Corporate Insolvency Process Closed Due to Lack of Response: Importance of Active Participation

The Adjudicating Authority closed the corporate insolvency resolution process for the Corporate Debtor due to the lack of response from the Corporate Debtor and Operational Creditor, hindering the formation of a Committee of Creditors. The Authority relieved the Insolvency Resolution Professional (IRP) of duties, directing the Operational Creditor to pay specified costs and expenses. The decision highlighted the importance of active participation in the insolvency resolution process and the responsibility of bearing expenses until ratified by the Committee of Creditors.

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Issues:
Initiation of corporate insolvency resolution process under Section 9 of the Insolvency and Bankruptcy Code, 2016.

Detailed Analysis:

1. The petition was filed by Spectrum Artcomm Private Limited seeking initiation of the corporate insolvency resolution process against New Town Grand Realtors LLP. The Adjudicating Authority had earlier initiated CIRP against the Corporate Debtor and appointed an IRP. However, the IRP faced challenges in contacting the Corporate Debtor and obtaining necessary information and records.

2. The IRP made efforts to contact the Corporate Debtor but received no response. Public announcements were made to invite claims, but due to the nationwide lockdown, there was a lack of response. The IRP filed applications under Section 19(2) of the Code, but no claims were received, hindering the formation of a CoC.

3. The financial statements of the Corporate Debtor showed closed bank accounts and lack of debtor and creditor lists or charges. The CIRP period ended, and the IRP incurred costs amounting to Rs. 2,85,150. The Operational Creditor did not submit any claim, indicating a lack of intention to participate in the process.

4. Citing legal precedents, the IRP argued that expenses incurred by the RP should be borne by the applicant until ratified by the CoC. In a similar case, the CoC's lack of interest led to the termination of the CIR Process. The Adjudicating Authority decided to close the CIRP for the Corporate Debtor and relieve the IRP of duties.

5. The Operational Creditor was directed to pay Rs. 1,85,150 towards CIRP costs and expenses and Rs. 1,00,000 towards IRP fees. All related applications were dismissed, and certified copies of the order were to be issued to concerned parties upon request.

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