NCLAT Delhi Uphelds That Corporate Debtor Cannot Be Sent Into Liquidation Just Because Liquidation Value Is More Than The Value Of The Resolution Plan

Background Facts

Ramsarup Industries Limited ("Corporate Debtor") had approached the NCLT, Kolkata ("Adjudicating Authority") under Section 10 of the Insolvency and Bankruptcy Code, 2016 ("IBC") and was accordingly admitted to Corporate Insolvency Resolution Process ('CIRP') on 08.01.2018. Subsequently, a resolution plan was submitted by SS Natural Resources Ltd. (Successful Resolution Applicant/ SRA / Respondent) which was approved by the Committee of Creditors ("CoC") with 74.41% of voting share and also by the Adjudicating Authority. A monitoring agency to oversee the implementation of the successful resolution plan was constituted consisting of 6 members, i.e. the Resolution Professional, 2 members of SRA, 3 representatives of CoC namely CFM Asset Reconstruction Pvt. Ltd. ("Appellant"), Punjab National Bank ("PNB") and Axis Bank Limited ("Axis Bank").

The SRA had gone in appeal before the NCLAT stating that NCLT had materially altered its Resolution Plan by imposing additional financial obligations. The NLCAT dismissed the appeal vide an order dated 04.03.2021 and directed the Monitoring Agency to commence the implementation of the Resolution Plan, failing which, an application for liquidation of Corporate Debtor was liable to be moved before NCLT. The SRA went in appeal before the Supreme Court challenging the order dated 04.03.2021, nonetheless, the appeal was dismissed vide an order dated 04.05.2021 stating lack of substantial question of law. Eight such appeals were filed before the Supreme Court by different stakeholders. Vanguard Credit & Holdings Pvt. Ltd. ("Vanguard") had also filed an appeal before the Supreme Court to claim the land upon which Corporate Debtor's factory was situated. Therefore, during the pendency of the Vanguard's appeal, the SRA did not take any steps for implementation of the plan and waited for the decision of the Supreme Court. Eventually the Vanguard's appeal was also dismissed by the Supreme Court vide an order dated 02.07.2021.

The Monitoring Agency convened its 7^th meeting 20.05.2021, wherein the SRA had expressed its willingness to implement the Resolution Plan subject to some conditions; it also declined to give consent for release the upfront payment to meet CIRP cost; and objected to the utilization of performance security until the Vanguard appeal was pending before the Supreme Court. Other members of Monitoring Agency apprised the SRA regarding the need for unconditional implementation of the Resolution Plan.

Thereafter, the following three appeals were filed before the NCLAT:

1. IA (IB) No.538/KB/2021- Filed by CFM-ARC against the SRA and the Monitoring Agency under seeking liquidation of the Corporate Debtor;
2. IA (IB) No.635/KB/2021- Filed by the SRA against the erstwhile Resolution Professional and the Appellant, seeking directions to cooperate in the implementation of the approved Resolution Plan.
3. IA (IB) No.628/KB/2021- filed by CFM-ARC against the SRA seeking payment of interest for delay in implementation of the Resolution Plan by the SRA.

The Impugned Judgment

The Adjudicating Authority allowed I.A. (IB) No.635/KB/2021 filed by the SRA and granted 5 days time to transfer sum of Rs. 322 Crores in the account of the Corporate Debtor. The remaining applications were dismissed. The Adjudicating Authority further held that the objective of IBC is not to maximize value at all costs even if it means corporate death, which will inevitably ensue if the company is sent into liquidation. Merely because the liquidation value is more than the enterprise value, cannot be a ground for sending the corporate debtor into liquidation.

Appeal Before The NCLAT

The CFM-ARC (Appellant) filed an appeal before the NCLAT Delhi against the judgment dated 06.04.2022 ("Impugned Judgment") claiming that the Adjudicating Authority had erred in law by not sending Corporate Debtor into liquidation.

Contentions Of The Appellant

The Appellant submitted that the Impugned Judgment contravenes the judgment dated 04.03.2021 passed by NCLAT. When the appeal was dismissed on 04.03.2021, no steps were taken by the SRA for implementation of the Resolution Plan and therefore, application for liquidation was filed by the Appellant.

