2019 (10) TMI 297 - AT - Insolvency and Bankruptcy

Liquidation of Corporate Debtor - approval of Committee of Creditors - irregularity in appointment of Resolution Professional - collusion between the Resolution Professional and the COC - bias and fraud - HELD THAT - The Appellant vehemently argued that collusion between the Resolution Professional and the COC paved the way for liquidation of the Corporate Debtor. However, he was unable to demonstrate any material irregularity of substance to substantiate his argument. Admittedly, statutory Corporate Insolvency Resolution Period of 180 days further extended by 90 days computed from the date of appointment of Interim Resolution Professional has elapsed and there is no legal scope for extension of the period. Any irregularity or illegality right from order of admission till passing of the order of liquidation, if any, should have been challenged before the competent forum at the appropriate stage. The Corporate Insolvency Resolution Process is time bound and the timelines set out by I B Code, Rules and the Regulations framed thereunder have to be adhered to scrupulously. There is no ground for interference with the impugned order of liquidation. However, the direction enumerated in clause (g) of para 11 of the impugned order is repugnant to law and virtually conflicts with the recommendation of CoC for liquidation of Corporate Debtor as a going concern. The Adjudicating Authority landed in error in directing that the liquidation order shall be deemed as a notice of discharge to the officers, employees and workmen of the Corporate Debtor. This cannot be supported either in law or on the facts of this particular case. Appeal disposed off.

Issues:
1. Challenge to the order of liquidation based on alleged irregularities in the appointment of Resolution Professional, collusion between Resolution Professional and Committee of Creditors, bias, and fraud.
2. Timelines and adherence to the Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016.
3. Decision-making authority of the Committee of Creditors in recommending liquidation of the Corporate Debtor.
4. Jurisdiction of the Adjudicating Authority in the process of liquidation and the role of the National Company Law Tribunal.

Analysis:
1. The Appellants challenged the order of liquidation of the Corporate Debtor, citing irregularities in the appointment of the Resolution Professional, alleged collusion between the Resolution Professional and the Committee of Creditors, bias, and fraud. The Adjudicating Authority initiated the Corporate Insolvency Resolution Process under Section 9 of the Insolvency and Bankruptcy Code based on an application by an Operational Creditor. The Resolution Professional recommended liquidation after the rejection of a resolution plan by the Committee of Creditors. The Appellants failed to substantiate their arguments of material irregularities, and the Tribunal emphasized that any challenges to the process should have been raised at the appropriate stage. The Tribunal highlighted the time-bound nature of the Corporate Insolvency Resolution Process and the importance of adhering to the timelines set by the I&B Code.

2. The Tribunal emphasized the strict adherence to the timelines set out by the Insolvency and Bankruptcy Code, Rules, and Regulations. It noted that once the statutory period for the Corporate Insolvency Resolution Process had expired before the order of liquidation was passed, no authority had the jurisdiction to extend the period or start a denovo process. The Tribunal highlighted that the primary objective of the I&B Code is insolvency resolution, with liquidation being the last resort. The decision-making process of the Committee of Creditors was deemed a commercial decision not subject to judicial scrutiny, as per the precedents set by the Hon’ble Apex Court.

3. The Tribunal reiterated the legislative intent behind the I&B Code, emphasizing the role of the Committee of Creditors in making commercial decisions regarding the resolution process. It highlighted that the Adjudicating Authority is not empowered to analyze or evaluate the commercial decisions of the Committee of Creditors, as the Code prioritizes the commercial wisdom of the creditors without judicial intervention. The Tribunal cited a specific case to support the non-justiciability of the commercial wisdom of the financial creditors in the resolution process.

4. The Tribunal found no grounds for interference with the order of liquidation but identified an error in a specific direction of the impugned order. It set aside the direction that the liquidation order would serve as a notice of discharge to the officers, employees, and workmen of the Corporate Debtor. The Tribunal concluded by disposing of the appeal with observations regarding the direction in question, highlighting its inconsistency with the recommendation of the Committee of Creditors for the liquidation of the Corporate Debtor as a going concern.

← Previous Next →