ACRE – 81 Trust and Ors. Vs. Pawan Kumar Goyal IRP and Ors.- CoC has the power to liquidate the CD before confirmation of the resolution plan. The said decision in the case of Sunil S. Kakkad (Supra) has further been affirmed by the Hon’ble Supreme Court when the appeal was filed by Sunil S. Kakkad was dismissed on 07.01.2021.

 NCLAT (2024.01.17) in ACRE – 81 Trust and Ors. Vs. Pawan Kumar Goyal IRP and Ors. [(2024) ibclaw.in 40 NCLAT, Comp. App. (AT) (Ins) No. 447 of 2023 & I.A. No. 1475, 1476 of 2023] held that;

• There is an error in the approach of the Adjudicating Authority that for the purpose of taking a decision regarding the liquidation of the CD, the CoC has to complete all the steps regarding resolution of the CD because it would be against the spirit of Section 33(2) and explanation appended to it wherein the legislature has used the word any time twice i.e., firstly, in Section 33(2) and secondly, in the explanation of Section 33(2) of the Code that the CoC has the jurisdiction to pass the order of liquidation of the CD,

• CoC has the power to liquidate the CD before confirmation of the resolution plan. The said decision in the case of Sunil S. Kakkad (Supra) has further been affirmed by the Hon’ble Supreme Court when the appeal was filed by Sunil S. Kakkad was dismissed on 07.01.2021.

• Finally the provision of Section 65 has no application because it would apply if the application is filed for the purpose other than liquidation.

Excerpts of the order;

This appeal has been filed by ACRE-81 Trust (Appellant No. 1), India Real Estate 2021 Trust (Appellant No. 2), ACRE -100 Trust (Appellant No. 3) and Catalyst Trusteeship Limited (Appellant No. 4), all assenting members of the Committee of Creditors (in short ‘CoC’) of SARE Realty Projects Pvt. Ltd. (Corporate Debtor) having voted to liquidate the Corporate Debtor, against the order dated 16.03.2023 passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench, Court II) in I.A. No. 3818/ND/2021 in CP (IB) No. 684/ND/2020, by which show cause notice has been issued seeking an explanation of the Appellants as to why the penalty stipulated under Section 65 of the Insolvency and Bankruptcy Code, 2016 (in short ‘Code’) be not imposed upon them.

# 2. In brief, one Dharam Vir Gupta, filed an application under Section 9 of the Code, as an operational creditor before the Adjudicating Authority bearing C.P. (IB) No. 684 of 2020 against the Corporate Debtor. The Corporate Debtor did not file any reply nor appeared during the proceedings and was proceeded against ex-parte on 01.03.2021. The Adjudicating Authority admitted the application filed under Section 9 of the Code, vide its order dated 05.03.2021 and appointed the IRP besides imposing the moratorium. The IRP made a public announcement on 09.03.2021 to invite claims from the creditors of the Corporate Debtor. The IRP conducted first meeting of the CoC on 06.04.2021 and informed the members of the CoC that the office of the Corporate Debtor was closed for more than one year, all the directors of the Corporate Debtor had resigned before the commencement of the CIRP, last audited financial statements of the Corporate Debtor filed with the ROC were for the year ending March 31, 2017 and the secured financial creditors of the Corporate Debtor had initiated enforcement action under SARFAESI Act, 2002 and taken over possession of the project assets. One of the authorized representatives of CoC members, India Real Estate 2021 Trust and ACRE-81 Trust, proposed the liquidation of the Corporate Debtor.

# 3. Second meeting of the CoC was held on 27.05.2021 in which liquidation of the Corporate Debtor was proposed and publication of Form G was deferred till the CoC take the decision on the issue of early liquidation. The 3rd meeting of the CoC held on 23.06.2021 in which the members of the CoC again discussed the early liquidation of the Corporate Debtor. The IRP also highlighted the high cost involved in the continuation of CIRP. The 4th CoC meeting was held on 27.07.2021 in which members of the CoC proposed to take the issue of liquidation of the CD before other agenda items. The CoC had a detailed deliberation on the issue of liquidation including powers of the CoC to recommend liquidation at any time before the approval of the resolution plan and the members of the CoC decided to liquidate the CD in terms of Section 33 of the Code but at the request of the majority members of the CoC, e-voting on the said agenda was deferred. The IRP sent a notice for conducting the 5th CoC meeting to be held on 13.08.2021. On 12.08.2021, the representative of India Real Estate Trust 2021 and ACRE -81 Trust sent an email to IRP and other members of the CoC proposing early liquidation of the CD. In the 5th meeting of the CoC was held on 13.08.2021 in which the CoC continued their deliberations on the issue of liquidation of the CD which was not voted upon in the 4th CoC meeting. E-voting on the said issue was conducted during the period from 16.08.2021 till 18.08.2021 in which 88.48% of the CoC members including the financial creditors in class, i.e. allottees/homebuyers voted in favour of the liquidation of CD. The IRP filed an application for liquidation of the Corporate Debtor bearing I.A. No. 3818 of 2021 with the following prayers:-

“a. allow the present application.

b. Pass an order for liquidation of the CD under Section 33(2) r/w Explanation and in terms of sub-clauses (i), (ii) and (iii) of clause (b) of sub-clause (1) of Section 33 of the Code.

c. Pass an order to appoint the Interim Resolution Professional Pawan Kumar Goyal, IBBI Registration No. IBBI/IPA-001/IP-P00875/2017-18/11473 as Liquidator of the Corporate Debtor.

d. Pass any other or further order(s) as this Hon’ble Tribunal deem fit and proper in the facts and circumstances of the matter”

# 4. In the impugned order, the Adjudicating Authority has observed that until EOI in From G is published, there is no mechanism under the regime of IBC to discover prospective resolution applicants for a corporate debtor and without publishing Form-G, CoC could not have been in a position to formulate an opinion that there were no prospective buyers available for the CD. It further observed that the scheme of IBC gives every Corporate Debtor a fair chance to stand on their own feet and to come out of financial distress and that is why every Corporate Debtor must go through the IBC mandated CIR process before facing the liquidation proceedings. It was concluded that without taking any steps for seeking resolution of the Corporate Debtor, the CoC has acted contrary to the scheme of IBC. With these observations, the Adjudicating Authority has further observed that it was prima facie of the opinion that the application for liquidation of CD has been filed with malicious intent and therefore, it was found as a fit case for issuance of show cause notice to the assenting CoC members jointly who voted in favour of the liquidation of the CD without even exploring the possibility of resolution of the Corporate Debtor. The Appellants herein have thus been asked to show as to why penalty stipulated under Section 65 of the Code should not be imposed on them.

