Invalid Committee of Creditors leads to liquidation under Insolvency and Bankruptcy Code

Kailash T Shah RP (Gurinandan Fashions Pvt. Ltd.) Versus Pooja Tex-Prints Pvt. Ltd.

Kailash T Shah RP (Gurinandan Fashions Pvt. Ltd.) Versus Pooja Tex-Prints Pvt. Ltd. - TMI Issues:
1. Valid constitution of Committee of Creditors.
2. Compliance with the Insolvency and Bankruptcy Code, 2016.
3. Liquidation order and appointment of Liquidator.

Analysis:
1. The judgment revolves around the validity of the constitution of the Committee of Creditors. The Tribunal highlighted that according to the Insolvency and Bankruptcy Code, 2016, if a corporate debtor lacks financial creditors, the Committee of Creditors must be constituted by the Board and not by the Interim Resolution Professional (IRP) or Resolution Professional (RP). In this case, apart from one operational creditor, there were no other financial or operational creditors. Therefore, the Committee of Creditors formed by the IRP was deemed legally invalid. Consequently, any resolution process undertaken by this invalid committee was considered void. As no resolution plan was accepted, the Tribunal emphasized that the entire resolution process was not legally valid.

2. The judgment further delved into the compliance aspect of the Insolvency and Bankruptcy Code, 2016. It was noted that the Corporate Insolvency Process should ideally be completed within 180 days from the date of admission of the application to initiate Corporate Insolvency Resolution Process (CIRP). However, in the present case, this 180-day period had already lapsed. Despite the invalid constitution of the Committee of Creditors, the Tribunal pointed out that the stipulated time for completing the insolvency process had expired. As a result, under Section 33 of the Code, the Adjudicating Authority proceeded to order the liquidation of the corporate debtors.

3. Finally, the judgment concluded with the issuance of a liquidation order and the appointment of a Liquidator. The Adjudicating Authority directed the Liquidator to issue a public announcement declaring the commencement of liquidation for the concerned corporate debtors. The Resolution Professional was appointed as the Liquidator in accordance with Section 31 of the Insolvency and Bankruptcy Code, 2016, with the obligation to notify the Registrar of Companies where the Corporate Debtor is registered. The Liquidator was instructed to operate under the guidance of the Authority as outlined in Section 31 of the Code, effectively concluding the application and the subsequent liquidation process.