‘Delay in resolution defeats purpose of Insolvency Code’
The National Company Law Appellate Tribunal (NCLAT) has directed initiation of liquidation process of leading integrated edible oil company KS Oils Ltd and set aside an National Company Law Tribunal (NCLT) order passed against it.
“The appeal is allowed and the impugned order dated January 1, 2021, passed by the NCLT is set aside, and at the same time, the order for initiation of liquidation of the corporate debtor KS Oils Ltd is also allowed,” it said. Earlier, on January 1,, the Indore Bench of the NCLT had dismissed the application filed by the RP of the debt-ridden company to initiate liquidation against KS Oils after it could not attract a buyer.
This was challenged by RP Kuldeep Verma before the NCLAT. According to the RP, the NCLT, after 31 hearings over its application to initiate liquidation from May 11, 2018, to January 1, 2021, dismissed it despite the lapse of the mandatory 270 days for completing insolvency.
The insolvency resolution process was initiated by the NCLT on July 21, 2017, over the plea filed by SREI. SREI itself had submitted a resolution plan but it was rejected.
After the conclusion of 270 days on April 16, 2018 without a resolution plan approved by the CoC, the RP filed an application to consider passing of orders for liquidation. However, the NCLT asked the RP to consider addendum–III (revised plans) dated May 4, 2018 submitted by SREI and for placing before the CoC.
This was again rejected by the CoC with 76.50 per cent votes. In subsequent hearings, the NCLT asked to consider five addendums filed by SREI, which were rejected by the Committee of Creditors.
Leading bank SBI, one of the CoC member, on behalf of joint lenders forum which collectively holds 76.53 per cent, had moved the NCLAT based on which the appellate tribunal had on November 18, 2019, directed lenders to consider revised plans if any within two weeks and directed the NCLT to pass appropriate order in accordance with law.
Even after this, the NCLT heard the matter 12 times between November 22, 2019, and December 10, 2020, and finally dismissed it on January 1, 2021.
Allowing the RP’s plea, the NCLAT observed that the Insolvency & Bankruptcy Code had come into force with the basic objective of resolution in a timely manner and if the NCLT takes such time, it will defeat the very purpose of the Code.
“Section 12 of the Code has already laid down a period of 330 days on the outer side, although it is directory in nature. This also suggests that the need for giving multiple opportunities to the sole Resolution Applicant is not warranted to defeat the very purpose of the Act,” it said.
The NCLAT further said it appreciates that the year 2020 has faced unprecedented global pandemic Covid-19 and it might have acted as a bottleneck to the NCLT but it “may not have allowed repeated reference of Resolution Applicant for the consideration of the CoC when the CoC was repeatedly rejecting their variants of proposals.” “It is unfortunate to observe that even after the lapse of 981 days and repeated compliance by the RP of the direction of the Adjudicating Authority; the Adjudicating Authority has not yet considered initiation of Liquidation as per Section 33 / Chapter –III of the ‘Code’.
Neither the NCLT nor the NCLAT is supposed to look into the commercial wisdom of CoC or to reverse the commercial wisdom of CoC as repeatedly observed by the Supreme Court, it added.
“It is abundantly clear that the Object of the Code (IBC), IBBI Regulations, this Appellate Tribunal Judgments, Apex Court Judgments all this suggests that time is the essence of the Code. The Adjudicating Authority naturally, is to keep this factor in mind, liquidation sale can be in the format of anyone…. ,” the NCLAT order said adding“ NCLT has failed to implement the order of the Appellate Tribunal dated November 18, 2019.”