# 5. Although, the Adjudicating Authority has asked the present Appellants to file a joint reply to the show cause notice and had also observed that it has not finally adjudicated upon the liquidation application, the fate of which would depend upon the outcome of Section 65 proceedings initiated against the assenting CoC members but aggrieved against the aforesaid impugned order dated 16.03.2023, the present appeal has been filed in which on the date of preliminary hearing held on 13.04.2023, this Court passed the order of stay ‘in the meantime, issuance of notice under Section 65 in the impugned order shall remain stayed’. Thus as a matter of fact, no notice was there before the Appellants for the purpose of giving reply to the same.

# 6. Counsel for the Appellant has vehemently argued that not only the Adjudicating Authority has committed an error in invoking Section 65 of the Code for the purpose of issuance of show cause notice but also it misread the provisions of Section 33(2) of the Code and the explanation of the Code. It is submitted that as per Section 33(2), the Resolution Professional, at any time during the CIRP but before confirmation of resolution plan, intimate the Adjudicating Authority of the decision of the CoC (approved by not less than sixty six per cent. of the voting share) to liquidate the CD. It is further submitted that explanation to Section 33(2) further provides that the CoC may take the decision to liquidate the CD any time after its constitution and before the confirmation of the resolution plan including at any time before the preparation of the information memorandum. In support of his submissions, he has relied upon a decision of this Appellate Tribunal rendered in the case of Sunil S. Kakkad Vs. Atrium Infocom Pvt. Ltd. & Ors., 2020 SCC Online NCLAT 1160 in which the question involved was as to whether the Resolution Professional with the approval of CoC with 66 per cent vote share can directly proceed for the liquidation of CD without taking any steps for resolution of the CD? He has submitted that in the said case only three meetings of CoC took place and without making any endeavour for inviting EOI, the CoC unanimously resolved to liquidate the CD. He has further referred to Para 19, 20 and 21 of the said decision in which the power of the CoC has been discussed in respect of Section 33(2) of the Code as per which it can order for liquidation at any stage but before confirmation of resolution plan. It is further submitted that the decision in the case of Sunil S. Kakkad (Supra) has further been upheld by the Hon’ble Supreme Court reported as 2021 SCC Online SC 723. It is further submitted that in the present case the decision has been taken by the CoC in its fifth meeting for the liquidation of the CD by 88.48% voting share. It is also submitted that the decision relied upon by the Adjudicating Authority in the case of Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors. is not applicable because it is prior in time to the amended Section 33(2) of the Code which clearly empowers the CoC to liquidate the CD at any time after the constitution of the CoC and prior to the approval of the resolution plan.

# 7. As regards the issuance of show cause notice under Section 65 of the Code is concerned, it is argued that the said provision has been invoked without application of mind because it provides that it can be invoked if the proceedings have been initiated with malicious intent for any purpose other than for the liquidation. Whereas in the present case, the proceedings have been initiated for the liquidation, therefore, the said provision would not apply and has been wrongly invoked for the purpose of issuance of show cause notice and in this regard, reliance has been placed upon the orders passed in Unigreen Global Pvt. Ltd. Vs. Punjab National Bank CA (AT) (Ins) No. 81 of 2017 in which it has been held that no such penalty under sub-Section (1) or (2) of Section 65 can be imposed by the Adjudicating Authority without recording opinion for coming to the conclusion that a prima facie case is made out to suggest that the person fraudulently or with malicious intent for the purpose other than the resolution of the insolvency or liquidation or with the intent to defraud any person has filed the application. It is submitted that the Adjudicating Authority has though observed that it has found prima facie that a case has been made out against the Appellant but the reason to frame the opinion much less prima facie is conspicuous by its absence in the impugned order.

# 8. Counsel on behalf of the RP has also appeared in this case.

# 9. We have heard Counsel for the parties and perused the record with their able assistance.

# 10. There is no dispute that the CoC took a decision for liquidation of the CD after holding five meetings and by voting share of 88.48 per cent which meets the criteria laid down in Section 33(2) of the Code. There is an error in the approach of the Adjudicating Authority that for the purpose of taking a decision regarding the liquidation of the CD, the CoC has to complete all the steps regarding resolution of the CD because it would be against the spirit of Section 33(2) and explanation appended to it wherein the legislature has used the word any time twice i.e., firstly, in Section 33(2) and secondly, in the explanation of Section 33(2) of the Code that the CoC has the jurisdiction to pass the order of liquidation of the CD, approving it by not less than sixty six per cent of the voting share, but it should be before the confirmation of the resolution plan. In the case of Sunil S. Kakkad (Supra), this Court has categorically framed a question as to whether the RP, with the approval of the CoC with sixty six per cent vote share, directly proceed for the liquidation of CD without taking any steps for resolution of the CD. In the said case, there were three meetings of CoC in which without making endeavour for inviting EOI, the CoC unanimously resolved to liquidate the CD and that issue came for adjudication before this Court in which while referring to Section 33(2) and the explanation appended thereto it has been ordered that the CoC has the power to liquidate the CD before confirmation of the resolution plan. The said decision in the case of Sunil S. Kakkad (Supra) has further been affirmed by the Hon’ble Supreme Court when the appeal was filed by Sunil S. Kakkad was dismissed on 07.01.2021 and in so far as the issuance of notice under Section 65 is concerned, firstly, the issuance of notice was stayed by this Court vide its order dated 13.04.2023 and secondly, the Adjudicating Authority has not given any reason for forming an opinion much less prima facie that it was a case of malicious intent on the part of the Applicant/RP with the connivance of assenting members of CoC to whom the show cause notice was given and finally the provision of Section 65 has no application because it would apply if the application is filed for the purpose other than liquidation.

# 11. Thus, from the aforesaid discussion and looking from any angle, the impugned order does not deserve to survive and hence, the present appeal is allowed and the impugned order is set aside though without any order as to costs.

