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2022 (2) TMI 627
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....u Datta, Sr. Advocte with Ms. Sneha Janakiraman, Mr. Prateek Kumar, Mr. Niranjan S. Rao, Advocates for R-4 JUDGMENT ASHOK BHUSHAN, J. This Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the 'Code') has been filed against the order dated 11th June, 2020 allowing IA No.998 of 2020 filed in Company Petition (IB) No.2205/MB/2019. 2. The brief facts of the case and sequence of the event, which are necessary to be noticed for deciding this Appeal are: (i) The Appellant is a Registered Trade Union representing aircraft maintenance engineers of the Jet Airways (India) Limited (Corporate Debtor). (ii) On an Application filed by State Bank of India under Section 7 against the Jet Airways (India) Limited, the Adjudicating Authority initiated Corporate Insolvency Resolution Process (CIRP) by order dated 20th June, 2019. By the same order, Moratorium under Section 14 of the Code was declared with the consequential direction. Respondent No.1 was appointed as Interim Resolution Professional (IRP), which was confirmed as Resolution Professional (RP) in the first meeting of the Committee of Creditors (CoC) held on July 1....
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.... (vi) After approval of Resolution by 74.45% votes by the CoC on 24th April, 2020, the Resolution Professional filed an Application before the Adjudicating Authority seeking its approval to the proposed sale of the BKC property. The RP filed an IA No.998 of 2020 before the Adjudicating Authority seeking permission to auction the premises. Respondent No.3 - HDFC Bank filed an affidavit dated 1st June, 2020 stating that it had no objection to the Application filed by Respondent No.1. The Adjudicating Authority vide its order dated 11th June, 2020 allowed the IA filed by the Resolution Professional. After order of the Adjudicating Authority dated 11th June, 2020, the RP issued notice dated 13th June, 2020 for sale/ transfer of 3rd and 4th floors by way of public auction of the premises. (vii) In pursuance of e-public auction held on 26th June, 2020, Respondent No.4 emerged as a Successful Bidder, whose offer was accepted by the RP at a price of INR 490 crores. Deed of assignment dated 10th July, 2020 and 13th July, 2020 was entered between Corporate Debtor through Respondent No.1 on the one hand and Respondent No.4 on the other, which were registered in the office of Sub-R....
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.... and RP has mislead NCLT as well as the CoC. The assets of Corporate Debtor have been depleted by selling premises. The Adjudicating Authority has not even referred to Section 14 while passing the impugned order. The Adjudicating Authority has limited jurisdiction under Section 60 and it cannot exercise its jurisdiction, which is not vested in the Code. The six aircrafts, which were on finance lease, could have been secured at a lesser amount. Only INR 90 crores was to be paid to US Exim against its claims. The value of aircrafts was not USD 881 million. Five out of six aircrafts were already in India and in custody of RP. Three months later, CoC has approved Resolution Plan, which envisaged sale of CD's all 11 aircrafts, which indicate that the distinction between core and non-core assets drawn by RP was artificial. 5. Shri Arun Kathpalia, learned Senior Counsel appearing for Respondent No.1 refuting the submission of learned Counsel for the Appellant contends that the Corporate Debtor had taken six Boeing 777 long range aircraft on a financial lease from Fleet Ireland entities (Lessor), which thereafter were charged in favour of Export Import Bank of the United States (US Exim....
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....er provisions of the Code like Sections 20 and 28, Regulation 29 of CIRP Regulations recognizes sale by RP. 6. The learned Counsel for Respondent No.2 submitted that CoC in its commercial wisdom for maximization of value of assets of the Corporate Debtor and for revival of the Corporate Debtor had approved disposal of BKC premises. The dues payable to US Exim were approximately USD 13 million and these aircrafts were cumulatively valued at over USD 200 million. Accordingly, CoC felt that making residual payment and securing title and ownership to the six aircrafts would add significant value to the estate of the Corporate Debtor. Despite making several efforts, RP could not successfully raise interim finance. Thus, in the absence of any other commercially viable option a decision to sell non-core assets was taken. Transfer/ disposal of the premises was not in violation of Moratorium under Section 14 of the Code. In any event, the Appellant has no right or claim over the proceeds from the sale transaction. Water fall mechanism as laid down in Section 53 of the Code is not applicable in the present case. 7. Shri Janak Dwarkadas, learned Senior Counsel appearing for Respondent N....
