Committee of Creditors of Amtek Auto Ltd. Vs Mr. Dinkar T.Venkatasubramanian & Ors. (NCLAT Delhi)
Recently the Delhi bench of National Company Law Appellate Tribunal (NCLAT) has passed an order for liquidation in the case of Amtek Auto Limited. The two-judge Bench headed by Justice S J Mukhopadhya, stated in its order ‘As we have noted that more than 270 days have been completed much earlier and no case is made to exclude any period, we hold that adjudicating authority has no other option but to pass order of liquidation.’
It is pertinent to note that insolvency proceedings against Amtek Auto Limited were initiated by a consortium of banks led by Corporation Bank in 2017. The Chandigarh bench of National Company law Tribunal accepted the application for CIRP 24th July, 2017. Mr Dinkar Tiruvannadapuram Venkatsubramanian was appointed interim resolution professional on 27th July, 2017. All procedures as laid down under the Insolvency and Bankruptcy Code 2016 were carried out by the resolution professional. The Committee of Creditors after detailed scrutiny approved the resolution plan submitted by Liberty House Group Pte Ltd. Amtek Auto Limited has a total debt of Rs.12,603 crore.The adjudicating authority has approved the Rs.4025 crore resolution plan of Liberty House on 24th July,2018.This plan included an upfront payment of Rs. 3225 crore and a fresh infusion of Rs.500 crore for stablising and improving operations.
However Liberty House Group backtracked citing blatant discrepancies in the condition of machineries, valuations and representations made in the information memorandum and valuation reports. The Insolvency and Bankruptcy Board of India (IBBI) filed a complaint against Liberty House in May, 2018. Section 74(3) of the Insolvency and Bankruptcy Code 2016 says that any party that violates conditions laid down under the resolution plan is liable for prosecution and may face a prison term of up to five years with a penalty of up to Rs. 1 crore.
This complaint of IBBI was in accordance with the decision of NCLT, Chandigarh bench of NCLT which had allowed the Committee of Creditors and Resolution Professional to approach IBBI to initiate criminal proceedings against Liberty House.
However NCLAT, Chandigarh bench on 16th August, 2019 set aside the order and asked the lenders or the Resolution Professional should move a fresh application before NCLT which should then hear Liberty House before passing any order against it.
NCLAT in its judgment said “ We are of the opinion that before referring any matter to IBBI or the Central Government, the tribunal is required to provide reasonable opportunity of hearing to the parties concerned or alleged offenders of provisions… and if satisfied may request the central government to investigate the natter by inspector or inspectors. Further NCLAT also asked Chandigarh bench of NCLT to proceed with liquidation of the company.
It is worth noting that the insolvency resolution process began in July,2017 and now more than 24 months have passed (about 720 days) as against stipulated maximum period of 270 days allowed for resolution of insolvency process.
Let us look at the preamble of IBC 2016
The Preamble of the Insolvency and Bankruptcy Code describes the basic functions of the Insolvency and
Bankruptcy Code as-
“…
to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate
persons, partnership firms and individuals in a time bound manner for maximization of the value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.”
Now in the instant case of Amtek Auto Limited where the corporate applicant, Liberty House backtracked from the resolution plan submitted by it to the resolution professional and also approved by Committee of Creditors was as per section 74(3) of IBC 2016 was liable to be penalised and imprisoned but now that is also postponed (or may not happen at all) and the company if liquidated now will not serve the very basic purpose of IBC 2016 as:
a).The resolution process as approved is not completed due to corporate applicant backtracking from the plan.
b).The process is not carried out in the time bound manner
c). The interests of all the stakeholders are not balanced.
Moreover the corporate applicant will not suffer any punishment also even though it is because of this backtracking only that the resolution process failed. It is time the lawmakers looked into these provisions of IBC 2016 and implement them in letter and spirit. Alternatively it could be considered to have more than one resolution plan(s) approved beforehand to keep up with investments, employment and other interests of the corporate debtors in mind to minimize the losses in the economy.
FULL TEXT OF ORDER OF NATIONAL COMPANY LAW APPELLATE TRIBUNAL, DELHI
Pursuant to an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“I&B Code” for short), the ‘Corporate Insolvency Resolution Process’ was initiated against ‘Amtek Auto Limited’- (‘Corporate Debtor’) on 24th July, 2017.
2. Subsequently, the ‘Resolution Professional’ published advertisement inviting prospective ‘Resolution Applicants’ to submit a ‘Resolution Plan’ by 31st August, 2017. On receipt of ‘Resolution Plans’ followed by improved ‘Resolution Plan’/ revised ‘Resolution Plan’, the ‘Resolution Plan’ filed by one ‘M/s. Liberty House Group Pte Ltd.’ and another ‘Deccan Value Investors LP’ were considered by the ‘Committee of Creditors’.
3. On 6th March, 2018, ‘Deccan Value Investors LP’ withdrew its ‘Resolution Plan’, so the revised plan of “M/s. Liberty House Group Pte Ltd.’ was considered by the ‘Committee of Creditors’ which approved the plan on 2nd April, 2018 with majority voting shares of 94.20%.