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Melkar TTI Biofuels Ltd. Vs. Gulshan Kumar Gupta and Ors - These propositions of law are based on ‘Clean Slate Principle’ and mandates that an auction purchaser can not be fastened with the obligation to pay any dues in respect of properties, purchased in auction, for the period prior to the date when the auction sale is completed.

 NCLT Mumbai-1 (2024.03.12) in Melkar TTI Biofuels Ltd. Vs. Gulshan Kumar Gupta and Ors. [(2024) ibclaw.in 305 NCLT, I.A. 1040 of 2023 in CP (IB) 977/MB/C-I/2019] held that;

• Hon’ble Calcutta High Court held that when a property has been sold in an auction sale on ‘as is where is’ basis in liquidation under IBC, Auction purchaser is not liable to pay pre-CIRP outstanding dues of electricity connection before getting a new electricity connection.

• These propositions of law are based on ‘Clean Slate Principle’ and mandates that an auction purchaser can not be fastened with the obligation to pay any dues in respect of properties, purchased in auction, for the period prior to the date when the auction sale is completed. 

• It is trite law that all claims of Creditors, including statutory authorities, are to be dealt with in accordance with the provisions of Code upon commencement of Liquidation proceedings and are to be settled in accordance with the provisions contained in Section 53 of the Code.

• The claims, not filed by the Creditors extinguishes and the successor of the Corporate Debtor can not be called upon to pay dues arising out of such claims in case such dues remains still unpaid in terms of Section 53 of the Code.

Excerpts of the order;

# 1. This Application IA 1040 of 2023 is filed by Melkar TTI Biofuels Limited u/s 60 (5) of the Insolvency and Bankruptcy Code, 2016 on 14.03.2023 in the liquidation proceeds of Gandhinglaj Agro Alchochem Limited (Corporate Debtor) seeking following reliefs:

a. The Tribunal be pleased to hold that the collection by Respondent no.. 2 i.e. The Commissioner, Maharashtra Excise Department from the Applicant being the amount due and payable by the Corporate Debtor company which is under Liquidation is ipso facto void-ab-initio since it is a settled law that the auction purchaser namely the applicant is not liable for the dues of the Corporate Debtor and the said dues has to be collected in accordance with the law from either the Resolution Applicant or the Liquidator as the case may be’

b. Direct the Respondent No.2 to refund the amount of Rs. 43,75,091/- (Rupees Forty Three Lakhs Seventy Five Thousand Ninety One Only)-paid by the Applicant under protest and as collected by the Respondent no. 2 towards the past dues arising from the Corporate Debtor who is under Liquidation;

c. Direct Respondent No. 2,3 and 4 i.e. The Commissioner Maharashtra Excise Department, Maharashtra State Electricity Distribution Company Limited, Kolhapur and Maharashtra Sales Tax Department, Mumbai respectively to release their attachments and transfer the licenses, electricity meters, and mutate the land pertaining to the Applicant's purchase in the name of Applicant and not to proceed against the Applicant for any dues that may have arisen or payable pertaining to a period prior to the date on which the Applicant has acquired the Distillery plant along with the land and other fixtures pertaining to the said land including the right of way;

d. The Tribunal be pleased to hold and order that the Applicant being an auction purchaser as a going concern of the Distillery Plant and land appurtenant thereto is not liable for any dues which remains unpaid or which has arisen on account of the non-payment by the Corporate Debtor and the Applicant be protected from further such illegal claims by the Respondent No. 2 to 4;

e. This Tribunal may be pleased to restrain Respondent Nos. 2 to 4 from taking any steps against the Applicant to recover the dues, if any, which are payable by the Corporate Debtor for a period prior to the date on which the business of distillery manufacturing was sold to the

Applicant;

f. That this Tribunal may pass such other orders which in the interest of the justice, equity and good conscience this Hon'ble Tribunal deems fit including imposition of cost on Respondents.

# 2. The Applicant company is the successful bidder in the case of an eauction conducted by the Respondent No. 1 who is the Liquidator of Gadhinglaj Agro Alcochem Ltd (in liquidation) on 23.07.2021 wherein the distillery business of the Corporate Debtor was sold to the Applicant as a going concern for a consideration of Rs.17,10,00,000/- (Rupees Seventeen Crores Ten Lakhs Only).

2.1. The sale of the Distillery Manufacturing Business of the Corporate Debtor was confirmed by Respondent No. 1 vide Sale Certificate dated 27.10.2021 issued by Respondent No. 1 who is the liquidator of the Corporate Debtor. The Liquidator of the Corporate Debtor had issued a Possession Letter dated 27.10.2021 to the Applicant wherein the possession of all the assets sold through the e-auction was handed over to the Applicant.

2.2. The Applicant applied to various authorities including Respondent No. 2 and 3 vide various letters informing them that the distillery manufacturing business of the Corporate Debtor has been sold to the Applicant company vide an eauction.

2.3. To the shock of the Applicant, the Applicant received letters from Respondent Nos.2 and 3 wherein it was claimed by them that they will not be in a position to transfer the existing licenses and/or permissions in favour of the Applicant unless otherwise the dues overdue and payable by the company in liquidation prior to the period of sale as a going concern are paid and cleared.

2.4. The amounts that are alleged to be outstanding from the Corporate Debtor are reportedly for a period which is much before the Applicant took over the business of distillery manufacturing of the Corporate Debtor through the process of e-auction as conducted by the liquidator.

2.5. The Applicant submits that even as per the Sale Certificate dated 27.10.2021 issued by the Respondent No. 1 to the Applicant, it was made absolutely clear that the Applicant shall not be liable for any dues payable by the Corporate Debtor.

2.6. The actions of the Respondent Nos. 2 and 3 appear to be a deliberate attempt whereby instead of filing their claims with the liquidator they are attempting to bypass and circumvent the mechanism provided in the Insolvency and Bankruptcy Code and demanding from the applicant herein.

2.7. Respondent No. 4 herein has marked a lien on the land belonging to the Corporate Debtor subsequent to the commencement of the CIRP in gross contravention of the provisions of the 1&B Code.

