.02.2018 and filed the complaint with CBI on 21.05.2021.
3. Learned Senior Advocate Mr. Yogesh Lakhani with Mr. Rahul R.Dholakia, learned advocate for the petitioner submits that, M/s. Arrhum Tradelink Pvt. Ltd. purchased the VOFL as going concern and outstanding receivables in public e-auction but was not informed about classification as 'Fraud' by liquidator or by banks. Senior Advocate submits that the petitioner is innocent and has not committed any offence as alleged in the impugned FIR and the same is false, frivolous and the same causes undue harassment to the petitioner as a subsequent buyer.
3.1 Senior advocate Mr. Lakhani stated that no Page 7 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 person or entity with an ordinary prudence would have invested such a large sum of money, had the fact of the resolution pertaining to registration of FIR been disclosed prior to e-auction in information memorandum and in any other documents. It is stated that the order under section 91 Cr.P.C. dated 18.06.2021 substantiates that they are subjected to undue hardships and destitution, despite no fault of theirs and now they are subjected to investigation process at Bhopal, Madhya Pradesh.
3.2 Mr. Lakhani, senior advocate further submitted that being kept in dark about the resolution and subsequent filing of FIR has put the entire transaction for the subsequent buyer, in jeopardy. He submits that consortium of banks has acted in complete violation of the circular of the RBI, they appears to have sat over the resolution dated 21.01.2020 to file a complaint with CBI till e-auction of the company was concluded and the amount gets recovered.
3.3 Senior advocate Mr. Lakhani submitted that the Page 8 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 offence is alleged to have been committed between the period from 2014 to 2017 and the resolution to file the complaint is taken in the meeting dated 21.01.2020, yet the FIR in question is filed on 30.05.2021 i.e. after the sale transaction was concluded and amount was received. He submits that post the sale transaction of the company, the banks have provided 'No Objection Certificates' in favour of the company and have declared that the company be deemed to be discharged from all proceedings initiated against it before any Tribunal, Court or authority and had resolved to withdraw all legal cases, suits, applications filed against the company for recovery of loans and its interest amount. He submits that despite the same, the respondent no.3 has initiated criminal proceedings against the company, which in turn is detrimental, and damages the investment made by the subsequent buyer.
3.4 Mr. Lakhani, senior advocate further submitted that being a public limited company, it would have to face immense hardships in this scenario and would render the Page 9 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 entire purchase transaction futile, as being a listed company, which is under suspension, in order to revoke the same, all details including the registration of the present FIR has to be mentioned, which would hamper the entire process. He submits that regular investigation updates needs to be given on BSE and NSE, which creates a negative sentiment in the market; the goodwill and reputation of VOFL would be severely affected. He submits that due to the pendency of such investigation, it would be very difficult for the company to conduct business with trust. He submits that it is very difficult for the company to hire and or retain new staff and appoint independent directors etc., as the searches are being conducted by CBI at the factory and office premises of the company.
3.5 Senior advocate stated that company is a person as defined under section 11 of the IPC and as held by Hon'ble Apex Court in case of Standard Chartered Bank v. Directorate of Enforcement, reported in AIR 2005 SC 2622, subjected to fine in criminal proceedings Page 10 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 and therefore by no fault of the subsequent buyer, it has to face the trauma of trial and the over-looming threat of conviction resulting into fine and shall also have to comply with the provisions of section 305 of the Cr.PC. 3.6 Mr. Lakhani, senior advocate further submitted that the company is constrained to file the present petition only to protect and safeguard the investment made by the subsequent buyer M/s. Arrhum Tradelink Private Limited and not the erstwhile directors of the company, who are already facing prosecution in connection with the said FIR and with whom the subsequent buyer has no connection whatsoever. 3.7 Learned Senior Advocate Mr. Lakhani has referred to the contents of the communication dated 06.03.2021 of Bank of India that, "We Bank of India, Ahmedabad Large Corporate Branch, also undertake to withdraw the name of VOFL from the willful defaulter list as maintained by the bank and RBI and we shall withdraw all legal cases, suits, application filed against VOFL for Page 11 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 recovery of loans and its interest amount by us from time to time" to bring home the point that Bank of India had already received the entire amount, which fact has been acknowledged by the Bank too. It was contended by the learned Senior Advocate that until 06.03.2021, the Bank of India had not contemplated to file any complaint and it was only on 30.05.2021 that the impugned complaint came to be filed. The Bank ought to have informed the said fact to the Liquidator of the Company In Liquidation, before doing so. He submitted that M/s. Arrhum Tradelink Private Limited is a bonafide purchaser of the Company In Liquidation and therefore, no criminality could be attributed to the said Company. Further, the impugned complaint ought to have been lodged any where in Gujarat State but, has been lodged at Bhopal, Madhya Pradesh with some ulterior motive, when the complaint has been lodged by Deputy General Manager of Bank of India, Large Corporate Branch, Ahmedabad. 3.8 The learned Senior Advocate placed reliance upon the instructions laid down by the Reserve Bank of Page 12 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 India in the form of "Reserve Bank of India (Frauds classification and reporting by commercial banks and select Financial Institutions) Directions 2016" to submit that under Clause - 8.9.5 therein, in case a decision is taken to classify any account as a 'fraud' on completion of forensic audit, then the Red Flagged Account (RFA) status shall be changed to Fraud in all banks and reported to the Reserve Bank of India and on the relevant platform within a week of such decision. Besides, within 30 days of the RBI reporting, the bank commissioning / initiating the forensic audit should lodge a complaint with the CBI on behalf of all banks in the consortium. In this case, the Reserve Bank of India was intimated about the alleged fraud in the year 2018; however, the complaint in question came to be filed only in May 2021. No explanation is forthcoming regarding the delay of more than two years in lodging the impugned complaint. He vehemently submitted that the impugned complaint is in fact a fraud committed by the Bank on the successful bidder, who is a bonafide purchaser.
