NCLAT upheld the liquidation order, ruling that an extension beyond the 330-day CIRP timeline was unjustified due to stagnation in the process.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Member Mr. Arun Baroka, reviewed two appeals and observed that while the 330-day CIRP timeline under Section 12(3) of the IBC is a directory, an extension is permissible only in exceptional cases where the CIRP is near completion. However, in the present case, the CIRP was stagnant, and the exclusion of 252 days was unjustified. The Tribunal upheld the liquidation order, dismissed the appeals, and allowed the Appellant to raise objections at the auction approval stage, emphasizing that further delay would defeat the objectives of the Insolvency and Bankruptcy Code.
The National Company Law Appellate Tribunal (NCLAT) in Company Appeal (AT) (Insolvency) No. 887 of 2024 and Company Appeal (AT) (Insolvency) No. 2246 of 2024 examined the orders passed by the Adjudicating Authority concerning the liquidation of Srabani Constructions Pvt. Ltd., the Corporate Debtor. The Appeals challenged orders dated 17.04.2024 and 21.11.2024, which rejected applications seeking recall of the liquidation order and stay on the auction sale process, respectively.
The case stemmed from a Section 7 application filed by Indian Overseas Bank, the Financial Creditor after the Corporate Debtor defaulted on financial obligations. Despite multiple One-Time Settlement (OTS) proposals submitted between 2017 and 2023 and a deposit of Rs. 48 lakhs, no OTS was finalized. The Section 7 application was admitted on 29.11.2022, initiating the Corporate Insolvency Resolution Process (CIRP). However, Cthe oC's decision on 22.03.2023 to replace the Resolution Professional delayed further progress, as the replacement application was only allowed on 09.10.2023. Consequently, an exclusion of 252 days was sought by the Resolution Professional, but the Adjudicating Authority rejected the request, noting that the CIRP had already exceeded the mandatory 330-day timeline prescribed under Section 12(3) of the IBC. A liquidation order was thus passed on 13.12.2023.
The Appellant argued that the liquidation order was erroneous and suppression of material facts had occurred. It was further submitted that the OTS proposal, supported by the bank’s communication asking for an upfront deposit of Rs. 61 lakhs, could have prevented liquidation. The Appellant also objected to the auction process, claiming the reserve price of Rs. 4.8 crores grossly undervalued assets worth Rs. 16 crores. The interim relief granted by NCLAT on 03.05.2024 prevented the approval of auctions already conducted but did not stay the process outright.
On the contrary, the Financial Creditor contended that no OTS proposal was sanctioned and the Rs. 48 lakh deposit was insufficient. The Counsel argued that the delay in CIRP was unjustified and the Adjudicating Authority correctly declined the exclusion request, adhering to statutory timelines under Section 12(3). The Tribunal observed that although the Hon’ble Supreme Court in Essar Steel India Limited clarified that the 330-day period is not mandatory but directory, an extension is permissible only in exceptional cases where CIRP is near completion. In this instance, NCLAT found that the CIRP was effectively stagnant and not at a stage warranting the exclusion of 252 days.
The NCLAT concluded that the Adjudicating Authority rightly rejected the recall application and proceeded with liquidation, as further delay would contravene the objectives of the Insolvency and Bankruptcy Code. Accordingly, the Appeals were dismissed, with liberty granted to the Appellant to raise objections at the stage of auction approval.
Mr. Arun Kathpalia, Sr. Advocate with Ms. Saman Ahsan, Mr. Aayush Jain and Mr. Arjit Oswal, Advocates represented the Appellant.
Ms. Mayuri Raghuvanshi, Mr. Vyom Raghuvanshi, Ms. Akanksha Rathore and Ms. Kinjal Sharma, Advocates appeared for Respondent No. 1.
Mr. Sumit Shukla, Mr. Sanjeev Panda, Mr. Prachi Johri and Ms. Abhipsa Sahu, Advocates appeared for Respondent No. 2/Liquidator.
Mr. Palash S. Singhai and Mr. Harshad Sareen, Advocates represented the Intervenors.
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