TaxTMI 
TaxTMI 
2023 (8) TMI 1
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....ng Authority') passed in IA(IB) No.277/KB/2021 in CP(IB) No.438/KB/2018. Both the appeals were heard together and on 22.05.2023 judgement was reserved. 2. By the impugned order the learned Adjudicating Authority was pleased to approve the Resolution Plan submitted on behalf of Respondent No.2/Square Four Housing and Infrastructure Development Pvt Ltd, submitted by RP/R1. 3. The three appellants in Company Appeal (AT)(Ins) No.839/2022 are suspended directors of Board of Directors of the Corporate Debtor i.e. Castal Extrusion Pvt Ltd whereas appellant in Company Appeal (AT)(Ins) No.861/2022 had claimed to be tenant of the major portion of the land of the Corporate Debtor and the appellant in this appeal whose resolution plan was not approved has also assailed the approval of the Plan by the impugned order. 4. In Company Appeal (AT)(Ins) No.839/2022 the appellants have prayed for following reliefs:- a) Quash and set aside the impugned judgement dated 29th June, 2022 passed by the Learned Adjudicating Authority, Kolkata Bench in IA (IB) No.277/KB/2021 in CP (IB) No.438/KB/2018; and b) Call for the records of CP (IB) No.438/KB/2018; and c) Pass any ot....
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....tely thereafter, on 27.7.2014, the Corporate Debtor entered into an unstamped and unregistered lease rent agreement (Annexure A-2) with the appellant and lease hold right over 1.90 acres of subject land was created in favour of the appellant for a period of five years on monthly rental of Rs.55000/- Thereafter on 01.08.2014, Notice under Section 13(4) of the SARFEASI Act, 2002 was issued by the Vijaya Bank for enforcement of security interest over the subject land. Mr. Harshvardhan Tantia, who on the date of execution of the unregistered lease agreement dated 27.07.2014 was holding 6.22% shares in the Corporate Debtor, on 14.03.2016 resigned from the directorship of the Corporate Debtor. It is further evident that on 26.02.2018 Vijaya Bank invoked the bank guarantee against the Corporate Debtor and asked the Corporate Debtor to pay an amount of Rs.57.34 crores alongwith interest. Even thereafter on 26.07.2019 the Corporate Debtor entered into an unstamped and unregistered rent agreement (Annexure A-1) with the appellant whereas lease hold right over 1.90 acres of the subject land was created in favour of the appellant for further period of five years. We may deal with in detail in ....
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....llant and Corporate Debtor was under valued transaction. As per audit report the fair rent of the subject land is Rs.4.85 lakhs per month whereas the Corporate Debtor gave the subject land to the appellant for Rs.55000/- per month. 11. Finally on 12.02.2021 e-voting on the Resolution Plan was concluded and plan submitted by R2 was approved with 100% voting share and resolution plan submitted by the appellant was rejected by the CoC. Thereafter on 15.02.2021 RP issued letter of intent to Respondent No.2 and same was accepted. Subsequently RP filed an application i.e. Application No.IA(IB) No.277/2021 under Section 30(6) of the IB Code seeking approval of the resolution plan. Finally by the impugned order dated 29.06.2022 the Adjudicating Authority allowed the IA(IB) No. 277/2021 and approved the plan submitted by Respondent No.2 as approved by the CoC. The Adjudicating Authority also allowed IA No.107/2021 filed by the RP for directing the appellant herein to vacate the land within a period of 30 days and also make payment to the Corporate Debtor at the rate of Rs.2 lakhs per month. 12. Aggrieved with the order dated 29.06.2022 to the extent of approval of plan the present Com....
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....submits that in view of Section 5(26) of the IB Code the said resolution plan on this score alone appears to contrary to the statutory provisions and as such the learned Adjudicating Authority has committed error in approving the said plan. In course of arguments he has also drawn our attention to running page 91 of the impugned order and referred to Sl.No.6 para 10.2. It is better to reproduce para 10.2 as follows which is from running page 91 to 94:- 6 10.2 Title in respect of immovable property held by the Corporate Debtor 10.2.2 Based on the information received from the Information Memorandum and during due diligence, it is revealed that one T-RMC Pvt. Ltd. having its registered office at 35A, Dr. Sarat Banerjee Road, 2nd Floor, Kolkata 700029, has been carrying on its business activities of ready-mix concrete in a substantial portion of the Land/Premises of the Corporate Debtor as an occupier. It has also been transpired that there are several number of workers are engaged in the business activities of the said T-RMC Pvt. Ltd. In this regard, the RA proposes for passing an order by the Hon'ble NCLT, Kolkata Bench directing eviction of the said T-RMC from....