Page 13 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 3.9 Learned advocate relied on the amended provision of Section 32A of the Insolvency and Bankruptcy Code, 2016 to submit that after the resolution plan is approved by the Adjudicating Authority, there would be change in the management and control of the Corporate Debtor. He submitted that the provision of Section 32A makes its clear that if prosecution has been instituted during the Corporate Insolvency Resolution Process, the Corporate Debtor shall stand discharged from the date of approval of the resolution plan subject to requirements of the said sub-section having been fulfilled. It is submitted that in this case, the resolution and / or liquidation process as a going concern has been accepted. Thus, in accordance with the provisions of the IBC, VOFL would have immunity from prosecution. He further submitted that the authority concerned is duty bound to cooperate so that the wrong doers do not get away. The learned Senior Advocate drew attention of the Court to the clauses of the Sale Agreement, and more particularly, Page 14 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 to clause-2.7, to submit that the Company is being transferred to the Buyer on "as is where is, whatever there is" and "no recourse" basis. Though, the Company has been transferred as a Going Concern basis, the Company has not been able to conduct its business smoothly on account of the initiation of prosecution.
4. Mr. R.C. Kodekar, learned advocate for respondent no.2 - Central Bureau of Investigation submits that, the FIR has been registered on the basis of complaint of Deputy General Manger, Bank of India, Large Corporate Branch, Ahmedabad alleging that the directors and some other persons have committed fraud against Bank of India an other 8 consortium banks to the tune of Rs.678.93 crores during the period from 2014 to 2017, by resorting to various malafide activities such as diversion of loan funds, transactions / sales / purchases with same/related parties/sister concerns. It is submitted that majority of sales made with certain selective parties and accommodative in nature, company maintained the bank accounts outside the consortium member banks and Page 15 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 transacting sales with parties, which are not in activities of trading and/or manufacturing of edible oil, and purchasing at inflated invoice prices, routing of revenue proceeds in the bank accounts outside the consortium banks.
4.1 Mr. Kodekar, learned advocate, submits that prima facie it appears that the cognizable offence has been committed by the Company and its directors in criminal conspiracy with unknown public servants and unknown private persons during the period from 2014 to 2017 in the loan accounts of VOFL, which is required to be investigated. It is submitted that the I.O. of CBI issued notice under section 91 Cr.P.C. well within his powers as as to investigate the cognizable offences alleged to have been committed.
4.2 Mr. Kodekar further submitted that the consortium banks acted as per the guidelines of the RBI and declared the loan accounts of the borrower company VOFL as NPA on the dates mentioned in the complaint. Page 16 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 Further the Bank of India declared the loan account of VOFL as red flagged on 05.07.2016 and thereafter the forensic audit of the account was got to be done by the forensic auditor, which submitted its forensic audit report dated 08.05.2017 observing various irregularities in the accounts. He submits that during 2014-15, the statutory auditor had also submitted its audit report by observing irregularities in the accounts of VOFL and further a special audit report was also done for the year 2014-2015 and the same also pointed out the irregularities in the loan accounts of the borrower company VOFL; thereafter for the period 2016-2017, forensic audit of the loan accounts of the said company was also done and the irregularity was pointed out in the said account. 4.3 Mr. Kodekar further submitted that the Fraud Monitoring Group of consortium banks declared the loan account of the said company under the fraud category and in the joint lender meetings, they decided to file joint FIR with CBI in terms of OM No.25016/10/2017 dated 12.10.2018 of MHA, Government of India. In regard to Page 17 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 the delay, Mr. Kodekar submitted that CBI registered the case on the basis of the complaint dated 24.05.2021 received from Dy. General manager, Bank of India. He submits that criminal proceedings based on fraud and cheating may not be a subject matter of an NOC/agreement. He submitted that a company is a perpetual person which cannot be sold or purchased; the directors and other office bearers may come and go but the company remains the same as a legal person and by entering into the company, one cannot evade civil or criminal liability of the company.
4.4 Learned advocate Mr. Kodekar further submitted that FIR is not registered against the present office bearers of the VOFL including Shri Rakesh Baluram Lahoti or the Directors of M/s. Arrhum Tradelink Private Limited. He submitted that no coercive action is intended / proposed on the part of CBI against the office bearers of M/s. Arrhum Tradelink Private Limited and the present office bearers of VOFL. He submitted that since the loan amount was obtained in the name of the Page 18 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 Company, VOFL has been made a formal accused in the FIR for which the criminal liability shall be borne by the then office bearers of the company, and, directors of M/s. Arrhum Tradelink Private Limited will not be criminally liable as office bearers of the company. Mr. Kodekar further stated that since Shri Rakesh Lahoti has entered into the company by way of liquidation proceedings, only after 19.12.2019, and therefore he is not liable to represent the company in criminal proceedings for the acts done before the liquidation proceedings, and as such not being affected person he is having no locus standi to challenge the FIR.
5. Mr. K.M. Parikh, learned advocate appearing for the respondent no.3 - Bank of India relying on the affidavit, submitted that, the offence allegedly committed is between the period from 2014 to 2017, however, the petitioner has purchased the property of VOFL on 03.03.2021. Mr. Parikh submits that the present petition is not maintainable since the petitioner has not been shown as accused in the FIR nor in the order dated Page 19 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 18.06.2021 issued under section 91 of the CRPC, nor any criminal proceedings are initiated by the Bank against M/s. Arrhum Tradelink Pvt. Ltd., and therefore the petitioner is not entitled to raise any grievance as alleged in the present petition, as the same is instituted against VOFL and its erstwhile directors.
5.1 Mr. Parikh stated that the petitioner has purchased the VOFL as going concern from liquidator under the provisions of I.B. Code, 2016. He submitted that as per the provisions of Regulation 32A of IBBI (Liquidation Process) Regulations, 2016, for sale of a company as going concern, the only identification of its assets and liabilities of the company is identified. The provisions of the I.B. Code nowhere restrain the Bank from initiating criminal proceedings against the company sold as a going concern, by filing an FIR under section 154 of the Cr.P.C. It is submitted that it is not required to mention about initiation and/or of any fraud committed by corporate debtor and its directors in the auction sale notice and therefore the arguments canvassed by the Page 20 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 petitioner that the liquidator had not disclosed such facts is of no relevance.
