2019 (1) TMI 1681 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process invalidated due to suppression of material facts by Corporate Applicant under Insolvency and Bankruptcy Code

In Re: Mr. Anil Goel, Amar Remedies Limited

The Tribunal found that the Corporate Applicant suppressed material facts by failing to disclose a prior liquidation order when filing a petition under ... Initiation of CIRP - Winding up of company - Approval of Resolution plan - suppression of material facts by the Corporate Applicant, without disclosing that the company has been wound up by order of the Hon’ble High Court - HELD THAT:- It is clear that IDBI Bank, a Member of Financial Creditor had initiated the winding up proceedings against the Corporate Debtor, bearing CP No.26 of 2013. IDBI Bank has stated that the Corporate Debtor was fully aware of the winding up proceedings and despite that Corporate Debtor filed proceedings under section 10 without disclosing that the winding up order has already been passed by the Hon’ble High Court against and the company has been wound up. The Official Liquidator had been directed by the Hon’ble High Court to proceed with the procedure of winding up expeditiously. It is further stated in the Affidavit of IDBI Bank that before the 2nd COC meeting dated 17.11.2017 the IDBI Bank vide email 16.11.2017 intimated to the RP about the winding up order of the Hon'ble High Court dated 25.1.2017 - On perusal of the minutes of CoC, it appears that the Financial Creditor IDBI Bank has informed the CoC about the order dated 25.1.2017 passed by the Hon’ble High Court liquidating the Corporate Debtor. Given the provision of Sec 11(d) of the IB Code the corporate debtor was not entitled to make an application for initiation of Corporate Insolvency Process U/S 10 of the I & B Code. But the corporate debtor has filed the petition U/S 10 of the code, after suppressing material facts that the company was wound up by the order dated 25.1.2017 of the Hon’ble High Court. After liquidation order passed in a winding-up petition against the corporate debtor then it is barred from filing a petition under section 10 of the Code. Here the corporate debtor has not only suppressed the material fact that the winding up petition has not only been filed and admitted, but liquidation order has also been passed against the corporate applicant/corporate debtor liquidator has been directed to expedite liquidation proceedings expeditiously. The corporate applicant suppressed this material fact, knowing it to be material, and filed the petition under section 10 and in contravention of Rule 10 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The alleged act of the corporate applicant is punishable under section 77 (a) of the Insolvency and Bankruptcy Code 2016. The Registrar of Companies, Mumbai is directed to lodge prosecution against the corporate applicant under section 77(a) of the insolvency and bankruptcy code in 2016 - Since the petition has been filed under section 10 of the Insolvency and Bankruptcy Code 2016 after the suppression of the material facts, which were known to be material, therefore the petition is rejected with cost ₹ 10 lakhs which shall be paid by the Corporate Applicant. The cost will be deposited in the account of the Prime Ministers National Relief Fund. Issues Involved:1. Suppression of material facts by the Corporate Applicant.2. Validity of the Corporate Insolvency Resolution Process (CIRP) initiated under Section 10 of the Insolvency and Bankruptcy Code (IBC), 2016.3. The role and responsibility of the Committee of Creditors (CoC) and the Resolution Professional (RP).4. Legal consequences and penalties for filing a petition under Section 10 of IBC after a liquidation order.Detailed Analysis:1. Suppression of Material Facts by the Corporate Applicant:The primary issue was whether the Corporate Applicant suppressed material facts known to be material when filing the application under Section 10 of the IBC. The Tribunal noted that the Corporate Applicant filed the petition without disclosing the liquidation order passed by the Hon’ble High Court on 25.01.2017, which directed the Official Liquidator to proceed with the winding-up process expeditiously. The Tribunal found this suppression of facts to be a significant violation, as the Corporate Applicant was fully aware of the winding-up order but failed to disclose it in their application.2. Validity of the CIRP Initiated under Section 10 of IBC, 2016:The Tribunal examined whether the CIRP initiation was valid given the existing liquidation order. Section 11(d) of the IBC expressly prohibits a corporate debtor, in respect of whom a liquidation order has been made, from initiating the CIRP. The Tribunal concluded that the Corporate Applicant was not entitled to make an application for initiation of CIRP under Section 10 of the IBC, as the liquidation order was already in place. The suppression of this material fact invalidated the CIRP process initiated by the Corporate Applicant.3. The Role and Responsibility of the CoC and the RP:The Tribunal scrutinized the roles of the CoC and the RP in this matter. It was noted that the CoC members, including IDBI Bank, had informed the RP and other CoC members about the liquidation order. Despite this, the CIRP process continued. The Tribunal found that the RP and CoC members were not responsible for the suppression of facts by the Corporate Applicant, as they had acted based on the information provided by the Corporate Applicant and had duly informed the Tribunal about the liquidation order during the proceedings.4. Legal Consequences and Penalties:The Tribunal emphasized the legal consequences of filing a petition under Section 10 of the IBC after suppressing material facts. According to Section 77 of the IBC, providing false information or omitting material facts in an application is punishable with imprisonment or a fine. The Tribunal directed the Registrar of Companies, Mumbai, to lodge prosecution against the Corporate Applicant under Section 77(a) of the IBC for suppressing material facts. Additionally, the petition was rejected with a cost of Rs. 10 lakhs, to be deposited in the Prime Minister's National Relief Fund.Conclusion:The Tribunal concluded that the Corporate Applicant had indeed suppressed material facts when filing the petition under Section 10 of the IBC. This suppression invalidated the CIRP process initiated by the Corporate Applicant. The Tribunal directed the Registrar of Companies to take legal action against the Corporate Applicant and imposed a cost of Rs. 10 lakhs for the suppression of material facts. The Tribunal also clarified that the Corporate Applicant stands wound up as per the order of the Hon’ble Bombay High Court dated 25.01.2017, and the Official Liquidator should expedite the liquidation process.