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....Appellant to challenge the impugned order. The impugned order had been acted upon and third party rights have now intervened. The sale of subject premises was concluded more than eighteen months ago and proceeds thereof have been utilized for acquiring six aircrafts. The Resolution Plan for the Corporate Debtor has also been approved by the CoC. The parties have taken irreversible steps and have altered their position, which could not be reversed in the facts of the present case. 9. Shri Krishnendu Datta, learned Senior Counsel appearing for Respondent No.4 submits that Respondent No.4 is a bonafide third-party purchaser without notice. The Respondent No.4 being bonafide purchaser, who has purchased the subject property of a value, which is more than market value. The bid of Respondent No.4 of INR 490 crores was accepted. On 10th July, 2020, entire consideration was paid and Registered Deed of Assignment was executed on 10th to 13th July, 2020. The present Appeal has been filed after entire process was completed. The Resolution Plan having already been approved, the title of Respondent No.4 need not be affected. The Respondent No.4 was not party to the litigation. Reliance on Cl....
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....nd approval of CoC of the said proposal by its Resolution in the meeting dated 24th April, 2020 is impermissible by virtue of declaration and Moratorium under Section 14(1). (5) Whether in view of Section 14, sub-section (1), sub-clause (c) of the Code, no Financial Creditor can foreclose, recover any debt or enforce any security interest created by the Corporate Debtor in respect of its property? (6) The relief to which the Appellant is entitled in this Appeal, if any? Question No.1 13. The Respondents have challenged the locus of the Appellant to file this Appeal questioning the order dated 11th June, 2020 passed by the Adjudicating Authority. The Appellant is a registered Trade Union representing 95% of the aircraft maintenance engineers of the Corporate Debtor. The Appellant's Union had submitted a claim and Respondent No.1 has admitted claim worth INR 1,525,859,239/-. The Appellant is a stakeholder in the CIRP, its claim having been admitted. The Appellant has come up in this Appeal questioning the order of the NCLT dated 11th June, 2020 by which it has granted approval to the proposal of CoC and RP to sell the subject assets of the Corporate Debtor. Th....
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....tion of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. Explanation.-For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a licence, permit, registration, quota, concession, clearance or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license or a similar grant or right during moratorium period; (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. (2A) Where the interim resolution professional or resolution professional, as the case may be, considers....
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....'s assets together during the insolvency resolution process and facilitating orderly completion of the processes envisaged during the insolvency resolution process and ensuring that the company may continue as a going concern while the creditors take a view on resolution of default." Keeping the corporate debtor running as a going concern during the CIRP helps in achieving resolution as a going concern as well, which is likely to maximize value for all stakeholders. In other jurisdictions too, a moratorium may be put in place on the advent of formal insolvency proceedings, including liquidation and reorganization proceedings. The UNCITRAL Guide notes that a moratorium is critical during reorganization proceedings since it "facilitates the continued operation of the business and allows the debtor a breathing space to organize its affairs, time for preparation and approval of a reorganization plan and for other steps such as shedding unprofitable activities and onerous contracts, where appropriate." 8.4. The Committee discussed that by and large, the grants that the corporate debtor enjoys form the substratum of its business. Without these, the business of the corporate ....
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....een bifurcated and separated from that of its promoters/those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again protect the corporate debtor's assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends." 32. Viewed from another point of view, clause (b) of Section 14(1) also makes it clear that during the moratorium period, any transfer, encumbrance, alienation, or disposal by the corporate debtor of any of its assets or any legal right or beneficial interest therein being also interdicted, yet a liability in the form of compensation payable under Section 138 would somehow escape the dragnet of Section 14(1). While Section 14(1)....
