2018 (8) TMI 1033 - Tri - Insolvency and Bankruptcy

Corporate insolvency resolution - The period of 180 days for the CIR process came to an end on 12.02.2018. - An unenviable situation has been created by the conduct of the Members of the CoC. Despite the fact that the Resolution Professional apprised the CoC that the period of 180 days is to expire on 12.02.2018 and sanction be granted for moving an application before the Adjudicating Authority for extension of the period. The CoC has behaved the way we have recorded in the preceding paras. Held that - A strange phenomena has developed in so far as the functioning of CoC is concerned. - we direct the Resolution Professional to bring this order to the notice of the CoC so that appropriate steps be taken. A copy of this order be sent to the Insolvency and Bankruptcy Board of India for taking suitable action in respect of the conduct of the Members of CoC in the present matter as well as in the day to day functioning of the Members of CoC generally speaking.

Summary

Issues:
1. Liquidation resolution adopted by CoC for Corporate Debtor
2. Approval of liquidation subject to Competent Authority
3. Behavior of CoC members affecting time-bound CIR process
4. Lack of authorization for seeking extension of CIR process period
5. Failure to exercise vote sharing within 180 days

Analysis:
1. The judgment discusses the adoption of a resolution for the liquidation of the Corporate Debtor by the Committee of Creditors (CoC) during their last meeting. Both Financial Creditors, Axis Bank and Oriental Bank of Commerce, expressed their opinion in favor of liquidation, subject to approval by the Competent Authority. However, the resolution was adopted after the expiry of the 180-day period for the Corporate Insolvency Resolution (CIR) process, creating an issue regarding the timeliness of the decision-making process.

2. The judgment highlights a concerning trend where CoC members, often nominated by Financial Creditors like Banks, lack the authority to make immediate decisions during meetings. This lack of decision-making authority hampers the time-bound nature of the insolvency process as envisioned by the Insolvency and Bankruptcy Code, 2016. The judgment references a previous case where the Supreme Court emphasized the importance of speed in insolvency proceedings, criticizing delays caused by such procedural hurdles.

3. It is noted that in the present case, there was no explicit authorization granted to the Resolution Professional by the CoC to seek an extension of the CIR process period beyond 180 days. Additionally, the required vote sharing by the Financial Creditors was not completed within the stipulated timeframe. These shortcomings in the decision-making process and procedural compliance further complicated the resolution of the insolvency case and raised concerns about the effectiveness of the CoC's functioning.

4. As a result of the above observations, the judgment directs the Resolution Professional to communicate the order to the CoC for necessary action. Furthermore, a copy of the order is to be forwarded to the Insolvency and Bankruptcy Board of India for potential actions regarding the conduct of CoC members in this specific case and their general conduct in insolvency matters. The case is listed for further consideration on a specified date to address the issues raised and ensure appropriate steps are taken to rectify the procedural deficiencies identified in the judgment.