NCLT Chennai-1 (2024.02.09) in Ansio Industries Private Limited. Vs. M/s. Sri Venkat Ram Spinners Private Limited, & Ors. [IA(IBC)/1800(CHE)2023 IN IA(IBC)/1425(CHE)2022 IN CP/216/2019] held that;
Without going into details, regarding the validity of the leasehold rights after the termination of lease, , it is sufficient to say that both the Corporate Debtor owning the building and the land i.e. the guarantor had mortgaged the properties in favour of the 4th Respondent, a secured financial creditor. The e-auction notice, clearly states that some properties of the guarantor are also jointly brought to sale by the secured creditor.
Blogger’s comments; The following questions needs to be answered;
Whether Liquidator can include the property of guarantor in the Liquidation Estate.
Whether Liquidator can deal/auction any property outside the Liquidation Estate.
Whether Liquidator has powers to take into possession any property under the provisions of SARFAESI.
Whether a bank/financial institution can appoint Liquidator as its authorised officer to deal with the property (secured asset) under the provisions of SARFAESI.
Whether a Liquidator can work as representative of a stakeholder during the liquidation process.
In joint reserve price /joint auction notice how the money will be distributed of the realisation post joint-auction.
Following are the provisions of the Code & regulations’
Quote.
# Section 36. Liquidation estate. -
(1) For the purposes of liquidation, the liquidator shall form an estate of the assets mentioned in sub-section (3), which will be called the liquidation estate in relation to the corporate debtor.
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(3) Subject to sub-section (4), the liquidation estate shall comprise all liquidation estate assets which shall include the following: -
(a) any assets over which the corporate debtor has ownership rights, including all rights and interests therein as evidenced in the balance sheet of the corporate debtor or an information utility or records in the registry or any depository recording securities of the corporate debtor or by any other means as may be specified by the Board, including shares held in any subsidiary of the corporate debtor;
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(4) The following shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation: -
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(c) personal assets of any shareholder or partner of a corporate debtor as the case may be provided such assets are not held on account of avoidance transactions that may be avoided under this Chapter;
Unquote,
As per the provisions of the Code, personal assets of any shareholder can not be the part of the “Liquidation Estate” and can not be used for recovery in the liquidation process under the Code. However, a bank (SFC) can deal/realise mortgaged properties, other than those owned by CD , held by the bank as collateral security, outside the liquidation process as per existent laws.
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Although, Liquidator, in his personal capacity, can accept assignment for disposal of properties mortgaged to the bank, (owned by shareholders) , as authorised agent/ representative of the bank, but the moment Liquidator, agrees to act as agent/representative of a stakeholder (bank), he renders himself ineligible to work as Liquidator & has to voluntarily vacate the office of Liquidator.
Quote;
Liquidation Regulations
# Regulation 3. Eligibility for appointment as liquidator.
(1) An insolvency professional shall be eligible to be appointed as a liquidator if he, and every partner or director of the insolvency professional entity of which he is a partner or director, is independent of the corporate debtor.
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(3) An insolvency professional shall not continue as a liquidator if the insolvency professional entity of which he is a director or partner, or any other partner or director of such insolvency professional entity represents any other stakeholder in the same liquidation process.
Unquote,
In my opinion, the best way forward for the bank, in the present situation, is to enforce its security interest for the property of CD (Factory plant & machinery) under section 52(1)(b) and realise the same, as permitted under section 52(4) read with Liquidation Regulation 37(7) in SARFAESI, along with the guarantor’s property (Land) mortgaged with the bank, under section 13(8) of SARFAESI. This way SFC will be able to maximise the value of assets (Land, building, plant & machinery), without violating the provisions of either the Code (IBC.2016) or SARFAESI.
Excerpts of the order;
This application has been filed under Section 60(5)of the Insolvency and Bankruptcy Code, 2016 (“IBC”) by the Applicant, M/s Ansio Industries private Limited ( erst-while Successful Resolution Applicant) seeking following reliefs:
a) To stay the operation of sale notice dated 16.09.2023 issued by Respondent No.2 during the pendency of present application;
b) To quash the sale notice dated 16.09.2023 issued by Respondent No.2
c) Grant such other incidental or consequential reliefs as may be deemed fit and proper by this Hon’ble Adjudicating Authority.
BRIEF FACTS:
# 2. It is stated that Corporate Insolvency Resolution Process of M/s. Sri Venkat Ram Spinners Private Limited (Corporate Debtor) was initiated on 09.08.2019. The Resolution Plan submitted by M/s. Ansio Industries Private Limited was approved with 100% vote in CoC [State Bank of India (75.11%) and Bank of Baroda (24.89%)] of the Corporate Debtor. The plan was approved by Adjudicating Authority on 17.02.2022 in IA 47/2021 in IBA/216/IB/CB/2019.
