Judgement NCLAT

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Page 1 Monday, October 21, 2024

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2023 SCC OnLine NCLAT 305
In the National Company Law Appellate Tribunal†

(BEFORE ASHOK BHUSHAN, CHAIRPERSON AND BARUN MITRA, MEMBER
(TECHNICAL))
Company Appeal (AT) (Insolvency) No. 565 of 2023 & I.A. No.
1857, 1860 of 2023
Epitome Components Pvt. Ltd. … Appellant;
Versus
Divyesh Desai, The Liquidator of Trend Electronics
Ltd. and Others … Respondents.
With
1715 of 2023
Marathwada Audogik And General Kamgar
Sanghtan … Appellant;
Versus
Divyesh Desai, Liquidator of Trend Electronics Ltd.
… Respondent.
1857, 1860 of 2023 and Company Appeal (AT) (Insolvency) No.
528 of 2023 & I.A. No. 1715 of 2023
Decided on July 7, 2023
Advocates who appeared in this case:
Mr. Abhijeet Sinha and Ms. Meghna Rao, Advocates for the
Appellant;
Mr. Krishnendu Datta, Sr. Advocate with Mr. Anand Varma, Mr.
Kaustubh Prakash, Ms. Hita Sharma, Ms. Kirti Gupta and Ms. Apoorva
Pandey, Advocates for R-1.
Mr. Bishwajit Dubey, Mr. Madhav Kanokia, Mr. Prafful Goyal and Ms.
Neha Shivhare, Advocates for R-2. for the Respondent.
For Appellant : Mr. Rahul Totala and Rajat Malu, Advocates.
For Respondent : Mr. Krishnendu Datta, Sr. Advocate with Mr. Anand
Varma, Mr. Kaustubh Prakash, Ms. Hita Sharma, Ms. Kirti Gupta and Ms.
Apoorva Pandey, Advocates for R-1.
Mr. Bishwajit Dubey, Mr. Madhav Kanokia, Mr. Prafful Goyal and Ms.
Neha Shivhare, Advocates for R-2.
JUDGMENT
BARUN MITRA, MEMBER (TECHNICAL):— Present is a set of two
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appeals filed under Section 61 of Insolvency and Bankruptcy Code,

2016 (“IBC” in short) arising out of the common order dated
10.03.2023 (hereinafter referred to as “Impugned Order”) passed by
the Adjudicating Authority (National Company Law Tribunal, Mumbai
Bench, Court-II) in CP (IB) No. 559/(MB)/2018. By the impugned
order, the Adjudicating Authority ordered the liquidation of the
Corporate Debtor - Trend Electronics Limited, as a going concern under
section 33 of the IBC. Aggrieved by this impugned order, one set of
appeal vide Company Appeal (AT) (Insolvency) No. 565/2023 (herein
referred to as the ‘first appeal’) has been preferred by one of the
prospective resolution applicants, Epitome Components Pvt. Ltd.
(‘Epitome’ in short) on the ground that there have been material
irregularities in the Corporate Insolvency Resolution Process (‘CIRP’ in
short) of the Corporate Debtor. The other set of appeal has been filed
vide Company Appeal (AT) (Insolvency) No. 528/2023 (herein referred
to as the ‘second appeal’) by Marathwada Audogik and General
Kamgar Sanghatan (‘Sanghathan’ in short) under Section 61 of the
IBC against the same impugned order aggrieved with the fact that the
impugned order does not take into account the interests of all
stakeholders of the Corporate Debtor and that the livelihood of nearly
134 families which are dependent on the operations of the Corporate
Debtor have been imperilled.
2. The brief facts of the case which are common to both set of
appeals and necessary to be noticed are as follows:
• CIRP was initiated against the Corporate Debtor by the
Adjudicating Authority on 25.09.2018 and an Interim Resolution
Professional (‘IRP’ in short) was appointed who was later
appointed as the Resolution Professional (‘RP’ in short).
Subsequently on applications having been filed for consolidation
of the CIRP of the Corporate Debtor with other companies of the
Videocon Group, the Adjudicating Authority passed another order
on 08.08.2019 whereby the CIRP of the present Corporate Debtor
was not consolidated and directed to be started afresh.
• The Committee of Creditors (‘CoC’ in short), the present
Respondent No. 2 in the first appeal and sole Respondent in the
second appeal, accordingly approved re-invitation of Expression of
Interest (‘E0I’ in short). However, on two occasions, the potential
resolution applicants who submitted their EOI having chosen to
withdraw their resolution plan, the CoC resolved to reissue EOI
once again on 31.01.2020.
• Epitome, the present Appellant in the first appeal, through its
promoter expressed its interest to submit a resolution plan
following which the CoC extended the last date for submission of
resolution plans by all resolution applicants till 31.08.2020.
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Dissatisfied with resolution plans received from the potential

