National Company Law Appellate Tribunal
Basavaraj Koujalagi & Ors vs Mr. Sumit Binani on 8 September, 2022
NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH,
NEW DELHI
Company Appeal (AT) (Insolvency) No. 731 of 2021
[Arising out of order dated 03.05.2021 in I.A. No. 865/KB/2020 in CP (IB) No.
182/KB/2017 passed by the Ld. Adjudicating Authority (National Company
Law Tribunal, Kolkata Bench, Kolkata)]
IN THE MATTER OF:
1. Basavraj Kaujalagi,
94 P Belur Industrial Area,
Dharwad, Karnataka.
2. Mailarigouda Patil,
94 P Belur Industrial Area,
Dharwad, Karnataka.
3. Gangappa Adinavar,
94 P Belur Industrial Area,
Dharwad, Karnataka.
4. Mallikarjun Badigar,
94 P Belur Industrial Area,
Dharwad, Karnataka.
5. Shyam Singanmalli,
94 P Belur Industrial Area,
Dharwad, Karnataka.
6. Siddalingappa Halemani,
94 P Belur Industrial Area,
Dharwad, Karnataka.
7. Veerappa Desai,
2
94 P Belur Industrial Area,
Dharwad, Karnataka.
8. Subramanya Jannadha Varma Sagi,
94 P Belur Industrial Area,
Dharwad, Karnataka.
9. Vinay Nagmule,
94 P Belur Industrial Area,
Dharwad, Karnataka.
10. Sunil Kulkarni,
94 P Belur Industrial Area,
Dharwad, Karnataka.
11. Vinayak Chvan,
94 P Belur Industrial Area,
Dharwad, Karnataka.
12. Ratnajji Shinde,
94 P Belur Industrial Area,
Dharwad, Karnataka.
13. Venkatesh Joshi,
94 P Belur Industrial Area,
Dharwad, Karnataka.
14. Paravattappa Nekar,
94 P Belur Industrial Area,
Dharwad, Karnataka.
15. Ajjappa Nandi,
94 P Belur Industrial Area,
Dharwad, Karnataka.
16. Ranglal Ram,
Company Appeal (AT) (Insolvency) No. 731 of 2021
3
94 P Belur Industrial Area,
Dharwad, Karnataka.
17. Srikant ram,
94 P Belur Industrial Area,
Dharwad, Karnataka.
18. Ashwini Kumar,
94 P Belur Industrial Area,
Dharwad, Karnataka.
19. Prakash Sah,
94 P Belur Industrial Area,
Dharwad, Karnataka.
20. Shambu Paswan,
94 P Belur Industrial Area,
Dharwad, Karnataka.
21. Virupaxi Machapur,
94 P Belur Industrial Area,
Dharwad, Karnataka.
22. Basavraj Jampannavar,
94 P Belur Industrial Area,
Dharwad, Karnataka.
23. Deepak Kalal,
94 P Belur Industrial Area,
Dharwad, Karnataka.
24. Mounesh Pattar,
94 P Belur Industrial Area,
Dharwad, Karnataka.
25. Binay Kumar Prajapati,
Company Appeal (AT) (Insolvency) No. 731 of 2021
4
94 P Belur Industrial Area,
Dharwad, Karnataka.
26. Baleshwar Das,
94 P Belur Industrial Area,
Dharwad, Karnataka.
27. Parveezahmed Shirhatti,
94 P Belur Industrial Area,
Dharwad, Karnataka.
28. Chandrashekar Lamani,
94 P Belur Industrial Area,
Dharwad, Karnataka.
29. Digambara R Daivanga,
94 P Belur Industrial Area,
Dharwad, Karnataka.
30. Sanjay Kumar Pathak,
94 P Belur Industrial Area,
Dharwad, Karnataka.
31. Sunilkumar Madekar,
94 P Belur Industrial Area,
Dharwad, Karnataka.
32. Gopal Das,
94 P Belur Industrial Area,
Dharwad, Karnataka.
33. Vinayak Bevinmarad,
94 P Belur Industrial Area,
Dharwad, Karnataka.
34. Manjunath Masal,
Company Appeal (AT) (Insolvency) No. 731 of 2021
5
94 P Belur Industrial Area,
Dharwad, Karnataka.
35. Jyotish Paswan,
94 P Belur Industrial Area,
Dharwad, Karnataka.
36. Sadhu Ram,
94 P Belur Industrial Area,
Dharwad, Karnataka.
37. Mitan Das,
94 P Belur Industrial Area,
Dharwad, Karnataka.
38. Satyaprasad Kelsangdavar,
94 P Belur Industrial Area,
Dharwad, Karnataka.
39. Shakti Singh,
94 P Belur Industrial Area,
Dharwad, Karnataka.
40. Baramdev Ram,
94 P Belur Industrial Area,
Dharwad, Karnataka.
