2020 (1) TMI 1556 - AT - Insolvency and Bankruptcy

Control of records of assets of the 'Corporate Debtor', i.e. Hospital - instead of Interim Resolution Profession, the Financial Creditor i.e. Muthoot Fincorp Ltd. has taken over the control of records of assets of the Corporate Debtor, i.e. Hospital - violation of Section 18 (f) of the Insolvency and Bankruptcy Code, 2016 - HELD THAT - Mr. Gautam Swarup, Advocate appears on behalf of Muthoot Fincorp Ltd.- Financial Creditor (1st Respondent). He is allowed to file reply-affidavit within a week. Rejoinder, if any, be filed within a week thereafter. Post the case For Admission (Fresh Cases) on 18th February, 2020. During the pendency of the Appeal, the Financial Creditor and the liquidator are directed not to sell the movable and immovable assets of the Company and will not transfer or alienate or create any third party interest including lease on movable or immovable property of the Corporate Debtor including the Hospital, in question. The liquidator will ensure that the Corporate Debtor (Hospital) remains a going concern and he may collate the claim and proceed in accordance with law. If the control of the assets and records of the Corporate Debtor is with the 1st Respondent -Muthoot Fincorp Limited, it will hand over the same to the liquidator immediately failing which appropriate order may be passed including order under Section 65 of the Insolvency and Bankruptcy Code, 2016 - Application disposed off.

Summary

Issues Involved: Violation of Section 18(f) of the Insolvency and Bankruptcy Code, 2016; Liquidation order passed without allowing settlement; Control of assets and records by Financial Creditor; Directions regarding sale of assets and going concern status of the Corporate Debtor.

Violation of Section 18(f) of the Insolvency and Bankruptcy Code, 2016:
The Appellant, a Promoter, argued that the Financial Creditor, Muthoot Fincorp Ltd., had taken control of the assets of the Corporate Debtor, a hospital, in violation of Section 18(f) of the Insolvency and Bankruptcy Code, 2016. The Interim Resolution Professional was not allowed to take over the possession and management of the hospital. The Appellant expressed a desire to settle the matter with the Financial Creditor, but the National Company Law Tribunal passed a liquidation order without granting sufficient time for settlement discussions.

Liquidation Order Passed Without Allowing Settlement:
The Appellant highlighted that despite their willingness to settle with the Financial Creditor, the Adjudicating Authority, National Company Law Tribunal, Chennai, issued a liquidation order on 4th December 2019. This action was taken without providing adequate time for negotiations or settlement discussions between the parties involved, thereby affecting the resolution process and potentially prejudicing the interests of the Corporate Debtor.

Control of Assets and Records by Financial Creditor:
The Financial Creditor, represented by an Advocate, was directed to file a reply-affidavit within a week, with provision for a rejoinder thereafter. The Appellate Tribunal instructed that during the pendency of the Appeal, neither the Financial Creditor nor the liquidator could sell, transfer, or create any third-party interest in the movable or immovable assets of the Corporate Debtor, including the hospital in question. The liquidator was tasked with ensuring the hospital remains a going concern, following the precedent set in a previous case, "Y. Shivram Prasad Vs. S. Dhanapal & Ors." dated 27th February 2019.

Directions Regarding Sale of Assets and Going Concern Status of the Corporate Debtor:
To maintain the integrity of the resolution process, the Appellate Tribunal prohibited the sale or transfer of assets by the Financial Creditor or the liquidator. The directive aimed to safeguard the interests of all stakeholders involved in the insolvency proceedings. Additionally, a strict warning was issued to the Financial Creditor to promptly hand over control of the assets and records of the Corporate Debtor to the liquidator. Failure to comply could result in the issuance of appropriate orders, including invoking Section 65 of the Insolvency and Bankruptcy Code, 2016, to address any non-compliance or breaches of the legal provisions governing insolvency proceedings.