NCLAT Delhi Sets Aside Order Of Liquidation; Grants Additional Opportunity For Inviting Resolution Plans

Background Facts

Small Industries Development Bank of India ("SIDBI") had filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("IBC"), seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against Radhey Sham Tandon Manufacturing Pvt. Ltd ("Corporate Debtor") and the Corporate Debtor was admitted into CIRP on 10.10.2019. Mr. Sanjeev Bindal ("Respondent No.1") was appointed as Resolution Professional.

The 5th Committee of Creditors (CoC) meeting was held on 24.02.2020, wherein it was decided that since the operation of Corporate Debtor were not being carried on for more than one year, it should be liquidated.

In the 6th CoC meeting, the Suspended Director of Corporate Debtor, Mr. Nikhil Tandon (Suspended Director/Appellant), submitted a resolution plan before the CoC claiming to be an MSME and hence eligible to submit a plan. The CoC did not consider the Plan for not being in accordance with Section 30 of the IBC.

In the 7^th CoC meeting, the Resolution Plan was discussed and the Appellant requested information memorandum to submit the Resolution Plan as per law. In the 8^th CoC Meeting, the Resolution Professional opined that the Appellant is not an MSME and has not filed an affidavit. Further, the total claim of Financial Creditor was much more than the resolution plan amount. The CoC decided that Appellant's Plan cannot be deliberated since no Resolution Plan was invited and the liquidation was already approved in the 5^th CoC meeting.

Subsequently, the Resolution Professional filed an application for liquidation of the Corporate Debtor before the Adjudicating Authority and the latter approved liquidation was vide an order dated 26.08.2021. The Appellant filed an Appeal before the NCLAT, challenging the order of liquidation.

Issue

Whether the decision of the CoC taken in the 5^th CoC meeting to liquidate the Corporate Debtor was a sustainable decision?

Decision Of The NCLAT

It was observed that in the 5th CoC meeting it was already decided to liquidate the Corporate Debtor. In the 6th CoC the CoC approved the Appellant's request for submitting Resolution Plan. It indicates that the CoC had reconsidered its earlier decision and proceeded to consider the plan submitted by the Appellant which was a MSME, but ultimately plan was refused to be considered only on the ground that no Resolution Plan was invited.

When in the CoC meeting Appellant was permitted to file a Resolution Plan, it cannot be said that Appellant was not invited to submit a Resolution Plan. Further, CoC ought to have given opportunity to others to submit Resolution Plan by directing for issuance of Form G which was never done. Non-acceptance of Corporate Debtor as a Registered MSME is a material irregularity which has been committed in the CIRP.

The Bench opined that CoC's decision to liquidate the Corporate Debtor also cannot be held to be sacrosanct. When CoC permitted the Appellant to file Resolution Plan, the decision to liquidate the Corporate Debtor was not proceeded with any further.

"In the facts of the present case, decision to liquidate the Corporate Debtor was taken in the 5th CoC meeting held on 24.02.2020 by that time neither any Valuers were appointed nor there was any liquidation value. The Resolution Professional has not even prepared Information Memorandum. As noted above, the entire object and purpose of the I&B Code is to revive the Corporate Debtor and put it back on the track. The CoC had not taken any effort to issue any Form G to find out as to whether there can be resolution of the Corporate Debtor by any Resolution Applicant. Without even making one effort, CoC jumped on conclusion to liquidate. It is true that under the statute CoC is empowered to take a decision to liquidate the Corporate Debtor. Material irregularity has been committed in the process as already noticed above."

The Bench held that there were sufficient grounds within the meaning of Section 61(4) of IBC to assail the order directing for liquidation. It was observed that the Adjudicating Authority had only relied on the resolution of the CoC in 5th meeting and had directed for liquidation, without taking into consideration minutes of subsequent 6th, 7th and 8th meetings of CoC, the steps taken by CoC to invite plan from the Appellant, discussion of the plan and ultimately decision thereon.

The Bench set aside the order of liquidation dated 26.08.2021 and directed that further steps need to be taken in the CIRP. The following directions were passed:

I. An extension of period of 90 days granted to the Resolution Professional and the CoC to take steps to prepare Information Memorandum and issuance of Form G and consideration of Resolution Plan, if any, and take appropriate decision regarding resolution in the CIRP process.

II. The Appellant may also in pursuance of issuance of Form G submit its Resolution Plan which also need to be considered by the CoC alongwith other plans, if any.

Case title: Nikhil Tandon v Sanjeev Bindal & Ors.

Case No.: Company Appeal (AT) (Insolvency) No. 13 of 2022

Counsel For Appellant: Mr. Pulkit Deora, Advocate.

Counsel For Respondents: Mr. Sanjeev Bindal, Liquidator Mr. Aakash Dahiya, Advocate.

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