41. Dhananjay Undale,
94 P Belur Industrial Area,
Dharwad, Karnataka.
42. Ganesh S Ram,
94 P Belur Industrial Area,
Dharwad, Karnataka.
......Appellants.
Company Appeal (AT) (Insolvency) No. 731 of 2021
6
Versus
Mr. Sumit Binani,
Room No. 6, Commerce House,
2A, Ganesh Chandra Avenue,
Kolkata - 700013.
........ Respondent
Present:
For Appellant: Mr. Bharat Sood, Advocate.
For Respondent:- Mr. Arjun Asthana, Mr. Krishnaraj Thaker, Mr.
Sidhartha Sharma and Ms. Anushka Sarkar,
Advocates.
JUDGMENT
(08th September, 2022) Justice Anant Bijay Singh;
This Appeal has been preferred by the Appellants was 42 in numbered being aggrieved and dissatisfied by the order dated 03.05.2021 passed by the Adjudicating Authority (National Company Law Tribunal, Kolkata Bench, Kolkata) in I.A. No. 865/KB/2020 in CP (IB) No. 182/KB/2017 whereby and whereunder the Adjudicating Authority has dismissed the I.A. No. 865/KB/2020 filed by the workers for following reliefs:-
"a) The respondent/Liquidator be directed to disburse payment of dues of workers and employees of the Company working at Dharwad Plant of the company in Karnataka in a regular and timely manner;
b) The respondent/Liquidator be restrained by an order of injunction from taking any coercive steps for closing the operations of the company's plant at Dharwad, Karnataka;
Company Appeal (AT) (Insolvency) No. 731 of 2021 7
c) The respondent/Liquidator be restrained by an order of injunction from terminating, or taking any decision to terminate, the agreement between the company and Jeju Metals Private Limited as recorded in the letter dated 27.09.2019; and
d) A competent and independent agency be appointed to investigate the manner in which the respondent/Liquidator has been conducting his affairs as such Liquidator, and a report be called for from such agency;"
2. The facts giving rise to this Appeal are as follows:
a) The Appellants are the employees and worker of Gujarat NRE Coke Limited ("the Company" or "Gujarat NRE"), in employment for the last twelve years and working at the plant of the Company at Belur Industrial Area, Dharwad, Karnataka.
b) The Company is in the business of manufacture of Low Ash Metallurgical Coke ('met coke') and is one of the largest independent coke producers in India.
The coal and coke industry suffered a major setback since 2012 due to various external factor, which impacted the performance of the Company. In spite of its best efforts and due to continuous downturn in the industrial scenario, the Company could not manage to revive its operations. This led to the loan accounts of the Company turning into Non-Performing Assets (NPA).
c) Further case is that the Company filed an application under Section 10 of the Insolvency and Bankruptcy Code, 2016 (for short "IBC"), which was admitted. In due course, the Company was sent into liquidation vide order dated 11.01.2018, and Mr. Sumit Binani, the respondent herein, was appointed Company Appeal (AT) (Insolvency) No. 731 of 2021 8 as the Liquidator. The Liquidator was directed to dispose of the Company as a going concern and in the event the process of sale as a going concern failed during the three-month period specified in the said order, the process of sale of assets of the Company was to be initiated in accordance with Section 33 of the Code.
d) Further case is that the Appellants claim that while they tried heir best to run the plant at Dharwad, they were unsuccessful due to the continuous intervention and obstacles created by the Liquidator. The production at the plant gradually declined and finally stopped for no fault of the appellants.
e) Jeju Metals Private Limited ("JMPL"), a company dealing in coal and coke and one of the customers of the Company, expressed a desire to get its coal processed at the Coke plant of the Gujarat NRE at Dharwad. It as mutually agreed between the Company and JMPL that JMPL's coal would be processed into metallurgical coke at the Dharwad plant of the Company with effect from 01.10.2019. Such arrangement was agreed on terms specified in the letter dated 27.09.2019
f) Further case is that in terms of the aforesaid agreement, JMPL was to pay consideration for the use of the production facilities at the Dharwad plant of the Company at the rate of Rs. 200/- per metric ton of met coke produced for the purpose, subject to a minimum of Rs. 40.00 lakh per month (processing charges) plus all manufacturing expenses, such as, electricity power and fuel, repair and maintenance, travelling and conveyance, except salary, wages and contribution to security personnel expenses. The processing charges was Company Appeal (AT) (Insolvency) No. 731 of 2021 9 agreed to be paid as a consideration for the Company providing JMPL with an exclusive right to use the plant at Dharwad, the land and all related facilities.
