APPLICATION FOR DISSOLUTION OF CORPORATE DEBTOR BY INTERIM RESOLUTION PROFESSIONAL - POSSIBLE?

[Mr. M. GOVINDARAJAN]

Dissolution of Corporate Debtor

Corporate Insolvency Resolution Process (‘CIRP’ for short)  can be initiated by a creditor or by the corporate debtor itself against a Corporate Debtor under the provisions of Insolvency and Bankruptcy Code, 2016 (‘Code’ for short).  The Adjudicating Authority admits the application if it is satisfied that the application complies with the provisions of the Code and there is no disciplinary proceedings against the Interim Resolution Professional (‘IRP’ for short).  The CIRP is to be conducted within 180 days from the date of commencement of CIRP which may be extended to another 90 days but not beyond 330 days. 

The IRP is to issue Public announcement and collect the claims from the creditors of the corporate debtor.  The IRP is to verify the claims and constitute Committee of Creditors (‘CoC’ for short).  The IRP is to act as per the approval of CoC.  The IRP may be continued as Resolution Professional (‘RP’ for short) or he may be replaced.  RP has to prepare the information memorandum and call resolution plan from the potential resolution applicant.  The RP shall verify the resolution plan received from the resolution applicants and got the approval of the CoC.  Then the RP shall file an application before the Adjudicating Authority for its approval.

Section 33(1) of the Code provides that where the Adjudicating Authority,-

• before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the corporate insolvency resolution process under section 12 or the fast track corporate insolvency resolution process under section 56, as the case may be, does not receive a resolution plan under sub-section (6) of section 30; or
• rejects the resolution plan under section 31 for the non-compliance of the requirements specified therein,

it shall pass an order requiring the corporate debtor to be liquidated in the manner as laid down in the Code.

The Adjudicating Authority shall appoint the liquidator and directed to proceed the liquidation as per the provisions of the Code.  Section 54 of the Code provides that where the assets of the corporate debtor have been completely liquidated, the liquidator shall make an application to the Adjudicating Authority for the dissolution of such corporate debtor.   The Adjudicating Authority shall on application filed by the liquidator under sub- section (1) order that the corporate debtor shall be dissolved from the date of that order and the corporate debtor shall be dissolved accordingly.

Issue

The issue to be discussed in this article as to whether the dissolution may be effected during the CIRP period by the Adjudicating Authority on the application filed by the Adjudicating Authority.  The Adjudicating Authority, Chennai Bench held in IN RE : M/S. DSC MOTOR PRIVATE LIMITED - 2023 (3) TMI 895 - NATIONAL COMPANY LAW TRIBUNAL , CHENNAI BENCH that the dissolution of the Corporate Debtor cannot be ordered during the CIRP process; if no resolution plan is received the only way is to order for liquidation.  The dissolution can be ordered only after the liquidation is process is over. 

Case law

The Corporate Insolvency Resolution Process was initiated against the Corporate Debtor DSC Motor Private Limited by the Financial Creditors.  The said application No.IBA/1433/2019 was admitted by the Adjudicating Authority on 30.09.2022.  E. Santhanalakshmi has been appointed as IRP by the Adjudicating Authority.  The IRP caused a public announcement on 03.10.2022.  Claims were received from the creditors of the Corporate Debtor.  The IRP accordingly constituted CoC.

The IRP observed the following-

• The business of the Corporate Debtor is not in operation.
• The balance sheet was filed up to 31.03.2017 and thereafter no compliance has been done by the Corporate Debtor.
• The Corporate Debtor vacated the premises long back ago and some other is occupying the premises.

The suspended Directors of the Corporate Debtor did not co-operate with the IRP despite her various requests made to them.  The IRP contacted the Financial Creditor but no claim has been received from the Financial Creditor.

Therefore the IRP filed an IA(IBC)/8/CHE before the Adjudicating Authority with the following prayer to pass on early dissolution of the Corporate Debtor on the following grounds-

• The Corporate Debtor cannot be continued as going concern as it was not functional at the time of initiation of CIRP.
• There is no co-operation from the Directors of the Corporate Debtor as they have not handed over the books of accounts to her.
• There is no co-operation from the members of Committee of Creditors who are not attending the CoC meeting and not willing to contribute the cost of CIRP.
• There is no liquid asset with the Corporate Debtor to cover the cost of CIRP and liquidation process.

The IRP submitted the following before the Adjudicating Authority-

• The IRP found that the Directors of the Corporate Debtor are also the Directors of some other companies some of which have been struck off and one another associated company is under CIRP.
• Claims were received and CoC was ultimately formed and report was submitted before the Adjudicating Authority on 23.10.2022.
• In the 4^th CoC meeting only 2 members attended; one cast his votes and the other left the meeting without casting his vote.
• The CIRP period has already gone and no resolution plan has been received in this case.
• The CIRP cost has not been contributed and has not been ratified by CoC.
• The Corporate Debtor is not a going concern and there is no employee as on date of the commencement of CIRP.
• The Corporate Debtor is not viable for resolution and liquidation since the assets were disposed much before the initiation of CIRP.
• The IA has been filed under the provisions of Section 54 of the Code for dissolution of the Corporate Debtor.

The Adjudicating Authority analyzed Section 54 of the Code.  Section 54(1) of the Code provided that where the assets of the Corporate Debtor have been completely liquidated, the liquidator shall make an application to the Adjudicating Authority for the dissolution of the Corporate Debtor.  The Adjudicating Authority held that the application for dissolution of the Corporate Debtor can only be filed by the liquidator before the Adjudicating Authority.  The present application for dissolution of the Corporate Debtor has been filed by the IRP.  The Adjudicating Authority, considering the provisions of Section 54(1) of the Code was not inclined to order for dissolution of the Corporate Debtor at this state.

Since already the CIRP period was over and no resolution plan has been received the Adjudicating Authority, taking resort to Section 33(1)(a) of the Code, ordered for liquidation.  The Adjudicating Authority appointed E. Santhanalakshmi as liquidator who has been approved by the CoC to carry out the liquidation process subject to the following terms of directions-

• The liquidator shall act strictly in accordance with the provisions of the Act and Regulations.
• In relation to officers/employees and workers of the Corporate Debtor this order shall be deemed to be a notice of discharge.
• The liquidator shall issue public announcement that the Corporate Debtor is in liquidation.
• The liquidator shall investigate the affairs of the Corporate Debtor particularly, in relation to preferential transactions/undervalued transactions and such other transactions including preferences and file suitable application before the Adjudicating Authority.
• In terms of Section 178 of the Income Tax Act, 1961 the liquidator shall intimate the income tax department.
• In relation to other fiscal and regulatory authorities which govern the Corporate Debtor the liquidator shall also intimate the about the liquidation of the Corporate Debtor.
• The moratorium order passed under Section 14 of the Code shall cease to have its effect and a fresh moratorium under section 33(5) of the Code shall commence.
• The liquidator shall submit a Preliminary report to the Adjudicating Authority within 75 days from the commencement of liquidation.
• Further such other report as are required to be filed under the relevant regulations, in addition, shall also be duly filed by him with the Adjudicating Authority.