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TERMINATION OF CORPORATE INSOLVENCY RESOLUTION PROCESS

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TERMINATION OF CORPORATE INSOLVENCY RESOLUTION PROCESS
By: Mr.áM. GOVINDARAJAN
November 29, 2021
All Articles by: Mr.áM. GOVINDARAJAN       View Profile
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Corporate Insolvency Resolution process

The Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) provides the procedure for conducting the corporate insolvency resolution process of the corporate debtor on the application initiated by the financial creditor, operational creditor or the corporate applicant itself.  The Interim Resolution Professional/Resolution Professional is to carry out the process in its entirety.  The Resolution professional is to constitute Committee of Creditors who is the sole body to monitory the process conducted by the resolution professional. 

Termination

The corporate insolvency resolution process may be withdrawn by the applicant under section 12A of the Code and Regulation 30A.  The Code does not provide for termination of corporate insolvency resolution process.  The only way is to liquidation.  On liquidation the corporate debtor may be dissolved.

Even though there is no specific provision in the Act or regulation for termination of the corporate insolvency resolution process the Adjudicating Authority may exercise its power under section 65(1) of the Code read with Rule 59 of National Company Law Tribunal Rules to terminate the corporate insolvency resolution process.

Case laws

InM/S. SURENDRA STEEL SALES VERSUS M/S. IMMORTAL BUILDCON PVT. LTD. [2020 (1) TMI 1536 - NATIONAL COMPANY LAW TRIBUNAL NEW DELHI BENCH],  the Interim Resolution Professional  has submitted that he has been meeting expenses from his own pocket. Pursuant to the publication, no other claim was received. It is submitted that the first meeting has been held while the second meeting has been postponed a few times, at the instances of the Operational Creditor/Committee of Creditors on grounds of a possible settlement with the Corporate Debtor. As such there was no confirmation of the Resolution Professional further steps take.  There was no concession on the fees to be given, much less expenses to be met. No progress has been made in this case. The Adjudicating Authority was  apprised of the fact that the Operational Creditor has been in talks of settlement with the Corporate Debtor and, is therefore, not interested in taking any step to proceed with the corporate insolvency resolution  process. Under such circumstances with no other claimant and the sole member of the Committee of Creditors not being interested in prosecuting the corporate insolvency resolution process, it would be expedient to terminate the corporate insolvency resolution process. In view of the above, the corporate insolvency resolution process was terminated by the Adjudicating Authority. The Corporate Debtor was released from the rigors of the moratorium and is permitted to function through its own board. The Adjudicating Authority found  that the Operational Creditor has not only failed to reimburse the expenses and fees of the Interim Resolution Professional, but has also wasted the time of this Bench after the Petition was duly admitted. Accordingly, while terminating the corporate insolvency resolution  process, a cost of ₹ 50,000/- was imposed on the Operational Creditor to be paid to the Prime Minister’s Relief Fund.

In OM LOGISTICS LIMITED AND ORS. VERSUS RYDER INDIA PVT. LTD. AND ORS. [2021 (11) TMI 904 - NATIONAL COMPANY LAW TRIBUNAL - NEW DELHI BENCH], the Operational Creditor Om Logistics Limited had filed an application  under Section 9 of the Code before the Adjudicating Authority for initiation of corporate insolvency resolution process against the Corporate Debtor Ryder India Private Limited.  The Adjudicating Authority admitted the application and appointed the applicant as Interim Resolution Professional.  Public Announcement in ‘Form A’ was made in the newspapers namely, Business Standard (English) and Jansatta (Hindi) in Delhi NCR editions on 02.10.2019.

On 11.11.2019 the Operational Creditor Om Logistics Limited filed its claim of ₹ 1,59,830 with the Insolvency Resolution Professional.  One more claim of ₹ 1,41,19,729/- was filed by Excise & Taxation Officer, (ETO) Bahadurgarh Jhajjar, Haryana on 10.12.2019.  The Interim Resolution Professional, on the basis of the aforesaid two claims received from Operational Creditors, constituted Committee of Creditors with ETO Bahadurgarh having 98.88% voting share and Om Logistics Ltd. having 1.12% voting share in the Committee of Creditors.

The first meeting of Committee of Creditors was convened on 23.12.2019.  Om Logistics Limited did not attend the meeting and ETO Bahadurgarh abstained itself from voting.  Again on 10.01.2020 during the second meeting of Committee of Creditors,  due to absence of Om Logistics Ltd. and nonvoting by ETO Bahadurgarh no decision was taken.  The Insolvency Resolution Professional convened the third meeting of the Committee of Creditors on 20.01.2020.  Neither the members of the Committee of Creditors nor the Ex-Directors attended the meeting.  The meeting was adjourned to 07.02.2020.   None of the members of the Committee of Creditors attended the re-convened meeting.

Out of the two members of the Committee of Creditors, the ETO Bahadurgarh has withdrawn its claim and the other member Om Logistics Limited has not been pursuing the corporate insolvency resolution process.

