On March 27, 2023, the National Company Law Appellate Tribunal (“NCLAT”) in the case of, Nabhinagar Power Generating Company Limited v. Ram Ratan Modi, Liquidator of DC Industrial Plant Services Private Limited, [Company Appeal (AT) (Insolvency) No. 478 of 2021], remanded the matter to National Company Law Tribunal, Kolkata (“Adjudicating Authority”) for considering the claim of the Appellant, which was rejected by the liquidator, even after closure of the liquidation process and the corporate debtor already being sold to a new purchaser.
- The Appellant had awarded two contracts to DC Industrial Plant Services Private Limited (“Corporate Debtor/ Company in Liquidation”) both dated May 14, 2013 for design, engineering, procurement/ manufacture, shop fabrication, assembly, inspection and testing manufacturer's works, type testing, packing, supply to site of all equipment/ materials and mandatory spares and transportation and installation services including Structural works, covered under Ash Handling and Ash water Recirculating System Package for Nabinagar Super Thermal Power Project (3x660 MW) (“Project”).
- The Corporate Debtor failed to complete a substantial portion of the supply and installation works contemplated under the Project within the contractually prescribed completion date.
- On July 30, 2018, the Adjudicating Authority initiated Corporate Insolvency Resolution Process (“CIRP”) under the Insolvency and Bankruptcy Code, 2016 (“the Code”) against the Corporate Debtor.
- On failure to receive any resolution plan, the Adjudicating Authority vide order dated June 19, 2019, initiated liquidation proceedings against the Corporate Debtor and appointed Respondent No. 1 i.e., Mr. Ram Ratan Modi as Liquidator and directed him to sell the Corporate Debtor as a going concern.
- Appellant filed its claim under Form G as “other creditor" on July 19, 2019 for an amount of Rs. 71,33,65,128/- as due and payable, against heads such as (i) Outstanding Advance (ii) Liquidated Damages (iii) Miscellaneous expenditure (iv) Estimated Cost of completion of balance work (v) Material issued on loan.
- The Respondent No. 1 rejected the claims of the Appellant vide email dated September 4, 2019 on the ground that the Project is ongoing and the Corporate Debtor is continuing as a going concern, and it would not be possible to crystallize the claims of the Appellant at this stage.
- The Appellant filed an Appeal against Respondent No. 1’s order before the Adjudicating Authority. The Adjudicating Authority dismissed the said appeal vide order dated April 16, 2021 (“Impugned Order”).
- In the meantime, Respondent No. 1 was taking steps for sale of the Corporate Debtor as a going concern by issuing notices inviting expression of interest and subsequently conducting E- Auction as well. However, the Respondent No. 1 did not disclose whether in the memorandum or information to bidder, while mentioning the subsisting contracts of the Corporate Debtor with the Appellant, the liabilities arising out of the same contract have been mentioned or not.
- While the present appeal was pending before NCLAT, ‘Karanveer Singh Yadav Enterprise Private Limited’ (“KSYEPL”) was declared as a "Successful Bidder" under the E-Auction process of the ‘Corporate Debtor’ held on 11.02.2021 with bid amount of Rs. 30,00,00,000, which was deposited on November 2, 2021. The Respondent No. 1 also issued a sale certificate to the Successful Bidder and handed over the Corporate Debtor vide the issuance of Sale Certificate dated December 30, 2021, as a going concern, on "As is where is basis", "As is what is basis", "Whatever there is basis" and "No recourse" basis and moreover the distribution had also been made by Respondent No. 1 among the Stakeholders of the Corporate Debtor under the provisions of section 53 of the Code read with Regulation 42 of the Insolvency And Bankruptcy Board Of India (Liquidation Process) Regulations, 2016 (“Liquidation Regulations”).
Arguments of the Appellant:
- The claims of the Appellant are based on facts/ invoices/ contract and were fully determinable.
- The Appellant could not have initiated court proceedings owing to moratorium under section 33(5) of the Code.
- The Corporate Debtor being sold as a’ going concern’ cannot be sold without the liabilities of the Corporate Debtor, as done in the present case.
