2020 (11) TMI 439 - AT - Insolvency and Bankruptcy

Liquidation of Corporate Debtor - no resolution plan submitted - HELD THAT - The fact remains that during the CIRP period, there was no resolution plan received which was available for CoC to consider. As such Liquidation Order would be unavoidable - Under Section 12 of IBC in 180 days from date of admission of application and after extension, in extended period of 90 days CIRP was required to be concluded. According to the Respondent No. 2, the extended period of CIRP was ending on 16th August 2019. The Respondent Nos. 2 and 3 state that because the Consortium which included the Appellant had stated that they want to submit resolution plan, the initial extension under Section 12 of IBC seeking another 90 days was sought and taken from Adjudicating Authority. The record shows that in spite of giving opportunities to the Consortium (which included Appellant) no resolution plan was submitted and consequently in the fifth CoC meeting, CoC decided to move for liquidation. The Respondent No.1 filed CA No. 452 of 2019 under Section 33 (2) on 01st July 2019 (Annexure A-11). The Liquidation order came to be passed on 06th January, 2020 by when time stated even in Second Proviso of Section 12 (3) of IBC was already over - there are no error in the conclusion of Adjudicating Authority that the liquidation order was required to be passed as no resolution plan was submitted even in the extended period of time. Whether Resolution Professional/Prospective Liquidator should have been charged? - HELD THAT - In the present matter, the Resolution Professional had already given the written consent and sub-clause a and b of Sub-Section 4 of Section 34 did not arise - The Application filed by CoC Annexure A-12 was under Section 60 (5) of IBC read with rule 11 of National Company Law Tribunal Rules, 2016. The Resolution Professional/Liquidator act in trust of CoC and Creditors. Under Section 10 (3) (b) of IBC name of Resolution Professional is proposed by Corporate Applicant at the time of initiation of CIRP. Under Section 34 the Resolution Professional subject to submission of consent is appointed Liquidator unless replaced by Adjudicating Authority under sub-section (4). The Adjudicating Authority should have considered appointing any other Professional as liquidator instead of appointing the Respondent No. 1 in the face of the Joint Lenders Meeting Minutes reproduced above which claimed that the lenders were of the view that entire CIRP had not been conducted in desired way by the RP. Liquidation Order was yet to be passed and claim of CoC could not have been ignored under Section 27 of IBC. The interest of Financial Creditors and other Creditors is there even during Liquidation proceeding and it would not be appropriate if there are doubts regarding the manner in which the Liquidator is conducting the process. The liquidation order passed by the Adjudicating Authority is maintained - matter is remitted back to appoint another Insolvency Professional as Liquidator replacing Respondent No. 1 - Appeal disposed off.

Summary

Issues Involved:

1. Validity of the liquidation order passed by the Adjudicating Authority.
2. Allegations against the Resolution Professional (RP) and his conduct during the Corporate Insolvency Resolution Process (CIRP).
3. Replacement of the Resolution Professional as Liquidator.

Issue-wise Detailed Analysis:

1. Validity of the Liquidation Order:

The appeal was filed against the liquidation order passed by the Adjudicating Authority, which dismissed the application for replacing the Resolution Professional and ordered the liquidation of the Corporate Debtor. The Appellant argued that the Corporate Debtor was moving towards profitability and that the losses were decreasing. However, the Respondent No. 1 (Resolution Professional) countered that the Corporate Debtor was incurring more losses and the working capital was depleting. The Appellant's claims of securing fresh orders were disputed by the Respondent No. 1, who highlighted non-cooperation from the Appellant and other promoters. The Adjudicating Authority noted that no resolution plan was received within the stipulated time, making the liquidation order unavoidable. The Tribunal upheld the liquidation order, stating that the extended period for CIRP had ended and no resolution plan was submitted.

2. Allegations Against the Resolution Professional:

The Appellant accused the Resolution Professional of misrepresenting facts and acting with mala fide intentions to push the Corporate Debtor into liquidation. The RP was alleged to have presented incorrect CIRP expenses and failed to raise interim finance to keep the unit operational. The Respondent No. 1 defended his actions, citing non-cooperation from the Appellant and the financial distress of the Corporate Debtor. The Tribunal found that the Appellant did not raise these issues before the Adjudicating Authority during the liquidation proceedings and noted the non-cooperation and incomplete records provided by the Appellant. The Tribunal concluded that the RP's decision to temporarily suspend operations was justified given the financial losses and lack of working capital.

3. Replacement of the Resolution Professional as Liquidator:

The CoC had resolved to replace the Resolution Professional during a Joint Lenders' Meeting, citing dissatisfaction with the RP's conduct during the CIRP. The Adjudicating Authority dismissed the application for replacement, stating that the CoC failed to prove lack of knowledge or misrepresentation. The Tribunal, however, found that the Adjudicating Authority did not adequately consider the contents of the Joint Lenders' Meeting minutes, which expressed concerns about the RP's conduct. The Tribunal held that it would have been more appropriate to appoint a different Insolvency Professional as Liquidator, given the CoC's lack of confidence in the current RP. Consequently, the Tribunal remitted the matter back to the Adjudicating Authority to appoint another Insolvency Professional as Liquidator, ensuring proper handover of charge.

Conclusion:

The Tribunal maintained the liquidation order but set aside the dismissal of the application for replacing the Resolution Professional. The matter was remitted back to the Adjudicating Authority to appoint a new Liquidator, as proposed by the CoC or another professional from IBBI, ensuring proper transition and addressing the CoC's concerns. The appeal was disposed of accordingly.