4. Thereafter, the ‘Resolution Professional’ filed application under Section 31 before the Adjudicating Authority (National Company Law Tribunal), Chandigarh Bench, Chandigarh on 16th April, 2018 and the Adjudicating Authority by order dated 25th July, 2018 approved the ‘Resolution Plan’ of ‘M/s. Liberty House Group Pte Ltd.’.
5. When the question of implementation of the approved ‘Resolution Plan’ of ‘M/s. Liberty House Group Pte Ltd.’ was taken up by the ‘Resolution Professional’, it has noticed that in spite of e-mail sent on 5th September, 2018 and detailed e-mail sent on 12th September, 2018, no favourable response was received from ‘M/s. Liberty House Group Pte Ltd.’. Even the Performance Guarantee and the escrow account and other terms and conditions which were approved pursuant to the ‘Resolution Plan’ were not acted upon.
6. The ‘Successful Resolution Applicant’- ‘Liberty House Group’ through its counsel sent a Letter of Intent on 14th September, 2018 to the ‘Committee of Creditors’ seeking to delete material conditions under the Process Note including the furnishing of Performance Guarantee, which was rejected by the ‘Committee of Creditors’. It is alleged that in spite of repeated reminders given by the ‘Resolution Professional’, ‘M/s. Liberty House Group Pte Ltd.’ failed to furnish the performance guarantee in terms of the Process Note and also failed to open escrow account with 15% of the upfront amount of Rs. 528.75 crores.
7. ‘M/s. Liberty House Group Pte Ltd.’ on 24th September, 2018 sent a letter assuring that an escrow account would be set up but finally on one or other ground ‘M/s. Liberty House Group Pte Ltd.’ refused to give effect to the ‘Resolution Plan’. In the meantime, ‘M/s. Liberty House Group Pte Ltd.’ filed a suit for injunction on 26th November, 2018 before the Hon’ble Delhi High Court seeking encashment of the Bid Bond Guarantee. The ‘Committee of Creditors’ invoked the Bid Bond Guarantee of Rs.50 Crores but the Barclays Bank on 27th November, 2018 rejected the invocation of Bid Bond Guarantee of Rs.50 Crores on the ground that the invocation was not as per the prescribed format.
8. In the meantime, one or other order was passed by the Hon’ble Delhi High Court in a suit filed by ‘M/s. Liberty House Group Pte Ltd.’.
9. At this stage, the ‘Committee of Creditors’/ ‘Financial Creditors’ filed an application under Section 60(5) read with Section 74(3) of the ‘I&B Code’ before the Adjudicating Authority with prayer to declare that ‘Resolution Applicant’- ‘M/s. Liberty House Group Pte Ltd.’ and its Promoters upon whom the ‘Resolution Plan’ is binding under Section 31 of the ‘I&B Code’, have knowingly contravened the terms of the ‘Resolution Plan’ having failed to implement the same. Further prayer was made to reinstate the ‘Committee of Creditors’ and the ‘Resolution Professional’ to ensure that the ‘Corporate Debtor’ remain as a going concern. Further prayer was made to grant 90 days to the ‘Resolution Professional’ to make another attempt for a fresh process rather than forcing the ‘Corporate Debtor’ into liquidation on account of fraud committed by ‘M/s. Liberty House Group Pte Ltd.’. Prayer was also made to debar ‘M/s. Liberty House Group Pte Ltd.’ from applying for a fresh ‘Resolution Plan’ and further direction to the Insolvency and Bankruptcy Board of India to take steps for initiation of proceeding under Section 74(3) of the ‘I&B Code’ for trial and punishment under the said provisions.
10. The Adjudicating Authority (National Company Law Tribunal), Chandigarh Bench, by impugned order dated 13th February, 2019, noticed the principle laid down by this Appellate Tribunal in “Quinn Logistics India Pvt. Ltd. vs. Mack Soft Tech Pvt. Ltd.- SCC OnLine NCLAT 243” and the order passed by the Hon’ble Supreme Court in “Arcelormittal India Private Limited v. Satish Kumar Gupta and Ors.- (2018) SCC OnLine SC 1733”.
11. The Adjudicating Authority held that in view of the principle laid down by the Hon’ble Supreme Court in “Arcelormittal India Private Limited” (Supra), certain period can be excluded from the total period of 270 days but there is no scope of granting extension beyond 270 days under any circumstances.
12. The Adjudicating Authority further held that there were only two ‘Resolution Plans’ one submitted by ‘M/s. Liberty House Group Pte Ltd.’, and other by ‘Deccan Value Investors LP’ which backtracked because there was some better amount of bid offered by ‘M/s. Liberty House Group Pte Ltd.’, whose ‘Resolution Plan’ was approved. Since the approved ‘Resolution Plan’ cannot be implemented because of the default in making payment as per the terms of the ‘Resolution Plan’, the period when the ‘Resolution Plan’ was submitted by ‘Deccan Value Investors LP’ till the disposal of the application can only be reconsidered by the ‘Committee of Creditors’ by reconstituting it and not by initiating fresh process, which would defeat the fresh binding timelines provided under the ‘I&B Code’ to complete the process’. The Adjudicating Authority observed that no matter if the ‘Corporate Debtor’ ultimately has to face liquidation, but the permission to restart the process to publish re-advertisement and invite fresh plans etc. would defeat the very mandate of Section 12 of the ‘I&B Code’.
