Also that the explanation to Section 33(2) of the Code makes it candidly clear that the ‘Committee of Creditors’ is enjoined to take a final call, to liquidate the Corporate Debtor at any time after its constitution and prior to the affirmation of Resolution Plan, gives a vital position, to the Committee of Creditors, in taking a ‘business decision’ in exercise of their commercial wisdom.
The decision of the ‘Committee of Creditors’ recommending Liquidation of the Corporate Debtor after proper evaluation of the Assets and Liabilities of the Corporate Debtor, with no Resolution Plan forthcoming, would be a ‘business decision’ which come within the purview of the commercial wisdom of Committee of Creditors and was not amenable to Judicial Review.
The I&B Code, 2016 does not any way spell out ‘any such opportunity’ being provided to the Appellants (Promoters/Shareholders), at the time of passing of the Liquidation order and they don’t have any semblance of any ‘legal right’ or ‘vested right’ to oppose the ‘Liquidation order’ before the ‘Adjudicating Authority/Tribunal’ in the considered opinion of this Tribunal
Excerpts of the Order;
The Appellants have preferred the instant Company Appeal (AT)(CH)(Ins.) No. 464/2023 being aggrieved in respect of the impugned order dated 24.11.2023 in IA (IBC)/462/DOB/2023 in CP(IBC)/46/KOB/2022 passed by the Adjudicating Authority/NCLT, Kochi Bench.
# 2. Earlier, while passing the impugned order in IA (IBC)/462/DOB/2023 in CP(IBC)/46/KOB/2022 the Adjudicating Authority/Kochi Bank among other things at paragraph no. 3 to 5:-
“3. The Hon’ble Supreme Court in the matter of K.Shashidhar Versus Indian Overseas Bank & Ors. In Civil Appeal No. 10673 of 2018 has held that the commercial decision of CoC is non-justifiable. In this case, it is seen that CoC with a 100% majority has passed the resolution seeking liquidation of the Corporate Debtor.
4. Moreover, Section 33(1)(a) of the Insolvency and Bankruptcy Code, 2016 mandates that the Adjudicating Authority shall pass an order of liquidation where no resolution plan is received before the expiry of the CIRP. Sub-Section (2) thereof requires the Adjudicating Authority to pass the liquidation order where the Resolution Professional intimates to the Adjudicating Authority the decision of the Committee of Creditors approved by not less than 66% of the voting share to liquidate the Corporate Debtor.
5. We have heard the Learned Counsel for the applicant and perused the materials available on record. On 21/10/2023, the 7th meeting of the CoC in its commercial wisdom has decided unanimously to liquidate the Corporate Debtor by 100% voting as given under Section 33(2) of the IBC, 2016, we are of the opinion that the decision of the CoC should not be interfered with.”
and resultantly, ordered for the ‘Liquidation of M/s. Green Gateway Leisure Limited’/’Corporate Debtor’.
The Appellants’ Submissions
# 3. The Learned Practicing Company Secretary for the Appellants contends that initially, the Corporate Debtor, was brought under the Corporate Insolvency Resolution Process on 23/1/23 and on 25.10.23, the 270 days got expired.
# 4. It is represented on behalf of the Appellants, that since the Company, promoted by them, in which they had sunk Rs. 215 crores, which was ordered to be ‘Liquidated’, the instant ‘Appeal’, was preferred by them as per Section 61(4) of the I&B Code, 2016.
# 5. According to the Appellants the ‘Approval of the Minutes of the ‘7th CoC meeting’ will be sufficient to exhibit that in the nine months, ‘CIRP’ nothing was done, except paying the ‘CIRP costs’, which includes Rs. 2 lakhs per month to the ‘Resolution Professional’.
# 6. It is the version of the Appellants, that following are the ‘material irregularities’ of the ‘CIRP process’, of the Corporate Debtor, which proceeds as under:-
“i. No valuation was done.
ii. No expression of interest was issued.
iii. There was only a forensic audit which also did not show commission of any fraud on the part of the promoters/suspended Directors.
iv. No assessment of the project was done engaging a sector expert.”
# 7. The Learned Practicing Company Secretary for the Appellants submits that if a project had consumed Rs. 215 crores and ‘Physical Assets’ viz. cottages were also built as part of the phase I project, the ‘Resolution Professional’ and the ‘Committee of Creditors’ could not have unilaterally determined, without inviting ‘Business Man’, to evaluate and present their ‘Resolution Plan’.
# 8. According to the Appellants, the only argument of the Committee of Creditors, as represented by the ‘Resolution Professional’ at the ‘Committee of Creditors’ meeting was the ‘termination of Lease’, which according to them, had resulted in making it impossible, or impracticable, to expect anyone, to submit any Resolution Plan. Furthermore, it defeats ‘common sense’ when such an opinion was formed by the ‘Committee of Creditors’, just because of termination of ‘Lease’, by Bekal/Govt. of Kerala Undertaking.
# 9. Indeed, it is projected on the side of the Appellants, that nothing would have been lost, if such a ‘decision’ was backed by an ‘evaluation’ and ‘assessment’, after issuing an ‘Expression of Interest’. In fact, that exercise, would have cost less than the ‘fee paid’, to the ‘Resolution Professional’ and that would have really brought before the ‘Committee of Creditors’, on record, what is the ‘view of man in Business’?
