KRIDHAN INFRASTRUCTURE PVT. LTD. (NOW KNOWN AS KRISH STEEL AND TRADING PVT LTD) versus VENKATESAN SANKARANARAYAN & ORS. on 1 March 2021

520

SUPREME COURT REPORTS

[2021] 2 S.C.R.

AKRIDHAN INFRASTRUCTURE PVT. LTD.(NOW KNOWN AS KRISH STEEL AND TRADING PVT LTD)

v.

VENKATESAN SANKARANARAYAN & ORS.

(Civil Appeal No. 3299 of 2020)

B

MARCH 01, 2021

[DR. DHANANJAYA Y CHANDRACHUD ANDM.R. SHAH, JJ.]

Insolvency and Bankruptcy Code, 2016 – The appellantCsubmitted a resolution plan for a company which was undergoingthe Corporate Insolvency Resolution Process (CIRP) under the 2016Code – The Resolution Plan was approved by the Committee ofCreditors (CoC) and National Company Law Tribunal (NCLT) –Accordingly, the appellant deposited an amount of Rs.5 crores inDan escrow account of the corporate debtor – However, furtherobligations were not fulfilled by the appellant under the ResolutionPlan despite numerous opportunities – As a result on 11.11.2019,the CoC voted for the liquidation of the corporate debtor – Thesame was allowed by the NCLT – In appeal, the NCLAT permittedappellant to deposit Rs.15 crores in the escrow account andEappellant agreed to the stipulation that the amount of Rs.15 croreswould be forfeited if it failed to deposit the payment of Rs. 50 crores– On 08.09.2020, the appeal was dismissed and NCLAT upheld theorder of liquidation – Before the Supreme Court on 09.10.2020,the appellant stated that an amount of Rs.50 crores would beFdeposited on or before 10.01.2021 – The appellant was specificallyinformed that if it failed to do so in whole or in part, the entireamount of Rs.20 crores deposited earlier would be forfeited –Thereafter, the time for making the deposit was extended until25.02.2021 – However, several months elapsed after extension oftime and no payments were made – Appellant submitted that it hasGmoved to term lenders for finance – However, before finance canbe made available to the appellant, the term lenders insisted thatthe status of the company must be altered from that of a companyunder liquidation, to an active company – Held : The appellant wasunable to raise the funds – The fact of the matter emerges that the H

appellant will be unable to raise funds from the term lenders, whowere insisting on changing the status of company from underliquidation to an active status – The order of liquidation was not setaside – What the request of the appellant reduces itself to, is that itwould raise funds on a mortgage of assets of the company andunless the company is bought out of liquidation, it would not be ina position to raise the funds – This cannot be accepted – The orderof liquidation was stayed and a final view is yet to be taken –Sufficient opportunities were granted to the appellant and it wasnot able to deposit Rs.50 crores – The appellant has failed to abideby its obligations – The consequence envisaged under the order ofthe Supreme Court accordingly ensue the forfeiture of the amountof Rs.20 crores – As a consequence, the management directed torevert to the liquidator for taking steps in accordance with law.

Dismissing the Civil Appeal, the Court

Conclusion

Dismissing the Civil Appeal, the Court

HELD: 1. The appellant has been unable to raise the funds.The fact of the matter, as it emerges from appellant’s submission,is that the appellant will be unable to raise funds from the TermLenders who are insisting that the status of the Company shouldchange from a company under liquidation to an active status. Theorder of liquidation has not been set aside. Ultimately, what therequest of the appellant reduces itself to, is that it would raisefunds on a mortgage of the assets of the Company and unless theCompany is brought out of liquidation, it would not be in a positionto raise the funds. This is unacceptable. At this stage, the orderof liquidation has only been stayed, but a final view was, thus, tobe taken by this Court. Sufficient opportunities were granted tothe appellant earlier during the pendency of the proceedings bothbefore the NCLT and NCLAT. The orders of the NCLT andNCLAT make it abundantly clear that despite the grant ofsufficient time, the appellant has not been able to comply withthe terms of the Resolution Plan. Since 9 October 2020, despitethe passage of almost five months, the appellant has not beenable to deposit an amount of Rs 50 crores. Time is a crucial facetof the scheme under the IBC. To allow such proceedings to lapseinto an indefinite delay will plainly defeat the object of the statute.A good faith effort to resolve a corporate insolvency is a preferred AB

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Acourse. However, a resolution applicant must be fair in its dealingsas well. The appellant has failed to abide by its obligations. Inthat view of the matter, we see no reason or justification toentertain the Civil Appeal any further. The consequence envisagedunder the order of this Court shall accordingly ensue in terms ofthe forfeiture of the amount of Rs 20 crores. As a consequence ofBthis order, the management shall revert to the liquidator for takingsteps in accordance with law. [Para 11][528-A-F]

Innoventive Industries Ltd. v ICICI Bank (2018) 1 SCC407:[2017] 8 SCR 33 – referred to.

