NCLAT (08.12.2021) in Prakash Chandra Kapoor Ors. Vs. Vijay Kumar V. Iyer, Liquidator of Bharati Defence and Infrastructure Limited & Ors.[Company Appeal (AT) (Insolvency) No. 140 of 2021] held that;
The aforenoted timelines under Regulation 47 for Liquidation Process, are directory. Procedural law should not be construed as an obstruction but as an aid to Justice. Extension of time under Liquidation may be allowed only on the satisfaction that there exists exceptional circumstances.
A procedural law should not ordinarily be construed as mandatory; the procedural law is always subservient to and is in aid to justice. Any interpretation which eludes or frustrates the recipient of justice is not to be followed.
Excerpts of the Order;
# 2. By the Impugned Order, the Learned Adjudicating Authority has allowed I.A. No. 3702 of 2019 filed by the Liquidator of Bharati Defence Infrastructure, (the ‘Corporate Debtor’) seeking directions in the Liquidation Process and Sale of the assets of the ‘Corporate Debtor’ and observed as follows:-
ORDER The IA be and the same is allowed. The Applicant is directed to take further appropriate steps for liquidation of the CD, including sale of assets, collectively or in parcels or individually, as per the provisions of the Code and Rules made thereunder. He is directed to complete the process at the earliest.” (Emphasis Supplied)
Assessment:
# 11. This Tribunal in Company Appeal (AT) (Insolvency) No. 195 of 2019 arising out of the Order dated 14.01.2019 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai in CP 292/I&B/NCLT/MAH/2017) while confirming the Order impugned therein, gave a direction to the Liquidator ‘to act in accordance with observations and decision of this Appellate Tribunal. The work should be taken from existing employees and workmen to ensure that the Company remains in as a going concern’.
# 12. The Adjudicating Authority vide Order dated 14.01.2019 ordered for Liquidation under Section 33 read with Regulation 32(b) & (e) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, as more than 270 days has passed, the Adjudicating Authority had passed the Order of Liquidation and this Tribunal found no ground to interfere with that Order and directed the Liquidator to ensure that the Company remains a ‘going concern’ and follow the directions of this Tribunal in ‘Y Shivram’ Vs. ‘S. Dhanpal & Ors.’ in Company Appeal (AT) (Insolvency) No. 224 of 2018.
# 14. This Tribunal while confirming the Order of the Adjudicating Authority, which has approved Liquidation, keeping in view the observations made in ‘Y Shivram’ (Supra) and ‘Meghal Homes Pvt. Ltd.’ Vs. ‘Shree Niwas Girni K.K. Samiti & Ors.’, (2007) 7 SCC 753 observed as follows:-
“18. During proceeding under Section 230, if any, objection is raised, it is open to the Adjudicating Authority (National Company Law Tribunal) which has power to pass order under Section 230 to overrule the objections, if the arrangement and scheme is beneficial for revival of the ‘Corporate Debtor’ (Company). While passing such order, the Adjudicating Authority is to play dual role, one as the Adjudicating Authority in the matter of liquidation and other as a Tribunal for passing order under Section 230 of the Companies Act, 2013. As the liquidation so taken up under the ‘I&B Code’, the arrangement of scheme should be in consonance with the statement and object of the ‘I&B Code’. Meaning thereby, the scheme must ensure maximisation of the assets of the ‘Corporate Debtor’ and balance the stakeholders such as, the ‘Financial Creditors’, ‘Operational Creditors’, ‘Secured Creditors’ and ‘Unsecured Creditors’ without any discrimination. Before approval of an arrangement or Scheme, the Adjudicating Authority (National Company Law Tribunal) should follow the same principle and should allow the ‘Liquidator’ to constitute a ‘Committee of Creditors’ for its opinion to find out whether the arrangement of Scheme is viable, feasible and having appropriate financial matrix. It will be open for the Adjudicating Authority as a Tribunal to approve the arrangement or Scheme in spite of some irrelevant objections as may be raised by one or other creditor or member keeping in mind the object of the Insolvency and Bankruptcy Code, 2016.