# 10. On behalf of the Appellants it is pointed out that the view taken by the ‘Resolution Professional’ and the ‘Committee of Creditors’ are ‘premptive’, ‘arbitrary’, ‘casual’, and disregards the ‘value created’ and ‘value potential’ in store. Furthermore, the ‘Asset maximisation’, cannot be achieved by putting the ‘Corporate Debtor’ to ‘Liquidation’, according to the whims and fancies of the ‘Resolution Professional’ and the ‘Committee of Creditors’.
# 11. The Learned Practicing Company Secretary for the Appellants refers to the decision of the Hon’ble Supreme Court in K. Rajkumar v. Nagarajan and Ors., reported in 2022 4 Supreme Court cases at pg. 617 wherein at para 37 it is averred as under:-
# 12. According to the Appellants, when a decision of ‘Committee of Creditors’ is taken not to even issue an ‘Expression of Interest’, it is not an aspect of ‘commercial wisdom’. Further, conducting a ‘CIRP’, without carrying out the mandatory duties of a ‘Resolution Professional’ in evaluating the ‘status’ of the project, evaluation of the project, not challenging the termination of ‘Lease’, not meeting the ‘Government Higher Officials’ and not issuing ‘Expression of Interest’, will show according to the Appellants a ‘clear material irregularity’, rendering the entire purpose of the I&B Code, 2016 a ‘futile’, one.
# 13. The Learned Practicing Company Secretary appearing for the Appellants points out that the ‘Resolution Professional’ and the ‘Committee of Creditors’, was in complete ‘abdication of the duties’ and not adhering to the Regulation ‘40D of the CIRP Regulations’.
3 14. On behalf of the Appellants a reference is made to Section 40D of the CIRP Regulations, which runs as under:-
“40D : Decision for Liquidation
40D. (1) The committee while considering the liquidation of the corporate debtor may consider factors including but not limited to non-operational status for preceding three years, goods produced or service offered or technology employed begin obsolete, absence of any assets, lack of any intangible assets or factors which bring value as a going concern over and above the physical assets like brand value, intellectual property, accumulated losses, depreciation, investments that are yet to mature.
(2) Such consideration may be recorded and submitted in the application for liquidation submitted by the resolution professional to the Adjudicating Authority.”
# 15. It is projected on the side of the Appellants that the Corporate Debtor was ‘MSME’ and registered on 08.07.2020 itself, as per the ‘Registration Certificate’ and hence, the ‘Promoters’ are entitled to the benefit of Section 240A of the I&B Code, and are eligible to give the ‘Resolution Plan’. Also, that the ‘Promoters’ had requested to consider their interest in submitting a ‘Resolution Plan’.
# 16. The Learned Practicing Company Secretary appearing for the Appellants refers to the decision of the Hon’ble Supreme Court in Hari Babu Thota v. Shree Aashraya Infra-con Limited reported in 2023 SCC online SC 1642 wherein at paragraph 16 is observed as under:-
16. Under the heading “exemption of Micro, Small and Medium Enterprises from Section 29-A” the discussion begins. It is referred to the ILC report of March, 2018 and its finding that Micro, Small and Medium Enterprises form the foundation of the economy and are key drivers of employment, production, economic growth, entrepreneurship, and financial inclusion. The ILC report 2018 exempted these industries from Section 29-A (c) and (h) and the rationale for the same was contained in para 27.4 of the report which reads as under:
27.4 Regarding the first issue, the Code is clear that default of INR one lakh or above triggers the right of a financial creditor or an operational creditor to file for insolvency. Thus, the financial creditor or operational creditors of MSMEs may take it to insolvency under the Code. However, given that MSMEs are the bedrock of the Indian economy, and the intent is not to push them into liquidation and affect the livelihood of employees and workers of MSMEs, the Committee sought it fit to explicitly grant exemptions to corporate debtors which are MSMEs by permitting a promoter who is not a wilful defaulter, to bid for the MSME in insolvency. The rationale for this relaxation is that a business of an MSME attracts interest primarily from a promoter of an MSME and may not be of interest to other resolution applicants.
17. According to the Appellant, the above, makes it clear as opined in the said judgments also, that excluding such industries from disqualification under 29A (c) and (h) is because qua such industries other resolution applicants may not be forthcoming which thus would inevitably lead not to resolution but to liquidation.”
# 17. The Learned Practicing Company Secretary appearing for the Appellants points out that ‘rejection of the interest’, expressed by the promoter entity, to submit a ‘Resolution Plan’, the ‘Resolution Professional’ and the ‘Committee of Creditors’ had acted against the interests of ‘MSME’ and further that the ‘suspended Directors’, had advised the ‘Committee of Creditors’, to apply for extending the ‘Corporate Insolvency Resolution Process’ and issue ‘Form G’. Besides these, such a ‘plan’ would have automatically resulted in rendering the Section 7 application of the I&B Code, 2016 against the ‘Promoter Entity’ infructuous. Also that ‘course of action’, would have brought to the table before ‘CoC’ any other ‘Business Firm’ operating, in the ‘Travel’ and ‘Tourism Sector’.
# 18. On behalf of the Appellants, a reliance is placed upon the judgement of this Tribunal in Ramneek Goel V. sunil Bajaj and others reported in 2023 SCC online, NCLAT 514 wherein at paragraph 13 it is observed as under:-
“The objective of the IBC is to maximize the value of the Corporate Debtor and decision taken by the CoC to re-publish Form-G cannot be faulted in the facts of the present case. We may in this regard refer to judgment of this Tribunal in Vistra ITCL (India) Ltd. V. torrent Investments Pvt. Ltd. 2023 SCC OnLine NCLAT 100 wherein this Tribunal while deciding the jurisdiction of CoC to re-issue RFRP held following in paragraph 60:
60. In view of the foregoing discussions, we, thus conclude that even after completion of Challenge Mechanism under Regulation 39(1A)(b), the CoC retain its jurisdiction to negotiate with one or other Resolution Applicants, or other Resolution Applicants, or to annul the Resolution Process and embark on to re-issue RFRP. Regulation 39(1A) cannot be read as a fetter on the powers of the CoC to discuss and deliberate and take further steps of negotiations with the Resolution Applicants, which resolutions are received after completion of challenge mechanism.”
# 19. It is represented on behalf of the Appellants that in the 4th ‘CoC’ meeting that took place on 11.7.2023 and the 7th CoC meeting held on 21.09.2023, the ‘Forensic Audit’ had not revealed the commission of any ‘Fraud’ on the part of the promoters and further Rs. 215 crores, was earlier invested in this project by the ‘promoters’.
# 20. According to the Appellants the ‘State Bank of India’ was settled and they withdrew the Section 7 ‘Application’ filed under the I&B Code, 2016. Also, that Dhanalaxmi Bank had approved the ‘One Time Settlement’ and further the Union Bank of India, is considering the ‘One Time Settlement’ and on 2.1.2024 Rs. 1,25,00,000/- was given to ‘Union Bank of India’.
# 21. In so far as the ‘Termination of the Lease’, it is pointed out that without any efforts, forgetting that Section 17 to 20 of the I&B Code, 2016, empowers the ‘Resolution Professional’ to initiate proceedings and protect / reclaim ‘Assets’ and properties of the Corporate Debtor, the ‘Resolution Professional’ and the Committee of Creditors took a conclusive decision that the ‘Resolution Plan’ was impracticable. That apart, even in Jet Airways case, the Resolution Plan was approved and the authorities were persuaded to consider parking slots and roots.
# 22. The Appellants’ stand is that the Respondent No. 2 to 4 are initiating proceedings for ‘Liquidation’, without taking any steps towards ‘Resolution of Insolvency’ for completing and reviving of the reserved project and order for the liquidation of the Corporate Debtor, does not serve the cause of anyone. In fact, ‘liquidation’ is the last resort. As a matter of fact, issuing an ‘Expression of Interest’ would have created an opportunity to any party including the Appellant No. 1 which to state what is the Resolution Plan and what value they are prepared to bring in.
# 23. The Learned Practicing Company Secretary appearing for the Appellants adverts to the decision of the Hon’ble Supreme Court in Kridhan Infrastructure Pvt. Ltd. (Now Appellants) known as Krish Steel & Trading Pvt. Ltd. V. Venkatesan Sankaranarayan & Ors., 2021 SCC Online SC 208 wherein at paragraph 9 it is observed and held as under:-
“9. Liquidation of the Corporate Debtor should a matter of last resort. The IBC recognizes a wider public interest in resolving corporate insolvencies and its object is not the mere recovery of monies due and outstanding.”
# 24. According to the Appellant, only men in ‘Business’, who come to know about the existence of such a beautiful project would be able to assess and appreciate the huge potential and bring value on the ‘Table’. Furthermore, the contention that ‘since lease’ was terminated, the Resolution Plan was impracticable, does not hold water because of the reason that this decision cannot be taken by the Committee of Creditors, without applying thoughts and inviting Bids by the Expression of Interest, atleast on “As is where is Basis”.
# 25. The Learned Practicing Company Secretary appearing for the Appellants points out the judgement of this Tribunal in TA(AT)No. 8 of 2021 in Company Appeal (AT)(CH)(Ins.) No. 925 of 2020 in Shyson Thomas V. Mr. Madhugiri Venkatarayappa Sudarshan and Anr. Wherein at paragraph 48 it is observed as under:-
“Para 48 – One cannot remain oblivious of the candid fact that the I&B Code, 2016, does not envisage that the ‘Adjudicating Authority’/ Tribunal, ought to provide a ‘Hearing to the Promoter’ / ‘Corporate Debtor’ of the Company, at the time of passing of an ‘Order’ for Liquidation”.
# 26. The Learned Practicing Company Secretary appearing for the Appellants comes out with an argument that when Resolution Plans are under consideration, whether to accept a Resolution Plan or not is a business decision, falling within the exclusive ambit of the Committee of Creditors and it is only when no Resolution Plan is found to be worthy of an approval, the Committee of Creditors may approve the liquidation. Indeed, the failure to issue the Expression of Interest is a step before the exercise of commercial wisdom, to approve or reject the Resolution Plans in the table.