2.8. The Applicant had filed IA No. 1409/2022 wherein the Applicant had arrayed 17 parties as respondents including the Respondents named in this IA and even though Respondent No. 1 supported the contention of the Applicant that the Applicant is not liable for the prior dues, Respondent Nos. 2,3 and 4 chose to remain unrepresented with the sole intention to frustrate the proceedings.

2.9. Since the Applicant was incurring huge losses for the delay caused, the Applicant had no other option but to pay, under protest, a sum of Rs. 43,75,091/- (Rupees Forty-Three Lakhs Seventy Five Thousand Ninety One Only) to the Respondent No. 2. The Applicant, through this IA, is praying for refund of the said amount paid to Respondent No. 2 as well as for other prayers as mentioned in the Interlocutory Application.

# 3. The Respondent No.1 had filed an affidavit in reply dated03.04.2023 stating that 3.1. The resolution process was carried in accordance with the provisions of Insolvency and Bankruptcy Code 2016 (IB Code) and no resolution plan was received for resolution of the Corporate Debtor. Therefore, the COC unanimously agreed to liquidate the Corporate Debtor and, on an application filed by the RP, this Tribunal was pleased to pass an order for commencement of liquidation of Gadhinglaj Agro Alcochem Limited vide order dated 27.01.2021 and Mr. Gulshan Kumar Gupta, the Resolution Professional was appointed as Liquidator.

3.2. As per public announcement the last date for submission of claims was 25th February, 2021. After verification of claims, a list of stakeholders was finalized and a submitted to IBBI

3.3. .The valuation of assets of the Corporate Debtor was conducted in accordance with the  provisions clauses (a) to (f) of regulation  32 of the IBBI (Liquidation Process) Regulations,  which clearly suggest that the assets of the Corporate Debtor can be maximized in case these are realised on a going concern basis. A summary of such valuation is as follows:

3.4. That the matter regarding sale of assets of the Corporate Debtor was discussed with the Stakeholders Consultation Committee ("SCC"). The committee after deliberations agreed that in order to maximize the value, the liquidator should proceed with sale of the business of the Corporate Debtor as a going concern and fixed the reserve price at Rs. 15.51 crore.

3.5. The first sale notice was issued by the liquidator after strict restrictions imposed during the second wave of covid were relaxed for inviting bids for sale of distillery business on going concern basis. However, no bids have been received by the liquidator in response to the first sale notice. Thereafter, the matter was deliberated in the SCC meeting and the reserve price was reduced to 14.00 crore. Thereafter, in accordance with the decision of the second sale notice was issued by the liquidator.

3.6. In response to the aforesaid sale notice, the e-auction was conducted on 23.07.2021 and the applicant herein i.e., M/s Seebhal Mikelin Distillery Private Limited offered the highest bid of Rs. 17.10 crore and he was declared as successful bidder. The total bid money of Rs. 17.10 crore along with applicable interest was deposited by the successful bidder and accordingly the possession of the distillery unit was handed over to him on 27.10.2021, and upon handover of the possession, the sale was completed and accordingly sale certificate was issued on 27.10.2021 itself.

3.7. The sale was completed as above and no further action is required on the part of responded herein except the execution and registration of sale deed with the competent authority. The registration of sale deed is pending for action on the part of successful buyer in view of certain legal impediments as claimed in his application.

3.8. In accordance with the terms of the sale notice and the eauction process documents, the respondent herein is in no way responsible and is not required to take any action for renewal and transfer of various licenses and permission in favor of the successful buyer which were issued by the different authorities to the Corporate Debtor for carrying on the distillery business. 

3.9. It will also be pertinent to note that the prime difference in the valuation of assets is only due to the fact that the assets are sold on a going concern basis. In all the mode of valuations, the successful buyer shall have acquired all tangible assets. However, the valuation arrived in case of a sale on going concern basis is only and only due to the fact that the assets are to be used to carry on the distillery business on a going concern basis. The successful buyer can carry on the distillery business on a going concern basis only after such licenses and approval are renewed. In case of such licenses and permissions are not transferred in favor of the applicant, the assets cannot be used to carry on the distillery business on a going concern basis and ultimately it will defeat the basis objective of IB Code in order to maximize the value of assets of a Corporate Debtor.

3.10. In accordance with the terms of e-auction, the necessary action for renewal, validation and transfer of such licenses and permission are required to be taken by a successful buyer and not by the liquidator. However, the liquidator has always cooperated to the applicant herein as and when he is approached for any kind of support in this regard. In order to renew and transfer various licenses and permissions in his favor, the successful buyer is required to make the payment of applicable dues which are pertaining to a period after the date of sale certificate. Accordingly, the successful buyer is liable to bear all the expenses and costs which arises on or after the date of sale certificate i.e., 27.10.2021.

3.11. Therefore, it is clear that the auction buyer is not liable for any dues as stated to be claimed by various authorities which are related to a period prior to the date of sale certificate. The liquidator has considered all the claims submitted to him in response to the public announcement and have admitted such claims after verification. Those who have not submitted a claim to the liquidator cannot demand such claims from the auction purchaser. The lapse on the part of a person who failed to submit its claim to liquidator does not cast any liability on the auction purchaser.

x) The status of claim of various parties who are arrayed as respondent in the instant application and stated to have claimed dues from the auction buyer and who is the applicant herein is as follows:

3.12. However, in case of claim have been submitted by the aforesaid respondents to the liquidator, they should have fallen under the category of operational creditor and shall be entitled to distribution only after the claim of secured financial creditor and others prior to them is satisfied in full. The amount, if any, demanded by the respondents from the successful buyer appears to be a deliberate attempt knowing that they will not be getting anything in accordance with the priority order under section 53 of the IB code.

# 4. Heard the Counsel and perused the material available on record.

4.1. In the case of Paschimanchal Vidyut Vitran Nigam Ltd. v. HSA Traders, in Company Appeal (AT) (Insolvency) 527/2023 dated 05.12.2023, the Hon’ble NCLAT Delhi Bench has held that the Suceessful Auction Purchaser (in Liquidation Process) is not liable to pay any arrears of electricity connection which are dues of Corporate Debtor. Further, in another decision in case of Rashidhan Sales Pvt. Ltd. and another Vs. Damodar Valley Corporation and others, in WP No. 12683 of 2022 dated 17.01.2023 the Hon’ble Calcutta High Court held that when a property has been sold in an auction sale on ‘as is where is’ basis in liquidation under IBC, Auction purchaser is not liable to pay pre-CIRP outstanding dues of electricity connection before getting a new electricity connection.