Arguments of the Respondent:
- The claims of the Appellant were pre-mature and not admissible since the Project execution is continuing and ongoing on a daily basis.
- The claims were based on estimated loss and were contingent in nature and was not adjudicated by any competent authority.
- The Appellant violated the principle of ‘No loss from the breach, no damages’, which means that if the Appellant has not faced loss or if there is actually loss of the Appellant as per the claim, then the Appellant has to approach an adjudicator as per the General Conditions of Contract (“GCC”). The Appellant did not approach any adjudicator to adjudicate the amount of damage.
- After the completion of the Liquidation Process, the Respondent No. 1 filed an application as per Regulation 45 of the Liquidation Regulations along with the Final Report and the compliance certificate in ‘Form- H’ to the Adjudicating Authority for closure of the liquidation process of the Corporate Debtor where the Corporate Debtor is sold as a going concern and the Adjudicating Authority vide order dated April 19, 2022 allowed the said application and passed the order of closure of the Liquidation Process and also held that the Respondent No. 1 stands discharged from his responsibility. Therefore, at this stage there is no option but to reject the appeal as the Impugned Order is well reasoned.
Decision of NCLAT:
Re: Rejection of claim of the Appellant
- The Adjudicating Authority ought to have examined the claims of the Appellant and allowed the ones that could be verified straight away such as advance outstanding, material/ miscellaneous expenditure etc. and considered the others based on Regulation 25 of the Liquidation Regulations.
- The claims of the Appellant are covered under section 3(6) of the Code and falls under the category of “other creditor” in terms of Regulation 20 of the Liquidation Regulations, therefore, has a right to be included in the ‘List of Stakeholders’ of the Company in Liquidation as an 'other creditor’.
- The ‘Liquidator’, unlike the ‘Resolution Professional’, is required to admit or reject the claim on the basis of documentary evidence submitted to him. The role of the ‘Liquidator’ is quasi-judicial in contrast to role of the ‘Resolution Professional’ which is administrative.
Re: Sale of Company under Liquidation as a ‘Going Concern’
- When the Corporate Debtor is being sold as ‘Going Concern’ in terms of Regulation 32A of Liquidation Regulations, the same shall include transfer of both assets and liabilities. (Relied upon Para 9 of M/s. Visisth Services Limited v. S.V. Ramani, CA (AT) (Ins) No. 896 of 2020)
- The Respondent No. 1 failed miserably to understand that he is required to transfer ‘Assets & Liabilities’, together and not ‘Assets’ bereft of ‘Liabilities’ when the Corporate Debtor is being sold as a going concern i.e., the entire business, ‘Assets & Liabilities’ including all contracts. Therefore, Respondent No. 1 could not have excluded the genuine claims of the Appellant while entering into the memorandum of understanding with the KSYEPL.
- In the absence of any right available with the Appellant under law to pursue his claims against Corporate Debtor, the Appellant could not have been deprived of its claims, while forcing the Appellant to accept a new entity as a contractor.
- In a generic manner, the expression ‘Assets & Liabilities’ means the assets together with liabilities. It cannot be the case of the Respondents’ that the ‘Assets’ on a particular date can be transferred sans the corresponding ‘Liabilities’. The claims of the Appellant were prima-facia payable by the Corporate Debtor.
- The Impugned Order was set aside, and matter was remanded back to the Adjudicating Authority to decide the petition on merits.
In the present judgement, NCLAT has thrown light on role of liquidator as compared to the role of a resolution professional. It has further reiterated the established principles of ‘sale as a going concern’ by clearly stating that when a corporate debtor is being sold as a ‘going concern’, there must be a transfer of both assets and liabilities.
It has also given a sigh of relief to several creditors whose claim are rejected wrongly by the liquidator and while their appeal is pending against such wrongful rejection, the corporate debtor is sold/ liquidated. It has recognised the fact that the creditors cannot be left remediless, and it is the duty of the Liquidator to ensure that all the rightful claims are duly considered.
Please find attached a copy of the judgement.
This update has been contributed by R. Sudhinder (Senior Partner) and Aastha Trivedi (Senior Associate).
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