resolution applicants including Epitome, the CoC invited EOIs
afresh with the last date fixed as 31.12.2020.
• Three resolution plans were received but all the three potential
resolution applicants including Epitome were thereafter requested
to submit revised resolution plans by 29.05.2021. A resolution
plan was submitted by Epitome on 05.05.2021 and pursuant to a
query raised by the RP, furnished their final signed resolution plan
on 05.06.2021.
• The RP again sent an email on 08.06.2021 seeking certain further
clarifications from Epitome as to whether it was barred by Section
29A of the IBC to which Epitome clarified in the negative.
• On 08.07.2021, the RP informed Epitome that the CoC had decided
to place compliant resolution plans for voting on 13.07.2021 and
sought specific information regarding alleged ineligibility of Mrs
Sushma Dhoot (‘Sushma’ in short) and Ms. Nalini Dhoot (‘Nalini’
in short) to submit a resolution plan on account of their being
classified as promoters of Videocon Industries Limited (‘VIL’ in
short).
• Epitome thereafter sent an email on 14.07.2021 clarifying that
Sushma and Nalini cannot be considered to be promoters of VIL.
This clarification was however not accepted by the RP and the
resolution plan of Epitome was not placed for consideration of the
CoC as conveyed in their email dated 16.07.2021. This decision of
the RP, to not place their resolution plan before the CoC,
according to the Appellant, was allegedly in excess of powers
conferred upon the RP by the IBC.
• After various rounds of negotiations, only the resolution plan
received from one prospective resolution applicant, namely,
Puneet Advisory Services Private Limited (‘PASPL’ in short), was
placed before the CoC for voting, along with a separate settlement
proposal submitted by Mr. P.N. Dhoot, Promoter of the Corporate
Debtor under Section 12A of the Code.
• Both the resolution plan and the Section 12A proposal were
considered and evaluated by the CoC and put to vote. Eventually
in pursuance of the discussions in the 30th CoC meeting and
voting held on 19.07.2021, the resolution plan of PASPL was not
found to be feasible and viable as per their commercial wisdom
and not approved. Further in the same meeting, the Section 12A
proposal of Mr. P.N. Dhoot for restructuring the Corporate Debtor
was also rejected unanimously by the CoC. The CoC further
unanimously approved the Liquidation of Corporate Debtor as a
going concern.
• The RP placed the decision of the CoC for initiation of the
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liquidation process of the Corporate Debtor on an ‘as is where is’

‘as is what is’ ‘as is how is’ and without any recourse basis before
the Adjudicating Authority for its approval.
• The Adjudicating Authority ordered the liquidation of the corporate
debtor as a going concern and also dismissed an interlocutory
application filed before it directly by Mr. Venugopal Dhoot, the ex-
promoter of the Corporate Debtor for restructuring/resettlement of
the Corporate Debtor for having been filed without following the
IBC procedure.
• Sanghatan, the Appellant, in the second appeal, is a registered
labour union is aggrieved with the impugned order in that the CoC
failed to take appropriate steps to revive the Corporate Debtor and
that initiation of liquidation proceedings would jeopardise the
livelihood of families dependent on the operations of the
Corporate Debtor and cause them undue hardship.
• The liquidation process of Corporate Debtor is near completion and
the letter of intent issued by the liquidator on 12.05.2023 has
been accepted by the successful bidder.
• Aggrieved by this impugned order, the present set of appeals have
been preferred by Epitome in the first appeal and Sanghatan in
the second appeal. Company Appeal (AT)(Insolvency) No.
565/2023
3. Making his submissions, the Learned counsel for the Appellant
submitted that the Appellant from the very beginning had persistently
made genuine and sincere attempt towards the successful and
beneficial resolution of the Corporate Debtor by repeatedly expressing
before the RP its bona fide interest and willingness to revive the
business of the Corporate Debtor. It was added that the Appellant is
still interested in submission and implementation of the resolution plan
for the purpose of revival and rehabilitation of the Corporate Debtor. It
was contended that it was wrong and misconceived on the part of the
RP to unilaterally reject the resolution plan of the Appellant by holding
that Sushma and Nalini were part of the promoter group of VIL. Merely
because both of them held some negligible share-holding in VIL and
that they were relatives of some shareholders of the Appellant, the
Appellant could not be treated as disqualified and ineligible under
Section 29A of the IBC. The RP had failed to consider in the correct
perspective the clarifications provided by the Appellant on 14.07.2021
on the issue of purported ineligibility raised with regard to submission
of resolution plan in terms of Section 29A of the IBC. It was contended
that both Sushma and Nalini had negligible and inconsequential
shareholding in VIL which shares had in any case already been
disposed of. There is nothing on record to show that they are connected
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to or related to either the Appellant or the Corporate Debtor or