4.2. These propositions of law are based on ‘Clean Slate Principle’ and mandates that an auction purchaser can not be fastened with the obligation to pay any dues in respect of properties, purchased in auction, for the period prior to the date when the auction sale is completed. It is trite law that all claims of Creditors, including statutory authorities, are to be dealt with in accordance with the provisions of Code upon commencement of Liquidation proceedings and are to be settled in accordance with the provisions contained in Section 53 of the Code. The claims, not filed by the Creditors extinguishes and the successor of the Corporate Debtor can not be called upon to pay dues arising out of such claims in case such dues remains still unpaid in terms of Section 53 of the Code.

4.3. The Code provides the manner in which a lien over the property of the Corporate Debtor held by any creditor can be exercised for recovery of dues. It is not in dispute that neither of Respondents, even if they can be said to have lien over the property which they didn’t has followed the procedure contemplated in the Code in this relation. Hence, the lien of all creditors on the property, if any, stands vacated upon admission of claim. It is made clear that we are not dealing with the issue whether any of Respondent had statutory lien over the property of Corporate Debtor so as to entitle such creditor to acquire the status of secured creditor for distribution in terms of Section 53 of the Code because this issue is not for consideration before us in this Application. 

4.4. In view of the foregoing discussion, we have no hesitation to direct Respondent No. 2 to refund the money collected towards the dues of Corporation pertaining to period prior to auction conclusion date within 30 days from the communication of this Order. Further, the Respondent No. 2, 3 & 4 are directed to release their attachments and transfer the licenses, electricity meters, and mutate the land pertaining to the Applicant's purchase in the name of Applicant, subject to payment of any fees as is applicable to such transfer and due adherence to the procedure in that respect. The Respondent No. 2, 3 & 4 shall also not proceed against the Applicant for any dues that may have arisen or payable pertaining to a period prior to the date on which the Applicant has acquired the Distillery plant along with the land and other fixtures pertaining to the said land including the right of way. It is clarified that such transfer or mutation or provision of new connection shall be withheld on account of non-payment of dues for the period prior to auction conclusion date.

5. In view of above, IA 1040 of 2023 is allowed and disposed of accordingly.

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Mr. Kuldeep Verma, Liquidator of Manthan Broadband Services Pvt. Ltd. - It is explicit therefrom that the decision to realise its security interest shall have to be intimated within 30 days of Liquidation commencement date, or else it shall be presumed to be a part of the Liquidation estate.

 NCLT Kolkata (2024.01.12) in Mr. Kuldeep Verma, Liquidator of Manthan Broadband Services Pvt. Ltd.. [IA (I.B.C)/334(KB)2023, IVN.P(IBC)/14(KB)2023 and IA (I.B.C)/497(KB)2023 in C.P. (IB)/1634(KB)2018] held that;

• It is explicit therefrom that the decision to realise its security interest shall have to be intimated within 30 days of Liquidation commencement date, or else it shall be presumed to be a part of the Liquidation estate.

Excerpts of the order;

1. Heard Ld. Senior Counsels/ Counsels for the Parties.

2. IA (I.B.C)/334(KB)2023 has been preferred by Member of Suspended Board of Manthan (CO) in liquidation.

3. The Applicants would submit as follows:

3.1 The e-auction notice (Page 151) of 77,500 shares of the Corporate Debtor in Alliance is being sought to be sold in Liquidation, apart from an immovable property at Tajpur, West Bengal.

3.2 That the Corporate Debtor held 48.14% shares in Alliance. That the majority Shareholders of Alliance have devised a strategy to obtain the shareholding of Alliance held by Corporate Debtor and intending to push Manthan into Insolvency have filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016. They have destroyed chances of any Resolution by their incorrect acts and after commencement of CIRP, by two rights issues dated 30th September 2019 and 7th September 2021, issued 39,000 and 1,00,000 shares respectively in Alliance, thereby, reducing the shareholding of corporate debtor in Alliance from 48.14% to 25.83%. Further that through their associates an attempt is being made to acquire the said shares at an undervalue in liquidation sale.

3.3 It is submitted that such an attempt for auction sale is in Violation of Proviso to regulation 32 of the Liquidation Process Regulations, 2016 which provides that any asset of the Corporate Debtor which is subject to the security interest, shall not be sold, unless such security interest has been relinquished to the liquidation estate. Alliance having not yet relinquished its security interest in favour of the liquidation estate the shares could not have been put up for auction. That Alliance has filed a suit being C.S. No. 54 of 2019 in the Hon’ble High Court at Calcutta against the Corporate Debtor/Liquidator to prevent Corporate Debtor or Liquidator from enforcing any right in respect of these shares.. This contested issue between Alliance and Liquidator is also the subject matter of Application being I. A. No.

380 of 2021 and I. A. No. 386 of 2021, whereby, the Resolution Professional/ Liquidator has sought for recovery of Title Deeds and Share Certificates from Alliance in respect of the concerned shares/land, put up for sale. It is yet to be decided by this Tribunal as to whether there is any security interest in respect of these assets. Thus, in accordance with the proviso to regulation 32, these assets cannot be sold. Yet, the Liquidator has put up these assets for sale.

3.4 That the sale is important in terms of the sale notice. The sale notice declares that the Title Deeds and the Share Certificates are in the custody of Alliance and Application for recovery thereof is pending and in accordance with the terms of the Sale Notice, upon receipt of Consideration, the Liquidator has covenanted to make over the Title Deeds and Share Certificates and/or possession of the assets to the purchaser. Therefore, it is impossible for the Liquidator to comply with its declared obligations under the sale notice. If the Liquidator is comfortable with this position, it would only mean that Alliance’s associates will purchase the assets, whereupon, the Liquidator would not have any difficulty in fulfilling such obligation.

3.5 It is submitted that the Sale would have the effect of prejudging I.A. No. 380 of 2021 and I. A. No. 386 of 2021- rendering the same infructuous.

