Newsletters

IBC | Case Law Alert | Corporate Debtor ordered to be liquidated due to non-cooperation by creditors in CIRP

Mar2018

Corporate & Commercial

The National Company Law Tribunal, Kolkata Bench (“NCLT”), in the case of Sreerampur Ispat Private Limited vs Bajoria Steel & Re-rolling Mills Private Limited, in its order dated 21 March 2018 (available here), ordered the liquidation of Bajoria Steel & Re-rolling Mills Private Limited (“Corporate Debtor”) because of the non – cooperation by the Corporate Debtor, financial creditors and operational creditor with the resolution professional (“RP”) in the corporate insolvency resolution process (“CIRP”) of the Corporate Debtor which in turn resulted in the expiry of the maximum time period permitted for the completion of the CIRP.

Factual Matrix:

  1. Sreerampur Ispat Private Limited (“Operational Creditor”) filed an application (“Application”) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (“Code”) for the initiation of the CIRP against the Corporate Debtor.
  2. The Application contained the name of one Mr. Kailash Chandra Dhanuka as the proposed interim resolution professional (“IRP”). Vide an order dated 18 May 2017, the Application was admitted by the NCLT, but the NCLT using its discretion did not appoint Mr. Dhanuka as it was of the opinion that the proposed IRP was “none other than an associate of the Operational Creditor” and instead appointed Vinod Kumar Kothari as the IRP.
  3. The Operational Creditor was dissatisfied with the NCLT appointing Mr. Kothari as the IRP and filed an application for the correction of the previous order, but vide another order dated 5 July 2017, the NCLT declined to change the IRP and asked the Operational Creditor to inform Mr. Kothari about his appointment as an IRP. The Operational Creditor failed to intimate the IRP of the same because of which the CIRP process could not be initiated at that point in time and was delayed indefinitely.
  4. Pursuant to verbal information that IRP had, he appeared before the NCLT and stated that he was not aware of the order of the NCLT dated 18 May 2017 and in turn had no information regarding his appointment as the IRP as the Operational Creditor had not communicated the same to him.
  5. The IRP then showed his willingness to continue with the CIRP process even though the prescribed period of 180 days within which the entire CIRP process must be completed was over and issued the public announcement for the initiation of the CIRP of the Corporate Debtor on 1 December 2017.
  6. The IRP subsequently formed the committee of creditors (“CoC”) and was reappointed by them as the RP.
  7. The RP tried to follow the CIRP process and do whatever was required of him as per the Code and the rules and regulations thereunder, but he was not even able to appoint the registered valuers as per the Regulation 27 of the IBBI (Insolvency Resolution Process For Corporate Person) Regulations, 2016 for the valuation of the assets of the Corporate Debtor, due to requisite funds not being sanctioned by the CoC.
  8. The RP submitted a progress report (“Report”) with the NCLT dated 26 February 2018. In the Report, he mentioned that he was not granted any financial aid by the Operational Creditor nor from the other financial creditors on the CoC to assist him in continuing with the CIRP. Thus, RP suggested that he is unable to continue with the CIRP of the Corporate Debtor and recommended the initiation of the liquidation process against the Corporate Debtor.

Findings of the NCLT:

  1. The NCLT, after considering the Report and the submissions of the RP said that there is a clear indication that the RP has received “zero co-operation” from the Corporate Debtor, the Operational Creditor as well as the other financial creditors on the CoC because of which the only part of the CIRP that the RP could complete was the public announcement.
  2. The RP had failed to receive any resolution plans as per the provisions of the Code within the maximum stipulated time frame even after the grant of the ninety (90) day extension.

In light of the above, the NCLT passed an order for the Corporate Debtor to be liquidated and appointed the RP as the liquidator.

Related Articles

Newsletters International Trade & Customs Practice

IBC | Legislative Alert | IBBI’s... 23 August 2018

At the recently concluded 11th World Trade Organization...

Newsletters Competition Law & Policy

ELP Competition Law & Policy Update 5 October 2018

The third quarter of 2018 (July – September) witnessed...

Newsletters Litigation, Arbitration & Dispute Resolution

ELP Dispute Resolution Update 23 August 2018

This update focuses on the Supreme Court’s ruling in...

Newsletters Tax

ELP Tax Alert: Supreme Court upholds... 23 August 2018

Recently, the Supreme Court in the case of Maxopp...