It was contended that the Impugned Judgment was confirmed by the Supreme Court vide its order dated 04.05.2021 and the Adjudicating Authority has disregarded these orders by rejecting the application for Liquidation. The plan offer of the SRA was much less than the Liquidation value of the assets and the objective of maximization of assets could only be achieved through Liquidation. It was further contended that the Appellant has firm offer of Rs. 525 Crores on the 100% cash basis, if the Liquidation is initiated and the Corporate Debtor's assets are sold off.

The Appellant also submitted that parking of amount of Rs. 320 Crores in an account which is not the bank account of the Corporate Debtor, is not an implementation of the Plan. The Impugned Judgment was passed by the Adjudicating Authority in violation of the judgment of the Supreme Court in Ebix Singapore Private Limited v Committee of Creditors of Educomp Solutions Limited & Anr. wherein it was held that prescribed timelines under IBC is of utmost significance.

Contentions Of The Respondent

The Respondent contended that the Appellant is an assignee who was born only after order 04.03.2021 was passed by NCLAT, by virtue of assignment taken by it on 23.04.2021 for an amount of Rs. 255 Crore. The offer of Rs. 525 Crore as contended by the Appellant is the offer at instance of Orissa Metaliks Pvt. Ltd., who was H-2 in the CIRP whose plan could not be approved. Liquidation is being pressed just to serve the interest of the Appellant and the unsuccessful resolution applicant. It was submitted that total bid amount offered by the SRA was more than liquidation value and now it has been held by the Supreme Court that Resolution Plan can be approved even if it is of less amount than the liquidation value.

It was submitted that the SRA had taken steps to implement the Plan and had deposited the entire CIRP costs of Rs. 12.49 Crores on 18.06.2021, paid the workmen dues up to 7 Crores and also paid day to day expenses of the Corporate Debtor for the month of May 2021.

It was also submitted that the total amount of Rs. 322 Crores, which represent the entire Resolution Plan, was earlier parked in the separate account and after the direction of the Adjudicating Authority, the same was transferred in the Corporate Debtor's account within five days and as on date the plan stands implemented.

Decision Of The NCLAT

The NCLAT Bench observed that there is no lack of intention on the part of the SRA/Respondent for implementation of the Resolution Plan. Further, the order of the Adjudicating Authority giving five days time as a last opportunity to transfer the amount in the Corporate Debtor's Account can in no manner be said to be contrary to the orders passed by the NCLAT dated 04.03.2021.

The Bench also placed reliance on the judgments passed by the Supreme Court in Babulal Vardharji Gurjar v Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr., (2020) 15 SCC 1, and Swiss Ribbon (P) Ltd. Vs. Union of India, (2019) 4 SCC 17, wherein it was held that primary focus of the IBC is to ensure revival and continuance of the Corporate Debtor. Therefore, the Corporate Debtor cannot be sent into liquidation just because liquidation value is more than the value of the Resolution Plan.

The Bench observed that the Appellant was born only on 23.04.2021 i.e., after the passing of the Impugned Judgment and is pressing for Liquidation to realize its dues to the maximum. It was held that though certain delay has occurred in the implementation of the Resolution Plan, but this fact cannot interfere in the NCLAT's Appellate Jurisdiction. The appeal was dismissed by the Bench vide an order dated 19.04.2022.

Case title: CFM Asset Reconstruction Pvt. Ltd. v SS Natural Resources Pvt. Ltd. & Anr., Company Appeal (AT) (Insolvency) No. 396 of 2022.

Counsel for Appellant: Mr. Mukul Rohatgi, Mr. Arun Kathpalia, Sr. Advocates with Mr. Manu Nair, Mr. Siddhartha Datta, Ms. Misha, Ms. Suhani Dwivedi, Moulshree Shukla, Mr. Deepanjan Datta Roy, Ms. Trisha Mukherjee, Ms. Surabhi Binani and Mr. Daksh Kadian, Advocates.

Counsel for Respondent: Dr. Abhishek Manu Singhvi, Sr. Advocate with Mr. Ramji Srinivasan, Sr. Advocate with Mr. NG Khaitan, Mr. Abhijeet Sinha, Mr. Prateek Kumar, Mr. Shounak Mitra, Ms. Raveena Rai, Mr. Saptarshi Mandal, Mr. Keshav Tibarewalla, Rajshree Chaudhary, Mr. Aditya Shukla and Sumant Batra, Advocates for R-1.

Click Here To Read/Download Order