3.6 The further Allegation is that the Sale is at an Undervalue. The reserve price of 77,500 shares is Rs. 9.21 crores which makes the price per share Rs. 1188/-. This is obviously the book value of the shares. The purported rights issue, also at book value, was at Rs. 1155/- and Rs. 1100/- which can be verified from the records of CP No. 15 of 2022, I. A. No. 847 of 2021 and I. A. No. 850 of 2021, all pending shares of such large quantities totalling to about 48.14% being sold at book value, is an undervalued sale. In fact there would be premium including control premium applicable to shareholding of this nature. For a sum of 9.2 Crores, Alliance through its stooge would acquire shares which are easily worth in excess of Rs. 50 crores giving purchaser about 50% rights in Alliance. It is alleged that the I.A. No. 847 of 2021, I.A. No. 850 of 2021 and CP No. 15 of 2022, all proceedings where these two rights issues are under challenge should be decided first. There is an Order dated 27th September passed by The Hon’ble National Company Law Tribunal whereby rights issues have been made subject to final outcome of further orders. If Liquidator succeeds in this application or if the Applicant succeeds, the sale will be of 48.14% shares in Alliance. Presently, it is for 25.83% shares in Alliance.

3.7 It is alleged that the valuation report is not disclosed whereas under Regulation 35 of the Liquidation Process Regulations, 2016, valuation is to be done by two valuers and an average obtained. The quoting of Reserve Price of Rs. 9.21 crores cannot be sustained.

4. Per Contra the Liquidator would submit as under:

4.1 That this instant IA has been filed seeking stay of the sale of land and shares on 14th February 2023 whereas land has not been auctioned on 14th February 2023. The Liquidator as such is not dealing with the issues of land but restricting his submissions in regard to the 77,500 shares owned by the CD in Alliance Broadband irrespective of whether it forms 25.13% or 48.14%.

4.2 On the question that whether Liquidator can sell the shares it is contended that the shares to be sold were pledged by the CD to Alliance Broadband in April 2017. The pledge arrangement is over. The initial loan for which the pledge was created has been repaid. The pledge was not renewed for any further loan arrangement. That the pledge agreement dated 7th April 2017 contained a provision that till the time the pledge by CD to Alliance is subsisting, Alliance will not cause any rights issue, though, two rights issue was done by Alliance in 2019 and 2021. Thus, there is no pledge on the shares subsisting. 

4.3 That an I.A 386/2021 is filed by RP filed by RP (now Liquidator) against Alliance praying:

• "Necessary directions upon the Respondent to hand back the physical custody and possession of the 77500 shares of the Respondent Company owned/held by the Corporate Debtor which is being held or retained by the Respondent without any basis"

It is urged that the RP (now Liquidator) in the said IA has not prayed for adjudication as to whether pledge is subsisting or not. The Liquidator's stand is that there is no pledge and hence the physical possession of the said shares should be handed back to the Liquidator The shares were always a part of the Liquidation Estate. It is further urged that Regulation 21 of the Liquidation Regulation provides for proving a security interest by a secured creditor and Regulation 21A of the Liquidation Regulation provides that if the secured creditor has not discharged its obligations within 90 days from liquidation commencement date, the shares will automatically form part of the Liquidation Estate. Liquidation having commenced on 06.04.2022, the 90 days expired on 06.07.2022. Admittedly Alliance has not performed its obligations contained in Regulation 21A(2) of the Liquidation Regulations and hence as per Regulation 21(3), the said shares have automatically become part of the Liquidation Estate by operation of law. It is argued further that the sale is being conducted on an "as is where is whatever there is where ever there is" basis. The same is stated categorically in the process document. Copies of all cause papers and details of litigation are uploaded in the VDR (Virtual Data Room) to which the auction participants have access. That the possession of the shares are not with the Liquidator is categorically stated in the bid process document at page102 of the petition. The process document pertains to an auction which includes several

other assets (such as plant/machinery and land) possession of which is with the Liquidator. Since it's a composite bid process document, it is stated possession will be handed over on "as is where is basis". There is no inconsistency in the bid process document. That the bidders are participating knowing all the risks and factual aspect. Since, sale is being done on as is where is basis, the new auction participant will continue with the litigation against Alliance, if required. As such, the concern of the suspended board is out of place.

5. It is alleged by the Liquidator that the promoters challenged the order of liquidation of this Adjudicating Authority before the Hon'ble NCLAT and the same was dismissed on 20th September 2022. They filed a civil appeal before the Hon'ble Supreme Court on 3rd November 2022 (after a gap of 1.5 months) and kept the same defective for 3 months till end of January 2023 and the matter was listed before the Hon'ble Supreme Court on 3rd February 2023, when the civil appeal was dismissed. We would further note that the very next date, i.e., on 4th February, 2023, this instant application was affirmed and filed seeking stay on the auction process. During the entire period, the suspended board/promoters attempted to thwart the proceedings before this Adjudicating authority on the ground of pending appeals before the higher forum. It is alleged that this frivolous litigation filed without authority attempted to delay the entire liquidation process and frustrate the same, so that the valuation of the assets reduces  further.

6. We have noted the rival contentions. The first sale notice dated 6th December, 2022 was never objected to by the applicant. That there was no difference in the reserve price for the CD as a going concern (published on 6.12.22) and the present auction notice (published on 11.1.23) in which the aggregate value of the assts would amount to Rs. 33 Crores (same as going concern sale). It is noticed that the directors are concerned that if the secured financial creditor - CISCO recovers more from the auction sale, then the Applicant's personal liability under their personal guarantee will reduce. The same argument was already argued before the Hon’ble Apex Court, but the Hon'ble Supreme Court completely disregarded their submission/argument and rejected their civil appeal.

7. The liquidation being ordered way back in April 2022 the Liquidator was required to sell the assets of the CD and distribute the proceeds amongst the stakeholders/creditors and complete the process within a year. The concern of the suspended Board is neither comprehended nor countenanced at the behest of the suspended Board, no further delay in liquidation can be allowed.