5.2 Mr. Parikh stated that petitioner has wrongly misconceived and interpreted the provisions of the I.B. Code, by considering the fact that if the company is purchased as going concern in the auction proceedings, the purchasing company is also liable for the fraud committed by the liquidated company with its financial creditors. He submits that the petitioner is free to carry out its business at its own whims and wishes and respondent no.3 - Bank has no role to play in the commercial wisdom of the petitioner in carrying out the business of its company. He submits that the order dated 18.06.2021 under section 91 Cr.P.C. is passed only for production of original documents of liquidated company - VOFL; section 91 emphasizes on production of document to be produced which are necessary for further investigation and no order has been passed against the petitioner.
Page 21 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 5.3 Mr. Parikh further submitted that there is no requirement under the statutory provisions of the I.B. Code, to inform the liquidator about the classification of the account as fraud by the banks. He submitted that all the books, records, documents accounts and materials of VOFL are in the custody and physical possession of the petitioner and therefore respondent no.2 had called upon the petitioner to produce documents in its possession. He submits that when law does not impose statutory obligation upon the liquidator and the banks, such questions are not required to be adjudicated by this Court at the instance of the petitioner. Mr. Parikh submitted that on the basis of the amended provisions of the I.B. Code, 2016 no proceedings can be initiated against the successful auction purchaser after the approval of resolution plan for an offence committed by earlier management and therefore, the contention of the petitioner that proceedings in relation to fraud are initiated against them is completely misconceived and the successful auction purchaser is only required to provide Page 22 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 assistance and documents, as required and called for pertaining to earlier management, as the company is purchased by the successful auction purchaser as going concern.
5.4 Mr. Parikh further stated that the ground of delay in filing the FIR cannot be raised by the petitioner, because the petitioner was neither director nor promoter or guarantor of VOFL during the period from 2014 to 2017 and the said contention is not available to the petitioner. He submits that the petitioner is not concerned with the alleged offence committed prior to purchase of the said company under the proceedings before the NCLT under IB Code and therefore he cannot raise such grievance in the present quashing petition on behalf of the erstwhile directors of VOFL. 5.5 Mr. Parikh relied on the judgment in case of Neeharika Infrastructure Pvt. Ltd. Vs. State of Maharashtra, in Criminal Appeal No.330 of 2021, and placed reliance on the judgment dated 23.12.2021 in Page 23 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 Letters Patent Appeal No.1043 of 2021 with Letters Patent Appeal No.1047 of 2021 in Special Civil Application No.9508 of 2021. He submitted that one of the Director of VOFL had challenged the order of the learned single Judge dated 20.07.2021 in Special Civil Application No.9508 of 2021, whereby the learned single Judge declined to entertain the writ application. He submits that both the appeals were disposed of and CBI was permitted to continue the investigation of the alleged offences pursuant to the FIR lodged by the Bank and it was directed to the appellants not to take undue advantage of the order and try to interfere or scuttle the investigation in any manner undertaken by the CBI, or else a strict view shall be taken by the Court, and thus Mr. Parikh submitted that the present petitioner would have no locus to file the present petition.
6. Having heard learned Advocates on record, before considering the case on merits, it would be appropriate to note here, that, in the Letters Patent Appeals under Clause 15, the order of the learned single Page 24 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 came to be modified to the extent keeping it open for the appellants being the directors of the company to file detail representation addressing the competent authority of the Bank within a period of three weeks from the date of order, directing that on receipt of the representation the same may be considered by the appropriate authority or committee of the Bank and take an appropriate decision on the same by passing an appropriate order. The issue was raised that no opportunity of hearing was given to any of the directors of the Company before taking the decision to declare the account as fraud and that it was incumbent upon the Bank to issue notice calling upon company and its director to show cause as to why the account should not be declared as fraudulent account or fraud account.
6.1 The documents produced on record suggests that the loan account was declared by Bank of India as NPA on 30.09.2015 and the account was red flagged on 05.07.2016. Other Banks have declared the account as NPA on other dates, and in the financial year 2016-2017, Page 25 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 the Bank of India declared the Account as NPA. Various audits pertaining to account of VOFL was conducted and from time to time findings or conclusion were noted in Joint Lenders Meetings (JLM) of bankers. The summary of audit and noting in JLM meeting are as under:
(i) On 18.06.2015, the statutory auditor of Bank of India, namely, M/s. M.M. Nissim & Co., Chartered Accountant, Mumbai has observed several irregularities in the account of VOFL and has given various observation in their report.
(ii) Thereafter, based on the adverse findings of the statutory audit report for the year 2014-15, the bankers decided to conduct special audit from 01.04.2014 to 31.03.2015.
M/s. R.R. Tibrewal & Co., Chartered Accountants, Ahmedabad submitted its report on 10.08.2015 to the banks of the special audit.Page 26 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022
R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022
(iii) On 13.01.2016, the bankers in their 5th JLM meeting, discussed the special audit report and unanimous view was that, the company's operations cannot be termed as fraudulent in view of observations of special audit report, unless a forensic audit is conducted.
(iv) On 06.04.2016 in 8th JLM meeting it was also noted that, none of the banks had red flagged the account or declared the company as wilful defaulter.
(v) On 09.11.2016, in 12th JLM, the banks
appointed M/s. S.P. Mangal & Co. for
conducting forensic audit of the company. Issuance of SARFESAI notice under section 13(4) by Bank of India on 29.10.2016 was informed to the house.
(vi) On 05.06.2017 in 16th JLM, the banks discussed the Forensic Audit report and it was Page 27 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 noted by consortium of the forensic auditor certifying of no diversion of funds.
(vii) On 24.08.2017, in 17th meeting of JLM, finally it was agreed to go with the findings of forensic audit report. It was advised to lift the Red Flag in the account after closure of the report and permission from H.O. 6.1.1 During Corporate Insolvency Resolution Process,M/s. R.S. Patel & Co. Chartered Accountants was appointed to conduct the forensic audit of VOFL from 01.04.2016 to 19.12.2017, under the provision of IB Code.
