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2024 (2) TMI 508
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....t Dhirajlal Doshi and Mr. Ashit Doshi) of the Corporate Debtor M/s Doshion Private Limited (hereinafter referred to as DPL or CD) against the impugned order dated 03.10.2023 passed by the National Company Law Tribunal, Ahmedabad Bench (Adjudicating Authority), as per which the DPL has been admitted into liquidation under Section 33 Code in I.A. No.769(AHM)2021 in CP(IB) No. 59 of 2019. Brief Background relevant for the case 2. IDBI Bank (hereinafter referred to as FC) had agreed to sanction financial assistance to the CD to the tune of Rs. 32.7 Crores. Later on in the year 2014, on the request of the CD the Financial Creditor agreed to restructure the loan of the CD under the consortium finance by way of enhanced overall credit limit of Rs.93.48 Crores. 3. On 19.12.2018, the FC filed an application under Section 7 of the IBC before the NCLT, Ahmedabad Bench. 4. On 30.1.2021, Adjudicating Authority admitted Section 7 Petition against the CD in CP(IB) No. 59 of 2019 and an IRP viz. Ramachandran Dallaram Choudhary was appointed. 5. Adjudicating Authority vide its order dated 03.10.2023 decided to liquidate the CD basis unanimous recommendations of the Committee of Credi....
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....re discussed along with other minor issues in subsequent paragraphs. Material irregularity and arbitrariness : 10. On the first issue that whether CoC's decision to liquidate was tainted with material irregularity and arbitrariness, the sequence of events in the case in hand would make things clear. 11. CIRP was initiated on 31.08.2021. Public announcement was made on 12.9.2021 and the CoC was constituted on 04.10.2021. The first CoC meeting was held on 08.10.21. 12. It is claimed by the Appellant that the Adjudicating Authority erred in not even considering the resolution plan and that the Appellants were desirous of submitting. CD was an MSME and is entitled to revive itself as per the object and purpose of the IBC Code. Despite the willingness of the Appellants to submit a resolution plan, the CoC resolved to liquidate the CD. Appellants were willing to submit a resolution plan for an amount which is about the estimated liquidation value of the CD i.e. around of Rs. 15 Crores, even then their proposal was not considered. 13. Relevant extracts of the minutes of the first CoC meeting, which convey the thinking and mind of the CoC and will be relevant for further ana....
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....Memorandum, carrying out transaction audit etc. which are to be complied with irrespective of the status / position of the Corporate Debtor. Further, the IRP apprised that he needs to confirm whether the liquidation application of the Corporate Debtor can be filed before the Hon'ble NCLT without following the above mandatory provisions. The members of the CoC however, insisted the IRP on filing of liquidation application instead of going through the EOI process." [Emphasis supplied] 14. The Adjudicating Authority has clearly noted that, in the first meeting of the CoC, it had unanimously resolved to go for the liquidation of the CD, without following the resolution process of inviting the expression of interest, since there were no manufacturing or business activities which were being carried out by the Corporate Debtor. CoC was of the opinion that there were no chances of getting any expression of interest or possibility of revival of the corporate debtor, as it is non-functioning since 2016. The members of the CoC had resolved to sell the estates of the CD as going concern as per Regulation 39C of the CIRP regulations. It was also noted by the Adjudicating Authori....
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....onal, which is recorded in the first CoC meeting dated 08.11.2021. In the CIRP proceedings under the IBC, the decision of the CoC is supreme and IRP or RP's subjective views and feelings cannot dictate the outcome or change the direction of the proceedings. The members of the CoC decided to go for liquidation and IRP has to record like that without inserting his feelings. 18. In the above background, it cannot be said that there has been material irregularity in the decision of the CoC. The arguments relating to material irregularity cannot be accepted and are therefore rejected. Recommendation of CoC - Liquidation - amenable to judicial scrutiny: 19. Appellant claims that the decision of the AA is based on incorrect premise that once the CoC had decided with the requisite majority to liquidate the CD, such a decision would not be amenable to judicial scrutiny. Both the above arguments are analysed herein. 20. The Appellant also claims that minutes of CoC goes to demonstrate the haste with which the CoC proposed to liquidate the CD without even assessing the possibilities of reviving it. This is against the object of the IBC and which has also been upheld in the case of....