exercised any influence in their business affairs and therefore cannot be
held to be related party. It was also clarified to the RP through an email
dated 14.07.2021 that the two were classified as a “promoter group”
simply for the purpose of fulfilling the SEBI Regulations and that they
have been wrongly held to be related parties by the RP at a time when
they could have been so classified as a related party only if they fell
within the definition of related parties as set out in the IBC. Thus the
manner in which the resolution plan of the Appellant was considered by
the RP was in complete violation of the provisions of the IBC.
4. It is further submitted by the Learned Counsel for the Appellant
that the RP had no power to unilaterally reject the resolution plan of the
Appellant. The RP by declaring the Appellant to be ineligible in terms of
Section 29A of IBC acted ultra vires of the powers conferred on the RP.
It was the bounden duty of the RP in terms of the provisions of the IBC
to place the resolution plan before the CoC after conducting whatsoever
due diligence on their part since the competent authority to determine
whether a resolution applicant is eligible is the CoC and not the RP. The
RP failed to substantiate by way of their examination that these two
persons, Sushma and Nalini attracted clauses (a) to (j) of Section 29A
of the IBC which rendered the Appellant ineligible to submit a
resolution plan. The RP thus failed to appreciate the true scope of the
provisions of the IBC and exceeded his authority by suo motu rejecting
the resolution plan.
5. It was also submitted that the objective behind the IBC is to seek
the revival and rehabilitation of an insolvent corporate debtor and to
not push it into liquidation. In the present case, the RP by scuttling a
genuine attempt at resolution acted contrary to the overarching
framework of IBC which contemplates liquidation only as a last resort.
Furthermore, it was submitted that though the Corporate Debtor fell
within the definition of a MSME company as the value of its plant and
machinery did not exceed Rs. 50 Crores nor its turnover exceeded Rs.
250 crores, yet, the RP failed to disclose this critical input to the
potential resolution applicants including the Appellant at the time of
the EOI or thereafter. This was yet another ground to show that the
CIRP of the Corporate Debtor clearly suffered from material irregularity
and therefore has the effect of vitiating the order of liquidation passed
by the Adjudicating Authority.
6. It was therefore emphatically asserted that the RP exceeded the
power and authority cast upon him under the provisions of the IBC in
rejecting the resolution plan of the Appellant without placing the same
before the CoC, thereby irregularly driving the Corporate Debtor into
liquidation. In support of their contention, the Learned Counsel for the
Appellant relied on the judgment delivered by the Hon'ble Apex Court
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in the matter of Arcelor Mittal India (P) Ltd. v. Satish Kumar Gupta,
(2019) 2 SCC 1 (‘Arcelor’ in short) which outlined the limited scope for
the RP while dealing with the resolution plans received from the
prospective resolution applicants and postulated that the sole decision-
making power regarding the approval or rejection of the resolution plan
vested with the CoC and not with the RP.
7. Rebutting the above arguments made on behalf of the Appellant,
the Learned Senior Counsel of the Respondent No. 1 stated that two
companies, Silvercon Realty Pvt. Ltd. (‘Silvercon’ in short) and
Silverplatter Foods & Beverages Pvt. Ltd. (‘Silverplatter’ in short) were
‘Promoters’ of Epitome, the present Appellant which had submitted a
resolution plan. Furthermore, Sushma and Nalini, were Directors of both
Silverplatter and Silvercon at the time of submission of resolution plan
by the Appellant on 06.06.2021. Silverplatter and Silvercon in turn
were shareholders of Epitome having 34.92% stake in Epitome.
Sushma and Nalini, also being Promoters of VIL, were ineligible to
submit a resolution plan under Section 29A (c) of IBC since accounts of
VIL have been declared NPA and undergoing CIRP. Therefore, the
Appellant being connected with Sushma and Nalini, stood disqualified
under Section 29A of IBC. Being Promoters, Silvercon and Silverplatter
fell within the definition of “connected persons” under Explanation I to
Section 29A (j) of IBC.
8. Advancing their arguments further, it was submitted on behalf of
CoC/Respondent No. 2 that the RP vide email dated 16.07.2021 had
informed the Appellant of its ineligibility to submit a resolution plan.
Thereafter RP vide email dated 12.08.2021 asked the Appellant to
provide the bank account details for refund of their Bid Bond amount.
The Appellant not only voluntarily provided the bank account details
but on 18.08.2021 followed up with RP for the refund amount and
unconditionally received the same on 21.08.2021. Having received the
refund of the Bid Bond amount, it was submitted that the Appellant
had waived its right to reopen the matter. The Learned Counsel of the
CoC/Respondent No. 2 also reiterated that the Appellant having
accepted the refund of Bid Bond Amount without any protest or
prejudice is estopped from challenging the Liquidation Order at this
stage.
9. It was also contended by the Learned Senior Counsel of
Respondent No. 1 that the action of the RP was not in violation of the
settled law laid down by the Arcelor judgment. It was asserted that the
RP was willing to submit the resolution plan submitted by the Appellant
before the CoC but several CoC members having insisted on the specific
views of the RP on the eligibility of the Appellant during their
deliberations, the RP had no choice before it but to place its views.
Based on facts before it, the RP in the discharge of its responsibilities
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had expressed that Epitome did not meet the eligibility criteria for
Section 29A compliance. The CoC members having clearly informed the
RP during the 29th CoC meeting that only Section 29A compliant plan
should be placed before CoC for consideration and voting, the RP was
obligated to act accordingly. The same stance was adopted in the
submissions made by the Learned Counsel for Respondent No. 2 that
the RP had placed the relevant material on the Appellant's ineligibility
under Section 29A before the CoC which was deliberated upon by the
CoC in the 29th CoC meeting held on 15.07.2021. In the said meeting,
the CoC in its commercial wisdom unanimously decided not to place
Epitome's resolution plan for voting as it was found to be non-
compliant with Section 29A of the IBC. The contention of both the
Respondents is that submission of the Appellant that the RP had
unilaterally rejected their resolution plan in violation of the statutory
provisions of the IBC is unsubstantiated and untenable.
10. It was further submitted on behalf of Respondent No. 1 that
liquidation of the Corporate Debtor was unanimously approved by the
CoC with 100% votes in favour of liquidation in the 30th CoC meeting
held on 19.07.2021. Further, the RP had explored all possibilities under
CIRP before the decision was taken by the CoC in the 30th meeting to
sell the Corporate Debtor as a going concern. Resolution plans received
from prospective resolution applicants were discussed in the CoC
meetings. The CoC had also examined the Section 12A proposal before
it and only after due consideration and voting, had unanimously
resolved to liquidate the Corporate Debtor as a going concern with
100% majority. During the e-auction held on 11.05.2023, the
Corporate Debtor has been sold as a going concern to a successful
bidder. It was therefore asserted that the Appellant has only made
bland averment about material irregularity and in the absence of any
substantiation thereof, no illegality or impropriety can be attributed to
RP or in the conduct of the CIRP. Further on the issue of MSME status of
the Corporate Debtor, it was contended that having not undertaken any
proceedings before the Adjudicating authority to prove otherwise, the
Appellant cannot raise such issues now.
11. The Learned Counsel for the CoC/Respondent No. 2 contended
that the appeal is hit by delays as the Appellant slept over the matter
for almost two years since being informed of its ineligibility under
Section 29A on 16.07.2021. The Appellant having chosen to not
challenge the email dated 16.07.2021 for so long is now estopped from
challenging the same after almost two years as it aims to delay the
liquidation of the Corporate Debtor as a going concern. Further while
the impugned order was passed on 10.02.2023 the appeal was filed
before this Tribunal on 26.03.2023 but not prosecuted for hearing until
04.05.2023 which was one week before the scheduled date of e-auction
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on 11.05.2023. This demonstrates that the Appellant timed the appeal