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....into operation by order of the Adjudicating Authority on the insolvency commencement date is limited to the date when Adjudicating Authority approves the Resolution Plan under sub-section (1) of Section 31 or passes an order of liquidation under Section 33. The Moratorium is to cease to have an effect from either of the above dates. Thus, the life of Moratorium is not indefinite and is limited. Normally, period of completion of CIRP is 180 days and an ultimate time limit taking into consideration including all extension is 330 days as required by Section 12, sub-section (3). The object of the Code is clearly that there should be no depletion of Corporate Debtor's assets during the CIRP. The assets of the Corporate Debtor have to be preserved, protected and guarded for a successful insolvency resolution, which is the object of engrafting Section 14 in the statute. The submission of learned Counsel for the Appellant relying on the above judgment of Hon'ble Supreme Court is correct that there is statutory freeze when Moratorium is done under Section 14. The question to be answered is as to whether the statutory freeze, which comes into operation has any exception to it, or the prohibi....
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....uments and records pertaining to the corporate debtor in his possession and knowledge to the resolution professional. 25. Duties of resolution professional. - (1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor. (2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely: - (a) take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor; (b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings; (c) raise interim finances subject to the approval of the committee of creditors under section 28; (d) appoint accountants, legal or other professionals in the manner as specified by Board; (e) maintain an updated list of claims; (f) convene and attend all meetings of the committee of creditors; (g) prepare the informati....
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....tion of issued securities in case the corporate debtor is a company; (d) record any change in the ownership interest of the corporate debtor; (e) give instructions to financial institutions maintaining accounts of the corporate debtor for a debit transaction from any such accounts in excess of the amount as may be decided by the committee of creditors in their meeting; (f) undertake any related party transaction; (g) amend any constitutional documents of the corporate debtor; (h) delegate its authority to any other person; (i) dispose of or permit the disposal of shares of any shareholder of the corporate debtor or their nominees to third parties; (j) make any change in the management of the corporate debtor or its subsidiary; (k) transfer rights or financial debts or operational debts under material contracts otherwise than in the ordinary course of business; (l) make changes in the appointment or terms of contract of such personnel as specified by the committee of creditors; or (m) make changes in the appointment or terms of contract of statutory auditors or internal auditors of the corporat....
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.... of the opinion that such sale is necessary for better realization of value. Thus, the power conferred on RP to sell unencumbered assets is on satisfaction that such a sale is necessary for better realization of the value. Regulation 29 specifically empowers the RP and it being framed under exercise of powers conferred under Sections 14 and 25, it has to be treated that it is to give effect to the provisions of Sections 14 and 25. It is not in any manner in excess of Sections 14 and 25. We, thus, accept the submission of learned Counsel of Respondent that despite declaration of Moratorium under Section 14(1)(b), the RP is empowered to conduct sale of unencumbered assets, if he is of the opinion that it is necessary for better realization of the value. 26. The Board, which has framed the above Regulation is well aware of the contents and expanse of the provisions of the Code. We, thus, reject the submission of the learned Counsel of the Appellant that RP has no jurisdiction to conduct any sale during the pendency of Moratorium under Section 14. 27. There is another expression of limitation of sale of assets by RP under Regulation 29 and Section 28, sub-section (3) that sale of....
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....ce that provision with regard to assets of the Corporate Debtor, object to which is to ensure that assets of CD are not depleted or alienated during pendency of the CIRP. The prohibition under Section 14(1)(b) thus in transferring the assets of the CD is throughout the currency of CIRP except where statute specifically empowers RP to carry the sale on fulfillment of conditions as laid down in the statute. Question No.4 29. In view of the discussion on Question Nos.2 and 3, we are of the view that decision of RP to proceed with the sale of BKC property after approval of the CoC in the meeting dated 24th April, 2020 was permissible and was not interjected by virtue of declaration of Moratorium under Section 14(1)(b). Question No.5 30. Section 14(1)(c) prohibits any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property. When Moratorium is declared any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property is prohibited. The object is that assets of Corporate Debtor do not deplete during the currency of CIRP. Realization of recovery or enforce....
