TaxTMI 
TaxTMI 
2024 (10) TMI 831
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....d by the Resolution Professional for liquidation of the Corporate Debtor as recommended by the Committee of Creditors (in short 'CoC'). The appeal has been filed under 61 of the Insolvency & Bankruptcy Code, 2016 (in short 'Code'). 2.Heard the Counsel for the Parties and perused the records made available including the cited judgements. 3.Mr. Anil Jaina is the Suspended Director of the Corporate Debtor is Respondent No. 2 along with other two suspended directors i.e., Sri Gaurav Jaina who is Respondent No. 3 and Sri Ashok Kumar Jain who is Respondent No. 4. 4.It has been brought out that Rs. 10 Crores were sanctioned by the Appellant on 04.03.2013 in favour of the Corporate Debtor out of which Rs. 8,51,67,362.75/- was disbursed as term loan. It has been reported that there was continuous deferments of Date of Commencement of Commercial Operation (in short 'DCCO') of the project and subsequently on 30.04.2018 the Corporate Debtor failed to service the debts of the Appellant i.e., non payment of dues and the term loan was classified as NPA on 30.04.2018. 5.The Appellant followed up payment with few reminders call....
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....y, wherein the following order was passed :- "The major portion of CIPP period starting from 12.02.2020 to 06.01.2011 from the date of admission till the date of passing the resolution for liquidation by the COC is under lockdown/ Shutdown restrictions and there is no clarity about the approval of the Resolution plan in the 8th CoC meeting and rejection of approval of the Resolution plan in the 9th CoC meeting, consent to assign debt but not guarantee, when CD is MSME Unit. The Resolution Professional is hereby directed to ensure another CoC meeting Inviting the Promoter of the CD under CIRP, the said Resolution Applicant for negotiation in clear terms to find out any Viable Resolution Plan, if any. The CoC shall discuss 'in details in the light of the recent amendment in IBC with regard to MSME Unit. This meeting is to be convened before 01. 03.2021 preferably at the office of the CD maintaining Covid Protocol. The Resolution Professional is to submit the detailed report along with the Compliance Report Form H by 05.03. 2021. " (Emphasis Supplied) 10.The Appellant submitted that the Adjudicating Authority gave specific directions to th....
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....nk was communicated keeping in view conditions put by the Promoters/ Resolution Applicant for release of personal and corporate guarantees and regarding viability of the project. 16.The Appellant submitted that on 11.01.2022, I.A No. 10/2021 was listed before the Adjudicating Authority who rejected the application for liquidation of the Corporate Debtor holding that there was no commercial wisdom or commercial decision by the CoC to reject a Resolution Plan of the Promoters of the Corporate Debtor which offered them 20 times more than the liquidation value. 17.The Appellant emphasised that Adjudicating Authority is obligated under section 33(2) of the Code to accept the recommendations of the CoC like in present case where the CoC recommended for liquidation of the Corporate Debtor. 18.The Appellant submitted that the Resolution Applicant who were Promoters of the Corporate Debtor were not agreeable for removing the condition of release of personal and corporate guarantee of the Corporate Debtor. The Appellant stated that against the claim amount Rs. 11.50 Crores, the acceptance of the plan of Rs. 3 Crores, would have resulted into loss of at least Rs. 8.5 Crores for the A....
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....d of the allegations of the Appellant labelling these as mischievous and misleading. 24.The Respondents defended the Impugned Order and submitted that the Adjudicating Authority has gone into every aspect of facts and law before pronouncing the Impugned Order dated 04.02.2022. 25.The Respondents submitted that the Appellant who is a sole Financial Creditor constituting 100% of CoC had acted in mala-fide way rather than exercising commercial wisdom. The Respondents also submitted that from time to time they have been offering the OTS/ Resolution Plan to settle the outstanding dues of the Appellant. The Respondents stated that even after CIRP was initiated, they offered Rs. 1.34 Crores as OTS which was 15.2% of the outstanding loan which was later enhanced to Rs. 3 Crores + CIRP Costs against outstanding loan of Rs. 11.5 Crores which tantamount to 26.08% of outstanding dues. 26.The Respondents submitted that in several cases, the Financial Creditors have taken rational decision and accepted the haircuts even up to 96% and cited the cases like Shiva Industries and Holdings Ltd. (93.25%), Ushdev International (94.6%), Videocon Group (95.85%), Alok Industries (83%), Deccan Chro....
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.... objectives of the IBC are very clear and liquidation of a MSME Unit is the last resort. Hence, CoC needs to clarify those points. The learned Counsel appearing for the CoC has sought two days' time to clarify the points. 3. List the matter on 09.09.21" (Emphasis Supplied) 31.The Respondents also denied all the averments made by the Appellant like lack of viability of the project and lack of sources and submitted that the Respondents would have brought the funds from their personal savings and other sources. 32.The Respondents also pleaded that their insistence on removing the conditions regarding proceedings against the Corporate Debtor and Directors for their guarantee given in favour of the Appellant, was only with the intention to revive the Corporate Debtor and generate funds from the market which was not appreciated by the Appellant. The Respondents denied that they are wilful defaulters. 33.The Respondents submitted that a single Financial Creditor constituting 100% of the CoC cannot take decisions to initiate the liquidation of the Corporate Debtor, who is offering 20 times more than the liquidation value. 34.The Respondents further refuted....
