NCLT New Delhi-II (29.07.2021) in Om Logistics Limited & Anr. vs. M/s Ryder India Pvt. Ltd. [IA. 2038 /ND/2020 in Company Petition No. (IB)-1742(ND)/2019 ] held that;
As per the Code, if any person [as defined under Section 3(23) of IBC] initiates the Insolvency Resolution Process fraudulently or with malicious intent for any purpose other than for the resolution of the insolvency, or liquidation, such an act is punishable under Section 65 (1) of IBC 2016.
when the Applicant (IRP) is unable to carry forward the CIR process for want of cooperation/participation from the sole member of CoC, we feel it appropriate to terminate the CIR process of the Corporate Debtor. In view of the above, by exercising our jurisdiction under Section 60(5) of IBC 2016 along with inherent power under Rule 11 of the NCLT Rules, 2016, we hereby terminate the CIR process of the Corporate Debtor with immediate effect and release the Corporate Debtor from the rigors of the CIRP and moratorium.
Excerpts of the order;
The present I.A. No. 2038 of 2020 is preferred by Mr. Bikram Singh Gusain IRP (hereinafter referred as ‘Applicant’) of M/s Ryder India Pvt. Ltd. (hereinafter referred as ‘Corporate Debtor’), under Section 60(5) of IBC, 2016.
# 2. That the Applicant has made the following prayers in the Application under consideration:
“a. Close the CIRP initiated action against M/s Ryder India Private Limited/CD.
b. Consider dissolution of M/s Ryder India Private Limited/CD, if found just and reasonable.
c. Discharge the Applicant/IRP from the responsibility of IRP.
d. Pass such further and other order and directions as this Hon’ble Tribunal may deem fit and proper in the facts and circumstances of the matter.”
# 3. As submitted, the facts of the case in brief are that the Operational Creditor (OC), M/s Om Logistics Ltd. had filed an application bearing no IB-1742(ND)/2019 under Section 9 of IBC 2016 in this Tribunal for initiation of CIR Process against the Corporate Debtor M/s. Ryder India Pvt. Ltd. That vide order dated 26.09.2019, this Adjudicating Authority had initiated the CIR Process against the Corporate Debtor and appointed Mr. Bikram Singh Gusain IP, as the Interim Resolution Professional (IRP).
# 4. That the Applicant in the introductory para of its Application has averred the following :
“Further, the Applicant/IRP submits the company has no assets, the company has not filed its financial and statutory returns with the CoC after 31.03.2016. Currently, the company has no business/commercial operations. This Hon’ble Tribunal may consider dissolution of the CD, if found just and reasonable”.
# 5. It is stated by the Applicant that Public Announcement in ‘Form A’ was made in the newspapers namely, Business Standard (English) and Jansatta (Hindi) in Delhi NCR editions on 02.10.2019.
# 6. It is further stated by the Applicant that on 11.11.2019 the Operational Creditor M/s Om Logistics Limited filed its claim of Rs.1,59,830 with the IRP. Besides, one more claim of Rs 1,41,19,729/- was filed by Excise & Taxation Officer, Bahadurgarh Jhajjar, Haryana (hereinafter referred as “ETO Bahadurgarh”) on 10.12.2019.
# 7. It is submitted by the Applicant that on the basis of the aforesaid two claims received from Operational Creditors, CoC was constituted with ETO Bahadurgarh having 98.88% voting share and M/s Om Logistics Ltd. having 1.12% voting share in the CoC.
# 8. It is further submitted by the Applicant that the First meeting of CoC was convened on 23.12.2019, where M/s Om Logistics Ltd. did not attend the meeting and ETO Bahadurgarh abstained itself from voting. Therefore, no decision could be taken in the meeting.
# 9. It is added by the Applicant that again on 10.01.2020 during the Second Meeting of CoC due to absence of M/s Om Logistics Ltd. and non-voting by ETO Bahadurgarh no decision was taken.
# 10. It is further added by the Applicant that the Applicant convened the third meeting of the CoC on 20.01.2020. It is further stated that neither the members of the CoC nor the Ex-Directors attended the meeting. It is added that in terms of Regulation 22(2) of IBBI (Insolvency Resolution Process of Corporate Persons) Regulations 2016, the meeting was adjourned to 07.02.2020. However, it is submitted by the Applicant that none of the members of the CoC attended the re-convened meeting.
# 11. It is averred by the Applicant that subsequently, the ETO Bahadurgarh withdrew its claim vide letter No. 2408/ETO Ward 5/ dated 17.02.2020,
# 12. It is submitted by the Applicant that out of the two CoC members, whereas the ETO Bahadurgarh has withdrawn its claim and the other member Om Logistics Ltd. has not been pursuing the CIR Process.
# 15. It is further stated by the Applicant that the Ex-Director Mr. Rohtash Kumar Rohit handed over to him the Letter No. SARB/DSB/9730/209 dated 19.06.2019 regarding the one-time settlement with the SBI, Najafgarh Road, New Delhi and re-payment thereunder issued to the Corporate Debtor by the State Bank of India,
# 16. It is added by the Applicant that the Ex-Director Mr. Rohtash Kumar Rohit also handed over to him a copy of the ‘No Objection Certificate’ issued vide letter No. SARB/DSB/9730/229 dated 01.07.2019 by SBI addressed to M/s. Sakshi Leather Exports Pvt. Ltd., (owner of the property at which CD was running its plant). It is further added by the Applicant/ IRP that from these letters of SBI it can be inferred that the assets of the CD have been disposed of to settle the dues of the Bank.