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.... owned or leased to the Corporate Debtor is found, the same shall be deemed to be vacated w.e.f. approval of the Resolution Plan and all such contract in this respect, would be deemed to be cancelled. The Resolution Applicant accordingly expects the vacant & peaceful of the property subsequent to the approval of the Resolution Plan. The RP has argued that the impugned transaction vide 2014 Agreement was covered within the purview of Section 46 (1) (ii) of IBC. It has been brought on record by the RP that at the relevant time of execution of the 2014 Agreement, the CD and T-RMC were related parties within the meaning of Section 5 (24) (d) of IBC. This is since Harshvardhan Tantia, one of the promoters of both the CD and TRMC, was a director of T-RMC and held more than 2% shares in the CD at the time of the execution of the purported 2014 Agreement. In this regard, the RP has drawn our attention to the following relating to Shareholding pattern: * Shareholding of T-RMC in FY 2014-15 at page 43 of the Application: Harshvardha n Tantia held 50% shares of and in T-RMC at the relevant date. * Shareholding of CD in FY 2014-15 at page 107, Application: Harshvardha n....
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.... a further payment to the Corporate Debtor at the rate of Rs.2,00,000/ - per month to be calculated from the date of creation of such tenancy in its favour till the date of handing over peaceful vacant possession of the land to Resolution the Applicant within the period stipulated above. In the event of failure to make such payment within the stipulated period, the Corporate Debtor and/or the Resolution Applicant shall be at liberty to claim and realise mesne profit from T-RMC at such rate as may be reasonably decided by the Corporate Debtor and/or the Resolution Applicant. The Corporate Debtor and/or the Resolution Applicant shall be at liberty to take appropriate step against TRMC for their eviction and realisation of the said dues in the event their failure to comply this order. The said I.A. (IB) 107//KB/2021 and I.A. (IB) 1302//KB/2020 IN C.P (IB) No. 438/KB/2018 is thus disposed of with the directions as above. 10.2.4 Any dues, liabilities, charge, interest, penalty or cost on the Corporate Debtor relating to any period prior to the insolvency commencement date is deemed to waived/written-off with respect to the immovable property. Such dues for the ....
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....g out of Section 31 of the Code beyond the time limit of 180 days or the extended time limit of 270 days? Actus curiae neminem gravabit - the act of the Court shall harm no man - is a maxim firmly rooted in our jurisprudence (see Jang Singh V. Brijlal & Ors. S.C.R. at page 149, and A.R. Antulay V. R.S. Nayak & Ors. S.C.R. at page 71). It is also true that the time taken by a Tribunal should not set at naught the time limits within which the corporate insolvency resolution process must take place. However, we cannot forget that the consequence of the chopper falling is corporate death. The only reasonable construction of the Code is the balance to be maintained between timely completion of the corporate insolvency resolution process, and the corporate debtor otherwise being put into liquidation. We must not forget that the corporate debtor consists of several employees and workmen whose daily bread is dependent on the outcome of the corporate insolvency resolution process. If there is a resolution applicant who can continue to run the corporate debtor as a going concern, every effort must be made to try and see that this is made possible.3 A reasonable and balanced construction of t....
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.... a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been 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 protects 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 40 its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends." 29. In view of the aforesaid fact, as the 'Resolution Plan' is against the object of the Code and the application under Section 10 was filed with intent of closure of the 'Corporate Debtor' for ....
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....its feet, not being a mere recovery legislation for creditors." 20. Mr Singh, learned counsel for the appellant further submits that it is true that law settled on the point that commercial wisdom of the CoC may not be interfered with but at the same time if in the garb of commercial wisdom a decision is taken by the CoC which is per se contrary to the statutory provision then the same can be looked into and interfered with in an appeal. In support of his submission he has placed reliance on 2022 SCC Online NCLAT 289 63 Moons Technologies Ltd Vs Administrator of Dewan Housing Finance Corporation Ltd and others. 21. Mr. Kumarjit Banerjee, learned counsel has appeared on behalf of Respondent No.1/RP and opposed the appeal. He submits that the appeal is fit to be rejected primarily on the ground that the appellant appears to have connived with the Corporate Debtor in frustrating the CIRP. He submits that even after account of the Corporate Debtor was declared NPA the appellant entered into an unlawful lease agreement with the Corporate Debtor and major portion of the land Corporate Debtor was occupied on the strength of such untenable lease agreement for several years. He submit....