19. In view of the observations aforesaid, we hold that the liquidator is required to act in terms of the aforesaid directions of the Appellate Tribunal and take steps under Section 230 of the Companies Act. If the members or the ‘Corporate Debtor’ or the ‘creditors’ or a class of creditors like ‘Financial Creditor’ or ‘Operational Creditor’ approach the company through the liquidator for compromise or arrangement by making proposal of payment to all the creditor(s), the Liquidator on behalf of the company will move an application under Section 230 of the Companies Act, 2013 before the Adjudicating Authority i.e. National Company Law Tribunal, Chennai Bench, in terms of the observations as made in above. On failure, as observed above, steps should be taken for outright sale of the ‘Corporate Debtor’ so as to enable the employees to continue.
20. Both the appeals are disposed of with aforesaid observations and directions. No cost.” (Emphasis Supplied)
# 15. At the outset, we address to the issue raised by the Appellants/Erstwhile Directors of the ‘Corporate Debtor’, the Workmen and M/s. PGI Global that the Liquidator had not made the publication of advertisement calling for EOI internationally and hence marred prospective buyers across the globe from participating, and has acted arbitrarily without adhering to the directions of this Tribunal.
# 16. For better understanding of the case on hand, the chronological sequence of events is detailed as hereunder:- . . . . . It is not in dispute that the Liquidator has issued an invitation to each of the persons that has evinced an interest in submitting a ‘Scheme’ to participate in the bidding process. Pursuant to the Public Announcement dated 23.02.2021, the Liquidator addressed an email on 24.02.2021 informing the Appellant about the e-auction process of the ‘Corporate Debtor’ as a ‘going concern’.
# 17. The Liquidator has filed in his reply the emails sent to each of the persons who have evinced an interest in submitting a scheme to participate in the bidding process. Keeping in view all the aforenoted reasons we are of the considered opinion that the contention of the Appellants herein that the Liquidator did not give sufficient publicity internationally and therefore Prospective Global Buyers could not participate in the bidding process, is untenable. At the cost of repetition, even the website of the ‘Corporate Debtor’ had all the details of the bidding process including the extension of timelines from time to time.
# 18. Further, the aforenoted sequence of events clearly shows that all requisites steps were followed in terms of the Order of this Tribunal dated 14.05.2019 but no compliant scheme under Section 230 of the Companies Act, 2013, was received within the time frame of 6 months as stipulated under the Liquidation Regulations. Therefore, the contention of the Appellant/Directors that the Liquidator did not take any steps as directed by this Tribunal, is unsustainable. The Public Announcement issued post 18.12.2020 establishes that the Liquidator had continued to provide auction for sale of the ‘Corporate Debtor’ as a ‘going concern’.
# 22. For all the aforenoted reasons we do not find any deficiency in the performance of functions of the Liquidator who has acted in accordance with the directions given by this Tribunal and as per the relevant regulations.
‘Going Concern’ under Liquidation:
# 23. A key benefit of selling the ‘Corporate Debtor’, as a ‘going concern’ in Liquidation as against other manners of sale is, it can preserve employment while maximising the result of stakeholders. We find merit in admitting sale of the ‘Corporate Debtor’ as a ‘going concern’ in this Liquidation Process.
