TaxTMI 
TaxTMI 
2019 (4) TMI 140
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.... the corporate debtor through the Corporation Bank under Section 60(5), read with Section 74(3) of the Insolvency and Bankruptcy Code, 2016, (for short to be referred hereinafter as the 'Code'), with the prayer to declare that the Resolution Applicant M/s Liberty House Group Pte Limited (respondent No.1 herein) and its promoters upon whom the Resolution Plan is binding under Section 31 of the Code, have knowingly contravened the terms of the Resolution Plan, having failed to implement the same. The further prayer made is that the Committee of Creditors be reinstated to run the corporate debtor, as a going concern and to grant minimum of 90 days for the Resolution Professional to make another attempt for a fresh process rather than forcing the corporate debtor into liquidation on account of fraud committed by respondent No.1. It has also been prayed that respondent No.1 be debarred from applying for a fresh resolution plan and the Insolvency and Bankruptcy Board of India, may be directed to initiate the process under Section 74(3) of the Code. 2. The facts of the case, briefly stated, are that Corporation Bank as a financial creditor filed a petition under Section 7 of the ....
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....itted amounts of Rs. 4404 crores; and (ii) creation of the escrow equivalent to 15% of the upfront cash pay-out contemplated under the terms of the approved Resolution Plan as an alternative to the provision of the performance bank guarantee in favour of the Committee of Creditor (in the form acceptable to the Committee of Creditors). 5. Various steps taken by the Resolution Professional in inviting the prospective Resolution Applicants, release of the detailed process note dated 07.12.2017 and other conditions required for a binding resolution plan have been detailed. The objective evaluation criteria was also approved by the Committee of Creditors. The binding Resolution Plans were received only from two prospective applicants, being respondent No.1 and Deccan Value Investors LP (DVI). The applicant was the highest bidder and its bid was approved by the Committee of Creditors. It was conveyed by the Resolution Professional to both the prospective Resolution Applicants, vide e-mail dated 26.02.2018 that the Resolution Applicant should undertake to create an escrow equivalent to 15% of the upfront cash pay-out in the event the Committee of Creditors approving the Resolution Plan. ....
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....ating Authority being the creature of the statute is not entitled to grant the reliefs, being prayed for. It is stated that after the approval of the Resolution Plan under Section 31 of the Code, the role of the Adjudicating Authority comes to an end. Further, there is no power for the Adjudicating Authority to recommend an action under Section 74(3) of the Code or to declare that the Resolution Applicant has knowingly or wilfully contravened any of the terms of the Resolution Plan. The offences for contravention are exclusively triable by the Special Court. 9. The other preliminary objection raised was that the Committee of Creditors is non-existent. After the approval of the Resolution Plan, it cannot file any such application before the Tribunal. 10. The Resolution Applicant has also raised the dispute on the alleged violation of the terms of the Resolution Plan. Detailed facts have been stated in order to contend that there has been misrepresentation committed by the Resolution Professional for which a separate application, being CA No.601/2018 has been filed, which would be taken up at the later stage in a separate order. 11. The respondent No.1 has alleged the violation of....
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....ance of Letter of Intent. Till date Resolution Applicant has failed to comply with the conditions for the implementation of the approved binding Resolution Plan and intentionally evaded from performing its obligation under the process note inasmuch as (i) The Resolution Applicant has not made the payment or compliance of the terms of Resolution Plan within a stipulated long stop date of 90 days from the date of approval by the Tribunal, subject to receipt of CCI approval. In the instant case, the CCI approval was received on 22.11.2018. (ii) The Resolution Applicant failed to furnish a performance guarantee of Rs. 100 crores against total bid amount of Rs. 4025 crores, which has been committed as part of the Resolution Plan; or the creation of escrow equivalent to 15% of the upfront cash pay-out contemplated under the terms of the Plan as an alternative to the performance guarantee. 15. Reference has also been made to an order passed in CANo.1220(PB)/2018 in (IB)-531(PB)/2017, titled as State Bank of India Versus ARGL Limited, passed by Hon'ble Principal Bench of National Company Law Tribunal. That application was filed by Resolution Professional to withdraw IA No.823(PB)/201....
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....pproved. 21. Reference has been made to the minutes of meetings of the Committee of Creditors held on 19.11.2018 and the relevant extract has been reproduced in Paragraph No.42 of the Rejoinder as under:- " H. Lenders, after a detailed discussion decided that in addition to invocation of BBG, the next course of action as follows: (1) Application to be filed with the Hon'ble NCLT to seek exclusion of CIRP period which was spent with Liberty House, to reinstate the CIRP and conduct a rebidding by fresh issue of EOIs and Process document by the RP and CoC as per IBC regulations it should be mentioned in the Application that LHG and its associates companies should be disqualified from submitting the resolution plan. This application should be shared with lenders for comments at least 48 hours before the proposed filing. (2) Application under Section 74(3) of the IBC should be moved immediately in parallel to (1) above to seek punitive actions on LHG. (3) Suit for damages should be filed against LHG. (4) Caveat to be filed with the relevant jurisdiction court with respect to invocation of the Bid Bond Guarantee submitted by LHG. I. Further Corporation Bank, Head of the ....