g) Further case is that in order to ensure that there is no impediment faced by JMPL in the process of conversion of coal into met coke, the Company also agreed to provide it employees and workers presently in its employment for such operation at the Dharwad plant. The agreement was agreed to be terminated by either party by giving a prior notice of four months to the other party. On behalf of the Company, the Respondent had issued the letter dated 27.09.2019, which was accepted by JMPL only with effect from 01.11.2019. As per the agreement dated 27.07.2019 the Company, through its present employees and workers, provides services for conversion of the coal into met coke using the manufacturing facilities at the Dharwad plant. For the period November, 2019 to July, 2020, the Company raised monthly invoices on JMPL in terms of the said agreement for a sum of Rs. 47.20 lakh each.
h) In terms of the bills/invoices raised by the Company, JMPL has been making payments to the Company covering the period November, 2019 to July, 2020. All the employees and workers of the Company at its Dharwad plant continue to work for JMPL in terms of the agreement dated 27.09.2019 and to cover such costs, JMPL had been making payments in the manner aforesaid. It is also evident that the business of the Company through its plant at Dharwad is operational, even during the liquidation process. Company Appeal (AT) (Insolvency) No. 731 of 2021 10
i) The Respondent has not paid any sum of money to the Appellants from the account of the Company. All salaries and wages of the employees/workers at the Dharwad plant of the Company and the security agencies appointed by the Respondent were being paid by the Respondent from the money received from JMPL. As per the agreement, the Appellants are required to work at the Dharwad plant of the Company to ensure that the terms of such agreement are honoured and there is no difficulty faced by JMPL, in the process of conversion of coal into met coke.
j) Further case is that although, the Appellants were attending their duties at the Dharwad plant of the Company regularly, the Respondent delayed the payment of their salaries and wages almost every month and in particular has refused to make any payment since the month of June, 2020 for quite some time. The Appellants, upon expressing concern with regard to such non- payment, were informed by the Respondent that the Respondent was following the principle of "No work no pay".
k) The Respondent failed to appreciate that when the entire nation is suffering by the disastrous financial effect caused by the outbreak of the pandemic, the Appellants have been regularly attending the Dharwad plant of the Company to render their services to JMPL. Non-payment of the salaries and wages by the Respondent is against the principles of equity, fairness and humanity. The liquidator has, however, been receiving continuous payment from JMPL under the agreement.
Company Appeal (AT) (Insolvency) No. 731 of 2021 11
l) Prior to the nationwide lockdown declared by the Government of India, by reason of the outbreak of the Covid-19 pandemic, the Hon'ble Supreme Court by an order dated 24.02.2020, passed in an appeal preferred by Mr. Arun Kumar Jagatramka, directed that the liquidation proceeding of the Company may go on, but sales, if any, was not to be confirmed. It is pleaded that in terms of the orders passed by this Adjudicating Authority and the Hon'ble Supreme Court, the Respondent cannot remove any of the employees or workers or retrench them from employment.
m) However, since payment were not being made by the Respondent in spite of funds available in the Company, some of the employees at the higher management level have been compelled to tender their resignations. The Respondent, by his act and conduct, and by withholding the payments, which the workers and employees are entitled to receive, was trying to create a compelling situation for the worker to leave the Company.
n) Further case is that by an email dated 03.08.2020, the Respondent/Liquidator had informed the Deputy Commissioner of Police, Dharwad Region, Karnataka, about a possible unrest at the Dharwad plant. The email was only intended to portray that the Respondent took all possible steps to revive the Company and had been paying the salaries of employees and wages of workers even during the pandemic till May, 2020. The Respondent also created an impression that the financial condition of the Company had deteriorated further and that it was becoming impossible to pay the salaries and wages to idle employees and workmen. Company Appeal (AT) (Insolvency) No. 731 of 2021 12
o) Further case is that the Appellants lodged complaints dated 04.08.2020 with the Deputy Commissioner, Belgaum and with the Deputy Commissioner of Police, Dharwad Region Karnataka on 06.08.2020, setting out the facts from their perspective and informing the said authorities that the salaries and wages for the month of July 2020 have not been paid and the Respondent is also not interested in paying any further amount on frivolous grounds.
p) The work at the Dharwad plant of the Company in terms of the agreement is still operational. There are dispatches of met coke that have been made from the Dharwad plant even in August, 2020. The employees and workers are regularly attending their duties as per the requirements of the management of the Company.
q) Further case is that the Appellants have been harassed unnecessarily by the Respondent by refusing to pay legitimate dues on account of the services rendered even after receipt of payment and having available fund. The Respondent is only interested in closing down the Dharwad plant, which is otherwise operational and cut short the source of generating revenue. Immediate intervention of this Adjudicating Authority is, therefore, both expedient and necessary to prevent further illegalities being committed upon the applicants at the instance of the Respondent, who is only interested in the closure of the Company and not its revival. The manner in which the Respondent is discharging the functions as the Liquidator of the Company also requires to be investigated by an independent and competent agency so as to prevent any unjust decision being taken at the behest of the Respondent. Company Appeal (AT) (Insolvency) No. 731 of 2021 13 Thereafter, the Appellants filed I.A. No. 865/KB/2020 in CP (IB) No. 182/KB/2017 with a prayer (supra) and after hearing the parties the Adjudicating Authority dismissed the said I.A. Hence this Appeal.