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....l of the said business of the Corporate Debtor and as such in accordance with law established the approved plan was submitted and every care has been taken in the said plan. In support of his submission regarding change of the business Mr. Banerjee, learned counsel has placed reliance on a judgement of this Tribunal reported in (2021) 130 taxmann.com 147(NCLAT) in Next Orbit Ventures Fund Vs Print House (India) Pvt Ltd. He has referred to paras 3(50), 37 and 38 of the said judgement which are reproduced hereinbelow:- "3.50. We are of the view that there is nothing the Code that inhibits a Resolution Applicant from pursuing a line of business that is different to the erstwhile business of the 'Corporate Debtor'. If this proposition is accepted, then it would mean that there can never be a situation where the successful Resolution Applicant can revive a 'Corporate Debtor' by pursuing a different line of business. We can easily conceive a situation where the business of the 'Corporate Debtor' is overtaken by technology - examples that come to mind are the pager business, fax business, telex business etc., which were consigned to the dustbin of history ....
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....ted scope as provided under Sections 30 & 31 of the I&B Code. At the cost of repetition 'IBC' provides for restructuring of the 'Corporate Debtor' change in technology, change in portfolio of goods and services produced or rendered by the 'Corporate Debtor' as long as the scope and objective of the Code is not hampered and therefore we are of the considered view that if the Resolution Plan contemplates a change in the nature of business to another line when the existing business is obsolete or nonviable, it cannot be construed that the Resolution Plan is not 'feasible or viable'. It can be seen from the aforenoted Sections 30(2) & 31 and Regulations 37, 38 and 39 that there is nothing in the Code which prevents a 'Resolution Applicant' from changing the present line of business to adding value or creating 'Synergy' to the existing assets and converting an obsolete line of business to a more 'viable and feasible' option. Keeping in view the ratio laid down by the Company Appeal (AT) (Insolvency) No. 417 of 2020 with Company Appeal (AT) (Insolvency) No. 744 of 2020 Hon'ble Supreme Court in the recent Judgement 'Kalpraj D....
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....clearly mentions that the plant and machinery of the Corporate Debtor is extremely old. It specifically mentions that the 600 MT capacity hydraulic press machine, the principal component of the plant and machinery, is 40 years old and is in urgent need of repairing in order to start functioning. Furthermore, it would be evident from the perusal of the said IM that the factory premises and plant and machinery had not been insured for past several years leading up to insolvency commencement date and continued to remained uninsured as on the date of preparation of the IM. In this connection, a relevant extracts from the IM issued by the RP, the Respondent No. 1 herein, on 19th September, 2020 is annexed hereto and marked as Annexure "A". c. In fact, it would also be evident from the perusal of the IM that the last payment in respect of the Municipal Taxes and Khazna liability of the Corporate Debtor was made for the period of 2005- 06 to 2007-08, and it remains unpaid for entire period of 15 years thereafter. The said liability has not even been provided for in the books of accounts of the Corporate Debtor. In this connection, copy of the receipt for last payment of Khazna by....
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....of the Corporate Debtor by shutting down the extrusion undertaking whereas the third plan proposed to first conduct a Techno Economic Viability ("TEV") study to ascertain if revival of the extant undertaking was at all viable. i. Furthermore, the question pertaining to alteration of the business line of the Corporate Debtor is no longer res integra and this Hon'ble Tribunal has already unequivocally held that alteration of business line of the Corporate Debtor and the corresponding shut down of an existing undertaking, to be permissible under the provisions of the Code and/or regulations framed thereunder. m. The purported tenant is the beneficiary of a fraudulent transaction perpetrated at the behest of the promoters of the Corporate Debtor in favour of the said T-RMC, which at the relevant time was a related party of the Corporate Debtor and it has been held by the Hon'ble Adjudicating Authority that the entire transaction was carried into effect with the sole mala fide intent of keeping the subject asset out of the reach of the creditors of the Corporate Debtor in so far as the said transaction was given effect to post issuance of 13 (2) notice on 10 Ma....
