2020 (9) TMI 1076 - Tri - Insolvency and Bankruptcy

Directions upon the promoters, directors of the corporate debtor to hand over the management of the affairs of the company for smooth running and completion of the CIRP - HELD THAT - It is certain that the directors of the CD not giving maximum assistance to see that their company is to be resolved with in the timeline. It is submitted by the RP that CD is an MSME, and nothing prevent them in submitting any viable resolution plans and that no such plan also forthcoming from them. As per section 19 of the Code the directors of the CD and any other person associated with the management of the CD shall extend all assistance and cooperation to the IRP as may be required by him in managing the affairs of the CD. Being satisfied that the directors and their associates are not inclined to extend cooperation to the IRP this is a fit case wherein directions as prayed for is to be issued. The directors of the suspended board of the CD is directed to cooperate with the IRP and to provide all assistance to him to complete the CIRP In time - auditors are hereby directed to complete the transaction audit immediately, preferably within two weeks from the date of receipt of this order by way of email. RP is directed to serve a copy to the auditors on receipt of the order by him.

Summary

Issues:
1. Direction for cooperation with the Interim Resolution Professional (IRP) to complete the Corporate Insolvency Resolution Process (CIRP).
2. Allegations of non-cooperation and interference by the suspended Board of Directors of the corporate debtor.
3. Unauthorized transactions during the lockdown period and non-compliance with the moratorium.
4. Obstruction of RP's functioning by an independent director.
5. Pending transaction audit and valuation inspection issues.
6. Failure to submit viable resolution plans by the directors.
7. Violation of Section 14 of the Insolvency and Bankruptcy Code, 2016.

Issue 1: Direction for cooperation with the IRP to complete the CIRP
The Tribunal examined the lack of cooperation by the suspended Board of Directors towards the IRP in completing the CIRP. The RP highlighted the non-compliance and interference by the directors, leading to delays and hindrances in the resolution process. The Tribunal issued directions for the directors to cooperate with the IRP and provide necessary assistance for the timely completion of the CIRP.

Issue 2: Allegations of non-cooperation and interference
The Tribunal noted the serious allegations of non-cooperation and interference by the suspended Board of Directors, including unauthorized transactions and attempts to derail the CIRP process. The RP emphasized the mala fide conduct of the directors, which amounted to a violation of the IBC, 2016. The Tribunal directed the directors to refund withdrawn amounts and cooperate with the RP to avoid contempt proceedings.

Issue 3: Unauthorized transactions and non-compliance with the moratorium
Concerns were raised regarding unauthorized transactions during the lockdown period, amounting to a violation of the moratorium. The Tribunal addressed the issue by directing the directors to refund the withdrawn amount, subject to verification by the RP. Failure to comply within the stipulated time could result in contempt proceedings initiated by the IRP.

Issue 4: Obstruction of RP's functioning by an independent director
The Tribunal discussed the obstruction caused by an independent director, who threatened the RP over a phone call. Despite the allegations, the independent director did not provide any explanations. The Tribunal noted the lack of cooperation and directed the directors to refrain from such actions to ensure the smooth functioning of the resolution process.

Issue 5: Pending transaction audit and valuation inspection issues
The Tribunal acknowledged the pending transaction audit and valuation inspection issues, citing reasons such as the lockdown and workmen strike at the Hosur plant. The Tribunal directed the auditors to expedite the audit process and instructed the local police to provide necessary protection for the valuation inspection at the plant site.

Issue 6: Failure to submit viable resolution plans by the directors
The Tribunal highlighted the failure of the directors to submit viable resolution plans, despite being associated with the management of the corporate debtor. Emphasizing the importance of cooperation as per Section 19 of the Code, the Tribunal issued directions for the directors to extend full assistance to the IRP for the resolution of the company.

Issue 7: Violation of Section 14 of the IBC, 2016
The Tribunal addressed the violation of Section 14 of the IBC, 2016, due to unauthorized withdrawals during the CIRP period. The directors were directed to refund the withdrawn amount, with proper documentation, failing which the IRP could initiate contempt proceedings. The Tribunal provided an opportunity for the respondents to file a detailed reply and directed the matter to be heard after the lockdown period.