in such a manner so as to stall the e-auction process which is
prejudicial to the principles enshrined under the IBC. It was submitted
that this is an attempt to disrupt the resolution process through
liquidation of the Corporate Debtor as a successful bidder has been
declared pursuant to the auction conducted in terms of the impugned
order and the successful bidder is in the process of implementing its
bid.
Company Appeal (AT) (Insolvency) No. 528/2023
12. The Learned Counsel for the Appellant submitted that Sanghatan
is a registered labour union which is aggrieved with the impugned order
for initiation of liquidation proceedings on the ground that it does not
take into account the interests of all stakeholders of the corporate
debtor and that the livelihood of nearly 134 families which are
dependent on the operations of the Corporate Debtor have been
imperilled. It is further submitted that the CoC by rejecting the
resolution plans as well as the restructuring proposal received from the
ex-promoter, Mr. Venugopal Dhoot had not taken a commercially sound
decision and instead put the corporate debtor into liquidation with
ulterior motives. It was emphatically asserted that the IBC expects the
CoC to take into account all material facts, the best interest of the
corporate debtor and to make genuine attempts at reviving and
maximising the value of the corporate debtor which however did not
happen in the present case. The CoC failed to take any steps to revive
the corporate debtor and operate it as a going concern and instead
brought about its corporate death. Holding that the Adjudicating
Authority has proceeded to summarily and mechanically allow the
application for liquidation of the corporate debtor, it also contended
that it has failed to appreciate that the payment towards provident fund
and gratuity cannot form a part of the liquidation estate of the
corporate debtor and such payments cannot be made subject to
realisation from the assets of the corporate debtor. It has also been
further stated that the Hon'ble Supreme Court of India in the matter of
Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17 has
reiterated that primary focus of the IBC is revival and not liquidation of
the corporate debtor.
13. Refuting the above contentions, the Learned Senior Counsel for
the CoC stated that the appeal is filed on baseless premises, with
malafide intent, and is intended to be disruptive of the resolution
process through liquidation of the Corporate Debtor as it aims to delay
the liquidation of the Corporate Debtor as a going concern. The decision
to initiate liquidation proceedings of the Corporate Debtor was taken by
the CoC in its commercial wisdom within the ambit of powers granted
to it under the provisions of the Code, pursuant to failure of Corporate
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Debtor to achieve successful resolution under the provisions of the

Code. Both the resolution plan and the 12A Proposal were considered
and evaluated by the CoC, however, were not found to be feasible and
viable as per their commercial wisdom. Consequently, the CoC
approved the liquidation of Corporate Debtor as a going concern and
the liquidator, the erstwhile RP issued an advertisement inviting EOI for
liquidation of the Corporate Debtor, wherein the invitation to the
bidders for sale of the Company was made on a going concern basis on
an ‘as is where is’ ‘as is what is’ ‘as is how is’ and without any recourse
basis.
14. It was contended that since the Corporate Debtor is being sold
on a going concern basis, there was no question of any ulterior motive
in that the liquidation order did not affect the livelihood of the workmen
and employees as the operations of the Corporate Debtor would
continue to run. Further, with respect to apprehensions of the Appellant
with respect to the payment of gratuity and provident fund, it is
submitted that the auction process document clearly provided that “The
total gratuity liability of the Company amounts to around INR 3.75
Crores if the services of all the employees are terminated on March 31,
2023. The balance with gratuity fund as on March 31, 2022 was around
INR 0.57 Crores resulting into unfunded gratuity liability of around INR
3.18 Crores. The Qualified Bidders to note that the said liability shall be
to the account of the Successful Bidder post the Transfer Date and shall
not be included in the Bid Value.” Therefore, the dues of the Appellant
towards gratuity and provident fund payments have adequately been
taken care of under the Liquidation and it is clear that the gratuity and
provident fund payments will be made to the workmen and employees
by the successful bidder as and when such payments are due and
payable. The successful bidder was liable to make such payments over
and above the value it is providing for acquisition of Corporate Debtor
as a going concern.
15. It was also added that liquidation process of Corporate Debtor is
near completion and the letter of intent issued by the liquidator on
12.05.2023 has been accepted by the successful bidder. Thus the CoC
has ensured that the interests of the workmen and employees are met
and the CoC has made all efforts to resurrect the operations of the
Corporate Debtor rather than ensuring corporate death of the same. On
the other hand, the reliefs sought by the Appellant to revive the
Corporate Debtor only adds to the delay of the resolution process
through liquidation. The delay not only hampers the resolution process
of the Corporate Debtor, but also the interests of all the vigilant
stakeholders.
16. We have duly considered the arguments and submissions
advanced by the Learned Counsel for the parties in both the appeals
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and perused the records carefully.