3. The Learned Counsel for the Appellants during the course of argument and in his memo of Appeal along with Written/Additional Written Submissions submitted that one of the reliefs sought by the Appellants in I.A. No. 865/KB/2020 was 'the respondent/Liquidator of the Company, Gujarat NRE Coke Ltd., be directed to disburse/make payment of the dues of the workers and employees of the Company working at Dharwad Plant at Karnataka in a regular and timely manner'. The Respondent in his Affidavit in Reply has admitted that he has made payment to 20 Appellants being Appellant Nos. 8, 14, 15, 16, 17, 20, 21, 23, 24, 25, 26, 30, 32, 33, 35, 36, 37, 38, 40 and 42. Thus, till date, 22 Appellants have not been paid their legitimate dues.
4. It is further submitted that Section 53(1)(b)(i) of the IBC which provides for 'Distribution of assets' in case of Liquidation stipulates payment of 'workmen's dues for the period of twenty-four months preceding the liquidation commencement date' which admittedly have not been paid by the Respondent till date.
5. It is further submitted that Section 35(j) of the IBC obligates the Liquidator, i.e. the Respondent herein, 'to invite and settle claims of creditors and claimants and distribute proceeds in accordance with the provisions of this Code'. The Appellants, who are workers of Gujarat NRE Coke Ltd. have been Company Appeal (AT) (Insolvency) No. 731 of 2021 14 used as pawns by the Respondent in his ego-tussle with the Promotors of Gujarat NRE Coke Ltd. The refusal by the Respondent for non-payment of the wages of certain Appellants on the pretext of 'not handing over charge and refusing to make over the assets/records of the Corporate debtor' is merely hubris and a ruse to coerce them to toe his line and extend co-operation in his tussle/ego clash with the Promotors of Gujarat NRE Coke Ltd.
6. It is further submitted that despite having received Rs. 2.56 crores from 01.11.2019 to June, 2020 from Jeju Metals under the Conversion Agreement with the Corporate Debtor and the last of such payments having been received on 13.07.2020, the Respondent abruptly terminated the contract with Jeju Metals on 15.07.2020 and thwarted all efforts by Jeju Metals to run the Dharwad Plant. The Respondent, in order to justify his decision of shutting down the Dharwad Plant on 15.07.2021 has taken recourse to a letter by Lakshmi Vilas Bank dated 03.09.2020 (at page 308-309 of the Reply) which belies logic and makes apparent his determination to shut down operations of the Dharwad Plant at all costs. It is an admitted fact that the Respondent has taken over the entire records of the Corporate Debtor.
7. The Ld. Counsel for the Respondent/Liquidator during the course of argument and in his Reply Affidavit along with Written/Additional Written Submissions submitted that ex-workmen and ex-employees of the Dharwad Plant of the Corporate debtor (in Liquidation) at the behest of the suspended Promoter and Director of the Corporate Debtor, namely Mr. Arun Kumar Jagatramka and his family, with mala fide intent. The present Appeal is yet Company Appeal (AT) (Insolvency) No. 731 of 2021 15 another attempt of Mr. Arun Kuamr Jagatramka to create all types of hurdles to derail an frustrate the liquidation proceedings.
8. It is further submitted that on enquiries being made by the Liquidator from the ex-employees/ex-workmen arraigned as Appellant in the present Appeal, more specifically from one Mr. Mounesh Pater, the Appellant No. 24 and another Mr. Deepak Kalal, the Appellant No. 23. The said Appellants have denied any connection with the present Appeal and have expressly denied granting any consent for filing of the present Appeal
9. It is further submitted that the Appellants have raised a new ground in this Appeal of alleged non-payment of their purported dues on sale of the assets of the Corporate Debtor in course of the liquidation process. The Appellants cannot be permitted to take this ground inasmuch as the same was not the subject matter of IA 865/KB/2020 in which the impugned order was passed.
10. It is further submitted that before dealing with the merits if the allegation and contention raised in the Appeal, the background facts and events necessary for adjudicating of the present appeal as under:
• Upon completion of the timelines in the CIRP, when no resolution plan was approved, the Adjudicating Authority passed the liquidation order of the Corporate Debtor on 11.01.2018. Pursuant to initiation of liquidation process of the Corporate Debtor (in liquidation), Mr. Arun Kumar Jagatramka, on 14.02.2018 instituted an application being CA (CAA) No. Company Appeal (AT) (Insolvency) No. 731 of 2021 16 198/KB/2018 before the Adjudicating Authority proposing a Composite Scheme of Compromise and Arrangement between the Corporate Debtor and its Shareholders, Foreign Currency Convertible Bond Holders, Secured Creditors and Unsecured Creditors (hereinafter referred to as the "Stakeholders") under Section 230 to 232 of the Companies Act, 2013.
