STAKEHOLDERS’ CONSULTATION COMMITTEE

[Mr. M. GOVINDARAJAN]

Liquidation order

The Insolvency and Bankruptcy Code, 2016 provides the procedure for initiation of corporate insolvency resolution process against a corporate debtor to provide a resolution for the continuation of the business.  The corporate insolvency resolution process has to be completed within 180 days with further extension of 90 days but at any cost not exceeding 330 days.  If no resolution plan has been received by the Resolution Professional or the Committee of Creditors itself decides for liquidation, the Adjudicating Authority on the application of the Resolution Professional gives orders for the liquidation of the corporate debtor.

Liquidator

While ordering for liquidation of the corporate debtor the Adjudicating Authority appoints the Resolution Professional or some other insolvency professional on the recommendations of the Insolvency and Bankruptcy Board of India to act as liquidator.  The liquidator is to conduct the entire liquidation proceedings within a time span of one year.  Section 35 of the Code prescribes the powers and duties of the liquidator. 

Stakeholders

Regulation 2(1)(k) of Insolvency and Bankruptcy of India (Liquidation Process) Regulations, 2016 (‘Regulations’ for short) defines the term ‘stakeholders’ as the stakeholders entitled to distribution of proceeds under section 53.  Section 35(2) provides that the liquidator shall have the power to consult any of the stakeholders entitled to a distribution of proceeds under section 53.   Any such consultation shall not be binding on the liquidator.    The records of any such consultation shall be made available to all other stakeholders not so consulted, in a manner specified by the Board.

Stakeholders list

Regulation 31 provides that the liquidator shall prepare a list of stakeholders, category-wise, on the basis of proofs of claims submitted and accepted, with-

• the amounts of claim admitted, if applicable;
• the extent to which the debts or dues are secured or unsecured, if applicable;
• the details of the stakeholders, and
• the proofs admitted or rejected in part, and the proofs wholly rejected.

With effect from 04.03.2021 the liquidator shall file the list of stakeholders with the Adjudicating Authority within 45 days from the last date for receipt of the claims.  The liquidator may apply to the Adjudicating Authority to modify an entry in the list of stakeholders filed with the Adjudicating Authority, when he comes across additional information warranting such modification, and shall modify the entry in the manner directed by the Adjudicating Authority.

The list of stakeholders, as modified from time to time, shall be-

• available for inspection by the persons who submitted proofs of claim;
• available for inspection by members, partners, directors and guarantors of the corporate debtor;
• displayed on the website, if any, of the corporate debtor;
• filed on the electronic platform of the Board for dissemination on its website (with effect from 04.03.2021).

Stakeholder’s consultation committee

Regulation 31A was inserted vide Notification No. IBBI/2019-20/GN/REG047, dated 25.07.2019.  According to Regulation 31A the liquidator shall constitute a consultation committee within sixty days from the liquidation commencement date, based on the list of stakeholders to advise him on the matters relating to sale. 

The stakeholders consulted under section 35(2) shall extend all assistance and cooperation to the liquidator to complete the liquidation of the corporate debtor.

Composition of the Committee

The composition of the consultation committee shall be as shown below-

• Secured financial creditors, who have relinquished their security interests where claims of such creditors admitted during the liquidation process is less than 50% of liquidation value - Number of creditors in the category, subject to a maximum of 2;
• Secured financial creditors, who have relinquished their security interests where claims of such creditors admitted during the liquidation process is more  than 50% of liquidation value - Number of creditors in the category, subject to a maximum of 4;
• Unsecured financial creditors where claims of such creditors admitted during the liquidation process is less than 25% of liquidation value - Number of creditors in the category, subject to a maximum of 1
•  Unsecured financial creditors where claims of such creditors admitted during the liquidation process is at least 25% of liquidation value – Number of creditors in the category, subject to a maximum of 2;
• Workmen and employees – 1;
• Governments – 1;
• Operational creditors other than Workmen, employees and Governments where claims of such creditors admitted during the liquidation process is less than 25% of liquidation value - Number of creditors in the category, subject to a maximum of 1;
• Operational creditors other than Workmen, employees and Governments where claims of such creditors admitted during the liquidation process is at least  25% of liquidation value - Number of creditors in the category, subject to a maximum of 2;
• Shareholders or partners, if any – 1.

