NCLT approves liquidation of S. Kumars Nationwide Ltd. over rejected Resolution Plan

The NCLT approved the liquidation of the Corporate Debtor, M/s. S. Kumars Nationwide Ltd., following the rejection of the Resolution Plan due to concerns over its fairness and viability. The CoC voted to reject the plan, leading to the appointment of Mr. Om Prakash Agarwal as the Liquidator with a monthly fee of Rs. 4 Lakhs. Despite objections from the Resolution Professional, the NCLT upheld the CoC's decision, citing the need for efficient liquidation proceedings.

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Issues Involved:
1. Application for Liquidation Order under Section 33(2) of the Insolvency Code.
2. Consideration and rejection of the Resolution Plan.
3. Appointment of Liquidator under Section 34 of the Insolvency Code.

Issue-Wise Detailed Analysis:

1. Application for Liquidation Order under Section 33(2) of the Insolvency Code:

The Resolution Professional submitted an application on 05.04.2019 seeking an order for the liquidation of the Corporate Debtor, M/s. S. Kumars Nationwide Ltd. This application followed the admission of a petition by IDBI Bank under Section 7 of the Insolvency Code for a total debt of Rs. 1680,69,35,210/-. A moratorium was declared, and an Interim Resolution Professional was appointed, who was later replaced by a Resolution Professional. The NCLT allowed an exclusion of 55 days lost in litigation.

2. Consideration and Rejection of the Resolution Plan:

The Resolution Professional received seven Expressions of Interest and prepared a list of potential Resolution Applicants. During the 6th Committee of Creditors (CoC) meeting, an extension for the submission of the Resolution Plan was granted. Finquest submitted its Resolution Plan on 26.02.2019, which was considered in the 8th CoC meeting. However, several concerns were raised during the 9th CoC meeting regarding the viability and fairness of the Resolution Plan. The commercial terms were not acceptable, and it was observed that the plan placed Finquest, also a Financial Creditor, in an advantageous position. Specific concerns included:

- Disbursement of different amounts for the same class of secured financial creditors.
- Unfair treatment for remaining financial creditors.
- Extinguishment of rights requested in the plan.
- Misalignment of asset values with liquidation values.
- Requirement for upfront payment of the liquidation value.

The CoC communicated to Finquest to provide an upfront payment of Rs. 350 Crores and to pay the balance debt over three years. Finquest could only arrange Rs. 100 Crores upfront and could not offer more than the valuation of the Corporate Debtor. Consequently, the CoC rejected the Resolution Plan by a 73.78% vote.

3. Appointment of Liquidator under Section 34 of the Insolvency Code:

On 13.03.2019, the 10th CoC meeting approved the liquidation with a 79.73% vote. There was no consensus on the Liquidator's fees, and it was decided that the Joint Lending Forum (JLF) would decide on the fees. The JLF recommended Mr. Om Prakash Agarwal as the Liquidator, who agreed to a monthly fee of Rs. 4 Lakhs. The CoC authorized the Resolution Professional to intimate the decision of liquidation to NCLT.

The NCLT, following the decision of the CoC and the provisions of Section 33(2), approved the commencement of liquidation. The NCLT noted the lack of due diligence on the part of the lenders in granting loan facilities and voting for liquidation, resulting in a significant haircut on the outstanding debt.

Appointment of Liquidator:

IDBI (CoC) submitted an application on 30.04.2019 to appoint Mr. Om Prakash Agarwal as Liquidator. The Resolution Professional objected, stating that there was no fault or delay in his duties. However, Section 34 allows the Adjudicating Authority to replace the Resolution Professional if the resolution plan was rejected. The NCLT found no grievance against the Resolution Professional but upheld the CoC's decision to appoint Mr. Om Prakash Agarwal as Liquidator, considering the expenditure on liquidation fees.

Conclusion:

The NCLT allowed both Miscellaneous Applications (MA 1316/2019 & MA 1627/2019), approving the liquidation of the Corporate Debtor and the appointment of Mr. Om Prakash Agarwal as the Liquidator.

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