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....rawn our attention to running page 258 relating to employees of the Corporate Debtor. It reflects that it has been incorporated that "Retention of employees-Post acquisition of CD by RA all the existing workman and staff shall be released/laid off/terminate with outstanding dues of gratuity and PF, as stated in the resolution plan. The amount dues to be existing employees and workman shall be paid by the new management. Further RA may re-appoint or appoint some of the employees and workman on the basis the requirement on new terms and conditions." In the plan submitted by the appellant page 263 reflects that there is 'Nil' against workman dues. He has also drawn our attention to running page 259 which is part of the resolution plan submitted by appellant T-RMC Pvt Ltd to show that plant operation of the Corporate Debtor was shut down for long period and further the appellants' plan was not specific on the point of revival. The proposal for take over as incorporated in the plan of the appellant was referred by the learned counsel for the appellant which is reproduced hereinbelow:- "Proposal for the takeover On payment of the Upfront Payment under the Proposed Resol....
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....also relied on Regulation 37 of IBBI (Insolvency Resolution Process for Corporate Person) Regulation 2016. He has also referred to resolution plan submitted by Respondent No.2 which starts from running Page 340 of Volume II of the Memo of Appeal. He has drawn our attention to business plan incorporated in the resolution plan of the Respondent No.2 which is at running page 358 to 360 and reproduced herebelow: "4 BUSINESS PLAN Estimated reasons for the present position of the Company M/s Castal Corporation Private Limited (CCPL) purchased 2.209 acres of land situated and lying at Narayanpur, P.O.-R. Gopalpur, Dist. 24 Parganas (North), West Bengal by two registered deeds of conveyance dated 19.05.1964. CCPL thereafter constructed sheds, buildings, etc, over the said plot of land from time to time and started non-ferrous metal factory therein. CCPL was amalgamated with G. Das & Company Private Limited w.e.f. 01.07.1985. On 08.09.1988, G. Das & Company Private Limited became a public company. On 31.10.1988, G. Das & Company Limited entered into an agreement to sell the factory along with land, plant & machinery etc. to the Corporate Debtor - Castal Extrusion ....
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....lan for building the capability required (technical, financial, manpower, turnaround expert etc) to revive CD: TURNAROUND STRATEGY The Resolution Applicant proposes to change the business of CEP Land convert it into a real estate company as a revival plan of the company. As a part of the turnaround strategy, Resolution Applicant shall undertake the Following exercise,being: a) Creation of SPV- Formation of a Special Purpose Vehicle (SPV) wherein SFHIDPL will own 100% of the SPV. However, the Resolution Applicant reserves the right to induct other shareholders in the SPV. The Resolution Applicant will infuse funds into CEPL to the tune of Rs. 6.50 Lakhs, SPV will be used to hold the shares of CEPL; b) Conversion of Nature of Factory Land -The Resolution Applicant proposes to convert the nature/use of the Factory Land from Industrial purpose to Residential/Commercial purpose. The Resolution Applicant has studied that the nearby areas of the Factory have been developed into a residential area with many residential properties being developed in the recent past, hence, it will be very difficult to restart or carry out any other new industrial....
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....bmitted by the appellant that statutory licences as well as association licences had expired and not renewed. Mr. Nagesh has also placed reliance on Next Orbit Ventures Fund (Supra) and submits that in view of situation which was prevailing it was difficult to take any steps for proceeding with the same business of the corporate debtor and it was viable to change the nature of business and as such a reasonable approach was adopted in the resolution plan of the Respondent No.2 which on commercial wisdom of the CoC was considered for its approval and finally the same has been approved by the learned Adjudicating Authority. 34. Mr Arun Agarwal, learned counsel has appeared on behalf of Respondent No.3/CoC. Besides adopting arguments advanced by Mr. P. Nagesh, learned senior counsel for Respondent No.2 as well as Mr. Banerjee, learned counsel for Respondent No.1 he tried to persuade the Court that lease agreement itself was fictitious and it was created only with a view to put the financial creditor to loss by illegal means. He submits that the perusal of the lease agreement itself makes it clear as to what was the object for creating such a document. By way of referring to lease ag....
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....end the tenure of the agreement for further five years. On aforesaid ground it was submitted that both lease agreements appear to be forged documents which were created without written permission of the Bank i.e. financial creditor where a charge was created in favour of the Bank. On aforesaid plea it was argued that the present appeal is required to be rejected outrightly. Moreover in the Transaction Audit Report rent of the land was determined at Rs.4.85 lakhs per month against Rs.55000/- per month. 37. Mr Rudereshwar Singh also argued in rejoinder and reiterated that the Corporate Debtor was running the industry of aluminium production and as such there was no reason for alteration of the business. 38. In Company Appeal (AT)(Ins) No.839/2022 three suspended directors of the Board of Directors of the Corporate Debtor are three appellants. One of the appellant namely Mr. Jaydeep Ghosh is the signatory of the lease rent agreement dated 27.07.2014 and 26.07.2019. 39. Mr Prakhar Tandon, learned counsel has appeared on behalf of the appellant in the present appeal CA(AT)(Ins) No.839/2022. He assailed the resolution plan on several grounds including the ground that the approve....