17. The moot point for consideration common to both appeals is
whether in the facts of the present case the manner of rejection of the
resolution plan of Epitome can be deemed to have been marred by
material irregularity in the conduct of CIRP of the Corporate Debtor by
the RP and whether the liquidation order passed by the Adjudicating
Authority should continue to be implemented or be stayed.
18. As regards material irregularity in the conduct of CIRP of the
Corporate Debtor, the primary contention of the Appellant in Company
Appeal (AT) (Insolvency) No. 565/2023 is that on the resolution plan
submitted by the Appellant, queries on the issue of eligibility under
Section 29A was raised by RP to which due clarification was given by
the Appellant on 14.07.2021, and yet the RP on its part gave an
uninformed and random opinion to the CoC to the effect that the
Appellant did not meet the criteria for Section 29A compliance under
IBC. It has also been stated that the ineligibility report of the Appellant
under Section 29A of the IBC was furnished by the RP without any
documentary proof since the due diligence advisor, namely the Mazars
Business Advisors Private Limited (‘Mazars’ in short) was yet to submit
its conclusive findings having advised the RP to seek legal opinion.
Thus the RP exceeded its jurisdiction in not placing the resolution plan
before the CoC though it was not so empowered under IBC. Since the
RP had failed to discharge its obligation of placing the resolution plan
before the CoC and the CoC in turn having failed to consider the
resolution plan, there was material irregularity in the CIRP of the
corporate debtor which vitiated the liquidation order.
19. Having perused the records and after hearing both parties, we
find that it is an admitted fact that the RP had sought clarifications
from the Appellant on 08.07.2021 regarding their eligibility under
Section 29A of the IBC to submit a resolution plan as placed at page
172 of Appeal Paper Book (‘APB’ in short). It is also an undisputed fact
that a detailed reply was given thereto by the Appellant on 14.07.2021
in their defence of being Section 29A compliant as seen at pages 168-
171 of APB. It is, however, the case of the Appellant that the RP had
wrongly declared them ineligible unilaterally and did not place the
resolution plan before the CoC for their consideration and voting and
that this action of the RP was in breach of the IBC and beyond the
powers and authority vested upon the RP. In support of their
contention, the Learned Counsel for the Appellant has adverted
attention to a communication received from the RP on 16.07.2021 as
placed at page 176 of APB. It may be relevant to notice the contents of
the said communication which is to the effect:
From : Divyesh Desai [email protected]
Date : 16 July 2021 at 7 : 20 : 41 PM IST
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To : CEO ceo@©pitomeindia.com
Subject : Resolution Plan Epitome - Trend Electronics Ltd.
Dear Mr. Dhoot,
As per the public filings made by Videocon Industries Limited read
with Section 29A of Insolvency and Bankruptcy Code, 2016, Epitome
Components Private Limited is not eligible to submit a resolution
plan. We have received and reviewed clarifications provided by you
on 29A eligibility of Epitome Components Private Limited.
Clarifications provided by you do not negate the public filings made
by Videocon Industries Limited.
In view of this we are declaring Epitome as ineligible as per
section 29A of Insolvency and Bankruptcy Code, 2016. The CoC has
also been posted about
your ineligibility and the explanations provided by you. In the
circumstances, the Resolution Plan submitted by Epitome is not
placed before CoC for their consideration and voting.
We shall refund the Bid Bond Guarantee submitted by Epitome as
provided in RFRP/Bid Document.
Regards,
Divyesh Desai
Resolution Professional - Trend Electronics Ltd.
(Emphasis supplied)
20. This brings us to the question whether the above email relied
upon by the Appellant establishes beyond doubt that the RP had
rejected the resolution plan unilaterally and thereby denied the CoC the
opportunity of exercising its authority for determining the eligibility of
the Appellant as resolution applicant.
21. For a proper appreciation of this issue, it may be useful to note
how the facts were presented by the RP during the deliberations of the
29th COC meeting. We notice that the RP had indubitably highlighted
the red flag raised by Mazars with regard to eligibility of the Appellant
under Section 29A of the IBC since Sushma and Nalini who were
shareholders of Epitome were also classified as promoters of the VIL
which had come under CIRP. The RP also highlighted that it had
adverted the attention of the Appellant to the fact that both Sushma
and Nalini are classified as Promoters on Stock Exchange and MCA
filings. We also find that the RP on his part had conveyed to the CoC
members the clarificatory response as received from Epitome vide email
dated 14.07.2021 wherein it was inter-alia clarified that Sushma and
Nalini were not promoters of VIL and that the two cannot be held
responsible for such “wrongful” and “incorrect classification” by VIL.
22. The minutes of the 29th CoC meeting also records that Mazars
advised the RP to take a legal opinion on the eligibility of the Appellant
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under Section 29A. The legal opinion was accordingly obtained and the
legal opinion tendered by the legal counsel of the RP was also placed
before the CoC. We also notice that it is recorded in the said minutes
that in the opinion of the legal counsel of the RP, strictly as per law,
Epitome did not appear to be qualified under Section 29A but since
Epitome had disputed the classification of Sushma and Nalini as
promoters of VIL, the CoC could discuss the matter and take action
accordingly. In fact, it deserves particular attention that the minutes
clearly record that the RP was even ready to place the resolution plan of
Epitome for consideration of the CoC. It may be pertinent to reproduce
here the relevant excerpts of the 29th CoC meeting : “The RP then
stated that considering the Section 29A undertaking the subsequent
clarifications provided by Epitome and the technical nature of
determining the eligibility involved, he is willing to place the resolution
plan of Epitome which is otherwise compliant as per IBC for CoC's
consideration. The RP also highlighted the waiver sought by Epitome in
the plan for submission of Performance Bank Guarantee of Rs. 10
crores, which is a condition under the RFRP.” From the minutes
reproduced above, again in all fairness, clearly the RP cannot be said to
have denied an opportunity to the CoC to consider the resolution plan
or be blamed for having prejudiced the CoC to reject the resolution
plan.
23. However, since some of the members of the CoC noted that no
legal steps had been taken by Sushma and Nalini to remove their
names from the list of promoters of VIL and no documents had been
submitted either by Epitome depicting any legal action having been
taken by them to remove their names from the list of promoters, the RP
was urged to clearly indicate whether a plan could be submitted
