Introduction

In the landmark case of Bharatiya Kamgar Sena Workmen Union of BDIL v. Vijay Kumar Iyer (Liquidator), the National Company Law Appellate Tribunal (NCLAT) provided critical insights into the liquidation process under the Insolvency and Bankruptcy Code, 2016 (IBC). The case revolves around the liquidation of Bharati Defence and Infrastructure Limited (BDIL), a company engaged in building defense warships and submarines, which filed for insolvency proceedings. The primary parties involved were the appellants, including Prakash Chandra Kapoor and the Bhartiya Kamgar Sena Workmen Union, against the respondent liquidator, Vijay Kumar Iyer, and Edelweiss Asset Reconstruction Company Limited.

The central issues pertained to whether the liquidator adhered to the Tribunal's directions to maximize asset value through the sale of BDIL as a "going concern" and the procedural compliances involved in the liquidation process. The appellants alleged that the liquidator failed to provide adequate opportunities for global buyers and did not comply with directions aimed at preserving the company's value and employment.

Summary of the Judgment

The NCLAT, after a thorough examination of the appeals and interlocutory applications, upheld the liquidation order passed by the National Company Law Tribunal (NCLT). The Tribunal affirmed the decision to proceed with the sale of BDIL's assets as a "going concern," emphasizing the importance of beneficial liquidation under the IBC framework.

The Tribunal acknowledged the liquidator's efforts to attract bidders through public announcements and recognized the extensions granted due to exceptional circumstances like the COVID-19 pandemic. However, it stipulated additional time for the liquidator to finalize the sale as a going concern, ensuring that the liquidation process aligns with the objectives of maximizing asset value and preserving employment.

Consequently, the Tribunal exercised its inherent powers to extend the liquidation timeline by six weeks, contingent upon compliance with specific conditions, including the deposit of an Earnest Money Deposit (EMD) by prospective buyers.

Analysis

Precedents Cited

The judgment extensively referenced several precedents to support its reasoning:

• 'Y. Shivaram Prasad' Vs. 'S. Dhanpal & Ors.' (2019): This case emphasized the Tribunal's role in ensuring that liquidation processes are conducted in a manner that maximizes asset value and preserves stakeholder interests.
• 'Arun Kumar Jagatramka' Vs. 'Jindal Steel and Power Ltd. & Anr.' (2021): Highlighted the eligibility criteria for resolution applicants under Section 29(A) of the IBC, reinforcing the need for bona fide investment intentions.
• 'GSEC Green Energy Pvt. Ltd.' (2021), and other similar cases: These further underscored the flexibility of the Tribunal in extending timelines to accommodate genuine attempts to rescue distressed companies.
• Historical Cases: References to cases like M.C.T.M. Chidambaram Chettiar Vs. The Official Receiver illustrate long-established legal principles supporting the sale of companies as going concerns to preserve their operational integrity.

Legal Reasoning

The Tribunal's legal reasoning centered on the concept of "Beneficial Liquidation," which aims to maximize the value of the corporate debtor's assets while balancing the interests of various stakeholders, including creditors and employees. Key aspects of the reasoning include:

• Section 230 of the Companies Act, 2013: Governs the power to compromise or arrange with creditors and members, allowing for the reorganization of a company's share capital or other arrangements to facilitate revival or orderly liquidation.
• Regulation 32 and 32-A of IBBI's Liquidation Process Regulations, 2016: These regulations outline the procedures for asset sale, emphasizing the preference for selling as a going concern over piecemeal asset sales to ensure higher value realization.
• Balancing Procedural Timelines with Justice: While Regulation 47 provided a model timeline for liquidation, the Tribunal highlighted that these timelines are directory, not mandatory. Exceptional circumstances, such as the COVID-19 pandemic, warrant flexibility to prevent injustice and achieve the liquidation objectives.
• Inherent Powers of the Tribunal: Under Rule 11 of the NCLAT Rules, 2016, the Tribunal exercised its inherent powers to extend the liquidation timeline, ensuring that the liquidator could make a genuine attempt to sell the company as a going concern.
• Requirement for Earnest Money Deposit (EMD): The Tribunal mandated the deposit of EMD by prospective buyers to ensure their serious intent, thereby safeguarding the liquidation process from frivolous bids.

Impact

This judgment has significant implications for future insolvency and liquidation proceedings:

• Emphasis on Beneficial Liquidation: Reinforces the principle that liquidation should aim to maximize asset value and preserve employment, aligning with the broader objectives of the IBC.
• Flexibility in Procedural Timelines: Sets a precedent for Tribunals to exercise discretion in extending timelines under exceptional circumstances, ensuring that procedural rigidity does not impede substantive justice.
• Enhancement of Liquidator's Powers: Empowers liquidators to proactively seek optimal solutions for asset disposal, including selling as a going concern, provided they adhere to procedural safeguards like EMD requirements.
• Precedent for Sale as Going Concern: Provides a clear judicial endorsement for prioritizing the sale of entire businesses in liquidation, which can serve as a valuable strategy for similar future cases.
• Stakeholder Engagement: Highlights the importance of consulting and involving stakeholders, including creditors and employees, in the liquidation process to ensure decisions are equitable and well-informed.

Complex Concepts Simplified

Going Concern

A "Going Concern" refers to a business that is operating and generating revenue, with the intent and ability to continue its operations indefinitely. In the context of liquidation, selling a company as a going concern means transferring the entire business as a functional entity, rather than selling its assets individually. This approach can preserve jobs, maintain operational continuity, and often achieves higher asset values.

Beneficial Liquidation

Beneficial Liquidation is a principle under insolvency law that ensures the liquidation process benefits all stakeholders involved. It focuses on maximizing the value of the debtor's assets and distributing proceeds fairly among creditors while considering the interests of employees and other parties affected by the liquidation.

Earnest Money Deposit (EMD)

An Earnest Money Deposit (EMD) is a deposit made by a prospective bidder to demonstrate serious intent to purchase the assets being auctioned. In liquidation proceedings, requiring an EMD helps prevent frivolous bids and ensures that only committed bidders participate in the asset sale process.

Section 230 of the Companies Act, 2013

Section 230 deals with the power of compromise or arrangement with creditors and members during the insolvency process. It allows companies to propose restructuring or reorganization plans that can help in either reviving the company or facilitating an orderly liquidation while addressing the interests of various stakeholders.

Inherent Powers of the Tribunal

Inherent Powers refer to the authority vested in judicial bodies to make decisions beyond their statutory powers to ensure justice is served. In this case, the Tribunal used its inherent powers to extend the liquidation timeline, demonstrating flexibility to achieve the objectives of beneficial liquidation.

Conclusion

The NCLAT's judgment in Bharatiya Kamgar Sena Workmen Union of BDIL v. Vijay Kumar Iyer (Liquidator) underscores the critical balance between adhering to procedural timelines and ensuring substantive justice in liquidation proceedings. By upholding the liquidation order and emphasizing the sale of BDIL as a going concern, the Tribunal reinforced the principles of beneficial liquidation under the IBC. This decision serves as a pivotal reference for future cases, highlighting the need for flexibility, stakeholder engagement, and strategic asset disposal to maximize value and preserve employment during the liquidation process.

Moreover, the judgment reaffirms the judiciary's role in guiding and overseeing the liquidation process to ensure that it aligns with the overarching goals of insolvency law—achieving fair and equitable outcomes for all stakeholders involved.