Namdev Hindurao Patil vs Virendra Kumar Jain, Liquidator & anr
Comp. App. (AT) (Ins) No. 858 of 2023 & I.A. No. 2925 of 2024
Facts:
1) The Appellant submitted that the Respondent No. 3 filed an application under Section 7 of the Code in CP (IB) 477/C-IV/MB/2020 before the NCLT which was admitted vide order dated 16.09.2021.The Resolution Plan submitted by the parties were discussed in the 11th CoC Meeting held on 26.05.2022 and PRAs were asked to modify their plan.The Appellant alleged that the Respondent No. 2 wrongly declared the Appellant as wilful defaulter on 19.07.2021 and on 04.10.2021, which was challenged by the Appellant before the appropriate court and the Resolution Professional permitted the Appellant to submit the Resolution Plan subject to outcome of the challenge by the Appellant.
2) The improved offer of the Appellant was considered wherein CoC decided the Appellant to be ineligible to submit the Resolution Plan on account of his willful defaulter declaration and did not consider the Resolution Plan on merits and further resolved to liquidate the Corporate Debtor. Aggrieved by this action of CoC arising out of 21st CoC Meeting held on 06.10.2022 & 07.10.2022, the Appellant filed an I.A. No. 464 of 2023 before the Adjudicating Authority and finally the Impugned Order dated 19.04.2023 was passed discarding the pleadings of the Appellant.
3) Appeal is filed under Section 61 of the Code by the Appellant herein i.e., Namdev Hindurao Patil, who is the Suspended Director and one of the Resolution Applicant of the Corporate Debtor i.e., Warana Dairy and Agro Industries Ltd. against the Impugned Order dated 19.04.2023 passed by the NCLT Mumbai.
Issue: Whether the appeal can be allowed ?
Arguments:
Appellant:
1) Counsel submitted that it always wanted to revive the Corporate Debtor, whereas the Respondent No. 2 and 3 on wants to liquidate to Corporate Debtor. It has been informed that the Corporate Debtor is going concern employing more than 400 employees and procuring milk from more than 4700 farmers and is also in MSME unit.
2) Counsel for Appellant submitted that the Adjudicating Authority rejected his I.A. No. 464 of 2023 primarily on account of him being wilful defaulter, wrongly done by the Respondent No. 3. The Appellant alleged that the Impugned Order is perverse since it seeks to send a going concern corporate entity into liquidation against the spirit of the Code which is for the resolution and revival of the corporate entity and not for liquidation.
3) Counsel submitted that one of the CoC Members pointed out that the stay was granted on 12.10.2022 and further informed as per online status that till next date the same continued. However, CoC ignored these vital facts and wrongly assumed that there was no stay in favour of the Appellant. It was submitted that alleged failure on the part of the Resolution Professional in terms of 36-A (8) of CIRP Regulations which casts duty on Resolution Professional to conduct due diligence and examine whether the Resolution Plan is in compliance with the provisions of the code.
Respondent:
1) Counsel submitted that Appellant was not eligible to submit the Resolution Plan since the Appellant was declared a wilful defaulter and disqualified under Section 29(A) of the Code. In this connection, the Respondent No. 2 stated that ad-interim relief obtained by the Appellant in Civil Suit No. 710 of 2022 on 19.09.2022 was conditional relief i.e., interim relief was granted till the filing of the Reply by the defendant which included the Respondent No. 2.
2) The Respondent No. 2 gave the background under which the Appellant was declared as a wilful defaulter under Master Circular of RBI dated 01.07.2015 and stated that the Appellant availed a loan of Rs. 67 Crores from the Respondent No. 2 and did not use it for the purpose for which it was sanctioned, misused the money and defaulted on repayments.
3) It is the case of the Respondent that an ad-interim stay is not a final conclusion regarding the wilful defaulter status of the Appellant and it was meant only for not taking any further adverse action by the Respondent No. 2 against the Appellant and it did not absolve wilful defaulter status of the Appellant and therefore Section 29 (A) of the Code was clearly applicable to the Appellant barring Appellant from submitting the Resolution Plan.
Decision: NCLAT dismissed the appeal.
Rationale:
1) It held that Section 29A intents to give protection to the genuine creditors of the Corporate Debtor by preventing unscrupulous persons from rewarding themselves at the expenses of the creditors and undermine the process and object of the Code. It noted that MSME entity were exempted partially from the provisions of Section 29 A of the Code w.r.t. Section 29 A (c) and Section 29 A (H) only with qua such Corporate Debtor which was done perhaps with thought process that, other Resolution Applicant may not come forward which may not be helpful in resolution of such MSME Corporate Debtor leading to its logical liquidation
2) It is well settled principle that the CoC has the powers to take informed decision with regard to approval of the Resolution Plan and once, the Resolution Plan is decided by the CoC, the Resolution Professional is required to file suitable application before the Adjudicating Authority for approval. Thus, the CoC has full powers to decide regarding approval or non approval of the Resolution Plan.
3) It held that Appellant was declared wilful defaulter way back on 19.07.2021 and 04.10.2021 by the Respondent No. 2- IDBI Bank Limited whereas the Appellant submitted his Resolution Plan on 12.05.2022. Thus, as per Section 29 A of the Code on the date of submission of the Resolution Plan, the Appellant was clearly ineligible to submit the Resolution Plan as per Section 29 A (b) of the Code.
Order:
