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TaxTMI 
TaxTMI 
2019 (7) TMI 217
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....king permission to withdraw the Corporate Insolvency Resolution Process (CIRP) initiated against the Corporate Debtor under the admission order dated 11.6.2018 under the Provisions of Section 12A of the Code. 2. Section 12A of the Code provides that "The Adjudicating Authority may allow the withdrawal of application admitted under section 7 or section 9 or section 10, on an application made by the applicant with the approval of ninety per cent voting share of the committee of creditors, in such manner as may be prescribed". 3. On perusal of the above provision, it is clear that petition under Section 7, 9 or 10 may be withdrawn given the provision of Section 12A provided in the manner specified. 4. CIRP Regulation 30A provides how the withdrawal application can be filed. Regulation 30A is given below for ready reference: "(1) An application for withdrawal under section 12A shall be submitted to the interim resolution professional or the resolution professional, as the case may be, in Form FA of the Schedule before the issue of invitation for expression of interest under regulation 36A. (2) The application in sub-regulation (1) shall be accompanied by a ba....
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....thdrawal of the CIRP. The members of CoC received the OTS from the promoters of Corporate Debtor vide their letter dated 8.8.2018. The discussion for OTS between the erstwhile promoters of the Corporate Debtor and the lenders were happening outside the purview of CIRP. The Resolution Professional is given to understand that the representatives of the various members of the CoC were in the process of seeking approvals from their higher management about accepting the OTS since the date of receipt of the OTS offer letter." 10. It is further stated in the progress report that "on 27.2.2019, the Petitioner in the captioned Company Petition viz. Andhra Bank submitted an Application under Form FA as prescribed under Regulation 30A (1) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016 ("CIRP Regulations") for the withdrawal of the CIRP of the Corporate Debtor. At the 13th meeting of the CoC held on 27.2.2019, the Resolution Professional informed the CoC about the receipt of a Form FA for withdrawal of CIRP of the Corporate Debtor from Andhra Bank and the same was discussed by the members of the CoC. Under discussion, t....
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....19 is annexed with the application as Exhibit I. The same was supported by a majority of the CoC members, and therefore the Resolution Professional was directed by the CoC to put a fresh resolution for withdrawal of CIRP to vote. In relation to the OTS offer, the Resolution Professional asked the CoC members to provide him with details of (i) the OTS offer: (ii) sources of funds: (iii) timeframe for payments to each lender: and (iv) compliance with RBI norms: (v) and whether the interest of all stakeholders/CoC members have been provided for under the OTS offer. In response, the representative of Andhra Bank stated that regarding the OTS offer, the Resolution Professional has to consider the documents submitted to the NCLT at the hearing held on 26.2.2019, as the OTS offer being currently considered by the CoC and further to which withdrawal of CIRP was being sought. A representative of Andhra Bank further informed the Resolution Professional that if the NCLT seek information pertaining to the OTS offer including sources of funds, timeframe for payments to each lender, compliance with RBI norms and whether the interest of all stakeholders/CoC members have been pro....
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....SEBI and RBI so that if they want to make any representations they can make the same before passing any order on the MA for withdrawal filed under Section 12 A of the Code. 18. In response to the notices issued on different departments, we have received representation of the Enforcement Directorate wherein it is stated that "the CBI, BS & FC, New Delhi Registered an FIR RCBD1/2017/E/007 dated 25.10.2017 u/s 13(2) r/w 13(1)(d) of the Prevention of Corruption Act, 1988 and 120B r/w 420, 467, 468, 471 and 469 IPC and various accused persons including the promoters of SBL group on the basis of which the Enforcement Directorate, Headquarters Investigation Unit recorded an ECIR bearing number ECIR/HQ/17/2017 to investigate into the offences under PMLA. As the investigations kept unfolding, the role of different accused persons and determination of various assets which were proceeds of crime/laundered money led to attachment of properties involved in money laundering which is nothing but proceeds of crime to the tune of Rs. 4724 crores (approx.) and filing of different prosecution complaints, the last being filed on 23.10.2018 before the Special PMLA court, Patiaia House, New Delhi exp....