# 3. It is stated that the applicant, being the Successful Resolution Applicant, failed to pay the last Tranche amount of Rs. 1321.80 lakhs with interest on the due date i.e. 17th July 2022 (150 days from the date of Resolution Approval).
# 4. It is stated that in 6th Monitoring Committee held on 19th July 2022, the fact of breach of resolution plan terms and future course of action were discussed. It is stated that Applicant had filed IA Nos 756 of 2022 and 1047 of 2022 in NCLT seeking additional time for payment of final tranche and for directing the 3rd and 4th respondent and not to take any coercive action for non-payment.
# 5. It is stated that in the Monitoring Committee, the financial creditors after discussing in detail, decided that there is no provision in the IBC which empowers the Monitoring Committee to extend the time line in Resolution Plan payout and recommended for the liquidation. It is stated that the Adjudicating Authority allowed the liquidation process of the Corporate Debtor on 24.01.2023 in IA 985 CHE 2022.
# 6. It is stated that on the oral direction of NCLAT (in CA AT INS 93 of 2023,) to seek SCC view on the approved plan, Liquidator placed an agenda about the grievance of Applicant in the 1st SCC meeting where SCC decided to go ahead with the liquidation process.
# 7. It is stated that the Applicant had filed CA AT INS Nos 47 and 93 of 2023 before NCLAT, challenging the Liquidation order in IA 985/2022 and the order on an application filed by the applicant requesting extension of time to pay the balance resolution plan amount passed by Adjudicating Authority. It is stated that these appeals are pending in NCLAT for disposal.
SUBMISSIONS BY APPLICANT:
8. It is stated that as per the resolution plan approved by NCLT in IA 47 of 2021 on 17.02.2022, the Resolution Applicant has paid/ not paid the following instalments:
# 9. It is stated that the Order dated 17.02.2022 in IA/47/2021 in IB/216/IB/CB/2019 approving the resolution plan was challenged by one of the Operational Creditor of the Corporate debtor , on the ground that it had a better plan, before Hon’ble NCLAT in Comp.App (AT)(CH)(INS) No. 157/2022. It is stated that Applicant had also filed an impleadment application bearing no IA 687 of 2022 in Comp.App (AT) (CH)(INS) No 157/2022. It is stated that the NCLAT disposed of both the Comp.App (AT)(CH)(INS) No. 157/2022 and IA 687 of 2022 in Comp.App (AT) (CH)(INS) No 157/2022 vide order dated 16.06.2023.
# 10. It is stated that the applicant had filed IA 756 CHE 2022 before Adjudicating Authority seeking appropriate directions for extension of timeline by 30 days for implementation of Resolution Plan from the date of disposal of CA (AT) (Ins) No.157 of 2022. It is stated that NCLT erroneously rejected the Application IA 756/2022, filed by the Applicant seeking extension of time.
# 11. It is stated that the applicant had challenged the orders of NCLT dated 24.01.2023 passed in IA 985(CHE) 2022 and IA 756 (CHE) 2022 before Hon’ble NCLAT vide Company Appeal (AT)(CH)(Ins) No.47 of 2023 and Company Appeal (AT)(CH) (Ins) No.93 of 2023 respectively and the same are pending before Hon’ble NCLAT.
# 12. It is stated that on 16.09.2023, 2nd Respondent i.e. Liquidator issued a ‘joint sale notice’ under IBC 2016 whereby , the property not only of the Corporate Debtor was sought to be sold, but also the property of one Mr. S. Srinivasan, who was erstwhile director/guarantor of the Corporate Debtor was sought to be sold. It is stated that similar joint notices were issued on 12.05.2023, 17.06.2023 and 17.08.2023 which applicant came to know only later.
# 13. It is stated that the joint sales notice published, included the sale notice issued under SARFAESI Act 2002. It is stated that such joint notice is not only foreign but also in contravention to the provision of IBC as it overlaps the jurisdiction of the Tribunal under IBC 2016 and SARFAESI Act 2002.
# 14. It is stated that the Information Memorandum contained the lease land of 3.64 acres belonging to Mr. Srinivasan which was surrendered on 28th January 2010 vide Doc No 535/2010. It is stated that as the lease deed stood canceled, the main asset of the Corporate Debtor where the factory was set up is not legally tenable. It is stated that the corporate debtor did not hold the primary building either free hold or lease hold.
# 15. It is stated that aggrieved by the illegality in conducting the CIRP and the liquidation process present application has been filed seeking quashing of joint sale notice dated 16.09.2023 issued by the 2nd respondent.
REPLIES OF RESPONDENTS 1, 3 AND 4:
# 16. Respondent 1 is the Corporate Debtor is under liquidation represented by the Liquidator, Respondent No 2. So, no separate reply has been filed by Respondent No. 1.
