ONE PAGE 39 – In the matter of M/s Khandoba Prasanna Sakhar Karkhana Ltd.
Issues related to approval Resolution Plan
Court: NCLT Mumbai & NCLAT Delhi, SC#2955/2020 Dt 04.09.20
a. On 09.02.19 Rplan submitted by SRA was approved by COC & on 15.02.19 RP filed IA at NCLT for approval of Rplan. At this stage promoter/director filed IA seeking permission to file Rplan. NCLT rejected the same and approved the Rplan by SRA.
b. Promoter/director immediately approached Bombay HC & appealed at NCLAT against NCLT order. NCLAT allowed the appeal and remanded the matter back to NCLT with a direction send back the Rplan to COC to resubmit the Rplan taking into consideration the observations made by NCLAT & after satisfying the parameters laid down by SC in Essar Steel & IBC. NCLT to deal with resubmitted Rplan according to law.
c. Self-declaration given by SRA which stated the Liq value as Rs.13.53 Cr is dt 09.02.19 and before its submission, on 07.02.19, RP wrote an email to SRA asking how the liquidation value is matched, which is a proof enough to show leakage of information and also an attempt to coverup.
d. Grounds for NCLAT are: 1) Rplan suffers from viability & feasibility 2) There seems to be a breach of confidentiality violating Reg 35(2), as the Liquidation value mentioned by SRA in Rplan and the one obtained by RP tally exactly. 3) An asset crucial for keeping the CD as a going concern, which belongs to another company & was already taken possession by bank under SARFAESI was not considered both in the EOI by RP & Rplan by SRA in violation of Reg 36A.
2. Case Laws: K Sashidhar case & Essar Steel Ltd: Both on commercial wisdom of COC.
3. NCLAT Evaluation & Judgment:
a. The fact that the asset was not available was taken note by all 3 parties ie RP, COC and SRA and it was conscious decision by them go ahead with Rplan. So, the question of viability and feasibility does not arise.
b. NCLAT holds that CIRP suffered from material irregularities ie EOI was defective, Liq value appears to be leaked out, breach of confidentiality etc, but the operative portion of the order did not take those findings to a logical end. NCLAT did not grant any relief to promoter/director which could logically flow out of these other grounds.
c. Self-declaration at pg 29 has dt 09.02.2019, while the entire document has dt 07.02.19 & the last date for submission of Rplan is 08.02.19. Nowhere in the appeal, promoter director claimed that the Rplan was submitted after the last date. Also, when figure quoted by SRA is Rs.29.74 lacs while the liquidation value is Rs.13.53 lacs, and it makes no common sense that SRA would not have taken the benefit, if info was leaked. Promoter/director tried to take advantage of small typographical mistakes & NCLAT recorded finding even beyond the pleadings in the Appeal, hence legally untenable.
d. SRA did not make the Rplan on the strength of the asset, did not indicate that without that asset, the Rplan will fail. SRA has taken a commercial decision ie to continue the operations in normal course of business, with/without the asset.
e. Coming to advertisement not being in conformity with Reg 36A as per form G, if NCLAT was convinced that the process was vitiated, it should have issued direction to start the process afresh all over again with fresh advertisement, but NCLAT has not done this & promoter/director also did not raise the objection at 2nd COC meeting. Regulation 36A came into effect from 04.07.18 & the advertisement by RP dt 30.03.18 is statutorily not required hence promoter/director cannot take advantage of the same.
f. Hence the impugned order by NCLAT is flawed and liable to be set aside.