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2021 (1) TMI 978 - Tri - Insolvency and BankruptcySeeking relief asking for closure of the liquidation process without dissolving the Corporate Debtor as long as Section 54 of the Code passed by the Parliament is in force - Can such a relief be passed by this Authority by looking at the liquidation Regulations issued with the power conferred upon IBBI under section 240 (Regulation making power) and Section 196 (Powers and Functions of IBBI) of the Code? - HELD THAT - If the Code is carefully read, it could be ascertained that wherever the Code felt that IBBI assistance is required, it has been specifically stated as specified by the Board or in such manner as may be specified or prescribed we must at the cost of repetition reiterate, this clause is indicative of the fact that beyond the procedure inbuilt in the Code, if additional mechanism or paraphernalia is required to accomplish implementation of the statute, there it has been mentioned as as specified by the Board or in such manner as may be specified or prescribed . The point to remember is, it is for supplementation, not for supplantation. The purpose and object of the Regulations issued by IBBI is to carry out the provisions of the Code, not for carrying out the purpose of the Code. It is in a way carrying out the provisions of Code will tantamount to carrying out the purpose of maximization of value as well. Here IBBI cannot jump the gun and say it has changed the procedure for maximization of value. As we all know, once the CIRP period is over, CoC will not remain in existence. Exercising commercial wisdom by the CoC has its own limitations. They can decide how much they get from the Resolution plan. The financial creditors converting into stakeholders during liquidation can express their wish in the meetings, but the liquidator is not bound by such decisions - It is explicitly mentioned in sub-section -1 of section 240, Regulations are to sub-serve sections of the Code in implementation. The delegated legislation shall not overreach Sections - When the dissolution is made explicit, IBBI ought not to have ignored the mandate u/s 54 of the Code. When something is said in preamble, it shall be assumed that a whole gamut of provisions of that enactment have come into existence to fulfill that policy alone. At the time when any Bill is laid before legislature, every clause/provision is weighed to balance the same with preamble of the Bill, if that balance is disturbed by outside agencies after enactment, that too without power, the inbuilt balance will be lost - If any study is made by a recommending agency like the Law Commission or Committee set up to look into the efficacy of the enactment, it will recommend to the legislature. In this process, if any particular provision is found not workable and the result is not in conformity with the purpose and object of the enactment, it has to go back to the maker. Repairing is not the job of Regulating Authority. In fact, the Regulating Authority or Rule Making Authority shall provide a support system for effective implementation of the provisions of the Code, not to travel beyond the line of control. In section 240 (2) (y) also, IBBI is limited to regulate the manner of evaluating the assets and property of the corporate debtor under clause (c), the manner of selling property in parcels under clause (f), the manner of reporting progress of the liquidation process under clause (n), and the other functions to be performed under clause (o), of sub-section (1) of section 35. Therefore by reading all these, it is nowhere found in the Code that the corporate debtor could be alienated to the purchaser by dispensing with dissolution. If concessions are started providing, there won't be certainty, predictability, uniformity; nobody knows what decision will come tomorrow. This will lead to facelessness and discordancy - Even in Section 240(2)(zk), the regulating power is limited to the period and the manner of distribution of proceeds of sale under sub-section 1 of section 53, if it is seen juxtaposition to Section 53, it only deals with sale of the liquidation assets, it does not speak about sale of the Corporate Debtor, sale of the Corporate Debtor is altogether different from sale of assets. The only power that is given under section 53 is, to convert assets of the Corporate Debtor into sale proceeds, therefore it could not be construed that Section 53 envisages sale of the Corporate Debtor. When section itself has not conferred any right to sale of the Corporate Debtor, where is the question of IBBI setting out a new concept of sale of Corporate Debtor without any support of any of the sections of IBC. In section 240 (2), regulating power is given to bring in supplementary procedure with regard to the sections mentioned therein, but not to the sections not mentioned in sub-section 2 of section 240. Section 54 is not included in section 240 (2) of the Code In section 54 also, it has not been mentioned as specified by the Board or in such manner as may be specified or prescribed . When no discretion is given to IBBI to help out in implementation of section 54 of the Code, it should not have given an unsolicited go-by to the dissolution in the case of a business sold as a going concern - This Regulation has been newly inserted on 25-7-2019, simultaneously along with this Regulation, CIRP Regulation 39C was inserted creating a right to CoC for approving a resolution to explore sale of the Corporate Debtor as a going concern under clause (e) of Regulation 32 of Liquidation Regulations in the event the corporate debtor goes into liquidation, on this premise the liquidator shall identify and group the assets and liabilities and ought to be sold as going concern, this RP shall place it before this Adjudicating Authority. Insolvency and Bankruptcy Code is an embodiment of substantial rights laced with procedural mandates. When procedure itself is part of the enactment, the Regulating Authority cannot rewrite the procedure obliterating the provisions of IBC. Yes, the Regulating authority may bring in subordinate procedure for full implementation of the sections of the Code. What could be liquidated is the assets of the debtor company, this concept of liquidation of assets shall not be construed as inclusion of sale of the company - The procedure is already set out under the Code for rearrangement under insolvency and resolution process thereafter another window under liquidation through sec. 230 of the Companies Act, 2013, therefore there cannot be any other procedure which is militating the procedure set out under the Code. Application dismissed.