# 27. The Learned Practicing Company Secretary appearing for the Appellants while summing up points out that the whole process was vitiated, compromise and ‘material irregularity’ and is writ large as per the records and hence, prays for the instant Appeal being allowed by this Tribunal, in the interest of justice.
Pleas of R3 and R4
# 28. According to the Learned Sr. Counsel for the Respondent No. 3 and 4, the Section 7 application in CP(IBC)/46/KOB/2022 on the file of Adjudicating Authority/Kochi Bench was filed by the Union Bank of India / Petitioner / Financial Creditor, against the Corporate Debtor / Green Gateway Leisure Limited and the petition came to be admitted by means of an order dated 25.1.2023 and that the Corporate Insolvency Resolution Process began against the Corporate Debtor, on that day. As a matter of fact, the 2nd Respondent was appointed as an Interim Resolution Professional.
# 29. The Learned Sr. Counsel for R3 and R4 submits that consequent to the taking over charge by the Resolution Professional, he considered the claims received from plurality of creditors and admitted the claim of this Respondent, to an extent of Rs. 40,24,48,229/- and in the course of Committee of Creditors meeting, it came to light that an entity known as ‘Beckal Resort Development Corporation Ltd.’ (BRDCL) had informed the Committee of Creditors of there being a Registered Lease with the Corporate Debtor.
30. It is pointed out on behalf of R3 and R4 that the Lease provided by the ‘Beckal Resort Development Corporation Ltd.’ (BRDCL) to the Corporate Debtor, was cancelled w.e.f. 30.03.2022. Also in the said Committee of Creditors meeting, it was deliberated that if there was a possibility of renewing the Lease, which was cancelled but the same was not accepted by ‘BRDCL’.
# 31. Moreover, the attention of CoC was brought to the effect that the Asset leased out by ‘BRDCL’ to the Corporate Debtor for a period of 30 years, was the only Asset available for Resolution and taking into consideration even that Asset being lost, due to its cancellation by ‘BRDCL’, that the ‘Corporate Debtor’ would be required to be driven into Liquidation. In reality, that the ‘Lease’, to an in favour of the Corporate Debtor was cancelled 30.03.2022, much earlier to CIRP date on 25.01.2023.
# 32. The Learned Sr. Counsel for R3 and R4 points out that if the seventh Committee of Creditors’ meeting that took place on 21.10.2023, it was recorded as under:-
“The resolution Professional informed to the meeting that he has contact with the directors of the BRDCL – the lessor of the land regarding the renewal of the lease agreement. However the Beckal Tourism, who has been owner of the lease property, has rejected the proposal of renewal by the company…
RP reiterated that no major changes in CIRP process, unless express of interest from the parent company and still no fresh communication of the Beckal Tourism has been received regarding the continuation of running with the lease property, which was the main and only asset of the company.”
# 33. According to the Respondent No. 3 and 4 in the 7th Committee of Creditors meeting it was unanimously resolved by the ‘Committee of Creditors’ to initiate the Liquidation Proceedings in respect of the Corporate Debtor and further that Mr. CA Rajmohan was resolved to be appointed as the Liquidator in the said meeting.
# 34. On behalf of R3 and R4, it is brought to the notice of this Tribunal that (IBC)/462/DOB/2023 in CP(IBC)/46/KOB/2022 was filed by the Resolution Professional before the Adjudicating Authority/Tribunal for an initiation of Liquidation against the Corporate Debtor. Moreover, the ‘Corporate Debtor’ had no Assets and the Committee of Creditors had unanimously resolved, while exercising its commercial wisdom, to liquidate the Corporate Debtor, and the ‘Liquidation of the Corporate Debtor’ was ordered by the Adjudicating Authority/Tribunal leading to the appointment of the Liquidator/1st Respondent.
# 35. Advancing his argument, the Learned Sr. Counsel for R3 and R4 points out that the instant Appeal is filed by M/s Air Travel Enterprises ltd. & Mr. E.M. Najeeb Ellias Mohammad and that they are the promoters/shareholders of the Corporate Debtor. Hence, they have no Locus Standi, to even oppose or be provided with an opportunity to make their representation’ at the time of passing an order for the Liquidation.
# 36. Continuing further, the Appellants/Shareholders/Promoters of the Corporate Debtor do not have any legal or vested right to object the ‘Order of Liquidation’ before the Adjudicating Authority/Tribunal. Besides this, the I&B Code does not prescribe that an ‘opportunity’ being furnished to the Appellants/Promoters/Shareholders. Hence, a plea is taken on behalf of the R3 and R4 that the Appellants are not the Aggrieved persons, coming within the purview of Section 61 of the I&B Code, 2016.
# 37. The Learned Counsel for the R3 and R4 adverts to the judgement of this Tribunal in TA(AT)No. 8 of 2021 in Company Appeal (AT)(CH)(Ins.) No. 925 of 2020 in Shyson Thomas V. Mr. Madhugiri Venkatarayappa Sudarshan and Anr. Wherein at paragraph 48 it is observed as under:-
“Para 48 – One cannot remain oblivious of the candid fact that the I&B Code, 2016, does not envisage that the ‘Adjudicating Authority’/ Tribunal, ought to provide a ‘Hearing to the Promoter’ / ‘Corporate Debtor’ of the Company, at the time of passing of an ‘Order’ for Liquidation”.
