2020 (9) TMI 1080 - Tri - Insolvency and Bankruptcy

Tribunal dismisses MD's application, orders cooperation with RP under Insolvency and Bankruptcy Code

The Tribunal dismissed the application filed by the Managing Director with a cost of Rs. 50,000, directing immediate provision of information/documents ... Issuing directions to the respondent/IRP, to refrain from creating 'undue pressure' upon him and 'harassing' him, given his age, by threats and or other means, and compel him to support the respondent during the currency of this pandemic on the pretext of CIRP timelines etc. - HELD THAT:- The applicant/CMD and all other directors and personnel were legally bound to extend all types of assistance and cooperation to the RP in the performance of his statutory duties assigned to him by the Code, and any hindrance or obstruction caused or intended to be caused by the CMD/directors and other personnel shall subject them to legal consequences. None of the contentions raised and the allegations levelled by the applicant has been able to convince us. The applicant being 62 years, if unable to himself do, could have directed some other director or personnel to provide access to the office premises so that the RP could have taken possession of the relevant record. He was also legally duty-bound to provide all the detailed information and records, including the sale deeds relating to Jaipur property and documents relating to lease and shareholding of the Australian Company. The lockdown had started about two months after the order of CIRP had been passed by this Adjudicating Authority. If a director or a personnel of the Corporate Debtor does not cooperate or creates hindrance or disobeys the instructions of the RP, the law is not toothless and can deal with him/them in a stringent manner. The applicant has acted in a most unruly manner, when, instead of cooperating with the instructions of the RP, he has chosen to level false and frivolous allegations against the RP, and attributing motives and using the unacceptable language, like 'HARASSMENT' AND 'UNDUE PRESSURE', without realizing that the RP is issuing instructions in performance of his statutory duties. The applicant should have realized that he was duty-bound to provide all the assistance and cooperation to the RP in taking IMMEDIATE custody of all the assets and records, and his failure or reluctance in doing so may land all the directors of the company in trouble. Application dismissed. Issues Involved:1. Allegations of harassment and undue pressure by the Interim Resolution Professional (IRP) on the Managing Director during the Corporate Insolvency Resolution Process (CIRP).2. Non-cooperation by the Managing Director and the suspended Board of Directors with the Resolution Professional (RP).3. Compliance with statutory duties under the Insolvency and Bankruptcy Code (IBC), 2016, specifically Sections 19 and 25.4. Impact of COVID-19 lockdown on CIRP timelines and obligations.Issue-wise Analysis:1. Allegations of Harassment and Undue Pressure:The Managing Director (MD) of the suspended Board of Directors of the Corporate Debtor (CD) filed an application alleging harassment and undue pressure by the IRP during the CIRP. The MD claimed that the IRP was creating undue pressure and harassing him, given his age, by threats and other means, compelling him to support the IRP during the pandemic on the pretext of CIRP timelines. The MD sought directions for the IRP to refrain from such actions and to consider the COVID-19 situation, including the period of exclusion announced by the Insolvency and Bankruptcy Board of India (IBBI).2. Non-cooperation by the Managing Director and the Suspended Board of Directors:The IRP, later confirmed as the RP, countered the allegations by stating that the MD had been non-cooperative from the beginning of the CIRP. The RP detailed several instances of non-cooperation, including unanswered phone calls, invalid email addresses, and failure to provide detailed information about the company's assets and liabilities. The RP highlighted that the MD had not given possession and custody of the property at Jaipur, share certificates, or control over demat shares. Additionally, the MD had not signed the quarterly audited accounts for the period October-December 2019, attracting penalties from the Bombay Stock Exchange (BSE).3. Compliance with Statutory Duties under IBC, 2016:The Tribunal referred to Sections 19 and 25 of the IBC, 2016. Section 19 mandates that the personnel of the corporate debtor, its promoters, or any other person associated with the management must extend all assistance and cooperation to the IRP/RP as required. Section 25 assigns the RP with the duty to preserve and protect the assets of the corporate debtor, including taking immediate custody and control of all assets and business records. The Tribunal emphasized that the MD and other directors were legally bound to cooperate with the RP and provide all necessary information and documents.4. Impact of COVID-19 Lockdown on CIRP Timelines and Obligations:The MD argued that the COVID-19 lockdown had impacted the CIRP timelines and obligations. The IBBI had inserted Regulation 40C, which stated that the period of lockdown imposed by the Central Government would not be counted for the purposes of the CIRP timeline. Despite this, the RP continued to pressurize the MD to provide information and documents, which the MD claimed jeopardized his life during the pandemic.Judgment:The Tribunal dismissed the application filed by the MD with a cost of Rs. 50,000, to be deposited to the account of the CD within 15 days. The Tribunal directed the MD and all other directors and personnel of the CD to immediately provide the information/documents described in Schedule 1 of the application within 15 days. The MD and other directors were also directed to cooperate with the RP and respond to his calls as required. The Tribunal allowed the RP to revert with a simple application if the orders were not complied with, apart from taking other steps under the Code at his discretion. Both applications in the case were disposed of accordingly, and the registry was directed to send an email copy of the order to the parties forthwith.Conclusion:The Tribunal found that the MD and the suspended Board of Directors had not cooperated with the RP as required under the IBC, 2016. The Tribunal emphasized the statutory duties of the RP and the legal obligation of the MD and other directors to assist and cooperate with the RP. The application by the MD was dismissed, and strict directions were issued to ensure compliance with the RP's instructions.