CASE STUDY - 4 Background Mr. Mahesh, a Karta of a Hindu Undivided Family (HUF), is running his family business through 'Murugan Exploration and Mining Services Private Limited' (hereinafter called as "MEMS" / "the Company") in which Mr. Mahesh is a promoter-director and his two sons namely Mr. Manish and Mr. Sushil are directors. The Company is running the business of exploration of minerals in the mine areas of various mining companies. After the death of Mr. Mahesh, his two sons, Mr. Manish and Mr. Sushil inherited the family business holding 50% equity shares each and continued to be the directors of the Company. Mr. Manish has done his masters in mining engineering and looking after the technical operations whereas Mr. Sushil who has done his MBA in marketing from IIM, Ahmedabad is focusing on the business development of the company. Due to good business relationship and contacts with the clients, the business of the company was growing very fast. To cope up with the work orders in hand and those are in pipeline, MEMS imported 3 drilling rigs costing ₹ 10 crores from a German company (Hereinafter called as "the Exporter") creating security by way of hypothecation of three drilling rigs in favour of the Exporter in the month of December, 2018. Setback on Business During Covid-19 pandemic phase, the drilling operations were stalled in almost all drilling sites mainly due to lockdown measures and many labourers left the site and returned to their home places. The company started facing acute shortage of raw material, spare parts and skilled drillers and workers as the left-out workers did not return to the work. As a result, the production dropped and the company started incurring losses making default in repayment of EMI to the Exporter who issued several notices to the company for rectifying the default but all in vain. Initiation of a Corporate Insolvency Resolution Process Ultimately, in consultation with the Company's advocate in India, the Exporter issued final demand notice for payment of due amount of ₹6.00 crores as on 1.05.2023 and made an application along with all supporting documents except a certificate from a financial institution / bank, as required under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016) as they were not having any office or bank account in India, to the NCLT on 15.05.2023 for initiation of Corporate Insolvency Resolution Process (CIRP) against MEMS (the Corporate Debtor) which was admitted by the Tribunal as no dispute regarding the dues was raised by the Company. Approval of Resolution Plan by the Committee of Creditors After following the due procedures prescribed in the Insolvency and Bankruptcy Code, 2016 (IBC-2016), the resolution plan submitted by MEMS (the Resolution Applicant) was approved by the Committee of Creditors (CoC) in its meeting by requisite majority and accordingly the Resolution Professional (RP) submitted the approved resolution plan to the Adjudicating Authority (NCLT). Direction by NCLT to submit a Revised Resolution Plan However, considering the objections raised by the suspended Board of Directors of MEMS, the NCLT directed the Resolution Applicant to submit the revised resolution plan to RP and directed the RP to obtain the approval of the CoC to the revised resolution plan after redetermination of the liquidation value of the Corporate Debtor. Liquidation of the Corporate Debtor Aggrieved by this order, the Resolution Applicant made an application before the NCLT, to allow it to withdraw from CIRP as they are no more interested in the process. Their application was rejected by the NCLT as Applicant submitted a revised resolution plan the value of which is much lower than the value of the original resolution plan and re-determined liquidation value. The CoC having considered that the revised resolution plan is not viable and feasible to implement, rejected the same with requisite majority. After that, on intimation by RP of the decision of the CoC to go for liquidation by rejecting the revised resolution plan, the NCLT ordered for liquidation of the Corporate Debtor. Summary of Financial Information of the Corporate Debtor The extract of the relevant information related to the Corporate Debtor for the purpose of liquidation is produced as follows: Particulars₹ in Crore (1) Financial Creditors (Secured). (i) Easy Financing Limited.150 (ii) Strong Bank Limited.75 (2) Secured Debt of Exporter (Operational Creditor).6 (3) Land.100 (4) Land & Buildings.250 (5) Plant & Machinery (including 3 drilling rigs having book value of ₹ 7 crore).100 (6) Stocks.200 (7) Trade Receivables.200 (8) Cash & Cash Equivalents.5.90 (a) Land & Buildings would realise 110% of its book value. Drilling Rigs would realise 80% and Other Plant & Machinery, Stocks and Trade Receivables would realise 70% of its book value. (b) Strong Bank Limited decided to enforce their security interest in the land and they could realise 120% of its book value (c) The Exporter decided to enforce their security interest in 3 drilling rigs supplied by them. (d) Ignore actual depreciation charged and IR process and liquidation costs. n> Filing of a Writ Petition It is further revealed that MEMS had issued a crossed account payee cheque of ₹50 lakhs to the supplier in the year 2022 which was bounced and the party has filed a case under Section 138 of the Negotiable Instruments Act, 1881 (the NI Act, 1881) and the proceedings are in progress against MEMS and its directors namely Mr. Manish and Mr. Sushil. On declaration of moratorium immediately on admission of CIRP application on 15.05.2023, Mr. Manish and Mr. Sushil, the directors of MEMS, filed a writ petition before the Supreme Court for granting stay on the ongoing proceedings against the company and the directors under Section 138 of the NI Act, 1881. Mr. Rajan Mr. Rajan, aged 46 years, is a civil engineer and the brother-in-law of Mr. Sushil. He is working as a registered real estate agent since January-2023 and the consultant for construction and layout division of Loyal Steel Limited (LSL), a listed company in Mumbai. He has adopted a business model in real estate business to make significant cash transactions on each deal and routed the money through different bank accounts. Insider Trading and Investing the Tainted Money by Mr. Rajan. The brother of Mr. Rajan is a CFO in LSL and, therefore, Mr. Rajan had access to its financial and other confidential information. Abusing such confidential information, he started insider trading since August-2023 earning huge money for which he has been held guilty under the Securities and Exchange Board of India Act, 1992 (SEBI Act) in October-2023. Investing such tainted money, he acquired a house (the property) in England in the month of September-2023 in the name of his son settled there, the equivalent value of which in India would be ₹1.50 crore. In India, he owns no immovable property except one flat in Delhi the present fair market value of which is 1.50 crore approximately and it was purchased legitimately by him in the month of January, 2020 out of the sale proceeds of his farm land. Provisional Attachment by the Enforcement Directorate. His sister, Mrs. Rajani, a physiotherapist, is living in this house under a valid rent agreement. Getting information of the offence committed by him under the SEBI Act, 1992 for insider trading and the modus operandi of mobilisation of cash money, the Director of Enforcement Directorate, being satisfied with the circumstances, by order, provisionally attached his flat in Delhi and asked his sister to vacate the premises and in exercise of the authority delegated by general order of the Central Government, arrested Mr. Rajan even if there was no FIR registered or arrest warrant obtained against him. Mr. Rajan has challenged the order of provisional attachment of the flat acquired legitimately having no connection with the alleged proceeds of crime and his arrest made without following the due procedure of law before the appropriate authority. Based on the above information you are requested to answer the following questions as contained in Part A and B: PART - A