2022 (12) TMI 609 - AT - Insolvency and Bankruptcy

NCLAT overturns NCLT liquidation order, stresses RP independence & going concern; IBBI inquiry into RP's conduct

Rajesh Narang Versus Durha Vitrak Pvt Ltd, LIC Housing Finance Ltd

The NCLAT set aside the NCLT's order allowing liquidation under Section 33(2) of the IBC, remitting the matter for re-examination and consideration of ... CIRP proceedings - Proposal of the RP for liquidation of Corporate Debtor - Going concern - Infirmities and illegalities committed by the RP - As per the appellant at that time when IRP took over the Corporate Debtor it was generating a revenue of Rs.87 lakhs in the month of November, 2019. The appellant offered unconditional support to RP to continue the operation of the Hospital to maximise the value of the Corporate Debtor. - It is allege that, the RP had not taken any step to get certain dues of the Corporate Debtor recovered from the concerned Govt Departments/Agencies HELD THAT:- it is evident that the RP had not taken any reasonable step to get the CD as going concern which is mandated as per Section 25(2)(h) or he acted in accordance with Section 24 of the Code and as such there is no reason to allow the impugned order to further continue. The holding of the CoC Meeting in the premises of the Financial Creditor and also joint filing of the reply by RP and financial creditor also reflects that something was going on in between the parties. IBBI directed to conduct an enquiry regarding conduct of the RP and other circumstances which led to filing of petition under Section 33(2) of the IBC before the NCLT. Matter is remitted back to the NCLT to re-examine the issue and consider to change the RP. Issues Involved:1. Validity of the order dated 31.05.2021 passed by the NCLT allowing the application under Section 33(2) of the IBC.2. Conduct and independence of the Resolution Professional (RP).3. Compliance with the principles of natural justice.4. Efforts to keep the Corporate Debtor (CD) as a going concern.5. Allegations of non-cooperation by ex-directors.6. Commercial wisdom of the Committee of Creditors (CoC).7. Compliance with the order of the Hon'ble Delhi High Court during the COVID-19 pandemic.8. Inquiry into the conduct of the RP by the Insolvency and Bankruptcy Board of India (IBBI).Detailed Analysis:1. Validity of the Order Dated 31.05.2021:The appellant challenged the NCLT's order dated 31.05.2021, which allowed the RP's application for liquidation under Section 33(2) of the IBC. The NCLT's decision was based on the CoC's resolution passed in its 6th meeting, where the CoC found the resolution plans received to be not feasible and viable. The NCLT ordered the liquidation of the Corporate Debtor (CD) and appointed the RP as the liquidator. The appeal argued that the NCLT mechanically allowed the petition without examining the viability of the CD as a going concern.2. Conduct and Independence of the Resolution Professional (RP):The appellant alleged that the RP, Mr. Aishwarya Mohan Gahrana, acted in connivance with the financial creditor, LIC Housing Finance Ltd., and did not take steps to continue the hospital as a going concern. The RP was accused of not recovering dues from government departments and failing to adhere to Section 25 of the IBC. The RP's conduct was criticized for holding CoC meetings at the premises of LIC Housing Finance Ltd. and filing a joint reply with the financial creditor, which indicated bias and lack of independence.3. Compliance with Principles of Natural Justice:The appellant argued that the NCLT's order dated 20.05.2021 was void as it was passed by a bench where one of the members had demitted office before the order was pronounced. This was rectified by the NCLT on 25.05.2021, declaring the order void and reopening the matter for hearing. The subsequent order dated 31.05.2021 was essentially a reproduction of the void order, indicating a lack of proper rehearing, thus violating principles of natural justice.4. Efforts to Keep the Corporate Debtor (CD) as a Going Concern:The appellant contended that the hospital was fully operational and generating revenue before the CIRP. The RP's actions led to a drastic reduction in the number of doctors and staff, indicating a lack of effort to maintain the CD as a going concern. The appellant highlighted that during the COVID-19 pandemic, offers to restart the hospital were made but were not accepted by the RP, further demonstrating the RP's intention to push for liquidation rather than revival.5. Allegations of Non-Cooperation by Ex-Directors:The respondents, including the RP and LIC Housing Finance Ltd., argued that the ex-directors were non-cooperative, which hindered the RP's efforts to revive the CD. Applications were filed against the ex-directors for non-cooperation, and the RP made efforts to collect information and issue expressions of interest for resolution plans. The respondents emphasized that the CD had minimal funds and employees were on strike since September 2019.6. Commercial Wisdom of the Committee of Creditors (CoC):The respondents argued that the CoC's decision to reject the resolution plans and opt for liquidation was based on their commercial wisdom, which should not be interfered with by the judiciary. They cited Supreme Court judgments emphasizing the paramount status of the CoC's commercial decisions and the limited scope of judicial intervention.7. Compliance with the Order of the Hon'ble Delhi High Court During COVID-19 Pandemic:The appellant highlighted that during the peak of the COVID-19 pandemic, the Hon'ble Delhi High Court directed the government to consider an offer to run the hospital. Despite this, the RP did not take steps to operationalize the hospital, which could have provided much-needed medical services during the crisis.8. Inquiry into the Conduct of the RP by the Insolvency and Bankruptcy Board of India (IBBI):The judgment directed the IBBI to conduct an inquiry into the conduct of the RP, considering the numerous irregularities and illegalities observed. The IBBI was instructed to examine whether any cognizable offenses were committed and to take appropriate actions, including lodging an FIR if necessary.Conclusion:The NCLAT set aside the NCLT's order dated 31.05.2021, remitting the matter back to the NCLT for re-examination and consideration of changing the RP. The judgment highlighted the need for the RP to act independently and in accordance with the IBC's mandate to keep the CD as a going concern. The IBBI was directed to investigate the RP's conduct and take necessary actions.