NCLAT Delhi Cancels Liquidation Order; Provides an additional opportunity to invite resolution plans

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The National Company Law Appeals Tribunal (“NCLAT”), main bench, consisting of Judge Ashok Bhushan (president) and Mr. Barun Mitra (technical member), while ruling on an appeal filed in Nikhil Tandon against Sanjeev Bindal & Ors.rescinded a winding-up order of the debtor company and provided a further opportunity for the creditors’ committee and the resolution professional to determine whether there may be a resolution plan to revive the debtor company.

Background Facts

The Small Industries Development Bank of India (“SIDBI”) had filed a petition under Section 7 of the Insolvency and Bankruptcy Code 2016 (“IBC”), requesting the commencement of Corporate Insolvency Resolution (“CIRP”) against Radhey Sham Tandon Manufacturing Pvt. Ltd (“Debtor Company”) and the Debtor Company was admitted to the CIRP on 10.10.2019. Mr. Sanjeev Bindal (“Respondent #1”) has been appointed as the resolution professional.

The 5th meeting of the Creditors’ Committee (CoC) was held on 24.02.2020, during which it was decided that since the operation of the debtor company did not continue for more than one year, it should be liquidated.

During the 6th meeting of the CoC, the suspended director of the debtor company, Mr. Nikhil Tandon (suspended director/appellant), submitted a resolution plan before the CoC claiming to be an MSME and therefore eligible to submit a plan. The CoC did not consider the Plan to be inconsistent with Section 30 of the IBC.

In the 7e meeting of the CoC, the resolution plan was discussed and the caller requested a briefing note to submit the resolution plan in accordance with the law. In the 8e CoC Meeting, the resolution professional found that the appellant is not an MSME and did not file an affidavit. Furthermore, the financial creditor’s total claim was much higher than the amount of the resolution plan. The CoC has decided that the Appellant’s Plan cannot be deliberated because no Resolution Plan has been requested and the liquidation has already been approved in the 5e CoC meeting.

Subsequently, the resolution professional submitted a request for liquidation of the debtor company to the contracting authority and the latter approved the liquidation. see an order dated 26.08.2021. The Appellant appealed to the NCLAT, challenging the liquidation order.

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If the decision of the CoC taken during the 5e Was the CoC meeting to liquidate the debtor company a sustainable decision?

NCLAT Decision

It was observed that at the 5th meeting of the CoC, it had already been decided to liquidate the debtor company. In the 6th CoC, the CoC approved the appellant’s request to submit a resolution plan. He indicates that the CoC reconsidered its earlier decision and proceeded with the examination of the plan submitted by the appellant who was an MSME, but that in the end the plan was refused on the sole ground that no resolution plan had not been requested.

When, at the CoC meeting, the appellant was allowed to submit a resolution plan, it cannot be said that the appellant was not invited to submit a resolution plan. In addition, the CoC should have given the possibility to others to submit a resolution plan by ordering the issuance of Form G, which was never done. The non-acceptance of a debtor company as a registered MSME is a material irregularity that has been committed in the CIRP.

The bench held that CoC’s decision to liquidate the debtor company also cannot be considered sacrosanct. When the CoC allowed the appellant to file a resolution plan, the decision to liquidate the debtor company was not pursued.

“In the facts of the present case, the decision to liquidate the debtor company was taken at the 5th meeting of the CoC held on 24.02.2020 at which time no appraiser was appointed and no liquidation value. The resolution professional has not even prepared a memorandum of information. As stated above, the object and purpose of the I&B Code is to revive the Debtor Company and put it back on track. The CoC does not made no effort to issue a Form G to find out whether Corporate Debtor could be rescinded by any Respondent. Without even making a single effort, CoC jumped to the conclusion to liquidate. It is true that in under the law, CoC is empowered to make a decision to liquidate Corporate Debtor. A material irregularity has been committed in the process as already noted above.”

The bench held that there were sufficient grounds within the meaning of Section 61(4) of the IBC to attack the order directing the winding up. It was observed that the contracting authority only relied on the resolution of the CoC at the 5th meeting and ordered the liquidation, disregarding the minutes of the subsequent 6th, 7th and 8th CoC meetings, the actions taken by the CoC to invite the appellant’s plan, discussion of the plan and, ultimately, decision on it.

The Chamber canceled the liquidation order of 26.08.2021 and ordered that other measures be taken at the CIRP. The following guidelines were adopted:

I. An extension of the 90-day period for the resolution professional and the CoC to take steps to prepare the information memorandum and issuance of Form G and review of the resolution plan, if any, and make the appropriate resolution decision in the CIRP process.

II. The appellant may also, in accordance with the issuance of Form G, submit their resolution plan which must also be reviewed by the CoA along with other plans, if any.

Case title: Nikhil Tandon against Sanjeev Bindal & Ors.

Case no: Company Appeal (AT) (Insolvency) No. 13 of 2022

Counsel for the Appellant: Mr. Pulkit Deora, lawyer.

Counsel for Respondents: Mr. Sanjeev Bindal, liquidator Mr. Aakash Dahiya, lawyer.

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