# 38. The Learned Counsel for the Respondents No. 3 and 4 points out that the 1st Appellant was ordered into CIRP in main CP(IBC)/33/KOB/2023 vide Order dated 22.12.2023 by Adjudicating Authority/Tribunal, based on application filed under Section 7 of the I&B Code. Hence, the Appellants cannot prefer the instant Appeal which is not maintainable in the eye of Law.
# 39. According to the Respondent No. 3 and 4 the Corporate Debtor does not possess any assets for an effective resolution and the only asset, which was on lease for 30 years period provided by the BRDCL, was cancelled on 30.03.2022, before the date of CIRP against the Corporate Debtor, initiated on 25.01.2023.
# 40. The Learned Counsel for R3, R4 points out that 1st Appellant, who has a 44% stake in the Corporate Debtor had expressed interest for submission of a Resolution Plan but since Section 7 petition was pending against the first Appellant and also taking note of the fact that the Dhanalaxmi Bank had classified the 1st Appellant as an NPA in its Books of Accounts, the requirements of Section 29A of the I&B Code were not complied with.
# 41. Moreover, there were genuine endeavours to revive the Corporate Debtor by seeking to assail the termination of the Lease Agreement but the representatives, of the Corporate Debtor who have present during the meeting had stated that they had not challenged the termination of the Lease Agreement till the commencement of Corporate Insolvency Resolution Process. Also, that the Resolution Professional had reiterated that he was unable to take any action as the termination of the Lease Agreement, which was more than 10 months before the CIRP and also that BRDCL’ had informed of not changing its decision, as per letter dated 15.03.2023.
# 42. It is represented on behalf of R3 and R4 that there were no assets and no option was there for revival of the Corporate Debtor a unanimous decision 100% was taken by the Committee of Creditors, in its commercial wisdom, to liquidate the Corporate Debtor. Therefore, the stand of the Appellants that there were material irregularities in CIRP process and there was a non-compliance of the provisions of the Code and Regulations especially Regulations 40D of CIRP Regulations are unworthy of acceptance by this Tribunal.
# 43. The Learned Counsel for R3, R4 relies on the decision of the Hon’ble Supreme Court in Kalpraj Dharamshi V. Kotak Investment Advices Limited (2021) 10 SCC 401 wherein at para 156 it is observed as under: –
“…..in view of the paramount importance given to the decision of CoC, which is to be taken on the basis of “commercial wisdom”, NCLAT was not correct in law in interfering with the commercial decision taken by CoC by a thumping majority of 84.36%.”
# 44. The Learned Counsel for R3, R4 cites the decision of Hon’ble Supreme Court in Pratap Technocrats Private Limited V. Monitoring Committee of Reliance Infratel Limited, (2021) 10 SCC 623 wherein at paragraph 44 and 47 it is observed as under: –
“44. These decisions have laid down that the jurisdiction of the adjudicating authority and the appellate authority cannot extend into entering upon merits of a business decision made by a requisite majority of the CoC in its commercial wisdom. Nor is there a residual equity-based jurisdiction in the adjudicating authority or the appellate authority to interfere in this decision, so long as it is otherwise in conformity with the provisions of IBC and the Regulations under the enactment.”
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47. Hence, once the requirements of IBC have been fulfilled, the adjudicating authority and the appellate authority are duty-bound to abide by the discipline of the statutory provisions. It needs no emphasis that neither the adjudicating authority nor the appellate authority have an unchartered jurisdiction in equity. The jurisdiction arises within and as a product of a statutory framework.”
# 45. The Learned Counsel for R3 and R4 falls back upon the decision of the Hon’ble Supreme Court in Vallal RCK vs. M/s Siva Industries and Holdings Limited & Ors. reported in 2022 9 SCC at pg. 803 wherein at paragraph 21 it is observed as under:-
“This Court has consistently held that the commercial wisdom of the CoC has been given paramount status without any judicial intervention for ensuring completion of the stated processes within the timelines prescribed by the IBC. It has been held that there is an intrinsic assumption, that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. A reference in this respect could be make to the judgements of this Court in the cases of K.Sashidhar v. Indian Overseas Bank and Others, Committee of Creditors of Essar Steel India Limited through Authorised Signatory v. Satish Kumar Gupta and Others, Maharashtra Padmanabhan Venkatesh Seamless Limited v. and Others, Kalpraj Dharamshi and Another v. Kotak Investment Advisors Limited and Anr., and Jaypee Kensington Boulevard Apartments Welfare Association and Ors. v. NBCC (India) Ltd. and Ors.”
# 46. The Learned Counsel for R3, R4 relies on the decision in Ramakrishna Forges Ltd. V. Ravindra Loonkar, Resolution of ACIL Ltd. & Anr., reported in 2023 SCC online SC 1490 wherein at paragraph 30 it is observed as under:-
“At this juncture, it also cannot be lost sight of that it is for the FC(s) who constitute the CoC to take a call, one way or the other. Stricto sensu, it is now well-settled that it is well within the CoC’s domain as to how to deal with the entire debt of the Corporate Debtor.”