CCase Law Reference

[2017] 8 SCR 33referred topara 11

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3299of 2020

DFrom the Judgment and Order dated 08.09.2020 of the NationalCompany Law Appellate Tribunal at New Delhi in Company Appeal(AT) (Insolvency) No. 202 of 2020.

K.V. Vishwanathan, Sr. Adv., Gaurav Varma, Adv. for theAppellant.

EMs. Meenakshi Arora, Sr. Adv., Ms. Misha, Ms. Charu Bansal,Ms. Prabh Simran Kaur, S. S. Shroff, Ashish Makhija, Ms. Shagun Matta,Abhijit Sengupta, Dibyadyuti Banerjee, Srideep Chatterjee, Anand Dey,Ms. Sumedha Banerjee, Advs. for the Respondents.

DR. DHANANJAYA Y CHANDRACHUD, J.

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1 This appeal arises from an order of the National Company LawAppellate Tribunal[1] dated 8 September 2020.

2 The appellant submitted a Resolution Plan for a company by thename of Tecpro Systems Limited[2] which was undergoing the Corporateinsolvency Resolution Process under the Insolvency and BankruptcyGCode 2016[3]. The Resolution Plan was approved by the Committee of 1 “NCLAT”

2 “Corporate Debtor”

H3 “IBC”

Creditors[4] on 8 March 2019 with a majority of 89.92%. The ResolutionPlan was approved by the National Company Law Tribunal[5] on 15 May2019. The appellant accordingly deposited an amount of Rs 5 Crores inan Escrow Account of the Corporate Debtor. However, the appellantdid not fulfil its further obligations, including equity infusion, under theResolution Plan despite numerous opportunities over a period of sixmonths. On 11 November 2019, the CoC voted, by a majority of 99.28%,for the liquidation of the Corporate Debtor as a result of the failure ofthe appellant to implement the Resolution Plan. On 16 January 2020, theNCLT allowed the liquidation of the Corporate Debtor to proceed. Theorder of the NCLT was upheld by the NCLAT. Among other things, theNCLAT noted that the appellant had failed to implement the ResolutionPlan for a period of over eight months and, hence, declined to exerciseits jurisdiction pursuant to its inherent power under Rule 11 of the NCLATRules, 2016.

3 When the appeal came before this Court on 9 October 2020, astatement was made on behalf of the appellant that an amount of Rs 50crores would be deposited on or before 10 January 2021. Liquidationunder the IBC is a matter of last resort. Bearing this in mind, and in viewof the solemn statement made by Senior Counsel for the appellant, anopportunity was granted to the appellant. Accordingly, the following orderwas passed:

“1Admit.

2We have heard Dr Abhishek Manu Singhvi, Senior counselin support of the appeal. Ms Meenakshi Arora, Senior counselappears on behalf of Edelweiss Asset ReconstructionCompany Limited (EARC), a financial creditor, who hadappeared before the National Company Law AppellantTribunal. EARC has supported the appellant. Mr AshishMakhija, learned counsel appears on behalf of the liquidatorto oppose the appeal and support the order of the NationalCompany Law Appellate Tribunal.

3The corporate insolvency resolution process (CIR process)was initiated against the Corporate Debtor on 7 August 2017.The Resolution Plan submitted by the appellant was approvedon 30 April 2018 by the Committee of Creditors (CoC). The 4 “CoC”

5 “NCLT”

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AResolution Plan was approved by the NCLT on 15 May 2019.The NCLT was thereafter moved on the ground that theResolution Plan had not been implemented by the appellant.Hence an application was filed under Section 33 of theInsolvency and Bankruptcy Code 2016 seeking liquidationof the Corporate Debtor. This was allowed by the NCLT byBits order dated 16 January 2020.