without Section 29A compliance certificate by the RP and in the event
such a plan is submitted by the RP, whether CoC could vote on the
same. The query raised by one of the creditors, Canara Bank, as
recorded in the minutes reads as:“Representative of Canara Bank
inquired with RP whether a plan can be submitted without Section 29A
compliance certificate by the RP. Further if such plan is submitted by
the RP, can CoC vote on the same.” SBI, the leading creditor, also
categorically sought RP's views on Section 29A eligibility of Epitome to
which RP had opined that Epitome does not meet the criteria for
Section 29A compliance under IBC. The minutes have recorded as
follows:“SBI representative asked the RPs view on Section 29A
eligibility of Epitome. The RP informed that considering the response of
Epitome and eligibility criteria for Section 29A compliance under IBC,
the RP is of the view that Epitome doesn't meet the criteria for Section
29A compliance under IBC. After deliberation, CoC members informed
the RP that only Section 29A compliant plan should be placed before
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CoC for consideration and voting.” Perusal of the above minutes leaves
no doubt in our mind that the RP had not demurred at any stage in
presenting the facts before the CoC in a transparent manner with all
requisite details available before it. The RP cannot be said to have been
found wanting in parting with the information, documents, opinions and
records in his possession and knowledge about the Appellant to the CoC
in the context of Section 29A compliance. In doing so, the RP had also
done full justice to the Appellant by providing all the explanation
offered by the Appellant before the CoC to enable the CoC to take a well
-considered and holistic view. We are fully satisfied with the conduct of
the RP and the endeavours made by him to keep the CoC properly
apprised on the eligibility aspect of Epitome.
24. Given this background, it is noteworthy that after due
deliberations, it is the CoC members who advised the RP that only
Section 29A compliant plan should be placed before CoC for
consideration and voting. Given that CoC had decided that only Section
29A compliant resolution plan can be placed for consideration of CoC
members and further that the CoC had sought the opinion of the RP on
the Section 29A eligibility of Epitome, it cannot be said that the RP had
exceeded his jurisdiction or had acted unilaterally or that RP had
supplanted the commercial wisdom of the CoC. Further, the fact that
the RP had opined that the Appellant was not eligible in terms of
Section 29A criteria cannot be held against the RP simply because the
opinion of the RP did not suit the interest of the Appellant. The RP had
formed his opinion on the basis of available material on record which
was clearly placed before the CoC in a most candid and forthright
manner and the CoC in its wisdom had relied upon the opinion so
tendered. And only thereafter the CoC decided that the resolution plan
of Epitome cannot be placed for CoC members' consideration or voting.
Further it is the CoC which took the decision to intimate the decision of
the RP to Epitome which the RP carried out dutifully vide their email
dated 16.07.2021. It is significant to note that the 29th CoC meeting
was held on 15.07.2021 which predated the letter from the RP to the
Appellant informing them about their ineligibility which was dated
16.07.2021. Thus what was conveyed by the RP to the Appellant also
clearly had the sanction of the CoC.
25. That the RP had placed all the resolution plans before the CoC is
borne out from material records placed before us. We also notice that it
was the CoC which had directed the RP to give his opinion on the
Section 29A compliance of the Appellant and in terms of the IBC, the
RP was duty-bound to give his views to the CoC. The CoC members
having seconded the RPs opinion after due consideration of all facts
presented before it by the RP, it can be safely inferred that this
acquired the character of being the final and determinative opinion of
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the CoC based on the exercise of its own commercial wisdom and
definitely not one which was foisted upon the CoC by the RP
unilaterally. Thus there is no basis for holding this action on the part of
the RP to be in breach of the settled proposition of law laid down in
Arcelor by the Hon'ble Supreme Court.
26. Given these facts, we have no hesitation in holding that there is
no substance in the contention of the Appellant that the RP had
usurped the role of the CoC in rejecting the resolution plan of the
Appellant and in suo motu determining ineligibility of the Appellant in
terms of Section 29A of IBC. It was the CoC which had requested the
RP to field his views on the Section 29A eligibility of the Appellant.
Thus in giving the prima facie opinion as to whether the Appellant was
Section 29A compliant or not, the RP did not tender the opinion on his
own volition but on the specific directions and on behest of the
members of the CoC. Thereafter, it was clearly the considered decision
of the CoC that the resolution plan of the Appellant was not fit to be
placed before it for its consideration and voting even though this
decision may have been premised on the opinion expressed by the RP.
This is sufficiently borne out from the minutes recorded during the 29th
meeting which is to the effect : “As such Epitome's Resolution plan
cannot be placed for CoC members' consideration or voting given that
only Section 29A compliant resolution plan can be placed for
consideration of CoC members. It was also decided to intimate RPs
decision to Epitome.”
27. This now brings us to the second part of the issue as to whether
the liquidation order passed by the Adjudicating Authority should be
allowed to be completed or be set aside. Both Epitome, the Appellant in
the first appeal and Sanghathan, the Appellant in the second appeal
have contended that the liquidation order passed by the Adjudicating
Authority should be set aside on grounds of the alleged material
irregularities in the CIRP of the Corporate Debtor.
28. It is the case of the Appellant in Company Appeal (AT)
(Insolvency) No. 565/2023 that the RP exceeded the power and
authority cast upon him under the provisions of the IBC by rejecting
the Resolution Plan of the Appellant himself without placing the same
before the CoC thereby driving the Corporate Debtor into liquidation.
Further it is the contention of the Appellant that the claim made by the
RP about the Appellant being ineligible under Section 29A of the IBC
lacks foundation since the RP had failed to substantiate the same
through any proper examination. The Appellant has also submitted an
additional affidavit in which it has been stated that as per their limited
knowledge, the amount being brought in by the liquidator through the
e-auction process would be lower than the amount proposed to be
brought in by the Appellant. Thus the RP and CoC having pushed the
-----------------------------------------------------------------------------------------------------------------------------------------------------------
Corporate Debtor to liquidation without giving an opportunity to