# 47. The Learned Counsel for R3, R4 points out that Committee of Creditors took every possible endeavours to revive the Corporate Debtor and ultimately, while exercising its commercial wisdom unanimously (100%) determined to resolve to Liquidator Corporate Debtor as per the 7th Committee of Creditors meeting (vide annexure no. 20 – pg. 228 of the Volume II of the Appeal Paper Book).
# 48. Besides the above, the Learned Sr. Counsel for R3 and R4 contends that the commercial decision taken by the Committee of Creditors, was in compliance with various provisions of the I&B Code and Regulations, moreso, Regulation 40D of the Corporate Persons Regulations, 2016.
# 49. It is pointed out on behalf of R3 and R4 that the ‘Expression of Interest’ and ‘Resolution Plan’ submitted by the 1st Appellant cannot also be considered as a ground for challenge, since Section 7 application of the I&B Code, 2016 was pending consideration against it, at the relevant point of time (now it was admitted into CIRP, through an order dated 22.12.2023 in CP(IBC)/33/KOB/2023.
# 50. The Learned Counsel for R3 and R4 points out that one of the Committee of Creditors Members has declared the 1st Appellant as a ‘non-performing asset’ in its books of accounts. Hence, the 1st Appellant’s Plan, could not be considered as it was ineligible, as per Section 29A of the Code, 2016. In addition, the Committee of Creditors while exercising its ‘commercial wisdom’, decided not to accept the said offer.
# 51. On behalf of R3 and R4 a reference is made to Section 33(2) of the I&B Code which runs as under: –
“Where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors approved by not less than sixty-six per cent, of the voting share to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) sub-section (1).”
# 52. The Learned Counsel for R3, R4 while rounding up points out that in the instant case, 100% of the Committee of Creditors has resolved to liquidate the Corporate Debtor and, therefore, the instant Appeal is to be dismissed.
Discussions
# 53. Before the Adjudicating Authority, the ‘Resolution Professional’ / Petitioner had filed IA(IBC)462/KOB/2023 in CP(IBC)/46/KOB/2022 (under Section 33(1)(a) and 60(5)(c) of the Insolvency and Bankruptcy Code, 2016 read with Rule 11 of NCLT Rules, 2016,2013). Seeking to order liquidation of the Corporate Debtor, based on the unanimous decision of the Committee of Creditors with 100% voting rights in the 7th meeting that took place on 21.10.2023.
# 54. According to the Resolution Professional of Green Gateway Leisure Ltd. / Petitioner (in IA(IBC)462/KOB/2023 in CP(IBC)/46/KOB/2022) the Corporate Debtor was admitted into CIRP through an order of an Adjudicating Authority / Tribunal on 25.01.2023 in CP(IBC)/46/KOB/2022). Admittedly, the Adjudicating Authority/Tribunal was pleased to extend the ‘Corporate Insolvency Resolution Process’ from 26.7.2022 to 25.10.2023(for a period of 90 days).
# 55. The ‘Resolution Professional’ in his IA(IBC)462/KOB/2023 in CP(IBC)/46/KOB/2022) was appointed as the ‘Resolution Professional’ of Green Gateway Leisure Ltd. / Corporate Debtor, by means of an order dated 22.06.2023 in IA(IBC)231/KOB/2023 in CP(IBC)/46/KOB/2022) and further that the Corporate Debtor had functioned in the ‘Lease Hold Property’, which was owned by ‘Bekal Resorts Development Corporation Ltd.’ (BRDCL).
# 56. It comes to be known that the ‘Bekal Resorts Development Corporation Ltd.’ (BRDCL) had cancelled the ‘Lease Agreement’ considering the fact that there was default in payment of ‘Lease Rent’ and that was due from 30.03.2022.
# 57. As a matter of fact, the Committee of Creditors in its 4th meeting that took place on 11.07.2023 had determined to make a prayer for extending the ‘CIRP’ by 90 days for the purpose of negotiation with the ‘BRDCL’, for renewal / reinstatement of the extension of the ‘Lease of the Land’ given to the Corporate Debtor. Moreover, the said ‘BRDCL’, was not interested in the renewal/reinstatement of the Lease, because of the fact that there was chance for the revival of the Corporate Debtor.
# 58. It is the stand of the Petitioner / Resolution Professional in IA(IBC)462/KOB/2023 that there would not be any resolution of the Insolvency of the Corporate Debtor, in as much as the lease of the property was not to be renewed / reinstated. Therefore, during the Corporate Insolvency Resolution Process, no Expression of Interest was published. In reality, when the CIRP period came to an end on 25.10.2023, at that point of time, there was no resolution for the Insolvency of the Corporate Debtor.
# 59. It is brought to the fore that the Corporate Debtor / Air Travel Enterprises India Ltd. furnished a letter, on 20.10.2023 expressing their willingness to give an ‘Expression of Interest’ for the revival of the Corporate Debtor and in the 7th Committee of Creditors’ meeting that took place on 21.10.2023 it was deliberated upon and the ‘Committee of Creditors’ opined that the Corporate Debtor/ Air Travel Enterprises India Ltd. request could not be acceded to because of the fact that (i) main CP(IBC)/33/KOB/2023) was preferred by the Union Bank (ii) non-availability of financial and (iii) the account of ATE is currently classified as NPA with one of the members of the CoC viz. Dhanalaxmi Bank.