On 29.08.2018 in 6th Committee of creditors meeting, the forensic audit report of M/s. R.S. Patel & Co. Chartered Accountants was discussed and it was noted that, no material transactions under section 66 of I.B. Code, were observed. Section 66 of I.B. code, 2016 is relating to fraudulent trading or wrongful trading. 6.2 It was argued by Senior Advocate Mr. Lakhani Page 28 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 that the special audit and two forensic audit was conducted by independent auditors and the bankers has concluded in the JLM, and even in COC, it was noted that the Company's operations cannot be termed as fraudulent. Forensic auditor has certified that there is no diversion of funds, none of banks has red flagged the account. The grievance is raised that after the sale of VOFL through public e-auction and receiving the sale proceeds, the Bank of India has made complaint alleging fraud perpetrated by VOFL and its erstwhile directors.
7. M/s. Arrhum Tradelink Private Ltd. purchased VOFL under liquidation on 03.03.2021 from company's liquidator - Mr. Manoj Khattar appointed, by NCLT, Ahmedabad Bench, in terms of section 34 of the Insolvency and Bankruptcy Code, 2016. The e-auction was conveyed on 04.12.2020 for the sale of the company on a 'going concern' basis. The buyer submitted a bid amounting to Rs.69.95 Crores, which was declared as highest bid in the e-auction and further purchased the outstanding receivable of VOFL by final bid amount of Page 29 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 Rs.5.25 Crores for the sale agreement executed on 11.03.2021.
7.1 Mr. Abhay N.Manudhane, Resolution Professional (for short 'RP') of VOFL - corporate debtor, as an applicant had moved before the National Company Law Tribunal (NCLT) by filing M.A. No.17 of 2018 in Company Petition (IB) No.135 of 2017 for liquidation of the corporate debtor under section 33(1)(a) of the IB Code, 2016 and for the appointment of liquidator. 7.2 Facts as emerged shows that CP(IB) No.135/2017 was filed by Corporate Creditor, Bank of Baroda against the Corporate Debtor VOFL under section 7 of the IB Code, 2016 seeking initiation of Corporate Insolvency Resolution Process ('CIRP' for short), which was admitted by the NCLT as adjudicating authority vide order dated 19.12.2017, and appointed Mr. Abhay N.Manudhane as Interim Resolution Professional ('IRP' for short) of the Corporate Debtor. The Committee of Creditors ('CoC' for short) in its first meeting held on Page 30 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 22.01.2018 decided for continuation of the IRP as RP. 7.3 RP received six Eols after the public advertisement, out of which only four resolution plans were found eligible. It was submitted that Resolution Plan submitted by M/s. Parixit Irrigation Ltd., one of the four Applicant, was found higher in offer value by the RP. The CoC informed the representatives of M/s. Parixit Irrigation Ltd. that their plan would be approved, if they increase the offer at 15%. The same was agreed upon and therefore the plan was revised. Similar process of such suggestions of CoC and revision of Resolution Plan took place in subsequent CoC meetings. The RP also got the extension of 90 days' time beyond 180 days vide order dated 19.06.2018, which expired on 16.06.2018. After the extension of time, revised Resolution Plan of M/s. Parixit Irrigation Ltd. was rejected by CoC with 70.69% voting result. Since no Resolution Plan was approved, RP moved the application before the Adjudicating Authority for passing an order under section 33(1)(a) of the IB Code for liquidation of the corporate debtor.
Page 31 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 7.4 During the pendency of the application under section 33(1)(a) of the IB Code, one I.A. being I.A. No.453 of 2018 was filed by M/s. Parixit Irrigation Ltd., with prayer to quash and set aside the decision of CoC rejecting the Resolution Plan submitted by it, and further for a direction to the CoC to reconsider the resolution plan.
7.5 The Adjudicating Authority (NCLT) on perusing the record found that, CoC took the resolution plan for fresh consideration of M/s. Parixit Irrigation Ltd.; still the same was rejected by 70.69% voting, under that circumstances, the Adjudicating Authority were of the view that it had no jurisdiction to interfere with the commercial wisdom of the CoC, as observed in K. Sasidhar's case and subsequently reiterated by the Hon'ble Supreme Court in the judgment passed in Civil Appeal No.8766-67 of 2019 in the case of Committee of Creditors of Essar Steel India Limited through Authorised Signatory Vs. Satish Kumar Gupta & Page 32 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 Ors.. The commercial wisdom of the Committee of Creditors, thus, was not interfered by the Adjudicating Authority and under this circumstances, the authority passed order of ceasing moratorium declared under section 14 of the IB Code, from the date of order of liquidation. The liquidator was directed to send certified copy of the order with which the Corporate Debtor was registered; further it was ordered that no suit or other legal proceedings shall be instituted by or against the Corporate Debtor subject to section 52 of the IB Code with liberty granted to the liquidator to file Suit or other legal proceedings on behalf of Corporate Debtor with prior approval of the NCLT. Further, it was made clear by the authority that said direction shall not apply to legal proceedings in relation to such transactions as notified by the Central Government in consultation with any financial sector regulator. The Order of the Adjudicating Authority was made to be a notice of discharge to the officers, employees and workmen of the Corporate Debtor, except for the time the business of the Corporate Debtor was Page 33 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 continued by Liquidator of the Corporate Debtor during the liquidation process. The powers of the Board of Directors, key managerial personnel and the Partners of the Corporate Debtor was ordered to be ceased, with further direction, that it shall be vested with the company liquidator. In addition to that, company liquidator was empowered to exercise the powers and duties as enumerated in Sections 35 to 50, 52 to 54 of the IB Code, 2016, read with Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. The personnel of the Corporate Debtor were required to extend all assistance and cooperation to the Liquidator as may be required in managing the affairs of the Corporate Debtor.
7.6 In consequences, the application being I.A. No.453 of 2018 of M/s. Parixit Irrigation Ltd. came to be rejected and M.A. No.17 of 2018 was allowed. The Adjudicating Authority passed an order for initiation of liquidation of the Corporate Debtor - VOFL under section 33 of the IB Code and Mr. Manoj Khattar (Reg. No. Page 34 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 IBBI/IPA-002/IP-N00748/2018-2019/12264) was appointed as liquidator for the purpose of liquidation of the Corporate Debtor.