rehabilitate and recover from insolvency failed to ensure maximum
recovery for the stakeholders. Further stating that the Appellant was
still interested in submission and implementation of resolution plan of
the Corporate Debtor, it has been urged that the liquidation order
should be set aside.
29. We have already made a detailed analysis and recorded our
findings in the foregoing paragraphs that given the facts of the present
case, the RP cannot be said to have exceeded the powers vested upon
it by the IBC. We reiterate that there is no sound basis to the claim of
the Appellant that the RP unilaterally rejected the resolution plan
leading to material irregularity in the CIRP of the Corporate Debtor. It
was a duly considered and unanimous decision of the CoC not to put
the resolution plan of the Appellant for consideration and voting.
Further we notice that the liquidation of the Corporate Debtor was
unanimously approved by the CoC with 100% votes in favour of
liquidation in the 30th CoC meeting held on 19.07.2021. Prima-facie on
this count, no illegality or impropriety can be attributed to CIRP process
undertaken by the RP.
30. The RP on his part had made all possible efforts for insolvency
resolution of the Corporate Debtor before the decision was taken by the
CoC to sell the Corporate Debtor as a going concern. It has not been
challenged by the Appellant that Form G was issued by the RP to invite
resolution plans. Further it as an undisputed fact that resolution plans
were received from three prospective resolution applicants. The minutes
of the 29th CoC meetings clearly show that all the three resolution plans
having been examined by RP and inadequacies having been found
therein, the resolution applicants including the Appellant were
suggested to submit revised resolution plans. These resolution plans
were discussed threadbare in the 29th and 30th CoC meetings by the
creditors at length. Also, a Section 12A proposal received from Mr. P.N.
Dhoot, one of the promoters of the Corporate Debtor for restructuring
was also discussed and put up for voting during the 30th CoC meeting.
The same was rejected by 100% voting share of the CoC on account of
various commercial reasons including non-payment of CIRP cost,
deferred payments proposed etc. Thus, we find adequate substance in
the contention of both the RP and the CoC that the RP had undertaken
all steps of CIRP envisaged under the IBC to ensure that
creditors/stakeholders of the Corporate Debtor achieved maximum
recovery. It is only when the Section 12A proposal and the resolution
plan of PASPL were not found to be feasible and compliant with the
provisions of IBC that the CoC had unanimously resolved and voted in
favour to liquidate the Corporate Debtor as a going concern with 100%
majority. This has been clearly recorded in the minutes of the 30th
-----------------------------------------------------------------------------------------------------------------------------------------------------------
meeting of the CoC which was placed on record before this Tribunal by
the Respondents during the course of hearing. We also notice that only
in pursuance of the decision taken in the 30th CoC meeting, IA No.
2104 of 2021 was filed by RP before the Adjudicating Authority on
08.09.2021 seeking initiation of liquidation of the Corporate Debtor.
31. Now this brings us to the primary contention of the Appellant in
Company Appeal (AT) (Insolvency) No. 528/2023 that the liquidation
order was allowed by the Adjudicating Authority summarily and
mechanically without taking due care of the interests especially of the
workmen and therefore deserves to be set aside. We however notice
that the Adjudicating Authority passed a speaking order on 10.02.2023
wherein the developments in the CIRP process were adequately
examined including the fact that the CoC discussed the prospects of
selling the Corporate Debtor as a going concern at length in the 30th
CoC meeting. The decision of initiation of liquidation proceedings of the
Corporate Debtor was taken by the CoC in its commercial wisdom
within the ambit of powers granted to it under the provisions of the
Code, pursuant to failure of Corporate Debtor to achieve successful
resolution under the provisions of the Code. Therefore, the CoC had
made all endeavors for resolution of the Corporate Debtor in the first
place and had voted upon liquidation only as the last resort. The
resolution process has run for more than 3 (three) years before the
liquidation resolution was passed by the CoC. Thus reading any ulterior
motive behind this decision is misconceived and lacks foundation. We
are also not inclined to agree with the argument put forth by the
Appellants in both set of appeals that no reasons were assigned by the
Adjudicating Authority while passing the impugned order or that the
Adjudicating Authority had failed to appreciate that the primary focus
of IBC is revival and not liquidation of the Corporate Debtor.
32. We also notice that even after the restructuring proposal of Mr.
P.N. Dhoot was rejected by the CoC, yet another ex-promoter came
forward came up with a withdrawal proposal directly before the
Adjudicating Authority bypassing the RP and the CoC which proposal