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....ts for implementation of proposed plan. On the effective date, upon satisfaction of conditions set out in paragraph 9.1 of this Part I (Business Plan of the Resolution Applicant), the Resolution Applicant (with the assistance of the insolvency professional) shall commence undertaking the actions set out in Schedule 4 (Implementation Provisions), and all other actions required in relation thereto, in the order provided in Schedule 4 (Implementation Provisions). It is clarified for the avoidance of doubt that no action in Schedule 4 (Implementation Provisions) shall be deemed to have been consummated unless all the actions provided in Schedule 4 (Implementation Provisions), in the order set out therein, have been duly consummated. The date on which all actions set out in Schedule 4 (Implementation Provisions) have been duly consummated or such other date as may be agreed in writing between the Resolution Applicant, will be the "Closing Date". Once the effective date is satisfied, the Closing Date shall be no later than 90 (ninety) days from the date of the NCLT order ("Closing Period"); provided however, that if the CCI shall have not granted its approval for the performance of the....
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....guments of applicant have been heard. The learned Senior Counsel for the applicant submits that presently he is confining his contention for restarting the process of Corporate Insolvency Resolution Process seeking reasonable time for conclusion of the Corporate Insolvency Resolution Process as there has been a default in implementing the plan, with liberty to the applicant for raising the issue before the IBBI or the Central Government. The learned Senior Counsel for respondent No.1 has vehemently opposed the contention that there has been a wilful or intentional default by respondent No. 1 but for exclusion of time for counting 270 days in completion of CIR Process and restarting the process and extension of time is not opposed though the respondent No.1 would press application CA No. 601/2018 separately filed. Mr. Sumant Batra, Advocate for the Resolution Professional, also does not oppose the prayer made on behalf of the applicant." 29. There being a clear default in implementing the Plan within the time stipulated in the Resolution Plan, the instant application deserves to be allowed with liberty to any Member of the Committee of Creditors or the Resolution Professional file ....
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....;exclude certain period' for the purpose of counting the total period of 270 days, if the facts and circumstances justify exclusion, in unforeseen circumstances. It is admitted proposition of fact that LHG being the highest bidder, DVI did not participate in the later proceedings before the Committee of Creditors for seeking a chance to modify its Plan. 33. The Hon'ble Appellate Tribunal in Quinn Logistics India's case (supra) held that the following good grounds and unforeseen circumstances, the intervening period can be excluded for counting of the total period of 270 days of resolution process:- (i) If the corporate insolvency resolution process is stayed by 'a court of law or the Adjudicating Authority or the Appellate Tribunal or the Hon'ble Supreme Court. (ii) If no 'Resolution Professional' is functioning for one or other reason during the corporate insolvency resolution process, such as removal. (iii) The period between the date of order of admission/moratorium is passed and the actual date on which the 'Resolution Professional' takes charge for completing the corporate insolvency resolution process. (iv) On hearing a case, if or....
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....pra) as under:- "A reasonable and balanced construction of this statute would therefore lead to the result that, where a resolution plan is upheld by the Appellate Authority, either by way of allowing or dismissing an appeal before it, the period of time taken in litigation ought to be excluded. This is not to say that the NCLT and NCLAT will be tardy in decision making. This is only to say that in the event of the NCLT, or the NCLAT, or this Court taking time to decide an application beyond the period of 270 days, the time taken in legal proceedings to decide the matter cannot possibly be excluded, as otherwise a good resolution plan may have to be shelved, resulting in corporate death, and the consequent displacement of employees and workers". 36. The principle laid down thus emerges is that certain period can be excluded from the total period of 270 days permissible under Section 12 of the Code for the purpose of exclusion, and there is no scope of granting extension beyond 270 days under any circumstances. The contention of Learned Senior Counsel for the applicant and that of the learned counsel for the Resolution Professional that there are so many prospective applicants, w....
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.... down by the Hon'ble Supreme Court, the prayer made in the instant application for starting the fresh process for resolution of the corporate debtor cannot be accepted. However, in the facts of this case, the Committee of Creditors is reconstituting for the purpose of making a decision on the plan submitted by DVI. 38. With the aforesaid discussion and holding that the approved Resolution Plan submitted by LHG is not capable of implementation due to default in adhering to the payment schedule, we dispose of this application by directing that the period from the date when DVI submitted its final plan i.e. on 05.03.2018 as given in Paragraph No.8 of CA No. 140 of 2018 up to the date of the receipt of copy of this order be excluded while calculating the period of 270 days for completion of the Resolution Plan with liberty to the financial creditor and/or Resolution Professional to make appropriate complaint with the Insolvency and Bankruptcy Board of India or the Central Government on the allegation of wilful or intentional default and to pursue the appropriate remedy for the offence, if any, committed by the respondent with right to respondent No.1 to defend the action. The peri....
