2024 (3) TMI 1182 - AT - Insolvency and Bankruptcy

NCLAT allows promoters to revive MSME company by clearing entire debt, sets aside liquidation order

The NCLAT set aside the liquidation order passed by the Adjudicating Authority, allowing the appellant promoters to revive the MSME corporate debtor. The ... Liquidation of the Corporate Debtor - The right of the appellant to propose a revised resolution plan - Chance to revive the corporate debtor, emphasizing the entity's MSME status and its potential for rehabilitation - HELD THAT:- The IBC itself recognises the right of MSME to revive a Corporate Debtor and even if certain ineligibility under Section 29A are not attracted. The object of Corporate Insolvency Resolution Process is always to revive the Corporate Debtor and liquidation being the last resort, which is nothing but a corporate death. The present is a case where the Appellants – Promoters of the Corporate Debtor have undertaken to liquidate the entire debt of the Financial Creditor, who is the only Financial Creditor consisting of 100% CoC. It is relevant to notice that there are no other creditors of the Corporate Debtor. It is also relevant to notice that Appellant is making efforts from very beginning to revive the Corporate Debtor - When the Appellant is ready to liquidate the entire debt of the Financial Creditor/, there are no reason to deny an opportunity to revive the Corporate Debtor on its feet. There is no doubt that Financial Creditor is entitled to entire debt and it cannot be directed to take any haircut. The present is a case where the Appellant has undertaken to clear the entire claim, which was admitted in the CIRP. The Adjudicating Authority committed error in not accepting the Bank Draft of Rs.75 lakhs shown to the Court on the date when the matter was heard. The Adjudicating Authority ought to have given an opportunity to deposit the Bank Draft to complete the payment of Rs.1 crore as was directed by the Adjudicating Authority. The order passed by Adjudicating Authority is set aside - the order dated 07.08.2022 passed in IA 64 of 2023 directing the liquidation is set aside - Appellant is permitted to deposit the entire balance amount of Rs.4,92,81,826/- within 30 days from today by the Bank Draft or RTGS to the Bank. The Appellant shall bear entire CIRP costs. Appeal disposed off. Issues Involved:1. Amendment of Memo of Appeal.2. Liquidation of Corporate Debtor.3. Payment and Resolution Plan by the Appellant.4. Rights and Obligations of Financial Creditor.Summary:1. Amendment of Memo of Appeal:The Appellant filed IA No.4170 of 2023 seeking to amend the prayer clauses to challenge the order dated 07.08.2023 passed by the National Company Law Tribunal, Mumbai Bench-IV in IA No.3887/2022 & IA No.64/2023. The Appellate Tribunal granted leave to amend the Memo of Appeal to challenge the order passed in IA No.3887 of 2022 as well.2. Liquidation of Corporate Debtor:The Corporate Debtor was admitted in the Corporate Insolvency Resolution Process (CIRP) on 07.06.2022. The Financial Creditor, Vidya Sahakari Bank Ltd., constituting 100% of the Committee of Creditors (CoC), filed its claim for Rs.4,92,81,826/-. The CoC, in its 4th Meeting, decided to liquidate the Corporate Debtor after rejecting the Resolution Plan submitted by the Appellant. Subsequently, the Resolution Professional (RP) filed IA No.64 of 2023 for liquidation. The Adjudicating Authority allowed the liquidation application and dismissed IA No.3887 of 2022 filed by the Appellant.3. Payment and Resolution Plan by the Appellant:The Appellant, Promoter/Director of the Corporate Debtor, proposed to pay 100% of the principal outstanding plus simple interest @ 12% p.a. towards the debt of the Financial Creditor, excluding penal interest and other charges. The Appellant failed to deposit the required amount of Rs.1 crore as earnest money and only deposited Rs.25 lakhs. On 07.08.2023, the Appellant produced a Demand Draft of Rs.75 lakhs, but the Adjudicating Authority did not accept it and proceeded with liquidation. The Appellant later paid Rs.70 lakhs and sought time to deposit the remaining amount.4. Rights and Obligations of Financial Creditor:The Financial Creditor, Vidya Sahakari Bank Ltd., maintained that it could not accept any haircut as the value of the secured assets was more than twice the amount due. The Bank's claim in the liquidation now stands at Rs.6.09 crores, which was submitted to the Liquidator. The Bank contended that the Appellant's offer to liquidate Rs.4,92,81,826/- was insufficient.Conclusion:The Tribunal observed that the primary focus of CIRP is to revive the Corporate Debtor and liquidation should be the last resort. The Tribunal allowed the Appellant to deposit the entire balance amount of Rs.4,92,81,826/- within 30 days and set aside the orders passed by the Adjudicating Authority in IA No.3887 of 2022 and IA No.64 of 2023. The Appellant was also directed to bear the entire CIRP costs.