TaxTMI 
TaxTMI 
2021 (12) TMI 1429
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....a Kapoor and Anr.' (the Erstwhile Director of the 'Corporate Debtor Company'), Company Appeal (AT) (Insolvency) No. 165 of 2021 preferred by 'M/s. PGI - GmbH - Playglobal International' (hereinafter referred to as M/s. PGI Global) and Company Appeal (AT) (Insolvency) No. 243 of 2021 preferred by 'Bhartiya Kamgar Sena Workmen Union of BDIL', challenge the Common Impugned Order dated 18.12.2020 in I.A. No. 3702 of 2019 in CP (IB) No. 292/(MB)/2017 passed by the Learned Adjudicating Authority (National Company Law Tribunal, Mumbai Bench, Special Bench, Court No. II) under Section 61(1) of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as the 'Code'). 2. By the Impugned Order, the Learned Adjudicating Authority has allowed I.A. No. 3702 of 2019 filed by the Liquidator of Bharati Defence Infrastructure, (the 'Corporate Debtor') seeking directions in the Liquidation Process and Sale of the assets of the 'Corporate Debtor' and observed as follows:- "8. An Additional Affidavit filed by the Applicant states that the financial position and deteriorating condition of the assets lying in the shipyards of the CD....
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....ame up for hearing on 29.06.2020. The Counsel for Seven Star Securities Private Limited submitted that they had failed to comply with the Order dated 22.06.2020 and therefore in accordance with the said order, no further time was granted to deposit the EMD and the present Application was heard. 13. As the circumstances narrated supra would indicate, all possible steps have been taken to revive the Company and they have not yielded any fruitful result. The assets of the CD are lying idle and due to lack of business the CD, it has not been able to provide for its employees. That in turn has affected the maintenance of the assets, which has resulted in depreciation of its value and worth. Thus, it would accordingly be appropriate to order sale of its assets, before they further deteriorate. Hence ordered. ORDER The IA be and the same is allowed. The Applicant is directed to take further appropriate steps for liquidation of the CD, including sale of assets, collectively or in parcels or individually, as per the provisions of the Code and Rules made thereunder. He is directed to complete the process at the earliest." (Emphasis Supplied) 3. Submissi....
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....rospective bidder. * The Liquidator did not follow the requirements of Schedule-I of the IBB (Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016). Liquidator was required to follow the regulations which envisaged preparation of a marketing strategy taking help of market professionals, preparing information sheets for the assets, liaisoning with the agents etc. None of this was done by the Liquidator. * The Impugned Order has signed the death warrant of the 'Corporate Debtor' considering the statements of the Liquidator as the gospel truth without taking into consideration that the Liquidator did not put forth the offer of Playglobal International before the Adjudicating Authority, which had written to the Liquidator committing 800 Million Dollars approximately on 14.12.2020. However, the Liquidator simply replied on 17.12.2020 that the time was up and rejected the offer. This offer was not brought to the notice of the Bench deliberately by Edelweiss and the Liquidator on the date, the Order was passed i.e. on 18.12.2020. * As the 'Corporate Debtor' has a good reputation in the global market, International Comp....
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....the stakeholders if the Appellant is allowed to provide the Earnest Money Deposited. * Because of the pandemic and the lockdown, the Appellant could not submit its bid and a mere procedural delay should not result in grave injustice and lead to Corporate Death of the Company and hence prays for M/s. PGI Global to be allowed to submit a scheme under Section 231 & 232 of the Companies Act 2013. * Learned Counsel relied on the following Judgements in support of their case:- o 'Y. Shivaram Prasad' Vs. 'S. Dhanpal & Ors.' (Paragraphs 10-14). o 'Arun Kumar Jagatramka' Vs. 'Jindal Steel and Power Ltd. & Anr.' (Paragraphs 75-76). o 'GSEC Green Energy Pvt. Ltd.' (Ahmedabad) - The prospective applicant was allowed to submit a scheme after 177 days of delay. o 'Forward Shoes (India) Pvt. Ltd. & Anr.' (Chennai, Division Bench) - The prospective Applicant was allowed to submit a scheme after 1005 days of delay. 5. Submissions of the Learned Senior Counsel appearing on behalf of 'Bhartiya Kamgar Sena Workmen Union of BDIL in Company Appeal (AT) (Insolvency) No. 243 of 2021: * Lea....