# 60. According to the Petitioner / Resolution Professional of the Corporate Debtor, the Committee of Creditors on 21.10.2023 in the 7th meeting had decided to recommend unanimously with 100% voting rights ordering the Company for ‘Liquidation’.
# 61. Be it noted, that the ‘Liquidation process’ gets initiated as per Section 33 of the I&B Code, 2016, either (i) No Resolution Plan was submitted within the time prescribed under Section 12 of the I&B Code, 2016 or a Resolution Plan was rejected by the ‘Adjudicating Authority/Tribunal’ (ii) where the Resolution Professional, prior to the affirmation of the Resolution Plan, intimates the ‘Adjudicating Authority’ / Tribunal of the decision of the ‘Committee of Creditors’ to liquidate the Corporate Debtor or (iii) where the Resolution Plan, approved by the Adjudicating Authority/Tribunal was violated by the concerned Corporate Debtor.
# 62. It must be borne in mind that any ‘person’ other than the Corporate Debtor whose interest are prejudicially affected by such a violation, may apply to the Adjudicating Authority / Tribunal who may then, pass an ‘Order of Liquidation’, based on such ‘Application’, as per the decision of the Hon’ble Supreme Court in the matter of Arcelormittal India Pvt. Ltd. v. Satish Kumar Gupta reported in AIR 2018 SC 5646.
# 63. At this stage, it is worthwhile to refer to the 7th Committee of Creditors meeting that took place on 21.10.2023 which reads as under:-
“The resolution Professional informed to the meeting that he has contact with the directors of the BRDCL-the lessor of the land regarding the renewal of the lease agreement. However the Beckal Tourism, who has been owner of the lease property, has rejected the proposal of renewal by the company….
RP reiterated that no major changes in CIRP process, unless express of interest from the parent company and still no fresh communication of the Beckal Tourism has been received regarding the continuation of running with the lease property, which was the main and only asset of the company.
CIRP procedure has been ended as per the regulation/provision of the IBC 2016 the final decision need to be taken under the current situation by the CoC members.
This was the crucial meeting/last meeting for final decision and relevant to tackle the decision of the CIRP process including liquidation”.
# 64. It is to be remembered that the ‘Representatives of the Corporate Debtor’ were also present in the 7th CoC meeting and it cannot be brushed aside that the only Asset, which was on ‘Lease’ for a period of 30 years, provided by ‘Bekal Resorts Development Corporation Ltd.’ (BRDCL) was cancelled on 30.03.2022. In fact, the Corporate Debtor’s Representatives, who were present during the meeting had mentioned that they had not assailed the termination of ‘Lease Agreement’ till the start of the CIRP date. Also, that the Resolution Professional was unable to take any action in as much as the Termination of the ‘Lease Agreement’ was more than 10 months before the CIRP and ‘BRDCL’ had informed of not changing its decision through its letter dated 15.03.2023.
# 65. To be more specific, the ‘BRDCL’ in its Letter dated 15.03.2023 addressed to the Interim Resolution Professional Shri Raj Mohan R. had among other things observed that
‘’The land to the extent of 55.33 acres leased by BRDC has been repossessed by us for default in complying with the terms of the lease and the Corporate Debtor has no right over the said property which belongs to the Govt. of Kerala. Further, regarding unfinished structures on the Lease Property the same stand attached under the Revenue Recovery Proceedings, for recovery of lease rent etc. Further, as the Corporate Debtor still owes a sum of Rs. 17,17, 60,711/- to BRDC we have preferred a claim with you in Form B as stated above. We have made extensive enquiries during revenue recovery proceedings for recovery of the dues to BRDC, for proceeding against other assets of the Corporate Debtor but have not been able to identify any such assets. In case, if individual’s personal guarantee collateral security having been furnished for availing the loan by the Corporate Debtor, it is requested that the dues amounting to Rs. 17,17, 60,711/- as arrears of lease rent etc. may also be recovered from such securities, as it is govt. dues and calls for priority etc.”
# 66. Merely because there were ‘No Assets’ and no option for revival of the Corporate Debtor an unanimous 100% decision was taken by the Committee of Creditors in its commercial wisdom to liquidate the Corporate Debtor.
# 67. It is not out of place for this Tribunal to make a pertinent mention that the commercial wisdom can be exercised only when all the relevant information is available before the Committee of Creditors and is duly discussed / deliberated by all its members, who have a direct and substantial interest in the survival of the ‘Corporate Debtor’ and in the whole ‘Corporate Insolvency Resolution Process’. Also that each and every aspect pertaining to the Resolution Plan, its financial lay out, has to be before the ‘Committee of Creditors’ before it could be, set to have arrived at a considered decision in its commercial wisdom.
# 68. In fact, in a limited judicial review, available to the Adjudicating Authority / Tribunal, it is to be seen that the Committee of Creditors took note of the fact that the ‘Corporate Debtor’ needed to keep it as a ‘going concern’ during the Insolvency Resolution Process, that it required to maximise the value of the assets, that interest of all stakeholders were taken care of.