Issues Involved:
1. Closure of Liquidation Process without Dissolution 2. Compatibility with the Companies Act 3. Interpretation of Section 54 of the Insolvency and Bankruptcy Code (IBC) 4. Powers and Functions of the Insolvency and Bankruptcy Board of India (IBBI) 5. Validity of Liquidation Regulation 45(3) 6. Tribunal's Competency to Test Subordinate Legislation Detailed Analysis: 1. Closure of Liquidation Process without Dissolution: The Liquidator sought closure of the liquidation process under Regulation 45(3)(a) of the IBBI Liquidation Process Regulations, 2016, after selling the Corporate Debtor as a going concern. The Tribunal found this request problematic, stating, "We don't know where this arrangement has come from; one thing is for sure it is not compatible with the structural arrangement given under the Companies Act." The Tribunal emphasized that the liquidation process could not be closed without dissolving the Corporate Debtor as mandated by Section 54 of the IBC. 2. Compatibility with the Companies Act: The Tribunal questioned the compatibility of the Liquidator's arrangement with the Companies Act, noting the lack of explanation on how the arrangement aligns with the Act. The Tribunal stated, "This liquidator has not stated how this arrangement is in sync with the Companies Act." 3. Interpretation of Section 54 of the Insolvency and Bankruptcy Code (IBC): Section 54 mandates the dissolution of the Corporate Debtor after the liquidation of assets. The Tribunal highlighted, "The mandate u/s 54 is to terminate the life of corporate debtors by dissolving them after liquidation of their assets." The Tribunal concluded that the IBBI could not bypass this statutory mandate by introducing a concept not present in the Code. 4. Powers and Functions of the Insolvency and Bankruptcy Board of India (IBBI): The Tribunal analyzed the regulatory powers of the IBBI under Sections 196 and 240 of the IBC. It stated, "The purpose and object of the Regulations issued by IBBI is to carry out the provisions of the Code, not for carrying out the purpose of the Code." The Tribunal emphasized that the IBBI's regulations must be consistent with the Code and cannot introduce new concepts not contemplated by the legislation. 5. Validity of Liquidation Regulation 45(3): The Tribunal found Regulation 45(3) flawed, stating, "These Regulations are flawed for many reasons, the one we immediately mention is, this Authority is not governed by IBBI, and it is governed by the Code." The Tribunal concluded that Regulation 45(3), which allows the closure of the liquidation process without dissolving the Corporate Debtor, is repugnant to Section 54 of the IBC. 6. Tribunal's Competency to Test Subordinate Legislation: The Tribunal cited the Supreme Court's decision in L. Chandra Kumar v. Union of India, affirming its competency to test the vires of subordinate legislation. It stated, "Tribunals cannot test the vires of the Parent Legislation, because the Tribunal itself is the creature of the said Statute, but they are competent to test the vires of subordinate/delegated legislation." The Tribunal concluded that it is duty-bound to ensure that regulations are consistent with the provisions of the statute. Conclusion: The Tribunal dismissed the application for closure of the liquidation process without dissolving the Corporate Debtor, stating, "Accordingly this IA1940/2020 is hereby dismissed as misconceived." The Tribunal emphasized the need to adhere strictly to the statutory mandates of the IBC and the limitations of the IBBI's regulatory powers.
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