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....ving the Company to be sold at a scrap value. It was strenuously contended that the Liquidator and the 'Financial Creditor' were not working in the interest of the Company which provides employment for more than 850 employees, and hence prays for the proposal given by M/s. PGI Global also to be considered and also to direct that all wages and statutory dues including provident fund and gratuity since 2012 to be paid to the workers immediately. 6. I.A. 2346 of 2021: I.A. 2346 of 2021 has been filed by M/s. Goldman Securities Limited seeking impleadment as one of the Respondents in Company Appeal (AT) (Insolvency) No. 243 of 2021 (preferred by Workmen Union of the 'Corporate Debtor'). The Applicant in this I.A. seeks a direction to consider the proposal being given by the Applicant and permit the Applicant to acquire and to run the 'Corporate Debtor' as a 'going concern' as per the proposed Terms of Acquisition. The submissions of the Learned Counsel appearing for the Applicant in I.A. 2346 of 2021 are as follows:- * Learned Counsel for the Applicant submitted that the Applicant's Terms of Acquisition' is in line with the A....
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....ncement, Liquidator has issued an invitation to each of the persons that have evinced an interest in submitting a 'Scheme' to participate in the aforementioned bidding process. It is submitted that a perusal of the said Public Notice, shows that the Liquidator is admitting to sell the 'Corporate Debtor' as a 'going concern' only. * In the seventh Meeting of the stakeholders of the 'Corporate Debtor', the Liquidator informed the stakeholders that the next steps and only if the Company cannot be sold as a 'going concern' as a whole, the next step would be shipyard wise sale for the various yards of the 'Corporate Debtor', the next subsequent step would be selling the Assets in parcels. Selling the 'Asset' as a piecemeal sale would be the last resort. * The pandemic cannot be a reason to delay the entire process where two years have already been spent in the CIRP process. The Appellant M/s. PGI Global never participated in the process and never approached the Liquidator with the compliant scheme. The name of the Appellant cropped up only for the first time in an email dated 15.12.2020 of another entity called Ca....
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....against the Liquidator, are all denied and it is prayed that their Appeals are dismissed with cost. 8. Submissions of the Learned Counsel appearing on behalf of Liquidator in I.A. 2346 of 2021: * This I.A. has been filed on 21.10.2021 during the stage of final arguments. * Learned Counsel for the Liquidator submitted that this I.A. is not maintainable as it is filed for impleadment and for consideration of the Applicant's bid under Rule 11 of NCLAT Rules, 2016, read with Section 31 of the Code. The entire process which deals with approval of Resolution Plan has no applicability in the Liquidation Process and the Applicant seeking consideration of its Terms of Acquisition' and offer akin to a Resolution Plan, at the stage of Liquidation Proceeding under Chapter 3 of the Code, is impermissible. * It is further submitted that the Tems of Acquisition' suffers from various issues detailed as hereunder:- o inclusion of assets of the Corporate Debtor which are lying at the premises owned by subsidiary of the 'Corporate Debtor'. o inclusion of assets already sold during the various auction processes already conducted i.e.,....
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....ter a copy was served on him. 10. Submissions of the Learned Counsel appearing on behalf of Edelweiss Asset Reconstruction Company Limited/Financial Creditor: * Learned Counsel submitted that this Appeal is not maintainable as ex-promoter do not have any locus standi to file the Appeal as they are ineligible under Section 29(A) of the Code to submit scheme to acquire Assets of the 'Corporate Debtor' in liquidation. The Appellants have failed to establish any grounds as to how they are personally aggrieved by the Impugned Order. * The Public Announcement has been made inviting EoIs once again to sell the 'Corporate Debtor' as a whole, rendering the Appeal as infructuous. At the stakeholders Meeting on 22.01.2021 the liquidator informed that the first object would be to sell the 'Corporate Debtor'/its business as a whole and subsequently if the same is not successful, the next step would be shipyard wise sale. In the event, such a sale does not succeed, the next step would be selling the asset in parcels, such that there is a possibility to realize higher value from combination of assets before proceeding to piecemeal sale of the Ass....
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....ollow the directions of this Tribunal in 'Y Shivram' Vs. 'S. Dhanpal & Ors.' in Company Appeal (AT) (Insolvency) No. 224 of 2018. 13. Section 230 of the Companies Act, 2013 reads as follows:- "230. Power to compromise or make arrangements with creditors and members (1) Where a compromise or arrangement is proposed- (a) between a company and its creditors or any class of them; or (b) between a company and its members or any class of them, the Tribunal may, on the application of the company or of any creditor or member of the company, or in the case of a company which is being wound up, of the liquidator appointed under this Act or under the Insolvency and Bankruptcy Code, 2016 as the case may be, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal directs. Explanation.- For the purposes of this sub-section, arrangement includes a reorganisation of the company's share capital by the consolidation of shares of different classes or by the division of shares into shares of different classes, or ....
