2020 (11) TMI 672 - Tri - Insolvency and Bankruptcy

Dissolution of the Corporate Debtor - Section 54 of the IBC - Whether the pendency of any Investigation on the Corporate Debtor creates a bar for passing on order of dissolution of a Company? HELD THAT - When a company gets dissolved under Section 248, it will cease to operate except for the purpose of realising the amount due to the company and for the payment or discharge of the liabilities or obligations of the company. Though the Legislature has specifically made such a provision when dissolution takes place by virtue of Section 248 of Companies Act 2013, such exception cannot be presumed to be available as a thumb rule in situations when dissolution takes place via other modes especially under the I B Code, 2016, where no such provision is expressly available. It is evident that the pendency of an Investigation creates a bar for RoC to strike off the name of the Company from the register of companies, as well as for making an application for removal of the name of the Company - That it is an established fact that the moment the dissolution of a Company takes place, its legal entity ceases to exists, neither it can sue nor it can be sued in its own name. Thus, it is clear that the dissolution puts an end to the legal existence of a Company. Once a company is dissolved, it becomes a non-existent party and therefore, no action can be brought in its name. Further, the Liquidator shall also not be able to represent the non-existent Corporate Debtor before any of the investigating forum. In order to facilitate completion of investigation, maximisation of assets and the value thereof and to ensure smooth distribution of the proceeds arising out of such investigation amongst various stakeholders of the Corporate Debtor, the judicial propriety demands that the Corporate Debtor should not be dissolved at this stage when the investigation as ordered by Hon'ble NCLAT is pending - the pendency of an investigation creates a bar in ordering dissolution of the company. Application dismissed as premature.

Issues Involved:
1. Dissolution of the Corporate Debtor under Section 54 of the IBC.
2. Submission of the Final Report and related documents.
3. Pendency of investigation and its impact on the dissolution process.
4. Compliance with Regulation 44 of the IBBI Liquidation Process Regulations, 2016.
5. Legal implications of dissolving a company under investigation.

Detailed Analysis:

1. Dissolution of the Corporate Debtor under Section 54 of the IBC:
The Liquidator, Ms. Pooja Bahry, filed an application (IA-2823/2020) seeking the dissolution of the Corporate Debtor, M/s. Gee Ispat Pvt. Ltd., under Section 54 of the Insolvency and Bankruptcy Code (IBC). The application included prayers to accept the application, pass an order of dissolution, and take on record the Final Report and Progress Reports.

2. Submission of the Final Report and related documents:
The Liquidator submitted that all assets of the Corporate Debtor had been disposed of through sale/auction, and the proceeds had been distributed among the stakeholders. However, the Compliance Certificate in Form H, as prescribed under Regulation 45(3) of the IBBI Liquidation Process Regulations, 2016, had not been filed.

3. Pendency of investigation and its impact on the dissolution process:
The Liquidator highlighted several issues, including misrepresentation of assets, tax evasion, inflated stock statements, unauthorized rice trading, and fund diversion. These issues led to an application under various sections of the IBC and Companies Act. The Tribunal had ordered an investigation under Section 210(2) of the Companies Act, 2013, which was upheld by the NCLAT, but modified to follow the procedure under Section 213 of the Companies Act. The NCLAT directed the matter to the Central Government for investigation.

4. Compliance with Regulation 44 of the IBBI Liquidation Process Regulations, 2016:
The Liquidator argued that Regulation 44 mandates the liquidation of the Corporate Debtor within one year, irrespective of pending applications for avoidance transactions. The Liquidator relied on a judgment from the NCLT Bengaluru Bench, which stated that pending investigations do not bar the dissolution of a company. However, the Tribunal noted that this decision did not provide a rationale for why pending investigations do not bar dissolution.

5. Legal implications of dissolving a company under investigation:
The Tribunal referred to Section 250 of the Companies Act, 2013, which states that a dissolved company ceases to operate except for realizing dues and discharging liabilities. It also noted that the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016, prevent the removal of a company's name if an investigation is pending. The Tribunal emphasized that dissolution ends a company's legal existence, preventing it from suing or being sued, and that a Liquidator cannot represent a dissolved company.

The Tribunal concluded that the pendency of an investigation creates a bar to dissolving the company, as dissolution would impede the vesting of recovered assets and benefits to the Corporate Debtor. Therefore, the application for dissolution was dismissed as premature, with liberty granted to reapply after the investigation's closure. The Tribunal directed the Ministry of Corporate Affairs to expedite the investigation and communicate the order to the relevant authorities.

Conclusion:
The application for dissolution was dismissed due to the ongoing investigation, with directions to expedite the investigation and liberty to reapply post-investigation. The Tribunal emphasized that dissolution should not occur while an investigation is pending to ensure proper asset recovery and distribution.

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