# 24. The term ‘Going Concern’ is well understood in legal parlance. The jurisprudence in this regard is fairly well developed out of the Erstwhile Liquidation regime under the Companies Act, 1956. The Insolvency Law Committee in its Report dated 26.03.2016 noted that:-
“The phrase as a going concern implies that the CD would be functional as it would have been prior to initiation of CIRP, other than the restrictions put by the code. It may not, therefore, be defined. However, it may be explained that going concern means all such assets and the liabilities, which constitute an integral business or the CD, that must be transferred together, and the consideration must be for the business or the CD.” (Emphasis Supplied)
# 33. The aforenoted timelines under Regulation 47 for Liquidation Process, are directory. Procedural law should not be construed as an obstruction but as an aid to Justice. Extension of time under Liquidation may be allowed only on the satisfaction that there exists exceptional circumstances. The Hon’ble Supreme Court in ‘Smt. Rani Kusum’ Vs. ‘Smt. Kanchan Devi’, reported in (2005) 6 SCC 705 concurring with the ratio laid down in ‘Kailash’ Vs. ‘Nanhku and Ors.’ (2005) 4 SCC 480 held as follows:
“10. All the rules of procedure are the handmaid of justice. The language employed by the draftsman of processual law may be liberal or stringent, but the fact remains that the object of prescribing procedure is to advance the cause of justice. In an adversarial system, no party should ordinarily be denied the opportunity of participating in the process of justice dispensation. Unless compelled by express and specific language of the statute, the provisions of CPC or any other procedural enactment ought not to be construed in a manner which would leave the court helpless to meet extraordinary situations in the ends of justice. **
**12. The processual law so dominates in certain systems as to overpower substantive rights and substantial justice. The humanist rule that procedure should be the handmaid, not the mistress, of legal justice compels consideration of vesting a residuary power in the judges to act ex debito justitiae where the tragic sequel otherwise would be wholly inequitable. Justice is the goal of jurisprudence, processual, as much as substantive. (See Sushil Kumar Sen v. State of Bihar [(1975) 1 SCC 774])
13. ** A procedural law should not ordinarily be construed as mandatory; the procedural law is always subservient to and is in aid to justice. Any interpretation which eludes or frustrates the recipient of justice is not to be followed. (See Shreenath v. Rajesh [(1998) 4 SCC 543: AIR 1998 SC 1827])”
# 34. Section 32(A)(4) should be read together with Section 35(1)(e) and Regulation 47. What is mandated in the Code in Section 35(1)(e) is to ‘carry on business’ for its ‘beneficial Liquidation’. The Regulation therefore cannot override the objective of ‘beneficial liquidation’ provided for in Section 35(1)(e) of the Code.
# 35. We are of the considered view that to achieve ‘Beneficial Liquidation’ provided for under Section 35(1)(e) and maximisation of the value of assets under Section 53, and having regard to all reasons given below, we find it just & expedient to exercise our inherent powers under Rule 11 of the NCLAT Rules, 2016 to extend the period by six weeks to enable the Liquidator to attempt the Sale as a ‘Going Concern’ at an appreciable value.
Two years have lapsed since the Liquidation Order was passed by the Adjudicating Authority, which Order has been confirmed by this Tribunal.
Several extensions were given to try for a ‘Scheme’ under Section 230 of the Companies Act, 2013, but despite several efforts, the same did not materialize.
The Counsel for the Liquidator submitted that he is still on Stage II of Regulation 32-A and seeks to sell the Company as a ‘going concern’ in compliance of the Orders of this Tribunal.
M/s. Edelweiss/‘Financial Creditor’ constituting 83% of the CoC seek that the proposal given by M/s. Pyrotech be placed before the Stakeholders Committee for deliberations and further negotiations.
Section 35(1)(e) of the code provides for carrying on the business of the ‘Corporate Debtor’ for its ‘Beneficial Liquidation’ as the Liquidator considers necessary.
Regulation 47 deals with only model timelines which are directory and not mandatory.
Regulation.47-A specifies that the time lost during lockdown may not be included in this period.
Keeping in view that the last two Meetings took place as recently as on 12.11.2021 and on 25.11.2021 and the auction on 24.11.2021, we are of the considered view that a total period of six weeks finally be given to the Liquidator to put forward the proposals, as per Regulation 31-A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, provided the deposit of EMD as ordered by the Adjudicating Authority is complied with, within a period of two weeks from the date of this Order.
It goes without saying that the ratio of the Hon’ble Supreme Court in ‘Arun Kumar Jagatramka’ Vs. ‘Jindal Steel and Power Ltd. & Anr.’ reported in Civil Appeal No. 9664 of 2019 with respect to eligibility of a person under Section 29(A) would be adhered to.
After the deposit of the EMD amounts, a further period of four weeks time is being given to the Liquidator for Sale of the Company as a ‘Going Concern’ failing which, needless to add, the Liquidator shall proceed in accordance with law. We have not expressed any view on the merits of the Proposals.
# 36. The Appeals & the IAs are disposed of with the aforenoted directions. To reiterate, we observe that the Liquidator has adhered to the directions of the Tribunal and has acted as per the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. This extension of six weeks is being granted to achieve the objective of ‘Beneficial Liquidation’ and attempt to keep the business of the Company as a ‘Going Concern’.
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