• The Adjudicating Authority admitted the aforesaid scheme under Section 230 and 232 of the Companies Act, 2013 for proposing scheme of compromise and arrangement and directed the Liquidator to hold the meetings of the stakeholders on 16.07.2018. However, one of the operational creditors of the Corporate Debtor, namely, Jindal Power and Steel Limited filed an Appeal challenging the aforesaid order dated 15.05.2018 before this Appellate Tribunal in CA ( AT) (Ins.) No. 221 of 2018 on or around 09.07.2018. Vide judgment dated 24.10.2019, this Appellate Tribunal directed the Liquidator to proceed in term sof the principle decided in Y. Shivram Prasad vs. S. Dhanapal & Ors., inter alia holding that the promoter of the Corporate Debtor was not entitled under the law to submit a scheme of arrangement.
• Pursuant to the issuance of public announcement by the liquidator for inviting a Scheme of Companies and Arrangement, a Scheme under Section 230 was submitted by 109 equity shareholders of the Corporate Debtor to the Liquidator on 30.11.2019. Accordingly, the Liquidator instituted an application being CA No. 20/2020 under Section 230 before Company Appeal (AT) (Insolvency) No. 731 of 2021 17 the Adjudicating Authority on the basis of said Scheme received from the abovementioned shareholders of the Corporate Debtor. • The Scheme proposed by 109 employees of the Corporate Debtor was approved by the Unsecured Creditors and FCCB Holders with requisite majority. However, the said Scheme was not approved by the Secured Creditor and Equity Shareholders by the requisite 75% majority. • Since the financial creditors had not approved the Scheme proposed by 109 equity shareholders of the Corporate Debtor, around 370 employees/workmen of the Corporate Debtor filed an un-numbered application in CP(IB) No. 182/KB/2017 before the Adjudicating Authority on 29.05.2020 (hereinafter referred to as the "Reconsideration Application") for reconsideration of the Scheme and passing of the aforesaid Scheme by the financial creditors who were made the respondents therein. The Reconsideration Application and the application filed by the Liquidator being CA20/2020 in CP (IB) No. 182/KB/2017 in connection with the scheme propounded by 109 equity shareholders were rejected and dismissed by Adjudicating Authority vide its order dated 09.06.2020 and 24.06.2020 (at Annexure F & G of the Reply) respectively.
• The aforesaid orders were also challenged before this Appellate Tribunal in CA (AT) Ins.) No. 985-986 of 2020 and the same was dismissed on 19.11.2020. A civil appeal challenging the order dated 19.11.2020 was also filed before the Hon'ble Supreme Court in Civil Appeal Nos. 4062- Company Appeal (AT) (Insolvency) No. 731 of 2021 18 4063 of 2020 which was also dismissed by the Hon'ble Supreme Court on 28.01.2021 (at Annexure H & I of the Reply) respectively. • Further, Mr. Arun Kumar Jagatramka also filed a civil appeal being Civil Appeal No. 9664 of 2019 before the Hon'ble Supreme Court challenging the judgment dated 24.09.2019 and the Hon'ble Supreme Court dismissed the aforesaid civil appeal by holding that the aforesaid promoter being ineligible under Section 29A of the IBC cannot submit a Scheme under Section 230 for revival of the Corporate Debtor in liquidation vide its judgment dated 15.03.2021 (at Annexure- J of the Reply).
• Immediately after the rejection of the aforesaid Reconsideration Application and the Scheme Application (being CA 20/2020 in CP (IB) No. 182/KB/2017) of 109 employees/shareholders by the financial creditors and equity shareholders and thereafter by the Adjudicating Authority, complete non-cooperation of the employees and workmen of the Corporate Debtor under the influence of the Mr. Arun Kumar Jagatramka commenced Mr. Arun Kumar Jagatramka being the suspended director and promoter did not want the Liquidation Proceedings to continue.
• Due to continuing losses and cash flows drying up, the only running steel business of the Corporate Debtor had to be shut down after the first week of September, 2020. The operating windmills of the corporate debtor supplying power to the steel plant was also shut as the corporate Company Appeal (AT) (Insolvency) No. 731 of 2021 19 debtor could not pay the operations and maintenance charges for running the same. Also, continuing heavy rains at the windmill locations resulted in huge losses due to non-generation of expected power as a result of which the Corporate Debtor was unable to meet the weekly operating and maintenance charges. The agency providing the O & M services therefore discontinued the operations of the windmills and withdrew their services in first week of September, 2020. • The Khambalia, Gujarat coke unit of the Corporate Debtor consisting of 11 chimneys was non-operational since long even prior to the liquidation commencement date. The Bhachau, Gujarat coke units of the Corporate Debtor were mostly non-operational since the liquidation commencement date. A maximum of only 2 out of 16 chimneys were intermittently running. A chart depicting the number of chimneys run and production details month wise from April 2019 to September, 2020. The Dharwad, Karnataka coke unit consisting of 8 chimneys were almost non- functional since the liquidation commencement date. A maximum of only 2 out of 8 chimneys were intermittently running. The coke units as aforesaid of the Corporate Debtor could not be operated due to shortage of working capital.