8. The provisions of section 32A of the IB Code, 2016 was relied upon by Senior Advocate Mr. Lakhani to submit that sub-section (2) of section 32A does not permit any action against the property of the corporate debtor when the property is covered under a resolution plan approved by the Adjudicating Authority under section 31, for the offence committed prior to the commencement of CIRP, or sale of liquidation assets under the provisions of Chapter III of Part II to a person, who do not fall within the exceptions added to sub-section(2). 8.1 It appears that section 32A does not differentiate between CIRP (Corporate Insolvency Resolution Process) and sale of liquidated assets. Immunity is granted to the corporate debtor for any of the liability of the corporate debtor for the offences committed prior to the commencement of the corporate Page 35 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 insolvency resolution process when property is covered by CIRP approved by Adjudicating Authority under section 31 or sales of liquidation assets under the provisions of Chapter III of Part II of IB Code. 8.2 Section 32A of the IB Code, 2016 (inserted by Act 1 of 2020, section 10 (w.e.f 28.12.2019), is reproduced hereunder for ready reference:
"32A. Liability for prior offences, etc. -
(1) Notwithstanding anything to the contrary contained in this Code or any other law for the time being in force, the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted for such an offence from the date the resolution plan has been approved by the Adjudicating Authority under section 31, if the resolution plan results in the change in the management or control of the corporate debtor to a person who was not-
(a) a promoter or in the management or Page 36 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022
control of the corporate debtor or a related party of such a person; or
(b) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court:
Provided that if a prosecution had been instituted during the corporate insolvency resolution process against such corporate debtor, it shall stand discharged from the date of approval of the resolution plan subject to requirements of this sub- section having fulfilled:
Provided further that every person who was a "designated partner" as defined in clause (j) of section 2 of the Limited Liability Partnership Act, 2008 or an "officer who is in default", as defined in clause (60) of section 2 of the Companies Act, 2013, or was in any manner in-charge of, or responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor in any manner and who was directly or indirectly involved Page 37 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 in the commission of such offence as per the report submitted or complaint filed by the investigating authority, shall continue to be liable to be prosecuted and punished for such an offence committed by the corporate debtor notwithstanding that the corporate debtor's liability has ceased under this sub-section.
(2) No action shall be taken against the property of the corporate debtor in relation to an offence committed prior to the commencement of the corporate insolvency resolution process of the corporate debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority under section 31, which results in the change in control of the corporate debtor to a person, or sale of liquidation assets under the provisions of Chapter III of Part II of this Code to a person, who was not -
(i) a promoter or in the management or control of the corporate debtor or a related party of such a person; or
(ii) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to Page 38 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court.
Explanation.- For the purposes of this sub-section, it is hereby clarified that,-
(i) an action against the property of the corporate debtor in relation to an offence shall include the attachment, seizure, retention or confiscation of such property under such law as may be applicable to the corporate debtor;
(ii) nothing in this sub-section shall be construed to bar an action against the property of any person, other than the corporate debtor or a person who has acquired such property through corporate insolvency resolution process or liquidation process under this Code and fulfils the requirements specified in this section, against whom such an action may be taken under such law as may be applicable.
(3) Subject to the provisions contained in
sub-sections (1) and (2), and
notwithstanding the immunity given in this section, the corporate debtor and any Page 39 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 person, who may be required to provide assistance under such law as may be applicable to such corporate debtor or person, shall extend all assistance and co- operation to any authority investigating an offence committed prior to the commencement of the corporate insolvency resolution process.] 8.3 In the case of Manish Kumar Vs. Union of India And Another, reported in (2021) 5 SCC 1, the Hon'ble Supreme Court of India, in its original civil jurisdiction while dealing with the provisions of sections 3, 4 and 10 of the Insolvency and Bankruptcy Code (Amendment) Act, 2020 has dealt with section 32A as section 10 of the amendment inserts section 32A in the Code; challenge was given to section 32A by allottees under real estate project and the creditors. After considering the statement, objects and reasons, it was held that no case was made out whatsoever to seek invalidation of Section 32A. The relevant observation is as under:
Page 40 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022
R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 "We are of the clear view that no case whatsoever is made out to seek invalidation of Section 32A. The boundaries of this Court's jurisdiction are clear. The wisdom of the legislation is not open to judicial review. Having regard to the object of the Code, the experience of the working of the code, the interests of all stakeholders including most importantly the imperative need to attract resolution applicants who would not shy away from offering reasonable and fair value as part of the resolution plan if the legislature thought that immunity be granted to the corporate debtor as also its property, it hardly furnishes a ground for this Court to interfere. The provision is carefully thought out. It is not as if the wrongdoers are allowed to get away. They remain liable. The extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate. We must also not overlook the principle that the impugned provision is part of an economic measure. The reverence courts justifiably hold such laws in cannot but be applicable in the instant case as well. The Page 41 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 provision deals with reference to offences committed prior to the commencement of the CIRP. With the admission of the application the management of the corporate debtor passes into the hands of the Interim Resolution Professional and thereafter into the hands of the Resolution Professional subject undoubtedly to the control by the Committee of Creditors. As far as protection afforded to the property is concerned there is clearly a rationale behind it. Having regard to the object of the statute we hardly see any manifest arbitrariness in the provision."
8.4 It was observed in the said judgment that the corporate debtor and its property in the context of the scheme of the Code constitute a distinct subject matter justifying the special treatment accorded to them.
Erecting a bar against the property of the corporate debtor when viewed in the larger context of the objectives sought to be achieved at the forefront of which is maximisation of the value of the assets which again is to be achieved at the earliest point of time cannot become Page 42 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 the subject of judicial veto on the ground of violation of Article 14. Creation of a criminal offence as also abolishing criminal liability must ordinarily be left to the judgment of the legislature.
