2022 (1) TMI 718 - AT - Insolvency and Bankruptcy

Seeking replacement of Liquidator - grounds pleaded in the appeal for replacing the liquidator are that the liquidator did not carryout the process of liquidation insofar as sale of assets through the e-auction is concerned, in a fair and transparent manner - it is also alleged that the liquidator did not discuss the process and details of liquidation with the stakeholders as well as Appellants, who are also stakeholders in the liquidation proceedings - HELD THAT - In the present case, from third meeting of SCC onwards, it was decided that the Corporate Debtor or its business is not to be sold as a going concern. Hence, a period of prescribed time limit for completion of liquidation of 365 days should be counted from the date of 3rd meeting of SCC held on 9.11.2020. Since there was no lockdown enforced by the authorities in the period after 9.11.2020, no exclusion of time under Regulation 47-A is necessary. With passage of more than 365 days after 9.11.2020 now, we feel that the liquidation of the Corporate Debtor should have been completed by now. Therefore, liquidation of the Corporate Debtor should be done as quickly as possible to ensure that the assets of the Corporate Debtor do not undergo deterioration resulting in loss of their value. The concerns of the stakeholders, who are Appellants in this appeal, are not entirely misplaced and that the liquidation process has gone over a long time with rather sketchy results - the appellants have not been able to convincingly advance their arguments for replacement of the liquidator, particularly when no material irregularities have been found in the functioning of the liquidator. The liquidation process which has now gone on for a long time should be completed as early as possible, if not already completed. The inordinate and unexplained delay between the dates decisions are taken in SCC meetings regarding e-auctions and holding of e-auctions are a cause of concern, and they should be reduced to the minimum. Since the liquidation process has been prolonged and the record of SCC meetings show there is a substantial amount of funds that are being spent in liquidation, the liquidation costs should be restricted to the payment of actual costs incurred in liquidation process. Appeal disposed off.

Summary

Issues Involved:
1. Compliance with the Insolvency and Bankruptcy Code (IBC) and Liquidation Regulations by the Liquidator.
2. Timeliness and transparency in the liquidation process.
3. Validity of the appeal concerning the limitation period.
4. Justification for replacing the Liquidator.
5. Costs and delays in the liquidation process.

Detailed Analysis:

1. Compliance with the Insolvency and Bankruptcy Code (IBC) and Liquidation Regulations by the Liquidator:
The appellants argued that the Liquidator did not consult the Stakeholders Consultation Committee (SCC) as required under the IBC and Liquidation Regulations, particularly regarding the sale of assets. The Liquidator, however, claimed that all sale notices and e-auction details were communicated to the SCC members, and the minutes of the meetings were duly recorded and shared. The Tribunal found that the Liquidator had constituted the SCC in accordance with Regulation 31A and had sought approval for selling the Corporate Debtor as a going concern in the first SCC meeting.

2. Timeliness and Transparency in the Liquidation Process:
The appellants contended that the Liquidator did not follow the stipulated procedures, particularly in the third and fourth rounds of e-auctions, and did not inform the SCC members timely about the auction results. The Tribunal noted significant delays between SCC decisions and the actual e-auctions, which were not in line with the model timeline for liquidation processes under Regulation 47. The Tribunal emphasized the need for a quicker liquidation process to prevent asset deterioration.

3. Validity of the Appeal Concerning the Limitation Period:
The Liquidator argued that the appeal was barred by limitation, as it was filed after the prescribed period. However, considering the prevailing pandemic conditions and the Supreme Court's suo moto order extending limitation periods, the Tribunal condoned the delay, finding the appeal within the permissible time frame.

4. Justification for Replacing the Liquidator:
The appellants sought the replacement of the Liquidator, alleging lack of fairness and transparency. The Tribunal, after reviewing the documents and minutes of SCC meetings, did not find material irregularities in the Liquidator's functioning. It concluded that the appellants did not convincingly argue for the Liquidator's replacement.

5. Costs and Delays in the Liquidation Process:
The Tribunal acknowledged the appellants' concerns about the prolonged liquidation process and rising costs. It directed that the liquidation process should be completed as early as possible and that liquidation costs should be limited to actual expenses incurred.

Conclusion:
The Tribunal did not find sufficient grounds to replace the Liquidator but emphasized the need for expeditious completion of the liquidation process and minimization of costs. The appeal was disposed of with directions to complete the liquidation promptly and restrict costs to actual expenses. No order as to costs was made.