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....at the Insolvency and Bankruptcy Code, 2016 does not deal with the Proceeds of Crime at any stretch of the imagination. Thus, the Civil Law cannot be given precedence over criminal law such as PMLA, 2002 and cannot override the Criminal Law at any stretch of the imagination". 23. It is further submitted by the Enforcement Directorate that "there are already specific provisions provided under the PMLA for the restoration of any attached assets to the rightful claimant by the concerned Special PMLA Court". 24. In response to our notice, Respondent No.3, i.e. Regional Director, Western Region, Ministry of Corporate Affairs, Mumbai has filed a short affidavit stating that Section 12A of the Insolvency and Bankruptcy Code, 2016 read with regulation 30A of the IBBI (CIRP) Regulations, 2016 specifically deals with the withdrawal of CIRP after admission. Section 12A provides that CIRP can be withdrawn after admission if the same is approved by 90% voting share of the Committee of Creditors. Regulation 30A imposes an additional condition for withdrawal of CIRP that such application shall be filed before the issue of invitation for expression of interest under Regulation 36A. 25. It....
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....o provide him with the details of One time Settlement (OTS) offer, sources of funds, the timeframe for payments to each lender, compliance with RBI norms and whether the interest of all stakeholders/CoC members have been provided for under the OTS offer, then Andhra Bank, Financial Creditor informed that they will directly address the issue with the Tribunal and did not submit any information to the Resolution Professional. 30. We have also received MA 1519/2019 on 22.04.2019, seeking the intervention in the matter between the Petitioner and Respondent and further direction has been sought to the CoC to reconsider the Resolution Plan submitted by the Applicant if this tribunal does not accept the Resolution plan moved by the Petitioner. 31. It is stated in the application that if the withdrawal application of the Petitioner is rejected by this Tribunal then the Corporate Debtor under provisions of section 33 (1) of the Code, shall be placed in the liquidation. The Applicant states that the Liquidation of the Corporate Debtor would not be beneficial to either the Corporate Debtor or its Financial and Operational Creditor. 32. It is further stated in the intervening applicat....
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....e management of the Corporate Debtor in the additional affidavit. It is stated that the OTS proposal submitted by the erstwhile management of the Corporate Debtor, payments to the tune of USD 24,454,966.61 (towards upfront amounts) have been made to the lenders of the Corporate Debtor towards initial payment against the OTS proposal, A Chart of the payments made to the lenders of the Corporate Debtor against the OTS proposal as prepared by the applicant is annexed as "Annexure-1" with the additional affidavit. A chart of the payments made to the lenders as prepared by the representatives of the Corporate Debtor is annexed with the additional affidavit as "Annexure B". Copies of the SWIFT messages and a Circular dated 8th June, 2016 bearing No. SPL-09/2016 issued by the Foreign Exchange Dealers' Association of India are annexed with the additional Affidavit as Annexures 2A & 2B respectively. 38. It is further stated in the additional affidavit that vide letter dated 26.12.2018(Annexed at Page 73 of the MA) signed by Mr Nitin Sandesara, the Applicant has been informed that the promoter group is proposing to invest about 20% of the settlement amount which is about USD 700 Milli....
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.... 4th August, 2016 (Circular No. 185 bearing Ref. No. 45/8) Further, whilst approving the OTS proposal vide its sanction letter dated 5th November, 2018, the Applicant has clearly made a condition that the approval/sanction of the OTS shall not in any way affect the ongoing criminal proceedings against the Corporate Debtor/its erstwhile management. Copies of the said Circular dated 8th June, 2009 issued by the India Bank's Association, the Applicant's internal policy dated 4th August, 2016 and the OTS sanction letter dated 5th November, 2018 are annexed hereto and marked as "Annexures 5A to 5C", respectively. (d) Query 4. Whether the interest of all the stakeholders/CoC members has been provided under the OTS offer. I say that the present Miscellaneous Application has been filed under the provisions of Section 12A of the code read with Regulation 30A of the CIRP Regulations, 2016 for withdrawal of the CIRP process initiated against the Corporate Debtor under the approval of 90.32% of the CoC. I say that such withdrawal shall not, prejudicially or otherwise, in any manner affect the rights of the stakeholders of the Corporate Debtor. I repeat and reite....