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4After the appellant filed an appeal before the NCLAT on 3February 2020, an opportunity was granted to them to file anaffidavit indicating the time frame for compliance of theResolution Plan. On 25 February 2020, a meeting took placeCbetween the member of the erstwhile CoC, the appellantand the liquidator. A revised time line was agreed upon, underwhich the appellant was to make a payment upfront of Rs15 crores within seven days of the order of the NCLAT,which was liable to be forfeited if the appellant failed toDmake the balance upfront payment of Rs 50 crores withinthree months thereafter.

5The appellant filed an affidavit before the NCLAT on 2 March2020 apprising it of the understanding which had been arrivedat on the above terms. On 29 July 2020, the NCLAT permittedEthe appellant to deposit Rs 15 crores in an escrow accountto be specified by the lenders of the erstwhile CoC, withinten days. It is not in dispute that the appellant has incompliance with the order of the NCLAT, deposited Rs 15crores. The appellant filed an undertaking on affidavit on 18August 2020, accepting its obligation to make an upfrontFpayment of Rs 50 crores within three months from the dateof the reversal of the liquidation order. The appellant agreedto the stipulation that the amount of Rs 15 crores depositedby it in escrow would stand forfeited if it failed to deposit thepayment of Rs 50 crores. NCLAT by its order dated 8GSeptember 2020, dismissed the appeal and upheld the orderof liquidation.

6Dr Abhishek Manu Singhvi, Senior counsel appearing onbehalf of the appellant submits that liquidation of theundertaking should be a matter of last resort and, consistent H

with the understanding which was arrived at on 25 February2020, the appellant is willing to abide by the terms as agreed.He has submitted that within a period of three months, theappellant would bring in the upfront payment of Rs 50 crores,failing which the amount of Rs 15 crores which has alreadybeen deposited in escrow would stand forfeited together withthe amount of Rs 5 crores that was deposited following theapproval of the Resolution Plan.

7Ms Meenakshi Arora, Senior counsel appearing on behalf ofEARC supports the proposal which has been submitted bythe appellant on the ground that the erstwhile members ofthe CoC have in their commercial decision found it in theirbest interest to allow the Resolution Plan to be implemented.

8Mr Ashish Makhija, learned counsel appearing on behalf ofthe liquidator has while opposing the appeal submitted thatwhile the liquidator does not in principle oppose the request,as an officer of the Court, he would wish to apprise the Courtof the fact that the appellant did not take steps following theapproval of the Resolution Plan in May 2019 for complyingwith its obligations.

9Liquidation of the Corporate Debtor should be a matterof last resort. The IBC recognizes a wider publicinterest in resolving corporate insolvencies and itsobject is not the mere recovery of monies due andoutstanding. The appellant has indicated its bona fides,at least prima facie at the present stage, byunconditionally agreeing to subject itself to theforfeiture of an amount of Rs 20 crores, which has beendeposited by it, in the event that it fails to comply withthe requirement of depositing an additional amount ofRs 50 crores within a period of three months in termsof the understanding that was arrived at on 25 February2020. In order to enable the appellant to have one finalopportunity to do so, we direct that the appellant shall,in order to demonstrate its bona fides deposit anamount of Rs 50 crores upfront in terms of theunderstanding which was arrived at on 25 February2020. The appellant is specifically placed on notice of ABC

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the fact that should it fail to do so in whole or in part,the entire amount of Rs 20 crores which has beendeposited thus far, shall stand forfeited without anyfurther recourse to the appellant. Accordingly, thefollowing interim directions are issued:

(i) The operation of the impugned order of the NCLATdated 8 September 2020, is stayed; B

(ii) The appellant shall, in order to demonstrate its abilityto implement the Resolution Plan and in compliancewith the understanding arrived at on 25 February 2020deposit an amount of Rs 50 crores, on or before 10January 2021; and C

(iii) The auction of the properties of the Corporate Debtorshall remain stayed in the meantime.

10The appeal shall be listed on 12 January 2021.”

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(emphasis supplied)

4. Subsequently, on 25 November 2020, the above order wasclarified by this Court and time for making the deposit was extendeduntil 25 February 2021.

E5. Though nearly five months have elapsed since the first order,no payment has been made. Even after second order granting theextension of time, three months have elapsed. The appellant took overthe Corporate Debtor after the order of stay. Though given charge, theappellant has not fulfilled its reciprocal obligations. IA 22633 of 2021 hasbeen filed in the Civil Appeal, seeking a direction to the Ministry ofFCorporate Affairs, the Registrar of Companies and the Insolvency andBankruptcy Board of India[6] to take on record the newly appointed directorsand signatories of the Corporate Debtor; to accept the Corporate Debtoras an active company and change its status from “under liquidation” to“active” and generally to take all actions in compliance of the previousGorders of this Court.