was thus rightly rejected by the Adjudicating Authority. We are
therefore inclined to agree with the Adjudicating Authority that there
has been an attempt on the part of the ex-promoter of the Corporate
Debtor to put forth a procedurally non-compliant withdrawal proposal to
deliberately derail, disrupt and delay the commencement of the
liquidation process. Moreover, we find no reasons to disagree with the
Adjudicating Authority that the ex-promoter having brought the
Corporate Debtor to its present state do not deserve another chance at
revival especially when the liquidation process had made serious
progress.
33. It is also pertinent to note that Epitome was informed of its
-----------------------------------------------------------------------------------------------------------------------------------------------------------
ineligibility under Section 29A of the IBC vide email dated 16.07.2021
sent by the RP. RP thereafter vide his email dated 12.08.2021 asked
the Appellant to provide the bank account details for refund of Bid Bond
amount. The Appellant on same date provided its bank account details.
Further, on 18.08.2021, the Appellant followed up with RP for the
refund. On 21.08.2021, the refund of Bid Bond amount was processed
for payment to the Appellant. Hence, the very fact that the Appellant
had already accepted the Bid Bond amount without any protest or
prejudice and that the decision of their ineligibility was communicated
way back in 2021, it does not stand to any cogent reasoning to allow
them to belatedly revive their claim to submit a resolution plan afresh
after hibernating for almost two years. To ignore this delay at this stage
in allowing the Appellant to resurrect their claim to submit a resolution
plan would tantamount to causing unjustified delay in the liquidation of
the Corporate Debtor as a going concern. This acquires greater
significance since a bidder had already been declared successful
pursuant to the auction conducted in terms of the impugned order and
the successful bidder is in the process of implementing its bid.
34. It is further the contention of the CoC, which happens to be the
common Respondent in both appeals that it is a settled principle of law
that the commercial wisdom of the CoC is paramount and the
legislature has consciously not provided any ground to challenge the
commercial wisdom. In support of their contention reliance has been
placed on the judgment of the Hon'ble Supreme Court in K. Sashidhar
v. Indian Overseas Bank, (2019) 12 SCC 150 and Maharashtra
Seamless Ltd. v. Padmanabhan Venkatesh, (2020) 11 SCC 467. We
entirely agree that it needs no emphasis that in a catena of cases, the
Hon'ble Supreme Court has given primacy to the commercial wisdom of
CoC and while vesting unlimited power on the CoC has observed that
the judicial wisdom of the courts cannot encroach upon the commercial
wisdom of the CoC. In such circumstances, there is no scope as such
for examination by the Adjudicating Authority of the allegation raised
by the Sangathan that the CoC did not take a commercially sound
decision. It is not for the Adjudicating Authority to consider or evaluate
on merits the rationale underlying the commercial decision of the CoC.
With the limited powers of judicial review available to it, the
Adjudicating Authority has not committed any error in ordering the
liquidation of the Corporate Debtor as a going concern as the same was
unanimously decided by the CoC. In doing so, the Adjudicating
Authority has not only remained alive to limits set forth in Sections 30
and 31 of the IBC but also remained mindful of the overall aim and
objective of the IBC for timely resolution of the Corporate Debtor and
realising the maximum value while adhering to the commercial wisdom
of the CoC.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
35. In the result, given the sequence of events and the facts and
circumstances of the case, for the reasons discussed above, we find no
reasons to disagree with the decision of the Adjudicating Authority in
passing the liquidation order of the Corporate Debtor as a going
concern having been so voted and unanimously recommended by the
CoC in the exercise of its commercial wisdom. In view of the foregoing
discussions, we find no merit in both the appeals. The appeals having
failed to succeed are accordingly dismissed. Liquidator may take
necessary steps to proceed with the process of liquidation. No order as
to costs.
———
†
Principal Bench New Delhi
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SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.

Page 1 Monday, October 21, 2024

2023 SCC OnLine NCLAT 305

In the National Company Law Appellate Tribunal†

appeals filed under Section 61 of Insolvency and Bankruptcy Code,

Dissatisfied with resolution plans received from the potential

liquidation process of the Corporate Debtor on an ‘as is where is’

to or related to either the Appellant or the Corporate Debtor or

on 11.05.2023. This demonstrates that the Appellant timed the appeal

Debtor to achieve successful resolution under the provisions of the

and perused the records carefully.

Corporate Debtor to liquidation without giving an opportunity to

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