National Company Law Appellate Tribunal | A bench comprising of Ashok Bhushan, J., Dr. Alok Srivastava* (Technical Member) and Barun Mitra (Technical Member) held that the appellant’s Scheme of Compromise and Arrangement appears to be doubtful as it seems to be an attempt to inflate the pay outs to related parties.
Factual Matrix
In the instant matter, Financial Creditor, Nitin Jain filed an application under S. 7 IBC and the Adjudicating Authority vide order dated 16-04-2019 directed to initiate Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, Ratandeep infrastructure (P) Ltd. After an unsuccessful CIRP, the Adjudicating Authority order for liquidation of the corporate debtor and the respondentwas appointed as the Liquidator. The Adjudicating Authority vide order dated 13-04-2022, allowed the appellant (Bankey Bihari Infrahomes (P) Ltd.), to propose a scheme of compromise and arrangement under S. 230 of the Companies Act, 2013 read with Regulation 2-B of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. The appellant failed to submit the requisite proposal within three weeks, and the respondent/Liquidator proceeded with the sale of the assets of Corporate Debtor via auctions. The appellant submitted their proposal and approached the Adjudicating Authority seeking a stay on the auction notice. The Adjudicating Authority vide order dated 01-06-2022, rejected the appellant’s application for allowing any more time for consideration of the Scheme and allowed the Liquidator to proceed with the e-auction.
Aggrieved with the Adjudicating Authority’s order dated 01-06-2022, the appellant filed an appeal before this Tribunal challenging the impugned order.
Moot Point
Whether the Adjudicating Authority was right in rejecting to stay the auction notice and refusing to direct the respondents to consider appellant’s proposal?
Contention of the Parties
The appellant contended that the amount offered by the appellant was higher than offered by the highest bidder and the delay in submission was due to incomplete information supplied by the respondent. The appellant also contended that the Adjudicating Authority passed the impugned order without considering its earlier order regarding submission of the scheme of compromise and arrangement.
Relying on Arun Kumar Jagatramka v. Jindal Steel and Power Ltd., (2021) 7 SCC 474, where it was held that backdoor entry of ineligible parities is prohibited, the respondents contended that the appellant was colluding with the ex-management of the Corporate Debtor and creditors of the Corporate Debtor whose claims were rejected during CIRP, and the acceptance of their proposal would constitute backdoor entry of ineligible parities.
Tribunal’s Observation
The Tribunal noted that Mr. Rakesh Kumar Agarwal, director of the appellant through different corporate entities filed three different interlocutory applications in order to intervene in the process of liquidation. Moreover, disregarding the confidentiality agreement to keep the information supplied to him by the Liquidator confidential, Mr. Rakesh Kumar Agarwal shared the same with a creditor whose claim was not admitted during CIRP of the Corporate Debtor.
The Tribunal observed that the appellant neither submitted the Scheme of compromise within the stipulated time, nor informed the Liquidator about the delay in submitting the scheme or seek any extension of time limit from the Adjudicating Authority; therefore, the appellant is unable to establish his bonafide about his seriousness in proposing such a scheme.
“…the intention and seriousness of the Appellant in submitting a scheme as prayed by him appears to be doubtful.”
With regards to whether the appellant was interested in providing a credible scheme of compromise and arrangement, the Tribunal observed that the said scheme proposed to make payments upto an extent of 100% of admitted claimed amounts within 90 days of approval of scheme, to a number of related parties, unsecured creditors and even to those who had not submitted claims, whereas in the event of auction-sale the payments would be made promptly to claims in accordance with the ‘waterfall mechanism’ under section 53 of IBC.
The Tribunal observed that “The said scheme, therefore, appears to be a ‘fictional one’ ostensibly to appropriate the land to the benefit of a select few who are related parties of the corporate debtor.”
The Tribunal dissected Arun Kumar Jagatramka (supra) which was cited by both the parties where it was opined that “the promoter or those in the management of the company under liquidation cannot be allowed a ‘backdoor entry’ into the company and hence, would be considered ineligible to submit a proposal under Section 230 of the Companies Act, 2013.” Giving regarded to the observation in Arun Kumar Jagatramka (supra), the Tribunal opined that the motive or intention of the appellant in putting forward a useless scheme of compromise and arrangement in respect of the corporate debtor becomes seriously doubtful.
Tribunal’s Decision
Upholding the Adjudicating Authority’s order, the Tribunal held that the appellant had failed to submit a credible scheme even after reasonable opportunity was provided to them and the proposed scheme was an attempt to inflate the pay outs to related parties.
“…the Adjudicating Authority provided reasonable and sufficient opportunity to the Appellant to submit a credible scheme of compromise and arrangement, and the fact that the scheme so presented by the Appellant was prima-facie found to inflate the total payments by provisioning payments to creditors who are either related to the corporate debtor or for such creditors who had not filed legitimate claims in the liquidation process and thus, the proposed payments were in effect not of greater value than the amount being offered by the successful bidder in the e-auction.”
[Bankey Bihari Infrahomes (P) Ltd. v. Alok Kumar Kuchchal, 2022 SCC OnLine NCLAT 1613, decide on 06-12-2022]
Advocates who appeared in this case:
Mr. Abhijeet Sinha, Mr. Aditya Shukla, Heena Kochar and Mr. Narendra Kumar, Counsel for the Appellant;
Mr. Abhishek Anand and Mr. Rukbaan Tyagi, Counsel for the Liquidator;
Mr. Alok Kumar Kuchchal (party in person), Mr. P. Nagesh (Senior Advocate) and Mr. Akshay Sharma, Counsel for the Respondent No. 2;
Mr. Srijan Mehrotra and Mr. Anshu Yadav, Counsel for the Homebuyer.
*Ritu Singh, Editorial Assistant has put this report together.