8. The concern of the applicants that the shares can be sold for around Rs. 45-50 crore whereas the Liquidator is putting up the shares at 9 crores which is the book value is not sustained. The book value of the 77500 shares are Rs. 54.85 lakhs. The average fair value as per IBBI Registered Valuers is Rs. 9.21 Crores and average liquidation value is Rs. 4.61 Crores. The shares have been put up for auction Rs. 9.21 Crores i.e., at the average fair value, hence valuation of shares and quoting of price cannot be faulted.

9. Regulation 21A of the Liquidation Regulation says that if the secured creditor has not discharged its obligations within 30 days from liquidation commencement date 06.04.2022, the shares will automatically form part of the Liquidation Estate. The options available to the secured creditors in liquidation proceedings are the following: 

• Relinquish its security interest to the liquidation estate and realise proceeds from the sale of assets by the Liquidator in the manner specified in Section 53;

• Or

• Realize its security interest under section 52(1)(b)

• Realise its security under SARFAESI Act etc. Therefore, Alliance is directed to handover the certificates in original to the Liquidator within a week from the date of pronouncement of this order.

Regulation 21A of the IBBI (Liquidation Process) Regulations, 2016 clearly envisage the following: -

"21A- Presumption of security interest-(1) A secured creditor shall inform the liquidator of its decision to relinquish its security interest to the liquidation estate or realise its security interest, as the case may be, in Form C or Form D of Schedule II:

Provided that, where a secured creditor does not intimate its decision within thirty days from the liquidation commencement date, the assets covered under the security interest shall be presumed to be part of the liquidation estate".

It is explicit therefrom that the decision to realise its security interest shall have to be intimated within 30 days of Liquidation commencement date, or else it shall be presumed to be a part of the Liquidation estate. In the present case, the Liquidation commencement date is 06.04.2022. Alliance having evidently and admittedly failed to its intention to realise its security interest and thereby having failed to discharge its obligation under Regulation 21 A cannot be permitted to retain the shares held as security. Having failed to comply with the provision, it cannot seek the prayer as by the operation of law after 30 days from the date of commencement of liquidation, upon failure of a secured creditor to intimate about its decision of realise its security interest, it shall be deemed to have become a part of liquidation estate. No provision or authority has been placed on record to show that the timeline prescribed under Section 21 A is not mandatory or that 21A(2) will preceed 21 A (1). We have taken a similar view in I.A.(IB) No. 1687/KB/2022 in C.P(IB) No. 108/KB/2019 i.e. State Bank of India-vs-UCO Bank and Ors.

10. Therefore, Alliance is directed to handover the certificates in original to the Liquidator within a week from the date of pronouncement of this order.

11. Accordingly, the prayer fails. In the aforesaid backdrop, we discuss the present application and allow the Liquidator.

1. IVN.P(IBC)/14(KB)2023 Kalyankari Texfab Private Limited seeks leave to intervene in the IA (IB) No.334 of 2023 filed by the Suspended Board of Corporate Debtor (Manthan) having made the full payment of the Earnest Money Deposit (EMD) to participate in the e-auction for sale of assets of Manthan (The Corporate Debtor) in Liquidation.

2. Case in a nutshell:

2.1 Alliance Broadband Services Private Limited (Alliance) granted a loan of Rs.10.20 crores to Manthan Broadband Services Private Limited (Manthan) and Manthan pledged its 77,500 shares to Alliance.

On 18.09.2019, Manthan was admitted to insolvency in CP (IB) No.1634/KB/2018. 

On 06.04.2022 order of liquidation was passed in respect of Manthan.

On 11.01.2023 the Liquidator of Manthan invited EOI, inter alia, for sale of the said shares.

Kalyankari Texfab Private Limited, the Applicant herein deposited an earnest money of Rs.90 lacs with the Liquidator to participate in the said e-Auction.

On 14.02.2023 an order was passed by this Tribunal in IA(IB) No.334/KB/2023 permitting e-Auction to be held subject to the outcome of IA(IB) No.334/KB/2023. At the e-Auction held on 14.02.2023, Kalyankari Texfab Private Limited came out as the highest bidder with a bid of Rs.9.61 crores.

2.2 It is urged that under the provisions of Section 35 of the IBC, the Liquidator is duty bound to take custody and control of all assets, properties, effects and actionable claims of the Corporate Debtor and to sell the same [Section 35 (1) (a0 and (1) (f)]. The IBBI (Liquidation Process) Regulations, inter alia, provide that the process of liquidation will be completed within a period of one year from the liquidation commencement date [Regulation 44 of the IBBI (Liquidation Process) Regulations]. Whereas a period far in excess of one year has already passed since the liquidation commencement date of 06.04.2022. The period of liquidation was last extended by order of 11.04.2023 and came to an end on 06.10.2023.

2.3 That the Hon’ble NCLAT has repeatedly held that “the principle of ‘maximisation of Asset Value’ is to be read in conjunction with the directive of ‘time bound process’, as made mentioned of in the ‘I & B’ Code. (COC of Meenakshi Energy Ltd. through State Bank of India vs. Consortium of Prudent ARC Limited & Vizag Minerals and Logistics P. Ltd.)

3. Ld. Counsel Mr. Rishav Banerjee, for the Director of Suspended Board of Manthan would advance the following arguments:

3.1 The sale of shares must be cancelled as the shares are pledged with Alliance.

3.2 The shares do not form part of liquidation estate and cannot be sold.

3.3 Sale is in violation of Regulation 33 (3) of the IBBI (Liquidation Process) Regulation.

3.4 No valuation has been done of the shares.

3.5 Auction is vitiated by fraud as Kalyankari Texfab Private Limited is a related party. 

4. Submissions on behalf of Ld. Sr. Counsel Mr. Joy Saha appearing for Kalyankari Texfab Private Limited per contra would submit the following:

4.1 That the claim of the parties with regard to the pledge of shares must necessarily shift to the sale proceeds. Inasmuch as the shares belong to Manthan and Manthan is in liquidation, the said shares must be sold in accordance with the mandate of the Code as embodied in Section 35 (1) (f) of the Code. The disputes between the ex- Directors of Manthan and Alliance with regard to the existance of pledge in respect of the said shares must necessarily shift on to the sale proceeds of the said shares.

