The NCLAT Delhi held that the initiation of CIRP itself has been found to be tainted and faulty and set aside the admission order under section 7 passed by the Adjudicating Authority.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench comprising Justice Ashok Bhushan, Chairperson and Dr. Alok Srivastava, Technical Member were on Monday, hearing a case having four important Appeals held that the initiation of CIRP itself has been found to be tainted and faulty, and in addition, the subsequently constituted CoC was also found to include parties that were connected with each other and acting in concert with the corporate debtor and others parties. The Appellate Authority quashed the admission order under section 7 passed by the Adjudicating Authority, which would lead to all the other actions including CIRP as non est and null and void.
In the present case, four Company Appeals have been filed by respective appellants under section 61 of the Insolvency and Bankruptcy Code, 2016 assailing the order dated 22.12.2021 passed by the Adjudicating Authority, NCLT, Cuttack Bench. The Appellants in all the above-mentioned appeals have prayed for the main relief of quashing the Impugned Order dated 22.12.2021, among other related reliefs sought in each of the appeals.
Facts:
The facts of the case, common to all the appeals, as stated by the Appellants Hindalco Industries Ltd and H.I.W. Workers’ Union were that Nandakini Contractors Pvt. Ltd. filed an application under section 7 of Insolvency and Bankruptcy Code, 2016 before the Adjudicating Authority for alleged non-payment of a loan of Rs.14,51,047 by the corporate debtor/Hirakud Industrial Works Limited given by the Financial Creditor Nandakini on 14.3.2016. The Appellants have further stated that the company petition under section 7 was admitted by the Adjudicating Authority and Corporate Insolvency Resolution Process was initiated vide order dated 4.6.2019 just on the basis of admission of debt by the corporate debtor without any supporting documents pertaining to the loan provided by the financial creditor Nandakini.
Analysis:
In the present case, the initiation of CIRP itself has been found to be tainted and faulty, and in addition, the subsequently constituted CoC was also found to include parties that were connected with each other and acting in concert with the corporate debtor and others parties, the Appellate Authority were of the opinion that the interest of justice would be served if the admission order under section 7 passed by the Adjudicating Authority was quashed. The Appellate Tribunal, therefore, set aside the said admission order which would lead to all the other actions including CIRP as non est and null and void.
Thus, beginning with the initiation of CIRP to the constitution of CoC, its various decisions and resolutions and the denial of opportunities to the workers to submit their claims (although such a request was not made explicitly and also there was a delay when the HIW Workers’ Union contacted the RP for copies of Section 7 application and pleadings therein), the Appellate Tribunal were of the view that all these proceedings are fraudulent and also reek of malice and were, therefore found to be bad in law.
The Appellate Tribunal found, since the initiation of CIRP as a result of the admission of an application under section 7 filed by Nandakini Contractors was held to be fraudulent and a serious infringement of section 65 of the IBC, it was set aside the admission order under Section 7 of IBC. As a result of the setting aside of the section 7 admission order, the CIRP against the corporate debtor shall stand abated, and the corporate debtor shall be freed from the rigours of CIRP including the effect of the moratorium. The approval of the resolution plan of Regus Impex was also quashed.
The Appellate Tribunal were of the view that it would be appropriate to meet the requirement of justice to impose a penalty of Rs. Fifty Lakhs each on the financial creditor Nandakini and the corporate debtor Hirakud Industrial Works Limited under section 65 of the IBC. Therefore, the Appellate Authority ordered the imposition of a penalty of Rs. Fifty Lakhs each on Nandakini Contractors Pvt. Ltd. and the corporate debtor Hirakud Industrial Works Ltd. The Appellate Authority further directed the amounts of the penalty-imposed month from the date of this order with the Pay & Accounts Officer, Ministry of Corporate Affairs, Government of India.
A payment of Rs. Forty crores made by the Successful Resolution Applicant to the financial creditor in implementation of the successful resolution plan, as was noted by the Appellate Tribunal in its order dated 17.1.2022, should be deposited back with the Successful Resolution Applicant Regus Impex within one month of the date of this order.
The Appellate Tribunal further directed that any other payment/s that may have been made to any financial creditor or any other party as a result of the approved resolution plan out of the corporate debtor’s accounts or any alienation of corporate debtor’s assets and creation of third-party rights in the assets of the corporate debtor shall also be reverted back, all within a period of one month from the date of this order.
The Appellate Tribunal also found that there were serious acts of omission and commission by the erstwhile RP Mr. Anand Rao Korada, who has not acted in accordance with the letter and spirit regarding his duties as enshrined in IBC and the CIRP Regulations. This case was, therefore, a fit case to be investigated further by the Insolvency and Bankruptcy Board of India (IBBI) regarding any possible collusion between the RP on one hand and the corporate debtor, financial creditor Nandakini and the Successful Resolution Applicant on the other, and also dereliction of duty as laid down in the IBC. Thus, the Appellate Tribunal directed that IBBI shall investigate the conduct of RP Mr. Anand Rao Korada in this matter to look at possible acts of commission and omission and take appropriate decisions and actions in this regard. This enquiry may be completed within a period of three months from the date of this order.
The HIW Workers’ Union and the workers shall be at liberty to pursue its interest regarding the payment of workers’ dues by the corporate debtor.
The Appellate Tribunal disposed of the four appeals with the above-mentioned directions, under consideration in this judgment.
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