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....ard and stock exchange where the securities of the companies are listed, for placing on their website and shall also be published in newspapers in such manner as may be prescribed: Provided further that where the notice for the meeting is also issued by way of an advertisement, it shall indicate the time within which copies of the compromise or arrangement shall be made available to the concerned persons free of charge from the registered office of the company. (4) A notice under sub-section (3) shall provide that the persons to whom the notice is sent may vote in the meeting either themselves or through proxies or by postal ballot to the adoption of the compromise or arrangement within one month from the date of receipt of such notice: Provided that any objection to the compromise or arrangement shall be made only by persons holding not less than ten per cent of the shareholding or having outstanding debt amounting to not less than five per cent of the total outstanding debt as per the latest audited financial statement. (5) A notice under sub-section (3) along with all the documents in such form as may be prescribed shall also be sent to the Ce....
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....as are in the opinion of the Tribunal necessary to effectively implement the terms of the compromise or arrangement: Provided that no compromise or arrangement shall be sanctioned by the Tribunal unless a certificate by the company's auditor has been filed with the Tribunal to the effect that the accounting treatment, if any, proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed under section 133. (8) The order of the Tribunal shall be filed with the Registrar by the company within a period of thirty days of the receipt of the order. (9) The Tribunal may dispense with calling of a meeting of creditor or class of creditors where such creditors or class of creditors, having at least ninety per cent value, agree and confirm, by way of affidavit, to the scheme of compromise or arrangement. (10) No compromise or arrangement in respect of any buy-back of securities under this section shall be sanctioned by the Tribunal unless such buy-back is in accordance with the provisions of section 68. (11) Any compromise or arrangement may include takeover offer made in such manner as may be pre....
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....l to approve the arrangement or Scheme in spite of some irrelevant objections as may be raised by one or other creditor or member keeping in mind the object of the Insolvency and Bankruptcy Code, 2016. 19. In view of the observations aforesaid, we hold that the liquidator is required to act in terms of the aforesaid directions of the Appellate Tribunal and take steps under Section 230 of the Companies Act. If the members or the 'Corporate Debtor' or the 'creditors' or a class of creditors like 'Financial Creditor' or 'Operational Creditor' approach the company through the liquidator for compromise or arrangement by making proposal of payment to all the creditor(s), the Liquidator on behalf of the company will move an application under Section 230 of the Companies Act, 2013 before the Adjudicating Authority i.e. National Company Law Tribunal, Chennai Bench, in terms of the observations as made in above. On failure, as observed above, steps should be taken for outright sale of the 'Corporate Debtor' so as to enable the employees to continue. 20. Both the appeals are disposed of with aforesaid observations and directions. No co....
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....as some reasonable financial commitment to be taken in the favour of an EMD, from Rs. 1 Crore/- to 2% of the 'Scheme' value. * 28.08.2019 SRDIPL sought extension of time till March 2020. The next date the Liquidator clarified that the details of the draft 'Scheme' were not clear and hence held the 'Scheme' to be ineligible. * 03.09.2019 A notice of extension was published on the official website of the 'Corporate Debtor' for submission of 'Scheme' on Compromise and Arrangement on or before 30.09.2019. It was intimated by the Liquidator that the last date for submission of 'Scheme' was 18.10.2019 and that the EMD was fixed to 2% of the 'Scheme' value. * 16.10.2019 The Liquidator clarified that no EMD was furnished, the proposal did not amount to a 'Scheme'. * 18.10.2019 A draft proposal was received from the Appellants/Directors without proof of compliance of eligibility criteria and without the EMD. * 25.10.2019 The final 'Scheme' was received from the Appellants/Directors again without the EMD and without other requisite documentation. * 26.10.2019 A draft ....
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....39; put forth by the sister concern that EMD has not been submitted and the 'Scheme' was not compliant in terms of the EOI published. * 04.03.2020 On a request made by the sister concern, the Adjudicating Authority had given a last opportunity to pay the EMD in two trenches i.e. Rs. 5 Crores on or before 20.03.2020 and Rs. 20 Crores on or before 31.03.2020. 'The material on record establishes that SRDIPL has not paid any amount till this date'. * 14.04.2020 An email was sent to the Liquidator stating that additional time was required to pay the EMD amount due to the pandemic. It is seen from the record that though time was given from January 2020 to deposit the EMD amount, it was not made till April 2020 and therefore the question of pandemic being the sole reason for not making the deposit, does not hold any water. * 15.05.2020 An Additional Affidavit was filed by the Liquidator seeking urgent hearing of I.A. 3702 of 2019. The sister concern Special Security Services, intervened on 22.06.2020 and sought further time to pay the EMD amount. The Adjudicating Authority granted Special Security Services, a week's time as a last resort to p....
