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

The National Company Law Appellate Tribnal ("NCLAT"), Principal Bench, comprising of comprising of Justice Ashok Bhushan (Chairperson), Dr. Alok Srivastava (Technical Member) and Ms. Shreesha Merla (Technical Member), while adjudicating an appeal filed in CFM Asset Reconstruction Pvt. Ltd. v SS Natural Resources Pvt. Ltd., has upheld the order dated 06.04.2022 passed by NCLT Kolkata Bench whereby it was held 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 7th 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: IA (IB) No.538/KB/2021- Filed by CFM-ARC against the SRA and the Monitoring Agency under seeking liquidation of the Corporate Debtor; 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.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...

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

Pallavi Mishra

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