2017 (12) TMI 975 - Tri - Insolvency and Bankruptcy

Seeking liquidation of the Corporate Debtors - Held that - In the case on hand, except M/s. Gaurinandan Fashion Private Limited., there are no other financial creditors or operational creditors. Hence, in view of the proviso to sub-section (8) of Section 21 of Insolvency and Bankruptcy Code, 2016, the Committee of Creditors shall be constituted by the Board and not by the IRP or RP. Therefore, the Committee of Creditors constituted by IRP is not a legally valid committee. The entire resolution process undertaken by the Committee of Creditors which is not validly, constituted cannot be taken into consideration. However, the so-called Committee of Creditors did not accept the resolution plan. No resolution plan is made available for the scrutiny of this authority till today. Admission order was passed by this Tribunal on 29.03.2017. In view of sub-section (1) of Section 12 of Insolvency and Bankruptcy Code, 2016 Corporate Insolvency Process shall be completed within a period of 180 days from the date of admission of application to initiate CIRP. In the case on hand 180 days already expired. Although the constitution of the Committee of Creditors is not valid, the period given for completion of Insolvency Process has been completed and, therefore, under Section 33, this Adjudicating Authority ordered for liquidation of the corporate debtors vis. Pooja Tex-Print Private Limited. Hence, this Adjudicating Authority hereby pass order of liquidation in respect of corporate debtors Pooja Tex-Print. (P.) Ltd. and direct the Liquidator to issue public announcement stating that the corporate debtors Pooja Tex-Print. Ltd. is in liquidation.

Issues:
1. Valid constitution of Committee of Creditors.
2. Compliance with the Insolvency and Bankruptcy Code, 2016.
3. Liquidation order and appointment of Liquidator.

Analysis:
1. The judgment revolves around the validity of the constitution of the Committee of Creditors. The Tribunal highlighted that according to the Insolvency and Bankruptcy Code, 2016, if a corporate debtor lacks financial creditors, the Committee of Creditors must be constituted by the Board and not by the Interim Resolution Professional (IRP) or Resolution Professional (RP). In this case, apart from one operational creditor, there were no other financial or operational creditors. Therefore, the Committee of Creditors formed by the IRP was deemed legally invalid. Consequently, any resolution process undertaken by this invalid committee was considered void. As no resolution plan was accepted, the Tribunal emphasized that the entire resolution process was not legally valid.

2. The judgment further delved into the compliance aspect of the Insolvency and Bankruptcy Code, 2016. It was noted that the Corporate Insolvency Process should ideally be completed within 180 days from the date of admission of the application to initiate Corporate Insolvency Resolution Process (CIRP). However, in the present case, this 180-day period had already lapsed. Despite the invalid constitution of the Committee of Creditors, the Tribunal pointed out that the stipulated time for completing the insolvency process had expired. As a result, under Section 33 of the Code, the Adjudicating Authority proceeded to order the liquidation of the corporate debtors.

3. Finally, the judgment concluded with the issuance of a liquidation order and the appointment of a Liquidator. The Adjudicating Authority directed the Liquidator to issue a public announcement declaring the commencement of liquidation for the concerned corporate debtors. The Resolution Professional was appointed as the Liquidator in accordance with Section 31 of the Insolvency and Bankruptcy Code, 2016, with the obligation to notify the Registrar of Companies where the Corporate Debtor is registered. The Liquidator was instructed to operate under the guidance of the Authority as outlined in Section 31 of the Code, effectively concluding the application and the subsequent liquidation process.

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