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....eriod of 270 days was expiring on 20.04.2018 and the said application was filed before the expiry of 270 days. Soon thereafter, the Resolution Professional filed CA No.112/2018 under Section 60(5), read with Sections 12 and 31 of the Code and Regulation 39 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, (for brevity the 'Regulations'), stating therein that the Resolution Professional has come across the news item in "The Economic Times" dated 17.04.2018 that M/s ABG Shipyard Limited, a company undergoing Corporate Insolvency Resolution Process, that the Resolution Professional in that case has declared Liberty Housing Group (LHG) ineligible under Section 29A of the Code. It was thus, prayed that since the issue of LHG's disqualification and ineligibility has cropped up, a prayer was made for suitable directions from the Adjudicating Authority. It was also prayed that Resolution Professional may be permitted to decide on the eligibility of the Resolution Applicant in a time bound manner and to place the decision before the Adjudicating Authority and in the meanwhile, to permit DVI, the second Resolu....
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....vided to the Resolution Applicants under the Information Memorandum, valuation reports and other information shared in Virtual Data Room (VDR) on the basis of which prospective Resolution Applicants were to submit the plans. 9. It is stated that the Resolution Professional had appointed two Valuers namely BDO India LLP (BDO) and RBSA Valuation Advisors LLP (RBSA) to determine the liquidation value of the corporate debtor in accordance with Regulation 35 of the Regulations. These reports were mentioned in the Information Memorandum supplied to the Resolution Applicants. The valuation reports were prepared in about four months by these registered Valuers. The valuation reports were made available to the applicant through Virtual Data Room (VDR). The applicant initially submitted the Resolution Plan on 28.12.2017, which was subsequently revised up to 05.03.2018. It is stated that the Resolution Professional issued process note on 07.12.2017 and then the applicant had only 20 days to submit the plan, despite there being complexity of the business of the corporate debtor. One of the conditions of the process note was submission of Bond Guarantee, in the form of a Bank Guarantee to the ....
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....solution Professional rejected the request of the applicant to convert the BBG into a performance guarantee. The Resolution Professional in its letter dated 21.09.2018, imposed a condition of provision of a performance guarantee from a scheduled commercial bank in India immediately thereof, in addition to the escrow arrangement. This condition was completely contrary to the terms under the Resolution Plan and Process Note. Copy of the correspondence exchanged for finalization of the letter of intent is at Annexure A-5. 13. Parallelly, pursuant to approval of the Resolution Plan by the Approval Order, as per Paragraph 5.1.1 of Part II of the Resolution Plan, the RP assumed the role of "Insolvency Professional" of the Corporate Debtor in order to supervise, manage and control all the business and operations of the Corporate Debtor. As per Paragraph 5.1.3 of Part II of the Resolution Plan, the Insolvency Professional is mandated to act on the instructions of a committee comprising of (a) a representative or an advisor of the CoC; (b) a representative of the Resolution Applicant (to be appointed on receipt of approval from Competition Commission of India for performance of the Resolut....
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....graph 5.3.2 of the Bankruptcy Law Reforms Committee Report 2015, ("BLRC Report") which requires the Resolution Professional to provide most updated information about the entity as accurately as is reasonably possible to this range of solution providers. In order to do this, the Resolution professional has to be able to verity claims to liabilities as well as the assets disclosed by the entity. The Resolution Professional has power to appoint whatever outside resources that it may require, in order to carry out this task, including the accounting and consulting services. 18. It is also stated that the corporate debtor has 21 sites and pursuant to Clause 1.1.2 of the Process Note, the applicant was permitted only one visit to the sites of the corporate debtor by the Resolution Professional prior to the approval of the Resolution Plan. There was limited amount of time available to the applicant to discover by reasonable due diligence the irregularities which have been discovered. 19. What has been discovered by the application is an information received in the Monitoring Committee meetings, pursuant to the information received by applicant in the Monitoring Committee Meeting, plant ....
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....ar if these current and non-current assets are good and realizable. This shows the unreliable data with respect to the asset valuation of the corporate debtor and the inflated nature of the values discussed in the Balance Sheet for the year-ending 31.03.2017 and the information memorandum. These write downs were not brought to the notice of the applicant prior to submission of the plan. The writing down of the values in the financial statements published only after approval of the resolution plan directly impacts the Resolution Plan which was prepared taking into consideration the asset valuation as provided in the Information Memorandum. Therefore, the instant is a case of gross fraud played upon the applicant. 23. The other aspect relates to the discovery regarding inflated valuation of plant and machinery in the Information Memorandum and Valuation Reports; discrepancies in projected capacity of the plants; irregularity in relation to information about the extent of inter-dependency of the group companies and specific uncertainties which may materially affect the Resolution Plan, for which the facts have been mentioned in detail. 24. To elaborate these assertions, it is stated....