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....er, it is sated by the RBI that any transaction by a Bank including receipt of money for a compromise settlement, shall be subject to and in full compliance with due diligence requirement under Know Your Customer anti-money laundering guidelines, provisions of the Prevention of Money Laundering Act, 2002. However, RBI has not submitted its stand but only apprised us regarding its Circular in this respect. Copy of the circular is also attached with the reply of RBI. Response received from RBI is of no significance. 44. The Ld. Senior Counsel Mr Gaurav Joshi vehemently argued in support of the withdrawal application filed by the Andhra Bank and submitted that the applicant/other banks are responsible/answerable only to the RBI who is the regulator of banking sector and the submissions/arguments of the other enforcement agencies such as ED/CBI is of not much relevance to the current MA 951/2019. In response to our notice, RBI has submitted only a circular, and no comments were offered about the withdrawal application submitted by Andhra Bank. Therefore, during the hearing, the Bench has directed the Counsel of RBI to obtain the specific comments/stand of RBI considering the submiss....
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.... Company and its directors Shri Chetan Sandesara, Shri Nitin Sandesara were served by way of affixture at the last known address. Adjudication proceedings under Section 15HA of the SEBI Act have been initiated against the Company and its directors, subsequent three notices, i.e. Shri Vilas Joshi, Shri P B Mehta and Shri Rajabhushan Dixit, have applied for settlement and the same is under process with the Settlement Division of SEBI. The prosecution under Section 24(10) of the SEBI Act has also been initiated against two directors, i.e., Chentan Sandesara and Shri Rajbhushan Dixit for violation of section 11C (5) of the SEBI Act. 50. Shri Rajbhushan Dixit is in the process of filing of a compounding application in respect of SEBI Special Case No. 100011/2018, pending before the SEBI Special Court apart from the proceedings above, SEBI has initiated investigation against one of the subsidiaries of the Respondent Company and therefore Directors who are also directors of the Respondent Company. 51. SEBI has brought to the notice of this Tribunal details of the proceedings initiated by SEBI against the Respondent Company. However, the action of the SEBI against the Respondent Comp....
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.... the locus of Madison to apply on behalf of all the bond holders as one single unit is itself not established. 56. About the intervention application filed by Madison, it is pertinent to note that the last date for CIRP period was 08.03.2019 and the revised From C for revision of its claim amount was submitted to the Resolution Professional only on 27.03.2019. Further, the said revision is filed on account of the admitted mistake of the Madison. Clearly, the claim filed by the Madison is belated and given the current stage of the CIRP when the 270 days' statutory period is over, and a withdrawal application under section 12A is under consideration, the present application being MA 1642/2019 cannot be allowed and hereby rejected at the outset. 57. We have heard the argument of the Ld. Senior Counsel Mr. Gaurav Joshi representing the Applicant, Andhra Bank, Ld. Sr. Counsel Mr. Janak Dwarkadas representing the Resolution Applicant, Ld. Sr. Counsel Mr. Vikram Chaudhri for the promoters, Ld. Counsel Mr. ZaI Andhyarujna for Resolution professional, Counsel representing the SEBI, Enforcement Directorate, Reserve Bank of India, CBI Director (Prosecution & Legal) representing Unio....
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....nt before its admission. However, there is no provision in the Code or the CIRP Rules in relation to the permissibility of withdrawal post admission of a CIRP application. It was observed by the Committee that there have been instances where on account of settlement between the applicant creditor and the corporate debtor, judicial permission for withdrawal of CIRP was granted [Lokhandwala Kataria Construction Pvt. Ltd. v. Ninus Finance & Investment Manager LLP, Civil Appeal No. 9279 of 2017; Mothers Pride Dairy India Private Limited v. Portrait Advertising and Marketing Private Limited, Civil Appeal No. 9286/2017; Uttara Foods and Feeds Private Limited v. Mona Pharmacem, Civil Appeal No. 18520/2017], This practice was deliberated in light of the objective of the Code as encapsulated in the BLRC Report, that the design of the Code is based on ensuring that "all key stakeholders will participate to collectively assess viability. The law must ensure that all creditors who have the capability and the willingness to restructure their liabilities must be part of the negotiation process. The liabilities of all creditors who are not part of the negotiation process must also be met in any n....