13. The Adjudicating Authority noticed the submissions made on behalf of ‘M/s. Liberty House Group Pte Ltd.’. According to whom, it discovered blatant discrepancies in the condition of machineries, valuations and representations made in the Information Memorandum and Valuation Reports, from which the ‘M/s. Liberty House Group Pte Ltd.’, became aware that the information contained in the Information Memorandum was incorrect, false and reflecting inflated values and information.
14. However, the application filed by ‘Successful Resolution Applicant’ namely— ‘M/s. Liberty House Group Pte Ltd.’ for declaration that the ‘Corporate Insolvency Resolution Process’ in respect of ‘Amtech Auto Limited’ commencing on 24th April, 2017 and culminating into order of approval of ‘Resolution Plan’ on 25th July, 2018 is vitiated by misrepresentation/fraud/mistake of fact has also been disallowed by the Adjudicating Authority by common impugned order dated 13th February, 2019.
However, certain observation has been made with regard to the manner in which Information Memorandum was prepared based on which the ‘Resolution Plan’ filed by the ‘Successful Resolution Applicant’.
15. The contentions raised by learned counsel for ‘M/s. Liberty House Group Pte Ltd.’, learned counsel for the ‘Financial Creditors’ and the learned counsel for the ‘Resolution Professional’ at the time of hearing application being CA No. 567/2018 were disposed of in which the right has been kept open to the ‘M/s. Liberty House Group Pte Ltd.’ to defend any action. The prayer made by ‘M/s. Liberty House Group Pte Ltd.’ to lay down the guidelines for compliance by the ‘Resolution Professionals’ in such cases has not been answered by the Adjudicating Authority and the ‘Financial Creditors’ have been given liberty to file a complaint before the Insolvency and Bankruptcy Board of India or the Central Government, claiming that the ‘M/s. Liberty House Group Pte Ltd.’ intentionally and will fully contravened the terms of the plan.
16. Similar plea has been taken by ‘M/s. Liberty House Group Pte Ltd.’ before this Appellate Tribunal in its appeal (Company Appeal (AT) (Insolvency) No. 442 of 2019) wherein it is alleged that on knowing the aforesaid fact ‘M/s. Liberty House Group Pte Ltd.’ immediately wrote a letter on 6th November, 2018 stating that in view of the developments regarding discovery of serious irregularities in the information shared with the Appellant during the bidding process it was necessary that a meeting be held with the ‘Committee of Creditors’, to find a way to discuss and agree to a suitable ‘Resolution Plan’ where the true valuation of ‘Corporate Debtor’ is reflected.
17. The stand of ‘M/s. Liberty House Group Pte Ltd.’ is that the ‘Resolution Professional’ under Section 25(2)(g) read with Section 29 of the ‘I&B Code’ was required to prepare an Information Memorandum with the relevant information, including the liquidation value of the ‘Corporate Debtor’ as per Regulation 36 of the un-amended ‘Corporate Insolvency Resolution Process Regulations’. Reference has also been made to the paragraph 5.3.2 of the ‘Bankruptcy Law Reforms Committee Report 2015’, which requires the ‘Resolution Professional’ to provide most updated information about the entity as accurately as is reasonably possible to this range of solution providers.
18. It was submitted that what has been discovered by the ‘Resolution Applicant’ that the financial statements of the ‘Corporate Debtor’ for the quarter and half year ending September 2017 was unaudited and standalone. It was discovered that the investment of the ‘Corporate Debtor’ was overvalued in the Liquidation Reports, as a result, the ‘Resolution Applicant’ (‘M/s. Liberty House Group Pte Ltd.’) in good faith acted upon by relying on such information set out in the Liquidation Reports. Subsequently having come to know of the discrepancies, ‘M/s. Liberty House Group Pte Ltd.’ wanted to have a meeting with the ‘Committee of Creditors’ to file fresh plan.
19. The Adjudicating Authority taking into consideration all the aforesaid facts and submissions made by the parties, rejected the prayer made by the ‘Committee of Creditors’/‘Financial Creditors’ and disposed of their CA No. 567 of 2018.
20. Learned counsel for the ‘Committee of Creditors’ made similar prayer for exclusion of the period for the purpose of counting total period of 270 days of ‘Corporate Insolvency Resolution Process’.
21. It is informed that on account of an informal feedback received by the ‘Resolution Professional’, various prospective investors have shown interest in participating in the ‘Corporate Insolvency Resolution Process’ of the ‘Corporate Debtor’, in the event an opportunity is granted by this Appellate Tribunal.
22. It is also informed by the ‘Committee of Creditors’ that the following entities who have expressed an informal interest for participating the ‘Corporate Insolvency Resolution Process’ of the ‘Corporate Debtor’:
