2018 (12) TMI 1708 - Tri - Insolvency and Bankruptcy

Judgment Upholding Corporate Debtor Liquidation Resolution Emphasizes Timely CIRP Completion

The judgment upheld the resolution for liquidation of a Corporate Debtor, dismissing the Applicant's plea for rejection and issuance of Information ... Locus standi of a suspended director in CIRP proceedings - exclusion of time from the CIRP period / exclusion of days from the 270-day time-limit - Information Memorandum and Expressions of Interest - compliance with Section 29 of the I&B Code - Regulation 40A of the IBBI (Insolvency Resolution Process) Regulations - temporal applicability - NCLT jurisdiction under Section 60(5)(c) of the I&B Code - liquidation following expiry of the CIRP periodLocus standi of a suspended director in CIRP proceedings - NCLT jurisdiction under Section 60(5)(c) of the I&B Code - Whether the Applicant, being a suspended Director, had locus to file the application under Section 60(5)(c) seeking exclusion of 79 days and other reliefs. - HELD THAT: - The Tribunal examined the Applicant's standing in the context of the reliefs sought. While Section 60(5)(c) confers jurisdiction on the Tribunal to entertain questions arising out of insolvency or liquidation proceedings, the Court found that a suspended Director is not an appropriate aggrieved party to seek exclusion of CIRP time or extension which are matters entrusted to the Committee of Creditors and the Resolution Professional. The Tribunal recorded that the Applicant, as a suspended director, lacks the requisite locus to obtain the relief sought and therefore the application is not maintainable on that ground. [Paras 4, 10, 14]Application by the suspended Director is not maintainable for want of locus; the Applicant has no standing to seek exclusion of time or the reliefs claimed.Information Memorandum and Expressions of Interest - compliance with Section 29 of the I&B Code - exclusion of time from the CIRP period / exclusion of days from the 270-day time-limit - Regulation 40A of the IBBI (Insolvency Resolution Process) Regulations - temporal applicability - liquidation following expiry of the CIRP period - Whether the delay of 79 days in finalizing the Information Memorandum justified exclusion of that period from the 270-day CIRP timeline and whether Regulation 40A could be applied retrospectively. - HELD THAT: - The Tribunal considered the chronology and the conduct of the Resolution Professional and the erstwhile Resolution Professional. It noted that Expressions of Interest had been issued (including by the erstwhile RP), that additional information was provided to prospective applicants, and that the new Resolution Professional re-issued the EOI and extended deadlines but received no viable resolution plans. The RP also undertook forensic audit work and encountered lack of cooperation from suspended directors. The Tribunal rejected the contention that the 79-day interval should be excluded: there was no adequate justification to treat that period as time lost for CIRP purposes. The Tribunal further observed that Regulation 40A was inserted on 03.07.2018 and cannot be given retrospective effect to govern conduct prior to its enforcement; accordingly the contention of breach based on Regulation 40A (as if then operative) was rejected. In view of completion of the 270-day period and absence of responsive resolution applicants, the Tribunal upheld the course leading to liquidation. [Paras 5, 8, 12, 13, 14]No exclusion of the 79 days is warranted; Regulation 40A is not retrospective; the CIRP time of 270 days having expired and no viable resolution plan forthcoming, the liquidation order stands and the application is dismissed on merits.Final Conclusion: The Miscellaneous Application is dismissed. The suspended Director lacks locus to seek exclusion of time; the asserted 79-day delay does not merit exclusion from the 270-day CIRP period; Regulation 40A is not retrospective; the liquidation order made after expiry of the CIRP period is upheld. Issues:1. Challenge to resolution for liquidation of Corporate Debtor2. Delay in preparation of Information Memorandum3. Jurisdiction of NCLT to entertain questions of law or facts4. Exclusion of time period in Corporate Insolvency Resolution Process5. Locus standi of suspended Director to file application6. Compliance with Regulation 40A of Insolvency and Bankruptcy Board of India RegulationsAnalysis:1. The judgment concerns a challenge to the resolution for liquidation of a Corporate Debtor. The Applicant, a suspended Managing Director, filed an application seeking rejection of the resolution and issuance of Information Memorandum for consideration of Resolution Plans.2. The Applicant argued a delay in preparing the Information Memorandum, violating Section 29 of the Insolvency and Bankruptcy Code. The Counsel sought exclusion of 79 days from the CIR Process period, emphasizing the importance of timely completion of CIRP.3. The Counsel contended that NCLT has jurisdiction to address issues related to CIR Process. Citing the ArcelorMittal case, they stressed the balance between timely resolution and avoiding liquidation, especially for the benefit of employees.4. The Resolution Professional countered, highlighting the steps taken during CIRP, including forensic audit due to involvement of suspended Directors in questionable transactions. Efforts to attract Resolution Applicants were detailed, with no successful submissions received.5. The Resolution Professional challenged the locus standi of the Applicant, arguing that the CoC holds discretion over CIR Process timeframes. The Applicant's plea for exclusion of time was deemed a delay tactic to avoid liquidation.6. The Resolution Professional emphasized compliance with Regulation 40A, inserted through an amendment, and refuted allegations of pre-enforcement violations. The Tribunal rejected the Applicant's claims, dismissing the application as lacking merit and maintainability.In conclusion, the judgment underscores the importance of timely compliance in the insolvency resolution process and upholds the authority of the CoC in decision-making. The ruling clarifies the boundaries of jurisdiction for NCLT and highlights the necessity for all parties to adhere to regulatory requirements during insolvency proceedings.