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....olvency resolution process, but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors approved by not less than sixty-six per cent of the voting share to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order. Herein the CoC recommended with 100% votes for liquidation and the commercial wisdom of the CoC cannot be ignored. Adjudicating Authority has acted as per that. 23. Furthermore, this has been upheld even by the Hon'ble Apex Court. The situations where the recommendations of the CoC can be reviewed are also noted in the judgement of the Apex Court in the matter of K Shashidhar versus Indian Overseas Bank and others in Civil Appeal No. 10673 of 2018, wherein it been has held that the commercial decision of the COC is non justiciable. In the above-mentioned judgement it has been clearly noted in para 45 that: "... Since none of grounds available under Section 30(2) or Section 61(3) of I & B Code were attracted in fact situation of present case, Adjudicating Authority (NCLT) as well as Appellate Authority (NCLAT) had no other option but to record that, proposed reso....
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....any grounds for the judicial scrutiny of the Resolution plan, as envisaged under Section 30(2) or Section 61(3) of the IBC or any other provisions of the IBC. Therefore, no error can be found in the orders of the Adjudicating Authority. 27. The Appellant has also tried to rely on the following judgements of this Tribunal to claim that the decision of the CoC is justiciable: a) Sreedhar Tripathy Vs. Gujarat State Financial Corporation & Ors. [Company Appeal (AT) (Ins.) No. 1062 of 2022] b) Hero Fincorp Limited Vs. M/s Hema Automotive Private Limited [Company Appeal (AT) (Ins.) No. 1540 of 2022] c) Nikhil Tandon Vs. Sanjeev Bindal & Anr. [Company Appeal (AT) (Ins.) No. 13 of 2022] 28. In the first judgment of NCLAT's Sreedhar Tripathi Vs. Gujarat State Financial Corporation & Ors. in Company Appeal (AT) (Insolvency) No. 1062 of 2022 it has been noted that : "7. The Explanation under Section 33 (2) has been inserted by Act of 26 of 2019 contains the legislative declaration and intention. The CoC in the Legislative Scheme has been empowered to take decision to liquidate the Corporate Debtor, any time after its constitution and before con....
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....is case. 29. The other judgment of NCLAT referred to by the Appellant is with respect to Hero Fincorp Limited Vs. M/s Hema Automotive Private Limited in Company Appeal (AT) (Insolvency) No.1540 of 2022 which is distinguishable. As noted in Sreedhar Tripathi [supra] judicial review of the decision of the CoC is not precluded and it depends on the facts of each case and in Hero Fincorp Limited the facts of the case are clearly mentioned in the concluded paragraph, which is quoted as below: "14. Coming to the facts of the present case, Form-G having been issued after preparation of the Information Memorandum and the last date fixed by the CoC being 24.10.2022 for receiving Expression of Interest, we are satisfied that Adjudicating Authority did not commit any error in rejecting for liquidation and asking the CoC to reconsider its decision. The order of Adjudicating Authority clearly empowers the CoC to reconsider its decision and take an appropriate decision taking into consideration further facts and events. We, thus, are satisfied that there is no ground to interfere with the impugned order. The Appeal is dismissed. No costs." [ emphasis supplied ] Facts of t....
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....he Appellant as facts of the case in hand are distinguishable as the CoC in its very first meeting had decided to go for liquidation basis their commercial wisdom unlike the case of Nikhil Tandon. 32. As examined by us in preceding paragraphs, none of the judgements relied upon by the Appellant help them. Therefore, the decision taken by the CoC to liquidate a CD cannot be subjected to judicial review in the facts of this particular case. Ineligibility u/s 29-A(b) of the Code not takes effect if the classification of wilful default is dehors the RBI circular 33. Another ground for relief is that the Applicants ineligibility under Section 29-A(b) of the IBC does not take effect if the classification of wilful default is dehors the RBI circular. It is claimed that the Applicants ineligibility under Section 29-A(b) of the IBC should not have been applied to classify the applicant as a wilful defaulter. Relevant Section 29-A(b) is quoted here for better appreciation: "[29-A. Persons not eligible to be resolution applicant. - A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person - ....
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....ners as wilful defaulter is concerned. 35. Perusal of the above records of the Hon'ble High Court of Gujarat indicate that this issue of wilful default has been raised multiple times. On the other hand the decision of the Adjudicating Authority and the recommendations of the CoC don't refer to the ineligibility basis Section 29- A(b) of the IBC. Even then it is noted from the minutes of the first CoC meeting of 8.10.2021, which is post Oral Order dated 18.04.2019 of Hon'ble High Court of Gujarat, the Appellant was present and resolution of the CD was discussed with him and thereafter basis their commercial wisdom, it was decided to go for liquidation of the CD. CoC had given a clear finding that there were no chances of getting an EoI or possibility of revival of the CD basis the facts of the case. Conclusions and orders 36. We have heard the counsel of the Appellant and also perused the records. CoC is a time bound process and even then, after the filing of the IA for liquidation on 10.11.2021, the Adjudicating Authority had given sufficient time and opportunities for the contending parties and ultimately decided on 03.10.2023 for the liquidation of the CD. We d....