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....gies Ltd. [Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd., (2018) 2 SCC 674 : (2018) 2 SCC (Civ) 288] (at p. 709) and Giriraj Garg v. Coal India Ltd. [Giriraj Garg v. Coal India Ltd., (2019) 5 SCC 192 : (2019) 2 SCC (Civ) 744] (at pp. 202-203). This, coupled with the fact that the section is not limited to "recovery" of any debt, would indicate that any legal proceeding even indirectly relatable to recovery of any debt would be covered." 31. When the proceeding under Section 138 of Negotiable Instruments Act, which are held to be in respect of debt and are covered by Moratorium under Section 14, any proceeding for realization of any security are clearly prohibited. There is no provision in a Code or in a Regulation, which permit Secured Creditors to enforce their security interest during currency of the CIRP. We may refer to judgment of the Hon'ble Supreme Court in AIR (2020) SC 222 - Anand Rao Korada, Resolution Professional vs. Varsha Fabrics Private Limited. In the above case, the High Court has directed for auction of the assets of the properties during the currency of CIRP. Hon'ble Apex Court held that in event the assets of the company are alienated during the pende....
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....red. The amount of INR 32.50, which was paid by the Management of the Corporate Debtor to Respondent No.1 was ultimately directed to be refunded. In paragraph 32.1, following has been directed: "32.1. Respondent 1 is allowed to operate its account subject to it first remitting into the account of the corporate debtor, the amount of Rs. 32.50 lakhs which stood paid to it by the management of the corporate debtor. The assets of the corporate debtor shall be managed strictly in terms of the provisions of the IBC. The appellant as RP will bear in mind the provision of Section 14(2-A) and the object of IBC. We however make it clear that our order shall not be taken as our pronouncement on the issues arising from the FIR including the petition pending under Section 482 CrPC." 33. We may also refer to judgment of this Tribunal reported in 2021 SCC OnLine NCLAT 308 - SM Milkose Limited and Another vs. Parvinder Kumar Bhatt and Others, in which this Tribunal had considered the question as to whether CoC can take a decision regarding payment to a particular Financial Creditor during CIRP. The question under consideration was noticed in paragraph 16 and same was answered in paragr....
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....perty on 26th June, 2020 was effected by Resolution Professional after obtaining approval of CoC in its 10th Meeting dated 24th April, 2020, which was also approved by the Adjudicating Authority on 11th June, 2020. In our foregoing discussions, we have held that Resolution Professional was competent to effect sale with due approval of the CoC of the subject assets. The consideration of sale of the said property has been utilized to secure title of six aircrafts as well as to make payment to Respondent No.3, who had charge over the subject properties. The charge was released by Respondent No.3 subject to receiving payment of INR 360 crores as noted above. Resolution of Corporate Debtor culminated in Successful Resolution of CIRP, resulting in approval of Plan. All the claims of various stakeholders including of the employees and workmen must have received their due consideration in the Plan. After the CIRP having been culminated in Successful Resolution, we are not inclined to off-set the entire process, which has culminated into Successful Resolution, by reverting the consideration received by Respondent No.3 towards its charge on the subject property. At this distance of time, it ....
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....as rightly noted that it was accordingly approved after taking into consideration, the techno-economic report pertaining to the viability and feasibility of the plan. The plan is also put into operation since 18.04.2018, and as of now the Respondent No. 1 is an on-going concern. Though, the Respondent No.11 has taken up the plea that its offer was conditional, it has got a very minor share which may not be sufficient to impact by adding it with that of the appellant and Respondent No.7. The Respondent No.7 and the Respondent No.11 did not choose to challenge the order of the appellate tribunal. 63.We need to take note of the interest of over 23,000 shareholders and thousands of employees of the Respondent No.1. Now, about Rs. 300 crores has also been approved by the shareholders to be raised by the Respondent No.1. It is stated that about Rs. 63 crores has been infused into the Respondent No.1 to make it functional. There are many on-going projects of public importance undertaken by the Respondent No.1 in the nature of construction activities which are at different stages. 64.We remind ourselves of the ultimate object of the Code, which is to put the corporate deb....