• Since the Dharwad Plant of the corporate debtor was not functioning, the Liquidator entered into a processing agreement with Jeju Metals private Limited w.e.f. 01.11.2019. Vide the said agreement, it was agreed that Jeju Metals Private Limited shall pay a consideration @ Rs. 200 per MT Company Appeal (AT) (Insolvency) No. 731 of 2021 20 of Met Coke produced, subject to a minimum of Rs. 40 Lacs per month, plus all manufacturing expenses such as electricity, power & fuel, repair and maintenance, travelling & conveyance except salary, wages and contribution to security personnel expenses.
• In terms of the aforesaid, the workmen and employees of the corporate debtor were employed for processing of the met coke for Jeju and their salaries and wages were also being duly paid by the Liquidator. It is noteworthy to state here that the processing charges were required to be paid to the Liquidator within 21 days of the end of each month. However, the said Jeju made the payment in accordance with the processing agreement only till February 2020 and thereafter, started making delayed payments till 13th July 2020, whereafter, the said Jeju has not made any payment to the Corporate Debtor.
• The Jeju, vide numerous emails requested the Liquidator to reduce the contract fee, however, it is imperative to mention here that the non- operational cost of the Dharwad Unit itself comes to around Rs. 41 Lakh and any reduction in the contract fee would have resulted in losses to the corporate debtor. The copy of the Liquidation Proceedings Presentation dated 16.09.2020 which was relied upon by the Appellants before the Adjudicating Authority (at Annexure- M of the Reply). • As the Jeju failed to adhere to the terms and conditions of the processing agreement and also failed to make payment to corporate debtor, the Liquidator, vide email dated 15.07.2020 issued a four months' notice for Company Appeal (AT) (Insolvency) No. 731 of 2021 21 termination of the processing agreement. Further, it has also been learnt that the financial position of Jeju has deteriorated and a recall notice dated 03.09.2020 has also been issued to them by Lakshmi Vilas Bank. In light of the aforesaid facts and circumstances, since all the business and windmill units of the corporate debtor were shut and the operating cash flows had completely dried, the liquidator on 23.09.2020 issued a suspension of work notice on a 'no work no pay basis'. After the issuance of the aforesaid suspension notice, the non-cooperation from workers employees and Mr. Arun Kumar Jagatramka further intensified at all locations of the corporate debtor.
• The decision to terminate the agreement with Jeju due to delayed payments by Jeju was done after numerous negotiations and discussions carried out between the Liquidator and Key Managerial Persons of the corporate debtor (in liquidation). In order to ensure that the salaries and wages of the workers and employees of the corporate debtor are paid, I further offered Jeju to utilise the services of the workmen and employees for its processing operations on a contractual basis so that the employees and workmen are still paid salaries vide my email dated 08.05.2020. In response to the said emails, Jeju, vide its email dated 21.05.2020, accepted the delay in making the payments to the corporate debtor. Furthermore, Jeju further admitted that operations at the Dharwad plant could not be commenced initially due to market condition and subsequently due to COVID and further clarified that they could not find Company Appeal (AT) (Insolvency) No. 731 of 2021 22 any solution for commencing the operations at Dharwad Unit till the lockdown is completely lifted and the business activities in the country comes to reasonable normalcy.
• Since the processing agreement was already fixed at the most optimal consideration, only considering that the salaries and wages of the employees and workmen of Corporate Debtor (in liquidation) and other allied costs of the plant could be met, any further reduction in the consideration was not possible for the Corporate Debtor. Accordingly, vide email dated 14.05.2020, I again reiterated the practical difficulties in reducing the consideration amount for utilization of processing unit by Jeju and again offered Jeju the options already discussed vide email dated 08.05.2020.
11. It is further submitted that the reliefs sought by the Appellants the instant Appeal are infructuous in as much as 20 ex-workmen/ex-employees of Corporate Debtor have already been paid their full and final settlement dues i.e. Appellants No. 8, 14, 15, 16, 17, 20, 21, 23, 24, 25, 26, 30, 32, 33, 35, 36, 37, 38, 40 and 42, so far remaining 23 Appellants, being ex-employees of Corporate debtor their full and final settlement dues have not been paid as their discharge is pending since they have not handed over charge and refused/obstructed to make over the assets/records of the Corporate Debtor in their possession in spite of being repeatedly called upon to do so.
12. The Ld. Counsel for the Appellant relying on the Judgment of Hon'ble Supreme Court in the case of "Tata Consultancy Services Limited vs. Company Appeal (AT) (Insolvency) No. 731 of 2021 23 Vishal Ghisulal Jain, Resolution Professional, SK Wheels Private Limited (Civil Appeal No. 3045 of 2020)" wherein the Hon'ble Supreme Court observed as hereunder:
"..........
