Tribunal voids CIRP initiation, releases Corporate Debtor. Order on fees and costs.

The Tribunal held that the application under Section 10 was not maintainable due to the void ab initio resolution dated 30.03.2017. Consequently, the orders initiating CIRP and liquidation were set aside, releasing the Corporate Debtor. The appeal against the order of liquidation was allowed based on the void initiation of CIRP, not due to material irregularity. The Adjudicating Authority was directed to fix RP/Liquidator fees to be paid by the Corporate Debtor along with CIRP costs, with no order as to costs for the appeals.

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Issues Involved:
1. Validity of the board resolution dated 30.03.2017.
2. Limitation period for filing the appeal against the order of admission.
3. Alleged material irregularity by the Resolution Professional (RP) in conducting the Corporate Insolvency Resolution Process (CIRP).

Detailed Analysis:

Issue No. (i): Validity of the Board Resolution dated 30.03.2017

The primary contention was whether the board resolution dated 30.03.2017 was void ab-initio due to the lack of an affirmative vote from the nominee director of the Nizam Sugars Ltd. (NSL). The Appellants argued that the resolution was passed without securing the necessary affirmative vote from the nominee director of NSL, as required by Clause 107 of the Articles of Association (AoA) of the Corporate Debtor, which mandates that certain actions, including voluntary liquidation, require the affirmative vote of at least one director nominated by NSL.

The Respondents countered that the resolution was passed in the presence of Mr. Bhadru Malloth, the nominee director of NSL, and thus, his presence and consent sufficed. They further argued that the requirement for a special resolution by shareholders, as per the amendment to Section 10 of the IBC effective from 06.06.2018, was not applicable since the resolution was passed earlier.

The Tribunal analyzed the relevant clauses of the AoA and previous judgments, particularly the Gaja Trustee case, which emphasized that decisions regarding liquidation must strictly adhere to the provisions of the AoA. The Tribunal concluded that the mere presence or consent of the nominee director does not equate to an affirmative vote. Therefore, the resolution dated 30.03.2017, passed without the affirmative vote of the nominee director of NSL, was void ab initio, rendering the application under Section 10 of the IBC not maintainable.

Issue No. (ii): Limitation Period for Filing the Appeal Against the Order of Admission

The Appellants filed the appeal against the order of admission with a delay of 748 days. They argued that they were unaware of the fraud and suppression of material facts by the Corporate Debtor, which led to the delayed discovery of the fraud. They also contended that the Tribunal's order dated 24.07.2019, which allowed them to challenge the order of admission within ten days, implied permission to file beyond the limitation period.

The Respondents argued that the Appellants were fully aware of the admission order dated 20.09.2017, as informed by the RP, and had even filed a claim before the RP. They contended that the plea of fraud was baseless and that the Tribunal's order did not extend the limitation period.

The Tribunal found that the Appellants were indeed informed about the admission order and had not provided any substantial evidence of fraud. However, it accepted the argument that an order void ab initio could be challenged at any time, referencing the Supreme Court judgment in State of M.P. V/s Syed Qamarali, which held that an order made in breach of mandatory provisions is invalid and can be challenged beyond the prescribed period of limitation.

Issue No. (iii): Alleged Material Irregularity by the RP in Conducting the CIRP

The Appellants alleged that the RP, in collusion with the private management, sought to liquidate the Corporate Debtor's assets by publishing the Expression of Interest (EOI) in newspapers with minimal circulation, contrary to Regulation 36-A of CIRP Regulations. They also claimed that the RP approached the State Government at a belated stage and failed to seek exclusion of time lost during CIRP.

The Respondents countered that the publication of Form-G in newspapers was not statutorily required before the amendment to Regulation 36-A effective from 04.07.2018. They provided evidence of timely communications and efforts by the RP to engage with the State Government and other stakeholders. They argued that the CIRP costs were appropriately managed, and the decision to liquidate was a result of the CoC's resolution due to the absence of any resolution plan.

The Tribunal found no merit in the Appellants' allegations, noting that the RP had complied with the regulations in effect at the time and had made genuine efforts to resolve the Corporate Debtor's situation. The Tribunal concluded that there was no material irregularity or fraud by the RP in conducting the CIRP.

Conclusion:

The Tribunal held that the application under Section 10 filed by VR Chary, authorized by the Board of Directors, was not maintainable due to the void ab initio resolution dated 30.03.2017. Consequently, the impugned order dated 20.09.2017 initiating CIRP and the subsequent order of liquidation dated 03.06.2019 were set aside. The Corporate Debtor was released from all proceedings and allowed to function independently through its Board of Directors. The Tribunal clarified that the appeal against the order of liquidation was allowed on the ground that the initiation of CIRP was void ab initio, not due to material irregularity. The Adjudicating Authority was directed to fix the fee of the RP/Liquidator, to be paid by the Corporate Debtor along with CIRP costs. The appeals were allowed with no order as to costs.

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