The Insolvency Resolution Professional has filed an application under Section 19(2) of the Code before the Adjudicating Authority.  The Adjudicating Authority, vide their order dated 15.01.2020 directed the Ex-Directors to cooperate with the Insolvency Resolution Professional. Further direction was given to the Ex-Directors to be present before the Insolvency Resolution Professional and handover all the documents in their possession on 18.01.2020 at 12pm.  Since the same has not been complied with by the ex-directors the Adjudicating Authority issued bailable warrants against the Ex-directors.   The Ex-Directors appeared before this Adjudicating Authority on 10.02.2020 and submitted that the Books of Accounts are lying in premises, under the control of one Mr. Brij Mohan Garg.   The Ex-Directors were directed to accompany the Interim Resolution Professional to the premises where books of accounts were lying on 11.02.2020 at 11am.

The Interim Resolution Professional visited the premises and inspected the documents and submitted a report to the Adjudicating Authority.  The Insolvency Resolution Professional could not recover any record from the premises of the Corporate Debtor and found one notice board of Pentagon Shoe (India) Private Limited displayed with the name of Mr. Brij Mohan Garg (Advocate) on the top of the sign board.

The Ex-Director Mr. Rohtash Kumar Rohit handed over to the Interim Resolution Professional the Letter No. SARB/DSB/9730/209 dated 19.06.2019 regarding the one-time settlement with the SBI, Najafgarh Road, New Delhi and re-payment there under issued to the Corporate Debtor by the State Bank of India.    The Ex-Director Mr. Rohtash Kumar Rohit also handed over to him a copy of the ‘No Objection Certificate’ issued vide letter No. SARB/DSB/9730/229 dated 01.07.2019 by SBI addressed to Sakshi Leather Exports Private Limited, (owner of the property at which corporate debtor was running its plant).

According to the Interim Resolution Professional the assets of the corporate debtor have been disposed of to settle the dues of the Bank.

The present IA has been filed by the Interim Resolution Professional before the Adjudicating Authority with the following prayers-

  • to close the corporate insolvency resolution process  initiated action against Ryder India Private Limited, the corporate debtor;
  • to consider dissolution of Ryder India Private Limited, the corporate debtor, if found just and reasonable;
  • to discharge the Applicant/Interim Resolution Professional from the responsibility of Interim Resolution Professional;
  • to pass such further and other order and directions as the Hon’ble Tribunal may deem fit and proper in the facts and circumstances of the matter.

The Adjudicating Authority considered the submissions put forth by the applicant.  The Adjudicating Authority did not accept the prayer for dissolution of corporate debtor since liquidation is the pre requisite for dissolution of corporate debtor.  In the present case no order for liquidation has been passed due to absence of any such proposal and non functioning of the Committee of Creditors.

The Adjudicating Authority observed that the sole member/operational creditor of the Committee of Creditors has been shirking from his responsibilities and not pursuing the corporate insolvency resolution process of the corporate debtor.  In these circumstances the appropriate course that can be taken is to file withdrawal application under section 12A of the Code.

The Adjudicating Authority also observed that the intention of the Operational Creditor i.e.,  Om Logistics Limited, at whose instance the corporate insolvency resolution process was initiated, was not for the resolution of Insolvency.   Instead, the Operational Creditor has used this forum for recovery and got the corporate insolvency resolution process kickstarted with malicious intent for a purpose other than the resolution of insolvency of the Corporate Debtor, which is not permissible under the Code.   Such an act is punishable under Section 65 (1) of the Code.  Therefore the Adjudicating Authority directed the Registrar to issue the show cause notice under Section 65(1) of the Code read with Rule 59 of the National Company Law Tribunal Rules, 2016 on Om Logistics Limited through its Directors giving them fifteen days’ time to explain and submit in writing as to why the penalty as stipulated under Section 65(1) of the Code shall not be imposed on them. The Registry was also directed to allot a Case No. for the proceedings for which the Show Cause Notice is being issued to the Operational Creditor under Section 65(1) of the Code.

The Adjudicating Authority was of the view that it is not the duty of the Interim Resolution Professional to run after the Members of Committee of Creditors to attend the meeting and pursue the corporate insolvency process.  When the Committee of Creditors was not interested in pursuing the corporate insolvency resolution process, this Adjudicating Authority is to terminate the corporate insolvency resolution process.

In the present case since the Applicant is unable to carry forward the corporate insolvency resolution process for want of cooperation/participation from the sole member of Committee of Creditors, the Adjudicating Authority felt it appropriate to terminate the corporate insolvency resolution process of the Corporate Debtor.

The Adjudicating Authority by exercising the jurisdiction under Section 60(5) of Code along with inherent power under Rule 11 of the NCLT Rules, 2016, terminated the corporate insolvency resolution process of the Corporate Debtor with immediate effect and released the Corporate Debtor from the rigors of the corporate insolvency resolution process and moratorium.

 

By: Mr.áM. GOVINDARAJAN - November 29, 2021

 

 

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