26. In Gujarat Urja (supra), the contract in question was terminated by a third party based on an ipso facto clause, i.e., the fact of insolvency itself constituted an event of default. It was in that context, this Court held that the contractual dispute between the parties arose in relation to the insolvency of the corporate debtor and it was amenable to the jurisdiction of the NCLT under Section 60(5)(c). This Court observed that "....NCLT has jurisdiction to adjudicate disputes, which arise solely from or which relate to the insolvency of the corporate debtor... The nexus with the insolvency of the corporate debtor must exist"
(para 69). Thus, the residuary jurisdiction of the NCLT cannot be invoked if the termination of a contract is based on grounds unrelated to the insolvency of the Corporate Debtor.
27. It is evident that the appellant had time and again informed the Corporate Debtor that its services were deficient, and it was falling foul of its contractual obligations. There is nothing to indicate that the termination of the Facilities Agreement was motivated by the insolvency of the Corporate Debtor. The trajectory of events makes it clear that the alleged breaches noted in the termination notice dated 10 June 2019 were not a smokescreen to terminate the agreement because of the insolvency of the Corporate Debtor. Thus, we are of the view that the NCLT does not have any residuary jurisdiction to entertain the present contractual dispute which has arisen dehors the insolvency of the Corporate Debtor. In the absence Company Appeal (AT) (Insolvency) No. 731 of 2021 24 of jurisdiction over the dispute, the NCLT could not have imposed an ad-interim stay on the termination notice. The NCLAT has incorrectly upheld the interim order of the NCLT."
13. It is further submitted that non-cooperating appellants, whose full and final settlement have not been cleared by the Respondent due to their failure to handover the assets, documents and information of Corporate Debtor cannot agitate the issue of entitlement under the I&B Code, 2016, as the same pertains to independent contractual agreement between the Corporate Debtor and the ex-employees of Corporate Debtor. During the course of hearing by the counsel for the Appellants, the present appeal was mainly filed in order to claim the outstanding dues of the Appellants, being ex-workmen/ex-employees of the Corporate Debtor (in liquidation).
14. It is further submitted that since the ex-workmen/ex-employees of Corporate Debtor continued to obstruct entry of the Respondent and his team from accessing the plant and factory premises at Dharwad to take possession and control over the assets of the Corporate Debtor, the Respondent was constrained to initiate an application being I.A. No. 673/KB/2020 in C.P. (IB) No. 182/KB/2017 before the Adjudicating Authority and vide order dated 25.11.2021, the Adjudicating Authority inter alia constituted a team of Special Officers to visit the plant situated at Dharwad to inter alia ensure that the physical custody and safety of the assets of the Corporate Debtor are restored to the Respondent. In view of the above, the instant Appeal is not maintainable and deserves to be dismissed.
Company Appeal (AT) (Insolvency) No. 731 of 2021 25
15. From the perusal of the Impugned Order, with regard to prayer (a), (b) and (d) in IA No. 865/KB/2020 filed in CP (IB) No. 182/KB/2017, the findings recorded by the Adjudicating Authority is as follows:
"6.9. Prayer (a) is a direction sought upon the liquidator to pay the dues of the workers and employees working at the Dharwad plant of the Company in a regular and timely manner. We are satisfied with the statement in para 4.24 (supra) that the liquidator has made payments wages of all workmen have been paid in full till 23.09.2020 on the basis of wages sheet for Aug 2020, and that the salaries of all employees at Dharwad and other units of the Company have been paid in full till August 2020. We also note that owing to limited cash flow, the liquidator has paid ₹15,000/- on account of salary of employees drawing up to ₹30,000/- for the month of September, 2020, while every employee drawing salary up to ₹15,000/- have been paid in full for the month of September, 2020. The liquidator cannot be expected to foot the bill from his own pocket in the absence of adequate cash flows to the corporate debtor. 6.10. We note the arguments of Mr Swatarup Banerjee that had the agreement with JMPL not been terminated, the workers would have had some money in their pockets. This is neither here nor there. The liquidator has taken the decision to terminate the contract on 15.07.2020 from a commercial perspective, where the Company Appeal (AT) (Insolvency) No. 731 of 2021 26 payments for April 2020 came to be paid in tranches till July 2020. The liquidator was not sure whether the payments for May, June and July 2020 would at all come, and therefore came to the conclusion to terminate the contract so that he could explore other options. We have seen from the correspondence exchanged between the liquidator and JMPL, mentioned in para 4.23 (supra) that the admitted position was that JMPL was not in a position to commence its operations in the plant, firstly due to 'market conditions' and later due to the Covid-19 pandemic. In such circumstances, it is a matter of conjecture whether JMPL would have come as the knight in shining armour to save the workers. Considering that no payments have come forth from JMPL after the termination of the contract, we are not too sure that this could have happened.
