2019 (5) TMI 1969 - AT - Insolvency and Bankruptcy

Adjudicating Authority orders liquidation for 'Bharti Defence and Infrastructure Ltd.' emphasizing revival over liquidation

The Adjudicating Authority rejected the Resolution Plan for 'Bharti Defence and Infrastructure Ltd.' and ordered liquidation due to national importance ... Liquidation of Corporate Debtor - rejection of Resolution Plan - Section 33 read with Regulation 32(b) & (e) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 - HELD THAT:- The Adjudicating Authority rightly observed that the ‘Resolution Plan’ should be planned for ‘Insolvency Resolution’ of the ‘Corporate Debtor’ as a going concern and not for addition of value with intent to sell the ‘Corporate Debtor’. The purpose to take up the company with intent to sell the ‘Corporate Debtor’ is against the basic object of the ‘I&B Code’. As more than 270 days have passed, the Adjudicating Authority having passed order of liquidation, we find no ground to interfere with the impugned order dated 14th January, 2019. The Adjudicating Authority directed that the liquidator to ensure that the company remains a going concern and certain other direction has been issued. The liquidator to follow the decision and direction of this Appellate Tribunal in Y. SHIVRAM PRASAD AND ASSET RECONSTRUCTION COMPANY (INDIA) LTD. VERSUS S. DHANAPAL & ORS. AND SERVALAKSHMI PAPER LTD. & ORS [2019 (5) TMI 386 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] where it was held that the liquidator is required to act in terms of the aforesaid directions of the Appellate Tribunal and take steps under Section 230 of the Companies Act. If the members or the ‘Corporate Debtor’ or the ‘creditors’ or a class of creditors like ‘Financial Creditor’ or ‘Operational Creditor’ approach the company through the liquidator for compromise or arrangement by making proposal of payment to all the creditor(s), the Liquidator on behalf of the company will move an application under Section 230 of the Companies Act, 2013 before the Adjudicating Authority i.e. National Company Law Tribunal, Chennai Bench, in terms of the observations as made in above. The appeal is disposed off with direction to the Liquidator to act in accordance with observations and decision of this Appellate Tribunal. Issues Involved:1. Approval of the Resolution Plan under Section 31.2. Rejection of the Resolution Plan and order for liquidation under Section 33.3. Allegations of material irregularity and fraud by the Resolution Professional.4. Conflict of interest of the Resolution Professional.5. National importance of the Corporate Debtor's product line.6. Employees' and workmen's unpaid salaries.7. Proposal to right-size the workforce and compliance with labor laws.8. Resolution Applicant's disinterest in pursuing the Resolution Plan.9. Adjudicating Authority's scrutiny of the Resolution Plan.10. Liquidation process and steps for revival and continuation of the Corporate Debtor.Issue-wise Detailed Analysis:1. Approval of the Resolution Plan under Section 31:The 'Resolution Professional' of 'Bharti Defence and Infrastructure Ltd.' filed an application under Section 31 for approval of the 'Resolution Plan' submitted by 'Edelweiss Asset Reconstruction Company Ltd.' The plan was approved by the 'Committee of Creditors' with a vote share of 94.3%.2. Rejection of the Resolution Plan and order for liquidation under Section 33:The Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, rejected the plan and ordered liquidation under Section 33 read with Regulation 32(b) & (e) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. The relevant portion of the order directed the liquidation of the Corporate Debtor as a going concern due to its national importance and substantial workforce.3. Allegations of material irregularity and fraud by the Resolution Professional:The Appellant, a shareholder, challenged the liquidation order on the grounds of 'material irregularity' and alleged fraud committed by the 'Resolution Professional.'4. Conflict of interest of the Resolution Professional:It was alleged that the 'Resolution Professional' was not independent as his partnership firm had previously provided services to the 'Resolution Applicant' in relation to the 'Corporate Debtor.'5. National importance of the Corporate Debtor's product line:The Corporate Debtor held a license from the Ministry of Defence to build defense warships and had substantial orders under execution, highlighting the national importance of its product line.6. Employees' and workmen's unpaid salaries:The employees and workmen of 'Bharti Defence and Infrastructure Ltd.' appeared and argued that more than 850 employees' salaries had not been paid.7. Proposal to right-size the workforce and compliance with labor laws:The 'Resolution Applicant' proposed to right-size the workforce by canceling existing contracts with employees/workmen/consultants and sought permission from the Adjudicating Authority for deemed dispensation from compliance with labor laws without offering anything to the employees/workmen.8. Resolution Applicant's disinterest in pursuing the Resolution Plan:The counsel for the 2nd Respondent, 'Edelweiss Asset Reconstruction Company Ltd.,' submitted that they were no longer interested in pursuing the 'Resolution Plan.'9. Adjudicating Authority's scrutiny of the Resolution Plan:The Adjudicating Authority observed that the Resolution Plan provided for income generation from ongoing operations and asset sales without any upfront money from the Resolution Applicant. The plan was deemed against the basic object of the 'I&B Code' as it aimed to add value with the intent to sell the 'Corporate Debtor.'10. Liquidation process and steps for revival and continuation of the Corporate Debtor:The Appellate Tribunal directed the liquidator to ensure that the company remains a going concern and follow the decision in 'Y. Shivram Prasad Vs. S. Dhanapal & Ors.' The Tribunal emphasized that the primary focus should be on the revival and continuation of the Corporate Debtor by protecting it from its management and avoiding liquidation. The liquidator was instructed to take steps under Section 230 of the Companies Act, 2013, for compromise or arrangement with creditors and, if unsuccessful, to sell the business as a going concern.Conclusion:The appeal was disposed of with directions to the liquidator to act in accordance with the observations and decisions of the Appellate Tribunal, ensuring that the company remains a going concern and that the work should be taken from existing employees and workmen.