Cosmos Cooperative Bank Ltd. Versus Edelweiss Asset Reconstruction Company
CA (AT) (Ins) 499 of 2023
Facts:
1. Adjudicating Authority vide order dated 29.03.2019 directed for commencement of Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor – S.K. Wheels Private Limited. The Corporate Debtor being a MSME, the Resolution Plan submitted by Anil Kumar, the Promoter/ Director of the Corporate Debtor was approved by the CoC in its 12th Meeting held on 23.01.2020 with 75.78% vote share.
2. The RP filed IA No.976 of 2022 for approval of the Resolution Plan and Adjudicating Authority vide order dated 09.11.2021, approved the Resolution Plan. IA No.80 of 2022 was filed by Successful Resolution Applicant (“SRA”) for exclusion of time due to Covid-19 pandemic and extension of time for making further payments, which Application was dismissed by the Adjudicating Authority vide order dated 04.05.2022.
3. IA No.1054 of 2022 was filed by the RP under Section 33, subsection (3) seeking liquidation of the Corporate Debtor. The Adjudicating Authority vide order dated 04.05.2022 directed the RP to convene a Meeting of the CoC and file appropriate application for liquidation if suggested by the CoC with the mandate of the CoC. IA 1054 of 2022 was disposed of accordingly.
4. In the meeting dated 08.07.2022, RP invited all Members of CoC where a Resolution was put before the CoC as to whether the Corporate Debtor be liquidated or not. With voting share of 59.73%, CoC decided not to liquidate the Corporate Debtor. Respondent No.1, who had vote share of 20.28% voted against the majority decision.
5. An Application dated 26.09.2022 was filed by Respondent No.1 being IA No.2767 of 2022 before the Adjudicating Authority under Section 33, sub-section (3) seeking commencement of liquidation process. On 02.12.2022, a Meeting of Financial Creditors of the Corporate Debtor was held where with a majority decision of 69.04%, the Financial Creditors decided to extend the time for Resolution Applicant to make the payments as per schedule contained in the Resolution.
6. Respondent No.1 in IA No.2767 of 2022, did not implead either CoC, RP or SRA. IA was heard by the Adjudicating Authority and by the impugned order dated 13.02.2023, the Adjudicating Authority directed for liquidation. AA noted the decision of the Financial Creditors dated 08.07.2022, where the Financial Creditor with 59.73% voted not to liquidate the Corporate Debtor, but the said decision was not accepted by the Adjudicating Authority on the premises that decision not to liquidate will lead to modification of the Resolution Plan, which is impermissible in the Code.
Issue: Whether the order passed by correct or not ?
Arguments:
Appellant:
1. Counsel submitted that Adjudicating Authority committed error in taking the view that extension of timeline for payment as approved by the Financial Creditors is modification of the Plan. It is submitted that extension of timeline in payment to be made by SRA is not modification of the Plan and the Adjudicating Authority, taking the erroneous view of law, has allowed the liquidation Application.
2. It was further submitted that there was no decision by the CoC to liquidate the Corporate Debtor, which decision has been ignored by the Adjudicating Authority erroneously. The SRA as per the decision dated 02.12.2022 of the Financial Creditors has already deposited the amount, which is deposited with Cosmos Cooperative Bank Limited, the largest Financial Creditor, in a fixed deposit. It is submitted that Respondent No.1 has filed IA No.2767 of 2022 in which neither RP, nor CoC or the SRA was impleaded and without issuing the notice on the said Application, the Adjudicating Authority proceeded to allow the Application.
3. Counsel submitted that when the Financial Creditors have decided to extend timeline for payment by SRA, action of Respondent No.1 to pray for liquidation is against the spirit and object of the Code. Liquidation of the Corporate Debtor should be a last resort
Respondent:
1. Counsel submitted that Respondent No.1, who was not in agreement with the decision taken by the CoC, had every right to file the Application for liquidation, the SRA having not made the payment within the timeline as provided in the Resolution Plan. It is submitted that within sixty days of the approval of the Resolution Plan, upfront payment was required to be made. It was submitted that SRA having not been able to make the payments within time, Respondent No.1 has every right to pray for liquidation and Adjudicating Authority did not commit any error in directing for liquidation.
Decision: NCLAT set aside the order passed and allowed the appeal.
Rationale:
1. NCLAT noted that when the CoC had already been taken a decision in its Meeting dated 08.07.2022 against the liquidation, we fail to see the reason for Respondent No.1 to file the Application against majority decision.
2. It held that In IA No.2767 of 2022, Respondent No.1 has not even impleaded the SRA to give an opportunity to SRA to explain that SRA had not contravened the Plan and it does not approve the act of Respondent No.1 in filing IA No.2767 of 2022 without impleading the SRA.
3. It held that the basis of the order of liquidation passed by the Adjudicating Authority is that not to liquidate the Corporate Debtor would lead to modification of the Plan, which is impermissible in the Code. When the Adjudicating Authority directed the RP by order dated 04.05.2022 to convene the Meeting of CoC to take a decision, as to whether Corporate Debtor be liquidated or not, the decision taken by the CoC was a commercial decision of the CoC, i.e., not to liquidate the Corporate Debtor and the said commercial decision was not required to be interfered by the Adjudicating Authority by the impugned order directing for liquidation.
Order:
