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2020 (11) TMI 626 - AT - Insolvency and BankruptcyStay on Liquidation proceedings - validity of Liquidation Order - continuation of CIRP - bringing back the money belonging to the corporate debtor - HELD THAT - An appeal against a liquidation order passed under Section 33 may be filed on the grounds of material irregularity or fraud committed in relation to liquidation order. We find no material irregularity or fraud committed in relation to impugned order - The I B Code, 2016 is not meant for initiating proceedings for prevention of oppression and mismanagement but is armed with provisions under part -II Chapter III for initiation of actions against wrong doers/illegal transactions etc. There are no reason to interfere with the liquidation order passed by the Adjudicating Authority dated 29.07.2020 - the order passed by the Adjudicating Authority is upheld. Appeal dismissed.
Issues Involved:
1. Allegations of cheating and fraud by a director. 2. Financial deterioration and mismanagement of the Corporate Debtor. 3. Actions taken by the Interim Resolution Professional (IRP). 4. Grounds for challenging the liquidation order. 5. Commercial wisdom of the Committee of Creditors (CoC). 6. Legal provisions under the Insolvency and Bankruptcy Code (IBC), 2016. Issue-Wise Detailed Analysis: 1. Allegations of Cheating and Fraud by a Director: The appellants alleged that a director of the Corporate Debtor, Ms. Nandani Singh, committed fraud and diverted funds to foreign accounts in the names of her daughters. They provided evidence including emails and invoices to support their claims. However, the respondents did not file a counter/objection, and the liquidator stated that these allegations pertain to oppression and mismanagement, which should be addressed under Sections 241-242 of the Companies Act, 2013, not under the IBC, 2016. 2. Financial Deterioration and Mismanagement of the Corporate Debtor: The Corporate Debtor's financial performance deteriorated significantly from ?100 Crores in 2015-16 to ?30 Crores in 2018-19. This decline was attributed to fraud and mismanagement by Ms. Nandani Singh and related parties. The appellants resigned from the Corporate Debtor in March 2019 due to these issues. The Corporate Debtor had availed a financial credit facility of ?25 Crores from Bank of Baroda, which was secured by mortgaging its assets. 3. Actions Taken by the Interim Resolution Professional (IRP): The IRP, Mr. Vikram Bajaj, was appointed following the initiation of the Corporate Insolvency Resolution Process (CIRP) on 29.08.2019. The IRP's fees were ?2.50 lakhs per month plus GST, totaling ?7,03,520. The IRP and the director visited the Corporate Debtor's plant and found the machinery dismantled and stock unverifiable. The IRP did not conduct a physical verification of the assets. 4. Grounds for Challenging the Liquidation Order: The appellants challenged the liquidation order on the grounds of material irregularities and fraud. However, the respondents argued that the appellants' grievances pertained to oppression and mismanagement, which should be addressed under the Companies Act, 2013. The appellants failed to file a petition under Sections 241-242 at the appropriate stage, making their challenge under Section 61(4) of the IBC, 2016, invalid. 5. Commercial Wisdom of the Committee of Creditors (CoC): The CoC, comprising three financial creditors, voted with a 98.5% majority to liquidate the Corporate Debtor. The Adjudicating Authority upheld the CoC's decision, citing the Supreme Court judgments in the cases of K. Shashidhar vs. Indian Overseas Bank and Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta, which affirmed that the commercial wisdom of the CoC cannot be challenged by the Adjudicating Authority or the Appellate Authority. 6. Legal Provisions under the Insolvency and Bankruptcy Code (IBC), 2016: Section 61(4) of the IBC, 2016, allows an appeal against a liquidation order on the grounds of material irregularity or fraud. The appellants failed to provide sufficient evidence of such irregularities or fraud in relation to the liquidation order. The judgment emphasized that the IBC, 2016, is not intended for proceedings related to oppression and mismanagement but includes provisions for addressing illegal transactions and wrongdoings during the liquidation process. Conclusion: The appeal was dismissed as the appellants did not establish material irregularity or fraud in relation to the liquidation order. The Adjudicating Authority's liquidation order dated 29.07.2020 was upheld, and the judgment reiterated that the IBC, 2016, is not meant for addressing issues of oppression and mismanagement. The appeal was dismissed with no order as to costs.
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