4.2 It was agreed that the sale of the said shares would be made on “as is, where is and whatever is” basis [Pg. 83 of IA (IB) No.334/KB/2023]. Kalyankari Texfab Private Limited has purchased the said shares on ‘as is where is’ basis as such, there is no necessity to adjudicate on the issue as to whether or not the said shares were pledged before approving the sale of the shares. For the proposition that there is no requirement on the part of the Court to examine title when property is sold on ‘as is where is’ basis, reliance is placed on United Bank of India vs. Official Liquidator & Ors. (1994) 1 SCC 575 that –

• “14. When the Official Liquidator sells the property and assets of a company in liquidation under the orders of the Court he cannot and does not hold out any guarantee or warranty in respect thereof. This is because he must proceed upon the basis of what the records of the company in liquidation show. It is for the intending purchaser to satisfy himself in all respects as to the title, encumbrances and so forth of the immovable property that he proposes to purchase.”

4.3 To counter the allegation of the Suspended Promotors that the said shares did not form a part of the liquidation estate and thus could not have been sold by the Liquidator, it was vociferously argued that as on 04.03.2019 a C.S. No.54 of 2019 has been filed by Alliance against Manthan praying, inter alia, for a declaration that the said 77,500 shares are pledged in favour of Alliance. On 06.04.2022 the Liquidation of Manthan commenced and on 06.05.2022, Form-D was filed by Alliance with the Liquidator whereby Alliance opted to realize its own security interest in respect of the said shares. The Liquidator on 06.06.2022 rejected the claim of Alliance to realize its own security interest on the ground that the said issue was sub judice in the pending suit being C.S. No.54 of 2019 as also being sub judice in IA (IB) No.386 of 2021 pending before this Tribunal. Meanwhile on 03.10.2022, the period of 180 days stipulated in Regulation 21A (2) (b) expired. While there was no compliance by Alliance under Regulation 21A (2), the said shares would automatically subsume in the liquidation estate in terms of Regulation 21A (c) of the IBBI (Liquidation Process) Regulations.

4.4 It was asserted that allegation of the Suspended Directors that the sale is in violation of Regulation 33 (3) of the IBBI (Liquidation Process) Regulations is also not tenable. Regulation 33 (3) envisages the following:

• “33 (3). The liquidator shall not proceed with the sale of an asset if he has reason to believe that there is any collusion between the buyers, or the corporate debtor’s related parties and buyers, or the creditors and the buyer and shall submit a report to the Adjudicating Authority in this regard, seeking appropriate orders against the colluding parties.”

Placing the above position, it was argued that the said regulation applies only to the cases where the liquidator forms an opinion or has reason to believe that there is any collusion between the buyers, related parties etc. Whereas in the present case the liquidator has not formed any opinion or come to any conclusion with regard to the existence of any collusion or fraud.

4.5 It was argued that the allegation of the Suspended Directors that no valuation was done is factually incorrect for the Liquidator, in his rejoinder affidavit to IA (IB) No.497/KB/2023, has clarified that valuation of the subject shares have been done in terms of the provisions of IBC and Regulations thereunder, having averred as under:

• “36. ... The valuation of 77,500 equity shares was done by IBBI registered valuer and not by the Liquidator. The liquidator had put the average of fair value computed by the registered value as the reserved price.”

4.6 That Suspended Directors have not been able to show any irreguarity or fraud in the conduct of the auction and in the absence of any allegation of irregularity in the sale process or fraud there can be no reason to set aside the said auction. 

4.7 It was vehemently denied that Kalyankari is related to Alliance Broadband Services Pvt. Ltd. It was urged that the allegation that Mr. Jagabandhu Raut is related to Mr. Debendra Raut is baseless and false. The concerned person appeared before this Tribunal and denied such allegation. That mere allegation that Mr. Jagabandhu Raut, a Director of Kalyankari, and Mr. Debendra Raut were Directors in another company being M/s. Raut Foundation, does not make Kalyankari a related party of Alliance.

5. We have considered the rival contentions and perused records. The Applicant being an H1 Bidder who has paid the earnest money to participate in the bid process and would be severally prejudiced if the sale does not go through.

6. We are convinced that the Applicant is a proper and necessary party in IA (IB) No.334 of 2023. However, IA (IB) No.334 of 2023 is already dismissed and hence no order is passed in Iv.P. No.14 of 2023, is thus disposed.

7. Urgent Certified copy of this order, if applied for, be supplied to the parties, upon compliance of all requisite formalities.

1. The application IA (I.B.C)/497(KB)2023 has been preferred by the Liquidator of the Manthan Broadband praying for the following reliefs:

(a) Take on record the report filed by the Liquidator in connection with the e-auction held on 14th February, 2023;

(b) Leave of this Tribunal to declare the H1, H2 bidder of the auction held on 14th February, 2023 issue LOI to the successful H1 bidder, receive the balance consideration amount from the H1 bidder and to issue the sale certificate to conclude the sale in accordance with the e-auction process document and in accordance with the law;

(c) Exclusion of time from 14th February, 2023 till the order permitting the Liquidator to proceed the consequential actions after the e-auction and also seeking liberty to issue revised time-lines on the same date gap as stated in the process document after the permission/liberty is granted to the applicant to proceed with the consequential actions after the e-auction including issue of fresh sale notice for remaining assets of the Liquidation Estate.

2. “It is submitted by the Liquidator that he had published auction notice on 11th January, 2023 putting up sale of the Corporate Debtor, the land, assets and other machineries. Auction was to be scheduled on 14th February, 2023 which was restricted to only 77, 500 shares.

3. Auction notice was challenged by the ex-Directors (ex-Promoters) by way of IA No.334/2023 and a stay was sought for on the said auction.

4. The application was heard at length on 14th February, 2023, this Tribunal passed the following order:

5. The Liquidator submits that since the CIRP is time bound process and in terms of order dated 14th February, 2023 he cannot proceed with the auction without obtaining liberty of this Tribunal.

6. This application has been preferred to seek leave to declare the H-1 and H-2 Bidders and issue LOI to the successful H-1 bidder, receive the balance consideration amount from the H-1 Bidder and to issue the sale certificate to conclude the sale in accordance with e-Auction process document and in accordance with law.

7. We have considered the submissions made and the objections raised to the contentions

put forth by the Liquidator. 

8. In view of dismissal of IA No.334/2023 by way of the order (supra), the present application is allowed with all its prayers made therein.

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