# 17. The 3rd and 4th respondents are secured financial creditors . They have not filed separate reply. It is stated that they adopt the reply filed by 2nd respondent.
REPLY BY RESPONDENT NO2- LIQUIDATOR:
# 18. It is stated that the application filed by the applicant is infructuous, erroneous and not maintainable in law or facts, as the applicant’s relief in relation to the e-auction sale notice dated 16.09.2023, issued by the 2nd respondent, during the pendency of the application has become infructuous by virtue of status-quo order passed by the Adjudicating Authority on the alleged sale notice dated 16.09.2023.
# 19. It is stated that the Factory Building of Corporate Debtor was built on the land belonging to Mr. S. Srinivasan, who had mortgaged the land to the Secured Creditor (Bank of Baroda). It is stated that to realise the maximum amount and in the interest of the stakeholders, the Factory Building of the CD along with land of Mr.Srinivsan, guarantor was put into auction jointly and the same was clearly mentioned in the e-auction notice which is as follows:
“Note:
1) Cash and cash equivalent shall not form part of Sale as a Going Concern, as the same will be utilized for distribution to the stakeholders as per Section 53 of IBC 2016.
2) Lot-1, Lot-2 & 6 include immovable property belonging to guarantor, being auctioned under SARFAESI by the concerned Security Creditor.”
# 20. It is stated that 2nd respondent issued Joint e-auction Sale notice under IBC 2016 to sell the assets of the Corporate Debtor along with the Secured Creditor Bank of Baroda (Respondent No 4) under SARFAESI to sell the assets of guarantor / mortgagor of the Corporate Debtor. This being the fact, the applicant has no locus / right to challenge the impugned Sale Notice.
# 21. It is stated that the 2nd respondent has acted upon the commercial decision of CoC. It is stated that the tribunal cannot invoke its inherent power to deal with the present application, unless there is irregularity in the sale notice issued by the 2nd respondent.
# 22. The 2nd Respondent has relied upon the cases for joint sale of land of guarantor and building of Corporate Debtor as under:
i) NCLT Chennai order dated 06th December 2021 in Ms. Subramaniam Aneetha , Liquidator vs Karur Vysya Bank Ltd in IA 1089/2021 in CP IB 1263/2018. The relief sought was a) ‘To permit the applicant to bring all the assets of the Corporate Debtor and the assets held by Respondent, to auction by way of single joint auction and consequently permit the applicant to issue sale certificate in favour of the highest bidder;’ The Adjudicating Authority ordered as under:
’15. In so far as prayer (a) is concerned , in view of the reasons stated supra, this Tribunal hereby permits the Liquidator to proceed with a single joint auction of the land, building, plant and machinery along with trademark belonging to the Corporate Debtor and the Promoter.’
ii) Hon’ble NCLAT order dated 13.05.2022 in Ayan Mallick Vs Pratim Bayal, Liquidator & Ors in CA(AT)(INS) No 456 of 2022 has observed as under:
5. We have considered submissions of learned counsel for the parties and perused the record. When the Adjudicating Authority is satisfied that joint sale shall bring maximization of assets of the Corporate Debtor and the possession of the properties of the Guarantors have already been taken under SARFAESI and both land and factory need to be sold together to maximize the value of the assets, we fail to see that how the Appellant shall be prejudiced in any manner. We do not find any error in the order of the Adjudicating Authority rejecting the I.A. We dismiss the Appeal. We, however, observe that it shall be open to the Appellant to take such remedy under SARFAESI with regard to auction in accordance with law.
REJOINDER BY APPLICANT
# 23. It is stated that the 2nd respondent has failed to outline the section under which joint sale is being carried, when as per Section 36 of IBC, asset held in trust by third party is to be excluded. Only assets of Corporate Debtor forms liquidation asset and any other property cannot be the part of liquidation estate.
# 24. It is stated that the land in question was leased to the Corporate Debtor vide lease deed dated 02.07.1997 by Mr. NKP. Jaganatharaja and Mr. Srinivasa Raja, jointly. The said lease was cancelled vide cancellation deed dated 28.01.2010. It is stated that the said property has been shown as leased property to the Corporate Debtor in the Information Memorandum prepared by the 2nd respondent.
# 25. It is stated that Mr. NKP. Jaganatharaja transferred his share of land to his sister Mrs. Krishnammal vide Deed of Settlement dated 28.01.2010. It is stated that, thereafter, the land in question was transferred by Mrs. Krishnammal to Mr. Srinivasaraj vide Settlement deed dated 27.07.2010.
