Permitting Repeated Invitation of EOI (Form G) merely on behest of Individual Stakeholder Will Defeat Timeliness under IBC: NCLT [Read Order]

The Chandhigarh bench of the National Company Law Tribunal (NCLT) observed that permitting repeated invitations of Expression of Interest (Form G) merely on the behest of an individual stakeholder would defeat the very objective of timeliness under the Code and render the process never-ending.

The present application is filed by Anil Kumar Jain, director, promoter and Shareholder of M/s Venus Garments (India) Limited (“VIGIL” or “Corporate Debtor”) against Mr. Navneet Gupta, the Resolution Professional (RP) who was appointed as Resolution Professional the present, corporate Insolvency Resolution Process (“CIRP”).

The applicant prayed for that further invitation of Expression of Interest be invited to submit the Resolution Plan in prescribed Form G be issued, calling general public at large for submitting expression of interest. That the applicant shall also be submitting its resolution plan, so that Corporate Debtor may be revived from the reigns of the CIRP and the interest of the all the stakeholders can be protected.

The primary objective of this application is to seek direct a fresh invitation for Expression of Interest (EOI) i.e. re-issuance of Prescribed Form G in terms of Regulation 36 A for submitting Resolution Plans, promoter, director and shareholder of the Corporate Debtor is intending to submit a Resolution Plan with the support of an investor.

The applicant has referred to an email dated April 28, 2023 at Page 04, from State Bank of India to the RP, indicating a discussion within the Committee of Creditors (CoC) to refer the Corporate Debtor to liquidation, as no resolution plan had been received. The applicant contends that this shows an intent to move towards liquidation prematurely, without fully exploring the potential for resolution.

Further stresses that the fundamental objective of the Insolvency and Bankruptcy Code (IBC) 2016 is to resolve and rehabilitate the Corporate Debtor, maximize asset value, and ensure its continuation as a going concern, rather than solely focusing on liquidation. In this regard reference was given to Preamble of the IBC and various Supreme Court judgments (including Swiss Ribbons Pvt. Ltd. v. Union of India, Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta, and Innoventive Industries Ltd. v. ICICI Bank) to reinforce that resolution and revival are the primary aims.

The Corporate Debtor is a viable business with an established track record and is still a "going concern." Production can be instantly resumed with available raw materials and confirmed orders from existing customers if a revival plan is approved. Infusion of working capital is presented as a key to reviving operations.

The liquidation would cause significant prejudice and substantial loss to all stakeholders, especially equity stakeholders and creditors other than secured creditors, as the distress value would be considerably lower than the fair market value. The physical location of Corporate Debtor’s plant (Hussianpura) with improper road access is also cited as a factor that would further erode value during liquidation.

Since, the Corporate Debtor is an MSME (Micro, Small and Medium Enterprises) enterprise, its promoters/directors are eligible to submit a Resolution Plan. The applicant explicitly states his intention to submit such a plan, having already tied up with an investor to infuse working capital and clear outstanding dues.

The initial publication of Form G for EOI was neither proper nor complete and that the news of VGIL being in CIRP was not widely known among the general public or business associates. This allegedly prevented potential investors from participating in the first round. Many business associates have reportedly approached the applicant, expressing interest in participating if Form G is re-published.

In numerous other cases, Form G has been published for a second or even third time, yielding very good and encouraging response, thus supporting the feasibility and benefit of a re-invitation. The initial 180-day CIRP period (from the admission order dated November 24, 2022) has not yet been completed. And the RP and COC had an option to extend of 90 days of CIRP, there is ample time to re-invite EOIs and maximize resolution

possibilities.

A two member bench of Harnam Singh Thakur, Member (Judicial) and Shishir Agarwal, Member (Technical) observed that the applicant has filed the present application without annexing any document with the application. The pleadings made in the application were limited to the fact that the COC is planning to take the corporate debtor into liquidation without exploring full potential for the resolution of the corporate debtor. The pleadings revolve around the object of the code, value maximization and interest of the applicant in submitting the resolution plan. Accordingly, only prayer sought in the present application is for fresh issue form G for calling the public at large for submitting expression of interest to submit the resolution plan, as applicant himself is interested in submitting a resolution plan.

Further upon perusal of the record, it is seen that the resolution professional has duly published form G on the website of Insolvency and Bankruptcy Board of India (IBBI) and in two widely circulated newspapers—namely, The Times of India (Chandigarh and Punjab editions) and Rozana Spokesman (Punjabi edition). Despite full knowledge of the fact of the last date of submission of expression of interest, the failure on the part of applicant to submit expression of interest within that time, cannot be condoned by virtue of prayer for re-issuance of the Form G.

Regulation 36A of the CIRP Regulations provides for Invitation for Expression of Interest and also empowers only the COC to modify the invitation for Expression of Interest. It is always open for the COC to take a decision to proceed or not to proceed on the Applications/EOIs received and take a decision for issuance of fresh Form G and permit other applicants to participate. When no fresh Form G has been issued, it is not open for any new/prospective applicant to submit an application before the Adjudicating Authority for being permitted to participate in the CIRP and submit Resolution Plan.

Further, had there been any irregularity in the process or publication of Form G, the CoC or PRA would have come before us and challenged the process. However, in this case, no PRA or any member of CoC has raised any concern. Upon perusal of the minutes of the 5th Meeting of the COC, it is observed that the CoC was fully aware of the fact that Applicant is intending to submit the Resolution Plan.

Permitting repeated invitations of Expression of Interest (Form G) merely on the behest of an individual stakeholder would defeat the very objective of timeliness under the Code and render the process never-ending. The issuance of Form G is not intended to be a trial and error mechanism, but a structured, regulated opportunity for resolution applicants to participate within the prescribed timelines.

Furthermore, the possibility of resolution of the Corporate Debtor does not cease upon commencement of liquidation proceedings. The liquidation framework itself offers avenues for resolution—either by way of sale of the Corporate Debtor as a going concern under Regulation 32(e) and (f) read with Regulation 32A of the IBBI (Liquidation Process) Regulations, 2016, or through compromise or arrangement in terms of Sections 230-232 of the Companies Act, 2013, read with Regulation 2B of the Liquidation Regulations.

The tribunal refused to issue directions for republication of Form G at this stage.

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