 The liquidator may facilitate the stakeholders of each class to nominate their representatives for inclusion in the consultation committee.   If the stakeholders of any class fail to nominate their representatives, the required number of stakeholders with the highest claim amount in that class shall be included in the consultation committee. 

Rights of stakeholders

The representatives in the consultation committee shall have access to all relevant records and information as may be required to provide advice to the liquidator.

Meeting

The liquidator shall convene a meeting of the consultation committee when he considers it necessary.  He shall convene a meeting of the consultation committee when a request is received from at least 51% of representatives in the consultation committee.    The liquidator shall chair the meetings of consultation committee and record deliberations of the meeting.   The liquidator shall place the recommendation of committee of creditors made under sub-regulation (1) of regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, before the consultation committee for its information.  

Decision of the Committee

The consultation committee shall advise the liquidator, by a vote of not less than sixty-six percent of the representatives of the consultation committee, present and voting.  The advice of the consultation committee shall not be binding on the liquidator.  Where the liquidator takes a decision different from the advice given by the consultation committee, he shall record the reasons for the same in writing.

Maintenance of particulars

The liquidator shall maintain the particulars of any consultation with the stakeholders made under this Regulation, as specified in Form A of Schedule II.  Separate proforma is to be used for each stakeholders or group of homogeneous stakeholders.  The following information is to be furnished in the said proforma-

• Name and Registration No. of Liquidator;
• Name of Corporate debtor being liquidated;
• Liquidation case No.;
• Name of the stakeholder;
• Date of consultation (if held in person);
• Number and dates of communication received from stakeholder;
• Summary of consultation.

Case law

In ‘MR. P.C. GAGGAR, LIQUIDATOR VERSUS M/S. MULTICHEMICAL INDUSTRIES PVT. LTD. [2021 (4) TMI 623 - NATIONAL COMPANY LAW TRIBUNAL , GUWAHATI BENCH], it was informed by the liquidator that he has not formed the Stakeholders’ Consultation Committee and no Stakeholders’ Consultation Committee meeting has taken place during the liquidation period. The reason for not forming/or conducting the meeting could not be clarified by the liquidator, when 5 Operational Creditors are there besides the promoters/ shareholders of corporate debtor.

It was also reported, during the hearing that, a Fixed Deposit of ₹ 5,25,000.00 (Face value) with interest accrued therein of the corporate debtor lying with HDFC Bank even the Bank Guarantee/claim period of Letter of Guarantee is over. This deposit given as margin/security is not released reportedly for want of original Bank guarantee.

The liquidator prayed the following-

• to condone the delay of 78 days (excluding the lockdown period of 92 days) in completion of liquidation within the timeline including the extended timeline granted by the adjudicating authority.
• to issue  necessary directions to HDFC Bank Limited to release the fund held by the Corporate Debtor in the Fixed Deposit and transfer the same to the liquidation account so that the same can be distributed to the stake holders.
• for dissolution of the Corporate Debtor.

The Adjudicating Authority observed that it was not understood how the Bank was not releasing the Deposit of corporate debtor under Liquidation/Dissolution, when sufficient provision/guidelines are available with the Bank to release the deposit after giving 15/30 days’ formal notice to the beneficiary of the letter of credit, when the validity of claim period is over. What has prevented the HDFC from not releasing the fixed deposit when the claim period mentioned in the Letter of Guarantee was over?

The Adjudicating Authority issued the following orders-

• The liquidator is to form Stakeholders’ Consultation Committee within 10 days of this order as per Regulation of liquidation process 31 A and make all attempts to ensure maximization of value of assets of corporate debtor / liquidation estates including Trade Receivables.
• The liquidator is to take up the matter with HDFC Bank for release of the fixed deposit with interest within 10 days from today. The liquidator may execute/ complete formalities, if asked for by the Bank, for release of the fixed deposit of the corporate debtor under Liquidation.
• The liquidation process is required to be completed within one year from the date of Liquidation order with a view to maximizing the value of assets and reduction of cost of liquidation. Liquidation order was passed on 14.03.2019 and it is now going to complete 2 years. However, the interest of Justice to all stakeholders, this Bench condones the delay of 78 days excluding the lockdown period of 92 days but the liquidator is directed to realize the assets, distributes the same as per section 53 of the IBC on or before 13.03.2021 (completion of 2 years).

The Adjudicating Authority also directed the suspended management/ promoters or any other persons associated with the management of the CD under liquidation are to extend all assistance to the liquidator to realize the assets and complete the liquidation process in time.