# 17. After hearing submissions of the Applicant/IRP, perusing his averments and documents placed on record, this Bench is of the view that the prayer made by the IRP for dissolution of the Corporate Debtor cannot be accepted since the Liquidation is a pre-requisite to the Dissolution and in the present case, no order of Liquidation has been passed due to absence of any such proposal and non-functioning of the CoC.
# 18. We observe that even if the ETO Bahadurgarh has withdrawn its claim, the CoC could have functioned with the Sole Member/ Operational Creditor, at whose instance the CIRP was initiated. However, in the present case we notice that even the Sole Member/ Operational Creditor of the CoC has been shirking from the responsibility and not pursuing the CIR Process of the Corporate Debtor.
# 19. In case the Sole Member/ Operational Creditor of the CoC was not interested in pursuing the CIR Process, the appropriate course could have been to file a withdrawal application under Section 12A of IBC, 2016. The contents of the Section 12A are reproduced below :
“12A. Withdrawal of application admitted under Section 7, 9 or 10
The Adjudicating Authority may allow the withdrawal of application admitted under section 7 or section 9 or section 10, on an application made by the applicant with the approval of ninety per cent voting share of the committee of creditors, in such manner as may be specified.”
# 20. The aforesaid sequence of events shows that the intention of the Operational Creditor i.e., M/s. Om Logistics Ltd., at whose instance the CIR Process was initiated, was not for the resolution of Insolvency. Instead, the Operational Creditor has used this forum for recovery and got the CIR process kickstarted with malicious intent for a purpose other than the resolution of insolvency of the Corporate Debtor, which is not permissible under the IBC 2016. As per the Code, if any person [as defined under Section 3(23) of IBC] initiates the Insolvency Resolution Process fraudulently or with malicious intent for any purpose other than for the resolution of the insolvency, or liquidation, such an act is punishable under Section 65 (1) of IBC 2016. Hence, before taking any action under Section 65(1) IBC 2016, we think it proper to issue a show cause notice, under Rule 59 of the National Company Law Tribunal Rules 2016, on the Operational Creditor M/s. Om Logistics Ltd. through its Directors as to why the penalty as stipulated under Section 65(1) of IBC, 2016 shall not be imposed on it. Ld. Registrar NCLT is directed to issue the show cause notice under Section 65(1) of IBC 2016 read with Rule 59 of the National Company Law Tribunal Rules, 2016 on M/s. Om Logistics Ltd. through its Directors giving them fifteen days’ time to explain and submit in writing as to why the penalty as stipulated under Section 65(1) of IBC, 2016 shall not be imposed on them. The Registry is directed to allot a Case No. for the proceedings for which the Show Cause Notice is being issued to the Operational Creditor under Section 65(1) of IBC, 2016. Registry/ Court Officer to list this matter on 01.09.2021.
# 21. Now, coming to the prayer of the Applicant, we are of the view that it is not the duty of the IRP to run after the Members of CoC to attend the meeting and pursue the CIR Process. In a similar situation, when the CoC was not interested in pursuing the CIR Process, this Adjudicating Authority has terminated the CIR Process in the matter of M/s. Surendra Steels Sales Vs. M/s. Immortal Buildcon Pvt. Ltd., (IB)-1152(ND)2019 dated on 07.01.2020. The relevant extract of the said order is reproduced below :
“...The IRP has submitted that he has been meeting expenses from his own pocket. Pursuant to the publication, no other claim was received. It is submitted that the first meeting has been held while the second meeting has been postponed a few times, at the instances of the Operational Creditor/CoC on grounds of a possible settlement with the Corporate Debtor. As such there was no confirmation of the RP further steps take. There was no concession on the fees to be given, much less expenses to be met. No progress has been made in this case. This bench is apprised of the fact that the Operational Creditor has been in talks of settlement with the Corporate Debtor and, is therefore, not interested in taking any step to proceed with the CIR process. Under such circumstances with no other claimant and the sole member of the CoC not being interested in prosecuting the CIR process, it would be expedient to terminate the CIR process. In view of the above, the CIR process is hereby, terminated. The Corporate Debtor is released from the rigors of the moratorium and is permitted to function through its own board. We find that the Operational Creditor has not only failed to reimburse the expenses and fees of the Interim Resolution Professional, but has also wasted the time of this Bench after the Petition was duly admitted. Accordingly, while terminating the CIR process, a cost of Rs. 50,000/- is imposed on the Operational Creditor to be paid to the Prime Minister’s Relief Fund....”
# 22. In the circumstances, when the Applicant is unable to carry forward the CIR process for want of cooperation/participation from the sole member of CoC, we feel it appropriate to terminate the CIR process of the Corporate Debtor. In view of the above, by exercising our jurisdiction under Section 60(5) of IBC 2016 along with inherent power under Rule 11 of the NCLT Rules, 2016, we hereby terminate the CIR process of the Corporate Debtor with immediate effect and release the Corporate Debtor from the rigors of the CIRP and moratorium.
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Blogger’s Comments; The sole operational creditor is in a very precarious situation. Instead of a non-cooperative attitude, as sole member of CoC, he could have moved resolution for liquidation of the CD in the very first meeting of the CoC, which could have saved him from penalties under Section 65(1) of IBC.
# Section 65. Fraudulent or malicious initiation of proceedings. -
(1) If, any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, as the case may be, the Adjudicating Authority may impose upon a such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees.
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