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....of the company. In the present case, the company is the sole appellant. This being the case, the present appeal is obviously not maintainable. However, we are not inclined to dismiss the appeal on this score alone." 41. Learned counsel for all the Respondents have raised objection on the locus of the directors of suspended Board of Directors of the Corporate Debtor who are appellants in the one of the present appeals. Besides raising preliminary issue they have further argued that the detailed submission has been made regarding viable plan submitted by Respondent No.2 and no error in the impugned order particularly by replying submission of counsels in Company Appeal (AT)(Ins) No.861/2022. 42. Mr. Nagesh, learned senior counsel on the question of law in both the appeals has taken the same stand. He submits that it is settled that Resolution Applicant has no vested right regarding his resolution plan. It is upto the commercial wisdom of the CoC to consider the plan which may not be interfered with. On this very issue he has placed reliance on para 79 of judgement reported in (2019) 2 SCC Page 1 Arcelormittal India Pvt Ltd Vs Satish Kumar Gupta and others which is quoted herein....
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....holders qua implementation of the approved Resolution Plan nor can it claim any prejudice on the pretext that any of the actions post approval of the Resolution Plan of Successful Resolution Applicant in regard to its implementation has affected its prospects of being a Successful Resolution Applicant. If the terms of the approved Resolution Plan of Successful Resolution Applicant have been varied or time extended to facilitate its implementation and the creditors have not claimed any prejudice on that count and the Committee of Creditors comprising of the creditors as stakeholders has not objected to same rather been privy to it on account of hardship due to prevailing circumstances, the Appellant cannot be permitted to cry foul. It is not a case of alleged material irregularity in the Corporate Insolvency Resolution Process which is in final stages with the approved Resolution Plan being under implementation. Outbreak of COVID-19 pandemic has slowed down the economic activity and operations have been adversely impacted. Viewed in that context some necessary changes in the agreed terms and extension of time for implementation would not be uncalled for. Be that as it may, the Appel....
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.... the Corporate Debtor was created in favour of financial creditor i.e. Vijaya Bank. Even thereafter one of the directors of the appellant namely Mr. Harshvardhan Tantia of Company Appeal (AT)(Ins) No.861/2022 who was also having 6.22% shares holding in the Corporate Debtor company entered into lease agreement on 27.07.2014 with CD in respect of major portion of the land of the Corporate Debtor. The lease agreement was signed by Mr. Jaydeep Ghosh on behalf of the Corporate Debtor and Mr. Harshvardhan Tantia signed as one of the directors of T-RMC Pvt Ltd who is appellant in Company Appeal (AT)(Ins) No.861/2022. The lease agreement dated 27.07.2014 was for a period of five years which was to end on 26.7.2019. It is mandatory that if a tenancy is created on the basis of an agreement/lease agreement for one year or more then the said deed is required to be registered. However, it is not disputed that in the present case the lease agreement which was for five years was only notarised, not registered. Further it has been pleaded and not disputed by the appellant that Mr. Jaydeep Ghosh one of the directors who signed on behalf of the Corporate Debtor was never authorised by the resolution....
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....e corporate debtor for maximization of value of its assets, including but not limited to the following- (a)Transfer of all or part of the assets of the corporate debtor to one or more persons; (b)Sale of all or part of the assets whether subject to any security interest or not; (ba) restructuring of the corporate debtor, by way of merger, amalgamation and demerger; (c) The substantial acquisition of shares of the corporate debtor, or the merger or consolidation of the corporate debtor with one or more persons; (ca) cancellation or delisting of any shares of the corporate debtor, if applicable. (d)Satisfaction or modification of any security interest; (e) Curing or waiving of any breach of the terms of any debt due from the corporate debtor; (f) Reduction in the amount payable to the creditors; (g)Extension of a maturity date or a change in interest rate or other terms of a debt due from the corporate debtor; (h)Amendment of the constitutional document of the corporate debtor; (i) Issuance of securities of the corporate debtor, for cash, property, securities, or in portfolio of goods o....