TERMINATION OF PRE-PACKAGED INSOLVENCY RESOLUTION PROCESS

Chapter III-A of Part II of the Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) provides the procedure for conduct of pre-packaged insolvency resolution process that may be filed by a Corporate Debtor classified as MSME. The insolvency resolution process commences from the date of admission of the application by the Adjudicating Authority. The insolvency resolution process shall be completed by 120 days from the date of commencement of the insolvency resolution process. the resolution professional shall submit the resolution plan, as approved by the committee of creditors, to the Adjudicating Authority under sub-section (4) or sub-section (12), as the case may be, of section 54K, within a period of ninety days from the pre-packaged insolvency commencement date.

Where no resolution plan is approved by the committee of creditors within the time period of 120 days, the resolution professional shall, on the day after the expiry of such time period, file an application with the Adjudicating Authority for termination of the pre-packaged insolvency resolution process in such form and manner as may be specified.

There no provision for ordering the corporate debtor into liquidation as available to corporate insolvency resolution process. If no resolution plan is received and approved within 120 days then the process is liable to be terminated.

In VIKASH GAUTAMCHAND JAIN VERSUS RP OF KETHOS TILES PVT. LTD. - 2024 (6) TMI 1041 - NATIONAL COMPANY LAW TRIBUNAL AHMEDABAD, the Adjudicating Authority admitted an application of Pre-Packaged insolvency resolution process filed by Kethos Tiles Private Limited under Section 54C of the Insolvency and Bankruptcy Code, 2016 (‘Code’ for short). The applicant was appointed as a Resolution Professional.

The Resolution Professional published ‘Public announcement’ calling for claims from the eligible creditors of the company on 06.01.2024. The Resolution Professional collated the claims received and constituted a Committee of Creditors on 11.01.2024. The report of the same was filed before the Adjudicating Authority on 23.01.2024. The RP appointed other professionals such as valuers, transaction auditors etc. for the purpose of insolvency process. He also made public announcement inviting resolution plan. But no resolution plan has been received. He also arranged for the revised base plan made by the corporate debtor.

In the third meeting of Committee of Creditors considered the revised base plan. At the same time, it was noticed that the period of 120 days meant for pre-packaged insolvency resolution process was coming to an end. The Committee of Creditors requested the Resolution Professional to file an application before the Adjudicating Authority with the prayer for the extension of the resolution process for a further period of 60 days. The Committee of Creditors passed a resolution regarding this by 91.75% of voting.

In view of the above, the Applicant has filed this application seeking extension of time i.e., on 03.05.2024. The Adjudicating Authority directed the Resolution Professional to provide the provisions which provide for extension of time. The Resolution Professional submitted that there is no explicit provision in the Code and the regulations made there under in this regard but there are precedents. But no case law has been referred to by the Resolution Professional. The Resolution professional submitted that Section 12 of the Code to be applied in the Pre-packaged insolvency resolution process matters. The Sections which shall be applies to Chapter III-A governing Pre-packaged insolvency resolution process mutatis mutandis are stated through Section 54P.

The Adjudicating Authority perused the documents and records available in this case. The Adjudicating Authority observed that the period of 120 days for Pre-packaged insolvency resolution process came to an end on 30.05.2024. No resolution plan has been received in this case. The Adjudicating Authority analyzed the provisions of Section 54D of the Code. The Adjudicating Authority observed that Section 54D(3) provides that if no Resolution Plan is approved by CoC the RP shall file an application for Termination of pre-packaged insolvency resolution process.        

The Adjudicating Authority now analyzed the provisions of Section 54P of the Code. Section 54P of the Code provides that the provisions of sections 24, 25A,26, 27, 28, 29A, 32A, 43 to 51, and the provisions of Chapters VI and VII of this Part shall, mutatis mutandis apply, to the pre-packaged insolvency resolution process, subject to the following, namely: --

1. reference to “members of the suspended Board of Directors or the partners” under clause (b) of sub-section (3) of section 24 shall be construed as reference to “members of the Board of Directors or the partners, unless an order has been passed by the Adjudicating Authority under section 54J”;

2. reference to “clause (j) of sub-section (2) of section 25” under section 26 shall be construed as reference to “clause (h) of sub-section (2) of section 54F”;

3. reference to “section 16” under section 27 shall be construed as reference to   “section 54E”

4. reference to “resolution professional” in sub-sections (1) and (4) of section 28 shall be construed as “corporate debtor”;

5. reference to “section 31” under sub-section (3) of section 61 shall be construed as reference to “sub-section (1) of section 54L”;

6. reference to section 14” in sub-sections (1) and (2) of section 74 shall be construed as reference to “clause (a) of sub-section (1) of section 54E”;

7. reference to “section 31” in sub-section (3) of section 74 shall be construed as reference to “sub-section (1) of section 54L”.   

The Adjudicating Authority held that Section 12 of the Code will not be applicable to the pre-packaged insolvency resolution process as per Section 54P of the Code. The Adjudicating Authority further observed that the Resolution Professional has not complied with the direction given under the provisions of Section 54D and 54K (11) (12).

The Adjudicating Authority held that since no resolution Plan has been approved within the specific time period which is 120 days, the Adjudicating Authority ordered for Termination of Pre-Packaged Insolvency Resolution Process of the Corporate Debtor initiated by the order dated 04.01.2024.

The Adjudicating Authority further observed that the Resolution Professional has misled the Adjudicating Authority and has not performed the duties mandated in the Code. The Adjudicating Authority also directed the Insolvency and Bankruptcy Board of India and the Insolvency Professional Agency concerned to take necessary action against the Resolution Professional.