# 26. It is stated that the land in question was shown as leased land of the Corporate Debtor whereon the factory was set up. However, with the cancellation of lease deed, which was not disclosed in Information Memorandum, the factory of the Corporate Debtor is not under the operation and legal viability of the Corporate Debtor.
# 27. It is stated that the liquidator has acted without jurisdiction and no permission or direction has been sought from the Tribunal and 2nd respondent could not on his own assume power which has not been conferred by the Regulation.
# 28. It is stated that following questions of law have been raised in the current application:
a) Whether a resolution professional can carry out the liquidation process of the Corporate Debtor in contravention to the explicit provision of IBC 2016?
b) Whether a joint sale notice of the assets of the Corporate Debtor and a third person can be issued by the Resolution Professional when no such stipulation is provided in the Code?
c) Whether the joint sale be allowed when 2nd respondent has failed to produce any decision / order of COC or the order of the tribunal ratifying such joint sale?
d) Whether the illegal action by the Resolution Professional can be shielded behind the plea of commercial wisdom of the Committee of Creditors?
ANALYSIS AND FINDINGS:
# 29. Heard the counsels of the applicant and respondents.
# 30. The lease deed (Doc No 1848/1997) dated 02nd July 1997 was executed between Mr. NKP Jaganatharaja and Mr. Srinivasaraja , jointly as lessors and M/s. Sri Venkatram Spinners Private Limited ( Lessee), for a period of 90 years , measuring 3 acres 64 cents of land in 5 parcels. The lease Cancellation Deed (Doc No 535/2010) dated 28th January 2010 was also executed between Mr. NKP Jaganatharaja and Mr. Srinivasaraja , jointly as lessors and M/s. Sri Venkatram Spinners Private Limited (Lessee) cancelling the lease deed executed on 02nd July 1997. After the cancellation of lease, Mr. NKP Jaganatharaja through settlement deed (Doc No 536/2010) dated 28th January 2010 transferred his share in those assets to Mrs. Krishnammal and vide DOC No 6800/2010 dated 27th Sep 2010 Mrs. Krishnammal transferred to Mr. Srinivasaraja.
# 31. We find that Mr. Srinivasaraja is now holding the entire assets, earlier leased to M/s.Venkatram Spinners Private Limited, Corporate Debtor. It is found from page 29 of the application, that the loan documents were executed along with securities and guarantees on 22.03.2016, much later than 27th September 2010, when Mr.Srinivasaraja got land from Mrs. Krishnammal.
# 32. We find that the questions of law raised by the applicant in the rejoinder as mentioned in para 27 above, relate to actions of the Resolution Professional and Information Memorandum during CIRP period which has nothing to do with the current application, where the Corporate Debtor is in liquidation . Further, applicant was declared as Successful Resolution Applicant and his resolution plan has been approved. Hence, he has no grounds to raise these issues relating to CIRP now in the present case during liquidation.
CONCLUSION:
# 33. Based on the averments made by all the parties, it is observed as under:
i) Applicant is the erstwhile successful Resolution Applicant.
ii) The resolution plan could not be implemented due to non-payment of resolution amount instalment as per the schedule in the approved plan.
iii) Liquidation was ordered by the Tribunal on 24.01.2023 vide IA 985 CHE 2022.
iv) IA 756 CHE 2022 filed by applicant, before the Adjudicating Authority seeking appropriate directions for extension of timeline by 30 days for implementation of Resolution Plan was dismissed by Adjudicating Authority on 24.01.2023.
v) The applicant has filed appeal in Hon’ble NCLAT against the above orders.
vi) No stay or injunction has been given by NCLAT in any of these appeals.
vii) Shri.Srinivasraj the guarantor, the owner of the property, proposed to be jointly sold, has not raised any objection, so far. The applicant being the third party has no locus.
viii) Without going into details, regarding the validity of the leasehold rights after the termination of lease, , it is sufficient to say that both the Corporate Debtor owning the building and the land i.e. the guarantor had mortgaged the properties in favour of the 4th Respondent, a secured financial creditor. The e-auction notice, clearly states that some properties of the guarantor are also jointly brought to sale by the secured creditor.
ix) In Ayan Mallick Vs. Pratim Bayal, Liquidator & Ors. [Company Appeal (AT) (Insolvency) No. 456 of 2022] Hon’ble NCLAT has allowed the joint sale of properties of Corporate Debtor and guarantors. There are catena of judgements supporting the joint sales of the properties.
# 34. In view of the above facts, we do not find any merit in the application. Hence, the reliefs seeking a)To stay the operation of sale notice dated 16.09.2023 issued by Respondent No.2 during the pendency of present application; b) To quash the sale notice dated 16.09.2023 issued by Respondent No.2 are dismissed with no order as to cost.
# 35. IA/IBC/1800/CHE/2023 is disposed of.
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