# 69. The commercial wisdom of the Committee of Creditors is to be respected subject to the limited judicial review, that was available to the Adjudicating Authority / Tribunal. Also that the commercial wisdom of Committee of Creditors is beyond the ambit of challenge, pertaining to the decision taken for liquidation of the Corporate Debtor being essentially a ‘business decision’ based upon the commercial wisdom and keeping in view the ingredients of Section 33(2) of the I&B Code, 2016 and the explanation thereto.
# 70. In law, when the Resolution Plan is in accordance with Section 30 and 31 of the Code, the Resolution Plan was to be approved. Whether the Adjudicating Authority/Appellate Tribunal, it cannot enter into any analysis to judge, as to whether the prescription of the Resolution Plan results in maximization of the value of assets are not as per decision of Hon’ble Supreme Court in Jaypee Kensington Boulevard Apartments Welfare Association v. NBCC (India) Ltd. reported in 163 CLA 14 (SC) vide paragraph 77.61.
# 71. Undoubtedly, the Liquidation like an Insolvency is ‘collective’ in character. Also that the explanation to Section 33(2) of the Code makes it candidly clear that the ‘Committee of Creditors’ is enjoined to take a final call, to liquidate the Corporate Debtor at any time after its constitution and prior to the affirmation of Resolution Plan, gives a vital position, to the Committee of Creditors, in taking a ‘business decision’ in exercise of their commercial wisdom. Even when a Resolution Plan duly approved by it with requisite vote share was pending before the Adjudicating Authority / Tribunal as per judgement of this Appellate Tribunal in Manoharlal Mehta V. Anil Vrijdas Rajkota, RP of K K Welding Ltd. (vide Comp. App. (AT)(Ins.) 135/2021 dated 1.3.2021).
# 72. More importantly in the decision in the Pravin Kumar Nand Kumar V. VSL Securities (P) Ltd. (vide CA 1 of 2020 dated 09.06.2020 NCLAT, New Delhi) (unreported decision) it is held that the decision of the ‘Committee of Creditors’ recommending Liquidation of the Corporate Debtor after proper evaluation of the Assets and Liabilities of the Corporate Debtor, with no Resolution Plan forthcoming, would be a ‘business decision’ which come within the purview of the commercial wisdom of Committee of Creditors and was not amenable to Judicial Review.
# 73. As far as the present case is concerned, commercial decision taken by the Committee of Creditors was in fulfilment of the relevant provisions of the I&B Code, 2016 and Regulations, especially in the teeth of Regulation 40D of the IBBI Corporate Persons Regulations, 2016.
# 74. The I&B Code, 2016 does not any way spell out ‘any such opportunity’ being provided to the Appellants (Promoters/Shareholders), at the time of passing of the Liquidation order and they don’t have any semblance of any ‘legal right’ or ‘vested right’ to oppose the ‘Liquidation order’ before the ‘Adjudicating Authority/Tribunal’ in the considered opinion of this Tribunal. Viewed in that perspective the Appellants in the instant Appeal are not to be characterised as ‘Aggrieved Persons’ within the parameters of Section 61 of the I&B Code, 2016.
# 75. The First Appellant was ordered into CIRP in main CP(IBC)/33/KOB/2023 through an order dated 22.12.2023 by the Adjudicating Authority / Tribunal, Kochi Bench, resting upon Section 7 petition filed by the Union Bank of India. As such, the Appellants have no ‘Locus-Standi’ to file the instant Appeal and to maintain the same before this Tribunal. Moreover, the Appellants/Shareholders/Promoters have no ‘Locus’ to even raise an objection or to be furnished with an opportunity to air their views, at the time of passing the Liquidation Order.
# 76. In as much as, the Committee of Creditors took a unanimous decision (100%) in its commercial wisdom to liquidate the Corporate Debtor and further that the 1st Appellant who has a 44% stake in Corporate Debtor had expressed interest for submission of a Resolution Plan (vide pg. 99 of Vol. I of the Appeal Paper Book), because of the fact that against the 1st Appellant a Section 7 Application was pending and also the Dhanlaxmi Bank had classified the 1st Appellant as a Non Performing Asset, in its Books of Accounts, the requirement of Section 29A of the I&B Code, 2016 was not satisfied, as opined by this Tribunal.
# 77. Be that as it may, in the light of detailed discussions, this Tribunal taking note of the rival contentions advanced on either side is of the earnest opinion that in the present case the only Asset to Corporate Debtor, which was on Lease for 30 years was cancelled on 30.03.2022 there were no Assets and no option for the resurrection /revival of the Corporate Debtor, the 100% unanimous decision taken by the Committee of Creditors, in its commercial wisdom to Liquidate the Corporate Debtor is not to be interfered with by this Tribunal because of the limited power of ‘judicial review’.
# 78. Suffice it, for this Tribunal, to unerringly point out that in the instant Appeal, on going through the impugned order dated 24.11.2023 in IA (IBC)/462/DOB/2023 in CP(IBC)/46/KOB/2022 passed by the Adjudicating Authority/NCLT, Kochi Bench in ordering the ‘Liquidation of the Corporate Debtor’/ ‘M/s Green Gateway Leisure Ltd.’ is free from any legal errors. Resultantly, the instant ‘Appeal’ is devoid of merits and it fails.
Conclusion
In fine, Company Appeal (AT)(CH)(Ins.) No. 464/2023 is dismissed but without costs. The connected pending IAs, if any, are closed.
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