9. Here, in the present matter, the meeting of the committee of creditors of VOFL had been held time to time under the chairperson - Mr. Abhay N.Manudhane. The CIRP was further extended for 90 days and the NCLT granted the extension making it effective from 16.06.2018; and in the meeting held on 16.08.2018, the CoC members were circulated with the order of the NCLT, where it was observed that RP had conducted visits of various debtors which included seven major debtors. The valuation report of current and other assets submitted by valuer M/s. Pipara & Co. LLP, Chartered Accountants, Ahmedabad, at Item No.A5 was put for notice. After obtaining the confidentiality undertaking from each of the CoC members, the chairperson circulated valuation report and also placed on table the comparative statement of earlier two valuers and Page 43 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 corresponding valuation by third valuer, and after a long discussion, the members unanimously adopted the valuation report submitted by M/s. Pipra and Company LLP; and accordingly after the adoption of the valuation report the liquidation value according to the provision of IB Code, 2016 & CIRP regulations was revised. 9.1 At Item No.A4, Forensic Audit Report of M/s. R.S. Patel & Co. were taken into consideration and it was decided that the erstwhile director and managing director (CMD of the company) would be requested to attain the next CoC meeting to explain the query and observation of Forensic Audit Report and therefore, decided to call CoC meeting on 23.08.2018.
9.2 In the 5th CoC meeting on 23.08.2018, the Forensic Audit Report of M/s. R.S. Patel & Co. Chartered Accountant was put for discussion. The CoC expressed the view that the Forensic Audit Report was not conclusive nor it gives specific observation on the transaction covered under IBC, as specified in the scope Page 44 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 of audit. So, after discussion, the CoC on the basis of the observation of Forensic Audit Report requested the forensic auditors to issue clarificatory report to the queries, so raised, which came to be noted in the minutes. To that, Mr. Shah partner of M/s. R.S. Patel & Co. assured to submit the required report/information within a week, which was tabled in the next meeting. 9.3 On 29.08.2018, 6th CoC meeting was held and at item no.A5, further submission of Mr. Rajan Shah, Forensic Auditor (partner of M/s. R.S. Patel & Co.) was put for notice and discussion; conclusion in the report was drawn on conduct of the Forensic Audit, which reads as under:
"Mr. S.V. Shah representing CFM Asset Reconstruction Pvt. Ltd. enquired to the Forensic Auditor as to whether any fraudulent/wrongful transaction was found during the forensic audit.
Mr. Rajan clarified that the matter was also covered in sec.66 of IBC 'Fraudulent trading or wrongful trading' Page 45 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 and his comment on the same has been that no material transactions under following provisions of IBC were observed which were already covered in his report.
Thereafter, Mr. Rajan Shah requested the CoC to consider the fresh Report submitted by him in this meeting as his Final Forensic Audit Report in place of the earlier report. The CoC noted all the above points and accepted this revised report as the Final Forensic Audit Report.
During the course of discussion,
representative of IDBI enquired with
erstwhile CMD about routing of
transactions through non consortium
banks. Mr. Jayesh Patel, informed that for last several years the company was transacting through the various banks and after earlier forensic auditors' report, the transactions with these banks discontinued except SBI."
The revised resolution plan submitted by M/s. Parixit irrigation Ltd. was also taken up for discussion, at item no.A6.
Page 46 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 9.4 On the basis, M.A. No.17 of 2018 was moved by Abhay N.Manudhane RP of VOFL before the NCLT and counter objection by M/s. Parixit Irrigation Ltd. by I.A. 453 of 2018, after the observation, order was passed by Adjudicating Authority under section 33(1)(a) for liquidation of VOFL.
10. I.B. Code, 2016 provides for three modes of revival:
(a) the CIRP under Chapter II; (b) sale of a company in liquidation as a going concern
(read with Regulation 32(e) and (f)); and
(c) a scheme of compromise or arrangement under section 230 of the Act of 2013, following upon an order for liquidation being passed under Chapter III of the IBC. 10.1 In the judgment of Arun Kumar Jagatramka Vs. Jindal Steel and Power Ltd. & Anr., in Civil Appeal No.9664 of 2019 with Writ Petition (C) No.269 of 2020 And with Civil Appeal No.2719 of 2020, the Hon'ble Apex Page 47 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 Court by its judgment dated 15.03.2021, has affirmed about three modes of revival of the corporate debtor as contemplated under the provisions of IB Code. While elaborating on the 'clean slate' concept in the said judgment, it has been observed that section 35(1)(f) applies to the liquidator but does not applies to NCLT, acting as either the Adjudicating Authority or as the Tribunal. Further held that, under Regulation 32, of the Liquidation Process Regulations, two modes are contemplated for the sale of corporate debtor as 'going concern', while four modes are contemplated for the sale of the assets of the corporate debtor. The prohibition under Section 35(1)(f) will apply only to a sale which is governed by Regulation 32.
10.2 Section 35(1)(f) reads thus:
"(f) subject to section 52, to sell the immovable and movable property and actionable claims of the corporate debtor in liquidation by public auction or private contract, with power to transfer such property to any person or body corporate, or to sell the same in parcels in such Page 48 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 manner as may be specified:
Provided that the liquidator shall not sell the immovable and movable property or actionable claims of the corporate debtor in liquidation to any person who is not eligible to be a resolution applicant.
11. Learned advocate Mr. Kodekar for the CBI has referred to two judgments, (i) Sunil Bharti Mittal Vs. Central Bureau Of Investigation, reported in (2015) 4 SCC 609 (ii) Iridium India Telecome Ltd. v. Motorola Inc., reported in (2011) 1 SCC 74, to contend that the criminal intent of person(s) controlling company can be imputed to company based on the principle of "alter-ego". Section 29A of the IB Code is an answer to the corporate criminality liability and the immunity provided under section 32A of liability for the prior offences etc., and lays down that despite anything contrary contained in the IBC or any other law for the time being inforce, the liability of the corporate debtor for the offence committed prior to the commencement of the Corporate Insolvency Resolution Process shall cease, and the corporate debtor Page 49 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 shall not be prosecuted for such an offence from the date the resolution plan, has been approved by the Adjudicating Authority under section 31, if the resolution plans results in the change of management or control of the corporate debtor to a person who was not, a promoter or in the management or control of the corporate debtor or related party of such a person; or a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired to the commission of offence and has submitted and filed a report before the relevant statutory authority or Court.