6.11. Therefore, in the absence of inflows into the coffers of the Company, prayer (a) cannot be granted at this stage, and we order accordingly.
Prayer (b):
6.12. In so far as prayer (b) is concerned, this is for a direction to restrain the liquidator from taking any coercive decision for closing down the operations of the Company's Dharwad plant.
Company Appeal (AT) (Insolvency) No. 731 of 2021 27 6.13. We have, in the course of oral arguments from both sides, had occasion to go through the correspondences, charts, cash flow statements, and statements of expenditure brought on record. The liquidator has made payment of wages in full till 23.09.2020 to all workers, and salaries to all employees in full till August 2020. Even for September 2020, the liquidator has paid salary in full for those employees drawing salary up to ₹15,000/-, and ₹15,000/- for those employees drawing salary up to ₹30,000/-. This statement is uncontroverted. We find therefrom that the liquidator has taken every possible step to keep the Dharwad plant operational. We note that the outstanding expenses of the Company as on 31st August 2020 were ₹8.32 crore besides other liabilities, 64 and that the same would continue to is mount due to monthly fixed costs of the Company. We also note that that April to Dec 2019, the revenue of the Dharwad unit was ₹18.50 crore, whereas the expenditure was ₹32.55 crore,65 thereby making the unit unviable. The liquidator cannot be expected to keep it afloat when the balance sheet of the company is in the red. The documents placed on record do not reveal any other source of revenue to meet the expenses of the Company.
6.14. At some point of time, hard decisions are called for in the life of a company, and these have to be taken. Unviable units will have to be closed down. The actions will have to be measured up against Company Appeal (AT) (Insolvency) No. 731 of 2021 28 the objectives of the Code, one of which is to free up resources of unviable companies by permitting an easy exit. It cannot be misconstrued to keep unviable units afloat by some sleight of hand under the guise of keeping it as a "going concern," thereby defeating a key objective of the Code.
6.15. The upshot of the discussion is that prayer (b) cannot be granted.
It is for the Liquidator to take a call on whether to close down the operations of the Dharwad plant of the Company, as indeed for other units of the Corporate Debtor. In the order dated 11.01.2018,66 this Adjudicating Authority had specifically ordered the liquidator to try and dispose of the corporate debtor as a going concern within a maximum period of three months. For various reasons, this has not been possible for the liquidator. 6.16. We, accordingly, now direct the liquidator to proceed with the sale of assets of the Company without further ado as per section 33 of the Code, now that the stay on confirmation of assets has been lifted in the light of the final decision of the Hon'ble Supreme Court in Arun Kumar Jagatramka v Jindal Steel & Power Ltd. Prayer (d):
6.17. Before we part with the matter, we record that the prayer (d), which is for a competent and independent agency to be appointed to investigate the manner in which the liquidator has been Company Appeal (AT) (Insolvency) No. 731 of 2021 29 conducting his affairs as such liquidator, was not seriously argued by the learned counsel for the applicants. It was also not given up.
6.18. In this regard, we hold that in the absence of any allegation of fraud or bias in the decisions of the liquidator, we cannot order a roving inquiry just on the basis of perceived loss of employment of the workers on account of a business decision taken by the liquidator to terminate the arrangement with JMPL. To hold otherwise will set a wrong precedent, and insolvency professionals shall not be able to take independent decisions, leading to a failure of the system. Such an approach should, therefore, be shunned. Actions taken in good faith by a public servant always enjoy protection under the law, and the IBC is no different, providing for the same under section 233 of the Code. 6.19. Resultantly, IA No.865/KB/2020 shall be dismissed.
We take note of the conduct of the Appellants who have not come with clean hands in filing this Appeal. Out of 42 Appellants, 20 have been paid in full and final settlement and so far as the remaining Appellants are concerned, they have not been handed over charge and have obstructed in taking of the possession of Dharwad unit. The reasons recorded by the Adjudicating Authority for dismissing the IA No. 865/KB/2020 are within the framework of law and require no interference. The impugned order dated 03.05.2021 passed Company Appeal (AT) (Insolvency) No. 731 of 2021 30 by the Adjudicating Authority (National Company Law Tribunal, Kolkata Bench, Kolkata) in I.A. No. 865/KB/2020 in CP (IB) No. 182/KB/2017 is hereby affirmed. There is no merit in the Appeal. The Appeal is hereby dismissed. No order as to costs.
16. Registry to upload the Judgment on the website of this Appellate Tribunal and send the copy of this Judgment to the Adjudicating Authority (National Company Law Tribunal, Kolkata Bench, Kolkata), forthwith.
[Justice Anant Bijay Singh] Member (Judicial) [Ms. Shreesha Merla] Member (Technical) New Delhi 08th September, 2022 R. Nath.
Company Appeal (AT) (Insolvency) No. 731 of 2021