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.... is the sole Financial Creditor and therefore it constituted CoC having 100% voting rights. It is further observed that in various CoC meeting which was chaired by the Respondent No. 1 as Resolution Professional were attended by the representative of the Appellant as well as the representative of the promoters of the Corporate Debtor namely, Mr . Gaurav Jaina the Respondent No. 3 herein. We also observe that total 17 CoC Meetings were held from 2020 to 2021 and the last 17th CoC meeting was held on 27.12.2021. The crucial CoC Meetings which discussed various aspects affecting the present appeal were pertaining to 15th CoC Meeting held on 16.07.2021, 16th CoC meeting held on 19.10.2021 and the 17th CoC Meeting held on 27.12.2021. 40.We also note that the Resolution Professional advised that even in 2021, the cost of CIRP has already become Rs. 32,82,845.60/- and the Resolution Professional's monthly fee of Promoters was continuing at Rs. 1 Lakh per month. 41.The 15th CoC Meeting notes following points :- "Representative of the Bank of India also pointed out that certain waivers and withdrawal of proceedings sought in the Resolution Plan needs to be removed which are a....
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....dated 05.10.2021 of the Hon'ble NCLT Guwahati Bench Mr. Ramesh Kumar, Zonal Manager, Guwahati Zone, Bank of India requested Mr. Vinay Dhaka, to narrate the observations of the CoC on the Resolution Plan submitted by the Directors of the Company which needed to be appropriately addressed. Mr. Vinay Dhaka, then narrated the observations of the Bank of India on the Resolution Plan submitted by the Directors as follows: a)Mr. Dhaka pointed out clause 2.4 on page 15 of the Resolution Plan relating to the extinguishment of pending suits etc. which is narrated as below: "All the pending suits, enforcement actions, SARFAECI Notices, Suits, proceedings and cases by any person/agency against the Company / its erstwhile management and / or other personal and Guarantors of the Company, including proceedings in relation to willful defaulter shall stand settled, extinguished upon approval of the Resolution Plan by the NCLT." CoC opined that this clause in the resolution plan is not acceptable to the CoC. b)Resolution Plan needs to be signed by all the Resolution Applicants. c)Resolution Plan does not provide for any interest for outstandi....
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....he event the Resolution Plan is met with the approval of the Hon'ble NCLT will not extend their support to the Resolution Applicants in the event the proceedings against personal / corporate guarantors are not withdrawn as the applicants are the guarantors and as such legal and financial complications may arise. b)**** c)As regards paying interest on the amount to be paid after 30 days from the date of approval of Resolution plan by the Hon'ble NCLT, Mr. Jaina said that initially, they have not submitted any Resolution Plan, however, on the direction of Hon'ble NCLT to explore for a viable resolution plan for an MSME unit, they have submitted their initial plan offering a sum of Rs. 190 Lakhs to the Bank of India which after certain rounds of negotiations with CoC was raised upto Rs. 300 Lakhs. He then said that he will have to calculate the interest part and see whether it is possible for them to include the same in the Resolution Plan. d)*** e)***. f)*** g)As regards evidence for the source of funds, Mr. Jaina said that they have already provided the evidence regarding source of funds for implementation of Resoluti....
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....pondents to be non responsive. 44.We will also go into the relevant portion of the 17th CoC Meeting held on 27.12.2021 which reads as under :- "RP requested the representative of the sole member of the CoC to put forward their views on the reasons for their competent authority not agreeing to the revised Resolution Plan submitted by the directors of the Company. Mr. Vinay Dhaka informed the following reasons for which their competent authority has given negative mandate against the revised resolution plan. a)Bank is not agreeable to release the personal and corporate guarantees. b)The revised Resolution Plan still lack clarity with respect to the viability of the Project post approval of the Resolution Plan. Mr. Gaurav Jaina, representative of the resolution applicants said that they have already indicated the need for the release of guarantees in the previous meeting of the CoC which is very important for them to be able to arrange necessary funds for implementation of the Resolution Plan,***. After a detailed discussion, the following resolutions were put for voting by the sole member of the Committee of Creditors: "RESOLVE....
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....nit. 34. Hence this IA No. 10/2021 in CP (IB) No. 37/GB/2021 filed for Liquidation is hereby rejected with the observations mentioned above and the Directions given below for Compliance. 34.1 The RP/CoC is directed to start afresh the process of CIRP from today. The RP/CoC is directed to act in accordance with the provisions of the IBC and find out a viable Resolution Plan for the MSME Unit within the stipulated period of 180 days. Resolution plans may be submitted by earlier Resolution Applicants including the present one, if otherwise they are eligible. (Emphasis Supplied) 47.From above, it becomes clear that the Adjudicating Authority was lured by the fact that the Resolution Plan submitted by the Respondents was more than 20 times of the liquidation value of the unit and also that amount of EMD was more than the liquidation value. The Impugned Order relied on the doctrine of prudence to justify that resolution of the Corporate debtor is preferred option over the liquidation of the Corporate Debtor. 48.It is worth noting that according to the Adjudicating Authority the other issues like pending writ before the Hon'ble High Courts suits file by the Corp....
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....raction in the presence of all concerned and Resolution Professional, the constituents of CoC finally proceed to exercise their option (Business/Commercial decision) to approve or not to approve the proposed Resolution Plan. In such a case, non-recording of reasons would not per se vitiate the collective decision of the Financial Creditors. 33. It is pertinent to mention that by amendment of Section 33 of the Code, explanation has been added to sub-section (2) of Section 33. CoC empowers to decide to liquidate the Corporate Debtor any time before the confirmation of the Resolution Plan. Relevant provision is as under: "33. Initiation of liquidation.-- (1)Where the Adjudicating Authority,-- (a)before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the corporate insolvency resolution process under Section 12 or the fast track corporate insolvency resolution process under Section 56, as the case may be, does not receive a resolution plan under sub-section (6) of Section 30; or (b)rejects the resolution plan under Section 31 for the non- compliance of the requirements specified therein....