12. The proviso to sub-section (1) clarifies, that, if a prosecution had been instituted during the Corporate Insolvency Resolution process against such corporate debtor, it shall stand discharged from the date of approval of the resolution plan subject to fulfilling the requirements as laid down in the sub-section. The 2 nd proviso to sub-section (1) further clarifies that every person who was a "designated partner' as defined in Page 50 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 clause (I) of section 2 of the Limited Liability Parnership Act, 2008 (6 of 2009), or an "officer who is in default", as defined in clause (60) of section 2 of Companies Act, 2013 (18 of 2013), or was in any manner incharge of, or responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of such offence as per the report submitted or complaint filed by the investigating authority, shall continue to be liable to be prosecuted and punished for such an offence committed by the corporate debtor notwithstanding that the corporate debtor's liability has ceased under section 32A.
12.1 Law is clear that as soon as a resolution plan has been approved by the Adjudicating Authority under section 31 and the resolution plans results in the change in control of the corporate debtor, it stands discharge for any of the offences committed prior to the commencement of the Corporate Insolvency Resolution Process. All persons, referred in second proviso, shall Page 51 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 continue to liable to be prosecuted and punished for the offence committed by the corporate debtor, even though, the liability of the corporate debtor ceases. 12.2 Section 29A makes provision for persons not eligible to be resolution applicant. Section 29A(g) with proviso is reproduced hereinbelow to understand the criminal liability:
"29A(g): has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under this Code:
[Provided that this clause shall not apply if a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place prior to the acquisition of the corporate debtor by the resolution applicant pursuant to a resolution plan approved under this Code Page 52 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 or pursuant to a scheme or plan approved by a financial sector regulator or a court, and such resolution applicant has not otherwise contributed to the preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction;]"
13. Here, in this case as observed herein, the resolution plan could not be finalized and therefore the resolution professional, Abhay N.Manudhane, moved the Adjudicating Authority by MA No.17 of 2018 for an order for liquidation under section 31(1)(a) of the IB Code. Chapter-III of the IB Code deals with liquidation process. 13.1 Liquidation process is dealt with in Chapter-III of IB Code. Section 33 is for the initiation of liquidation. Before the expiry of the Insolvency Resolution period or to the maximum period permitted for completion of the Corporate Insolvency Resolution process under section- 12 or the fast track corporate insolvency resolution process under section 56, as the case may be, the Adjudicating Authority does not receive a resolution plan Page 53 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 under sub-section (6) of section 30; or rejects the resolution plan under section 31 for the non-compliance of the requirements specified therein; it shall pass an order requiring the corporate debtor to be liquidated in the manner as laid down in Chapter III. Sub-section (2) of section 33 further clarifies that where the resolution professional, at any time during the corporate insolvency resolution process but before the confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors [approved by not less than 66% of the voting share] to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order as referred to in sub-clauses (i), (ii) and
(iii) of clause (b) of sub-section (1).
13.2 Section 33, thus, reads as under:
33. Initiation of liquidation - (1) Where the Adjudicating Authority,-
(a) before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the Page 54 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 corporate insolvency resolution process under section 12 or the fast track corporate insolvency resolution process under section 56, as the case may be, does not receive a resolution plan under sub-
section (6) of section 30; or
(b) rejects the resolution plan under section 31 for the non-compliance of the requirements specified therein, it shall-
(i) pass an order requiring the corporate debtor to be liquidated in the manner as laid down in this Chapter;
(ii) issue a public announcement stating that the corporate debtor is in liquidation; and
(iii) require such order to be sent to the authority with which the corporate debtor is registered.
(2) Where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors [approved by Page 55 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 not less than sixty-six per cent. of the voting share] to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).
[Explanation.-- For the purposes of this sub-section, it is hereby declared that the committee of creditors may take the decision to liquidate the corporate debtor, any time after its constitution under sub- section (1) of section 21 and before the confirmation of the resolution plan, including at any time before the preparation of the information memorandum.] (3) Where the resolution plan approved by the Adjudicating Authority [under section 31 or under sub-section (1) of section 54L,] is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).
Page 56 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 (4) On receipt of an application under sub-section (3), if the Adjudicating
Authority determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order as referred to in sub-
clauses (i), (ii) and (iii) of clause (b) of sub- section (1).
(5) Subject to section 52, when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor:
Provided that a suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority.
(6) The provisions of sub-section (5) shall not apply to legal proceedings in relation to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.
(7) The order for liquidation under this section shall be deemed to be a notice of discharge to the officers, employees and Page 57 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 workmen of the corporate debtor, except when the business of the corporate debtor is continued during the liquidation process by the liquidator.
13.3 According to the provisions when the Adjudicating Authority before the expiry of the insolvency resolution period or to the extended period does not receive resolution plan under sub-section (6) of section 30 or rejects resolution plan under section 31 for the non- compliance of the requirements prescribed therein, it shall pass an order requiring the corporate debtor to be liquidated. Sub-section (2) lays down that resolution professional at any time during the corporate insolvency resolution process and before the confirmation of the resolution plan intimates the Adjudicating Authority of the decision of the committee, approved by not less than 66% of the liquidate corporate debtor, the Adjudicating Authority shall pass an liquidation order, as referred in sub-sections (i) (ii) and (iii) of clause (b) of sub-section (1). The committee may take a decision to liquidate the Page 58 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 corporate debtor even before the confirmation of the resolution plan including at any time before the preparation of the information memorandum. 13.4 Here, in this case, the RP Abhay N.Manudhane had moved the Adjudicating Authority for an order of liquidation, as the submission of resolution plan and revised resolution by M/s. Parixit Irrigation Ltd. was not approved by the mandatory voting result of 70.69%.
