Appeal Granted, Liquidation Order Set Aside, Matter Remitted for CIRP Directions

The Tribunal allowed the appeal, set aside the liquidation order, and remitted the matter to the NCLT for appropriate directions regarding the CIRP of the Corporate Debtor. Additionally, the Tribunal directed the Insolvency and Bankruptcy Board of India to investigate the RP's conduct. The appeal was allowed with no order as to costs.

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Issues Involved:
1. Material irregularity and fraud in the liquidation process.
2. Duties and conduct of the Resolution Professional (RP).
3. Non-communication of material information to stakeholders.
4. Inclusion of Appellant’s claim in the Committee of Creditors (CoC).
5. Allegations of collusion between Corporate Debtor and Financial Creditor.
6. Compliance with statutory provisions and regulations.

Issue-wise Detailed Analysis:

1. Material Irregularity and Fraud in the Liquidation Process:
The Appellant challenged the liquidation order on grounds of material irregularity and fraud, asserting that the RP colluded with the Corporate Debtor and Financial Creditor. The Tribunal examined the sequence of events and found multiple instances where the RP failed to communicate material information to the Appellant, who was entitled to such information due to their significant claim.

2. Duties and Conduct of the Resolution Professional (RP):
The Tribunal reviewed the statutory duties of the RP under Section 25 of the Insolvency and Bankruptcy Code, 2016, and relevant regulations. The RP is required to preserve and protect the assets of the corporate debtor, maintain an updated list of claims, and prepare an Information Memorandum. The Tribunal found that the RP did not fulfill these duties, particularly in failing to include the Appellant’s claim in the Information Memorandum and not informing the CoC or the Adjudicating Authority about the Appellant’s claim.

3. Non-communication of Material Information to Stakeholders:
The RP failed to inform the Appellant about the filing of the liquidation application and the convening of the CoC meeting on 28th December 2019. The Appellant, having a claim exceeding 10% of the total debt, was entitled to participate in the CoC meetings. The Tribunal noted that the RP’s non-communication constituted a material irregularity.

4. Inclusion of Appellant’s Claim in the Committee of Creditors (CoC):
The Appellant’s claim was submitted on 22nd November 2019 and was received by the RP on 5th December 2019. Despite this, the Appellant was not included in the CoC meeting on 28th December 2019. The Tribunal found that the RP’s failure to include the Appellant’s claim in the CoC and the Information Memorandum was a significant oversight and a material irregularity.

5. Allegations of Collusion between Corporate Debtor and Financial Creditor:
The Appellant alleged that the Corporate Debtor and Financial Creditor colluded to initiate the CIRP and liquidation process fraudulently. The Tribunal noted that the Financial Creditor’s immediate resolution for liquidation in the first CoC meeting, without exploring other options, raised suspicions. The Tribunal directed the NCLT to investigate these allegations under Sections 65 and 69 of the Code, which deal with fraudulent or malicious initiation of proceedings.

6. Compliance with Statutory Provisions and Regulations:
The Tribunal emphasized the importance of adherence to statutory provisions and regulations by the RP. The RP’s actions, such as not conducting a transactional audit despite being informed of suspicious transactions and not updating the List of Creditors with the Appellant’s claim, were found to be in violation of the Code and relevant regulations.

Conclusion:
The Tribunal allowed the appeal, set aside the liquidation order dated 11th August 2020, and remitted the matter to the NCLT for appropriate directions regarding the CIRP of the Corporate Debtor. The Tribunal also directed the Insolvency and Bankruptcy Board of India to take cognizance and appropriate action regarding the RP’s conduct. The appeal was allowed with no order as to costs.

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