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....ional). We make it clear that at any stage where the committee of creditors is not vet constituted, a party can approach the NCLT directly, which tribunal may, in the exercise of its inherent powers Under Rule 11 of the NCLT Rules, 2016, allow or disallow an application for withdrawal or settlement. This will be decided after hearing all the concerned parties and considering all relevant factors on the facts of each case. 53. The main thrust against the provision of Section 12A is the fact that ninety per cent of the committee of creditors has to allow withdrawal. This high threshold has been explained in the ILC Report as all financial creditors have to put their heads together to allow such withdrawal as, ordinarily, an omnibus settlement involving all creditors ought, ideally, to be entered into. This explains why ninety per cent, which is substantially all the financial creditors, have to grant their approval to an individual withdrawal or settlement. In any case, the figure of ninety per cent, in the absence of anything further to show that it is arbitrary, must pertain to the domain of legislative policy, which has been explained by the Report (supra). Also, it is cl....
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....pplies not merely to resolution applicants, but to liquidation also. Consequently, this plea is also rejected. It is clear that Section 29A goes to eligibility to submit a resolution plan. A wilful defaulter, in accordance with the guidelines of the RBI, would be a person who though able to pay, does not pay. An NPA, on the other hand, refers to the account belonging to a person that is declared as such under guidelines issued by the RBI." 66. Hon'ble Supreme court further observed that "the legislative policy, therefore, is that a person who is unable to service its debt beyond the grace period referred to above, is unfit to be eligible to become a resolution applicant." 67. Since section 29A of the Code specifically prohibits a wilful defaulter to submit a Resolution Plan. In this case, admittedly promoters of the Corporate Debtor are a wilful defaulter, and therefore. they are not eligible to submit a Resolution Plan as per section 29A. 68. The question which is hammering to our conscious is regarding the consequences of accepting application u/s 12A of the Code in the instant case. After permitting withdrawal of the CIRP process the promoters of the corpor....
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....Allowing the application of wilful defaulters/absconders u/s. 12A will be an act in violation of Sec. 29A of the Code. 71. It is also pertinent to mention that the so-called OTS as mentioned by the Financial Creditor applicant Andhra Bank is also a type of Resolution Plan. In the alleged plan/OTS it is stated that the promoter group is proposing to invest about 20% of the settlement agreement which is about USD 700 million, from its cash flow sources from its businesses in Nigeria. Further, the promoter group has also identified investors who have shown their interest in investing which shall be the source of funds to make payment to the Financial Creditors under OTS Proposal. As per the one-time settlement, they had given a plan to make the upfront payment by 30.6.2019. Thus, it is also a type of Resolution Plan to get the management and control of the Company by the wilful defaulters, which is contrary to the provision of Sec. 29A of the Code. 72. Here promoters are absconders and the source of funds are not disclosed to the Resolution Professional. When the Resolution Professional inquired about the source of funds, timeline of payment to each lender or explanation of RBI ....
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....ant question of law is that, can there be a valid agreement/contract between the parties, where one party is absconder, i.e. promoters of Sandesara Group and represented through Mr Farhad Daruwalla. The prerequisite condition for a valid contract is lawfull offer and acceptance thereof which is enforcible by law. In the instant case, the offer is from the representative of the absconder, whose whereabouts cannot be verified. The person so called authorised to represent absconders, Mr. Farhad Daruwalla, is an agent of the absconders, who has not submitted any detail of the absconders. Thus, there cannot be binding contract enforceable by taw in the present case within the meaning of the Contract Act. Section 10 of the Contract Act, provides that all Agreement are Contract if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Section 23 of the Contract Act stipulates that the consideration or object of an agreement is lawful, unless it is forbidden by Law; or is of such a nature that, if permitted, it would defeat the provision of any law; or fraudulent; or invo....
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....unt which has been deposited by absconder/promoters under OTS shall not be released to the applicant. In this case, no Resolution Plan has been approved to date despite completion of CIR period. Resolution Professional has not filed an application under Section 33 for liquidation of the Company which is a clear cut violation of the statutory provisions of I&B Code. This Bench having not received any resolution plan under sub-section (6) of section 30 before the expiry of the Corporate Insolvency Resolution Process period or the maximum period permitted for completion of the corporate insolvency resolution process under section 12, there remains no other option but to order for liquidation of this company as envisaged under Section 33(1) of I&B Code and the Regulations thereof. Since no Resolution Plan has been approved within the statutory period of 270 days, therefore, we are passing the order of the Liquidation of the Corporate Debtor on a going concern basis as under: a. As the Corporate Debtor is a going concern employing more than 800 employees, it is hereby directed that the Corporate Debtor be liquidated as per provisions of Regulations 32(b) & (e) of the IBBI....