14. Section 32A(2) clarifies that no action shall be taken against the property of the corporate debtor in relation to the offences committed prior to the commencement of the corporate insolvency resolution process of the corporate debtor when the property covered under the resolution plan results into change of control of corporate debtor or the sale of the liquidated assets. Clause (ii) to the Explanation under sub-section (2) of section 32A further clarifies that there would not be a bar for action against the property of any person other than the corporate debtor or a person, who has acquired Page 59 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 such property through corporate insolvency process or liquidation process under IB Code.
14.1 Section 29A stipulates the category of persons who "shall not be eligible to submit a resolution plan". The proviso to section 35(1)(f) incorporates the same norms in the liquidation process, where it stipulates that the liquidator shall not sell the immovable and movable property or actionable claims of the corporate debtor in liquidation "to any person who is not eligible to be a resolution applicant". The purpose of the ineligibility under Section 29A is to achieve a sustainable revival and to ensure that a person who is the cause of the problem either by a design or a default cannot be a part of the process of resolution.
14.2 The prohibition, which has been enacted under section 29A has extended to Chapter III while being incorporated in the proviso to section 35(1)(f). Under Liquidation Process Regulations, Chapter VI deals with the realization of assets. Regulation 32 is in the following Page 60 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 terms:
"32. Sale of Assets, etc. The liquidator may sell-
(a) an asset on a standalone basis;
(b) the assets in a slump sale;
(c) a set of assets collectively;
(d) the assets in parcels;
(e) the corporate debtor as a going concern; or
(f) the business(s) of the corporate debtor as a
going concern:
Provided that where an asset is subject to security interest, it shall not be sold under any of the clauses (a) to (f) unless the security interest therein has been relinquished to the liquidation estate."
Clause (a) to (d) of Regulation 32 deal with the sale of assets on a stand-alone basis in a slump sale collectively or in parcels. Clauses (e) and (f) deal with the sale of the corporate debtor or its business as a going concern. Regulation 32-A(1) lays down:
Page 61 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022
R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 "32A. 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 maximize the value of the corporate debtor, he shall endeavor to first sell under the said clauses."
Regulation 32-A(1) emphasizes the importance placed on the transfer of the corporate debtor or its business on a going concern basis. The purpose behind is the revival of the corporate debtor.
15. It is to be noted that Regulation 37 under the Resolution Regulations 2016 or Regulation 32 of the Liquidation Regulations 2016, both enumerates similar measures that may be adopted in the course of resolution or liquidation, as the case may be. Both sanction the sale of whole or part of the assets of the corporate debtor or its sale as a going concern. The liquidation Regulations 2016, not only makes provision for its sale as a going concern but also emphasises an possibility being explored Page 62 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 before steps for sale of assets is attempted as per Regulation 32A. If the corporate debtor facing liquidation be sold as a going concern, it would not be liable to be dissolved. When a corporate debtor undergoes liquidation under Chapter III, it continues to exist as an entity. The IBC essentially envisages the process of resolution or liquidation to move forward unhindered. The legislature in its wisdom has recognized the need to insulate the implementation of measures for restructuring, revival or liquidation of a corporate debtor from caprice of litigation or prosecution once the process of resolution or liquidation reaches the stage of the Adjudicating Authority approving the course of action to be finally adopted in relation to the corporate debtor. Section 32A of the IBC gains importance upon the decision of the Adjudicating Authority when it approves measures to be implemented in order to take the process of liquidation or resolution to its culmination.
16. In the case of Manish Kumar (supra), this issue has been dealt with, where it was observed that, the Page 63 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate. The doctrine of clean slate becomes adoptable since the very intent is revival of the corporate debtor and as observed herein, one of the mode for revival is the sale of the Company in liquidation as a going concern. 16.1 Section 32A also deals with the eventuality where resolution plan of resolution applicant is not approved by CoC, by not less than 66% of the voting share. Here, in the instant case, the revised resolution plan of M/s. Parixit Irrigation Ltd. was rejected by 70.69% voting results. In the contingency of rejection of resolution plan, the act authorises the Adjudicating Authority to order for liquidation under Liquidation Process Regulations. The liquidator is mandated to endeavor first to sell the corporate debtor or businesses of corporate debtor as going concern, with the absolute purpose of revival of corporate debtor, if the Liquidator is of an opinion that it would maximize the value of the Page 64 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 corporate debtor.
16.2 Thus, through Section 32A of IB Code, the insulation is provided to corporate debtor and to its properties as they would be susceptible to investigations or proceedings related to criminal offences committed by its, prior to the commencement of a CIRP, which would lead to imposition of liabilities and restrictions on the corporate debtor and its properties even after they were lawfully acquired by a resolution applicant or a successful bidder respectively. Section 29A read with section 35(1)
(f), places restrictions on related parties of the corporate debtor from proposing a resolution plan and purchasing the property of the corporate debtor in the CIRP and liquidation process respectively. The proceedings under the IB Code are designed to ensure maximization of value, that requires transfer of the corporate debtor to bonafide persons, where position is safeguarded by ring-fencing them from prosecution and liabilities under offences committed by erstwhile promoter etc. When bonafide persons, takes over the management of the Page 65 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022 R/CR.MA/11557/2021 CAV JUDGMENT DATED: 24/08/2022 corporate debtor, they should not be penalized for the action of erstwhile management of the corporate debtor. Thus, VOFL as a going concern and its properties would not be liable for the alleged fraud of the earlier management.
17. In the result, the petition is allowed. M/s. Vimal Oil & Foods Ltd. (VOFL) stands discharge from the offence registered against it in connection with FIR No.RC2222021A0002 of 2021. Thus, the FIR No.RC2222021A0002 of 2021, lodged with AC-IV (VYAPAM) Bhopal Police Station, Bhopal is quashed and set aside qua M/s. Vimal Oil & Foods Ltd. with direction that VOFL shall extend all assistance and cooperation to any authority investigating the offence.
18. In view of the above, no order in connection to Civil Application, the same stands disposed of.
(GITA GOPI, J.) Pankaj Page 66 of 66 Downloaded on : Thu Aug 25 21:23:19 IST 2022