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....-auction process of the 'Corporate Debtor' as a 'going concern'. 17. The Liquidator has filed in his reply the emails sent to each of the persons who have evinced an interest in submitting a scheme to participate in the bidding process. Keeping in view all the aforenoted reasons we are of the considered opinion that the contention of the Appellants herein that the Liquidator did not give sufficient publicity internationally and therefore Prospective Global Buyers could not participate in the bidding process, is untenable. At the cost of repetition, even the website of the 'Corporate Debtor' had all the details of the bidding process including the extension of timelines from time to time. 18. Further, the aforenoted sequence of events clearly shows that all requisites steps were followed in terms of the Order of this Tribunal dated 14.05.2019 but no compliant scheme under Section 230 of the Companies Act, 2013, was received within the time frame of 6 months as stipulated under the Liquidation Regulations. Therefore, the contention of the Appellant/Directors that the Liquidator did not take any steps as directed by this Tribunal, is unsustainable. The Pu....
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....m 'Going Concern' is well understood in legal parlance. The jurisprudence in this regard is fairly well developed out of the Erstwhile Liquidation regime under the Companies Act, 1956. The Insolvency Law Committee in its Report dated 26.03.2016 noted that:- "The phrase as a going concern implies that the CD would be functional as it would have been prior to initiation of CIRP, other than the restrictions put by the code. It may not, therefore, be defined. However, it may be explained that going concern means all such assets and the liabilities, which constitute an integral business or the CD, that must be transferred together, and the consideration must be for the business or the CD." (Emphasis Supplied) 25. Transfer of the Company under Liquidation on 'going concern' basis is not a new concept and it was first noticed by Hon'ble Chief Justice Marten of Bombay High Court in 1930, when he noted as follows:- ".... Thus as stated in Palmer, Edn. 13, Part 2, p. 376: "But it often happens that the business of the company is its most valuable asset, and in such a case it may be very proper to carry on the business, and sell it as....
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.... (b) the assets in a slump sale; (c) a set of assets collectively; (d) the assets in parcels; (e) the corporate debtor as a going concern; or (f) the business(s) of the corporate debtor as a going concern: Provided that where an asset is subject to security interest, it shall not be sold under any of the clauses (a) to (f) unless the security interest therein has been relinquished to the liquidation estate. 32-A. Sale as a going concern. - (1) Where the committee of creditors has recommended sale under clause (e) to (f) of regulation 32 or where the liquidator is of the opinion that sale under clause (e) or (f) of regulation 32 shall maximise the value of the corporate debtor, he shall endeavour to first sell under the said clauses. (2) For the purpose of the sale under sub-regulation (1), the group of assets and liabilities of the corporate debtor, as identified by the committee of creditors under sub-regulation (2) of regulation 39-C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 shall be sold as a going concern. (3) Where the comm....
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....de or endorsed by or on behalf of the corporate debtor in the ordinary course of its business; (h) to take out, in his official name, letter of administration to any deceased contributory and to do in his official name any other act necessary for obtaining payment of any money due and payable from a contributory or his estate which cannot be ordinarily done in the name of the corporate debtor, and in all such cases, the money due and payable shall, for the purpose of enabling the liquidator to take out the letter of administration or recover the money, be deemed to be due to the liquidator himself; (i) to obtain any professional assistance from any person or appoint any professional, in discharge of his duties, obligations and responsibilities; (j) to invite and settle claims of creditors and claimants and distribute proceeds in accordance with the provisions of this Code; (k) to institute or defend any suit, prosecution or other legal proceedings, civil or criminal, in the name of on behalf of the corporate debtor; (l) to investigate the financial affairs of the corporate debtor to determine undervalued or preferential transactions; ....
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....onsultation committee when a request is received from at least fifty-one percent of representatives in the consultation committee. (7) The liquidator shall chair the meetings of consultation committee and record deliberations of the meeting. (8) The liquidator shall place the recommendation of committee of creditors made under sub-regulation (1) of regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, before the consultation committee for its information. (9) The consultation committee shall advise the liquidator, by a vote of not less than sixty-six percent of the representatives of the consultation committee, present and voting. (10) The advice of the consultation committee shall not be binding on the liquidator: Provided that where the liquidator takes a decision different from the advice given by the consultation committee, he shall record the reasons for the same in writing.] (Emphasis Supplied) 29. It is submitted by the Financial Creditor M/s. Edelweiss that in the 14th meeting of the stakeholders of the 'Corporate Debtor' held on....