6. Mr K V Vishwanathan, learned Senior Counsel appearing onbehalf of the appellant, submits that pursuant to the earlier orders dated9 October 2020 and 25 November 2020, the appellant had moved theTerm Lenders for finance. However, the appellant submits that beforeH6 “IBBI”

finance can be made available to the appellant, the Term Lenders haveinsisted that the status of the Company must be altered from that of acompany under liquidation, to an active company. A copy of the emailaddressed by the Insolvency and Bankruptcy Board of India on 15January 2021 has been annexed to the aforesaid IA. Mr Vishwanathansubmits that the previous orders of this Court recognize that the appellantwas required to deposit an amount of Rs 50 crores in terms of theunderstanding which was arrived at with the CoC on 25 February 2020.It has been submitted that the appellant would hence raise the fundsafter securing a mortgage on the assets of the Corporate Debtor.However, the Term Lenders are not ready and willing to make fundsavailable unless the status of the Company is altered.

7. Ms Meenakshi Arora, learned Senior Counsel appearing onbehalf of Edelweiss Asset Reconstruction Company Limited[7], submitsthat EARC has the largest stake in respect of the Corporate Debtor. MsArora has submitted that EARC, as recorded in the earlier orders,supported the appellant in its efforts to comply with the Resolution Planand, accordingly, suitable orders may be passed by this Court so as tofacilitate the appellant in raising the necessary funds.

8. On the other hand, Mr Ashish Makhija, learned counsel, whohad appeared on behalf of the Liquidator, submits that though themanagement was handed over to the appellant, the appellant hasproceeded to take action towards settling various disputes, includingarbitration matters and despite various opportunities having been grantedto it, the appellant has been unable to raise funds, as stated before thisCourt. Hence, Mr Makhija submits that an appropriate view may betaken by this Court on the default by the appellant.

9. The above submission of Mr Makhija has been controvertedby Mr Vishwanathan who denies that arbitration claims have been settled.

10. By the order of the court dated 9 October 2020, which waspassed on the statement which was made by Senior Counsel, an amountof Rs 50 crores was required to be deposited before 10 January 2021.On 25 November 2020, while clarifying the earlier order by which theorder of NCLAT was stayed, time for the deposit of Rs 50 crores wasextended until 25 February 2021. The appellant was clearly put on noticethat the amount of Rs. 20 crores already deposited would stand forfeitedin the event the appellant fails to comply with the terms of the order.

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A11. The appellant has been unable to raise the funds. The fact ofthe matter, as it emerges from Mr Vishwanathan’s submissions, is thatthe appellant will be unable to raise funds from the Term Lenders whoare insisting that the status of the Company should change from a companyunder liquidation to an active status. The order of liquidation has notbeen set aside. Ultimately, what the request of the appellant reducesBitself to, is that it would raise funds on a mortgage of the assets of theCompany and unless the Company is brought out of liquidation, it wouldnot be in a position to raise the funds. This is unacceptable. At this stage,the order of liquidation has only been stayed, but a final view was, thus,to be taken by this Court. Sufficient opportunities were granted to theCappellant earlier during the pendency of the proceedings both before theNCLT and NCLAT. The orders of the NCLT and NCLAT make itabundantly clear that despite the grant of sufficient time, the appellanthas not been able to comply with the terms of the Resolution Plan. Since9 October 2020, despite the passage of almost five months, the appellanthas not been able to deposit an amount of Rs 50 crores. Time is a crucialDfacet of the scheme under the IBC.[8] To allow such proceedings to lapseinto an indefinite delay will plainly defeat the object of the statute. Agood faith effort to resolve a corporate insolvency is a preferred course.However a resolution applicant must be fair in its dealings as well. Theappellant has failed to abide by its obligations. In that view of the matter,Ewe see no reason or justification to entertain the Civil Appeal any further.The consequence envisaged under the order of this Court shall accordinglyensue in terms of the forfeiture of the amount of Rs 20 crores. As aconsequence of this order, the management shall revert to the liquidatorfor taking steps in accordance with law. The Civil Appeal is accordinglydismissed.F12. Pending applications, including the application for impleadment,stand disposed of.

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Ankit Gyan

Appeal dismissed.

H8 Innoventive Industries Ltd. v ICICI Bank, (2018) 1 SCC 407, paras 12-16