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....approved nor accepted the proposal of the Applicant. 32. .................. "47. [Model time-line for liquidation process. The following Table presents a model timeline of liquidation process of a corporate debtor from the liquidation commencement date, assuming that the process does not include compromise or arrangement under section 230 of the Companies Act, 2013 (18 of 2013) or sale under regulation 32-A: Model Timeline for Liquidation Process Sl. No. Section/ Regulation Description Norm Latest Timeline (Days) (1) (2) (3) (4) (5) 1 Section 33 and 34 Commencement of liquidation and appointment of liquidator LCD 0 = T 2 Section 33 (1) (b) (ii)/Reg. 12 (1, 2, 3) Public announcement in Form B Within 5 days of appointment of liquidator. T + 5 3 Reg. 35 (2) Appointment of registered valuers Within 7 days of LCD T + 7 4 [Section 38 (1), Reg. 17, 18, 19, 20 and 21A] Submission of claims; Within 7 days of LCD T + 7 Intimation of decision on relinquishment of security interest Within 30 days of LCD T + 30 5 Section 38 (5) Withdrawal/ modification of claim Wit....
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....bsp;unclaimed dividends and undistributed proceeds Before submission of application under sub- regulation (3) of regulation 45 21 Sch-1 Sl. No 12 Time period to H1 bidder to provide balance sale consideration Within 90 days of the date of invitation to provide the balance amount.] AA: Adjudicating Authority, LCD: Liquidation Commencement Date, SCC: Stakeholders' Consultation Committee]] (Emphasis in bold supplied) 47-A. Exclusion of period of lockdown.-Subject to the provisions of the Code, the period of lockdown imposed by the Central Government in the wake of Covid-19 outbreak shall not be counted for the purposes of computation of the time-line for any task that could not be completed due to such lockdown, in relation to any liquidation process.]" 33. The aforenoted timelines under Regulation 47 for Liquidation Process, are directory. Procedural law should not be construed as an obstruction but as an aid to Justice. Extension of time under Liquidation may be allowed only on the satisfaction that there exists exceptional circumstances. The Hon'ble Supreme Court in 'Smt. Rani Kus....
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....pt the Sale as a 'Going Concern' at an appreciable value. * Two years have lapsed since the Liquidation Order was passed by the Adjudicating Authority, which Order has been confirmed by this Tribunal. * Several extensions were given to try for a 'Scheme' under Section 230 of the Companies Act, 2013, but despite several efforts, the same did not materialize. * The Counsel for the Liquidator submitted that he is still on Stage II of Regulation 32-A and seeks to sell the Company as a 'going concern' in compliance of the Orders of this Tribunal. * M/s. Edelweiss/'Financial Creditor' constituting 83% of the CoC seek that the proposal given by M/s. Pyrotech be placed before the Stakeholders Committee for deliberations and further negotiations. * Section 35(1)(e) of the code provides for carrying on the business of the 'Corporate Debtor' for its 'Beneficial Liquidation' as the Liquidator considers necessary. * Regulation 47 deals with only model timelines which are directory and not mandatory. * Regulation 47-A specifies that the time lost during lockdown may not be included in t....
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....d - Playglobal To, Mr Vijaykumar V. Iyer Liquidator of Bharati Defence and Infrastructure Limited, Deloitte Touche Tohmatsu India LLP, One international Centre, Tower 3 27th Floor, Senapati Bapat Marg, Elphinstone Road (West), Mumbai 400013 Email: [email protected] Ref: 1.Process document dated 23.02.2021 for the E- Auction of Bharati Defense and Infrastructure Limited and the further issued Corrigendums ( "Process Document") 2. Communications exchanged by and between the Liquidator and PGI GmbH Playglobal Internation al ("Communications") Subject: Request for extension of Last date of registration as set out in the process document i.e. 10.0 6.2021 Dear Sir, We PGI GmbH Playglobal International ("Playgobal") refer to the various communications exchanged by and between your good self and Pla yglobal and the process documnet pertaining to the E- Auction of Bharati Defence and Infrastructure Limited ("Corporate Debtor"). As informed earlier that Playglobal has been recently informed about the E- Auctioning of the Corporate Debtor and that Playglobal is firmly interested to participate in the same It must be noted that Playglobal is fully capable of ....