NCLT Kochi (21.12.2021) in Wittur Elevator Components India Pvt. Ltd. Vs. Axiomata Elevators Pvt. Ltd. [Report/28/2020, MA/15/KOB/2020, MA/143/KOB/2020 & MA/144/KOB/2020 in TIBA/34/KOB/ 2019 ] held that;
If the powers of the board are suspended and the management of the affairs of the Corporate Debtor vests with the Interim Resolution Professional after his appointment, then the responsibility also lies with the Interim Resolution Professional.
The suspension of the powers of the Board of Directors means suspension of the role of directors, and responsibilities emanating from such role.
But in this case, even though the RP is empowered to take possession of the Registered Office and records of the Corporate Debtor, he has taken only symbolic possession of the same and allowed the suspended Directors to enjoy for their benefits. This is against the provisions of the Code.
Thus both IRP/RP and CoC have to work in tandem and the overall interest of resolution while balancing the interests of all stakeholders.
Excerpts of the Order;
# 36. On hearing the parties, it comes to light that Section 17 has confused Corporate Debtors and practitioners. It may be stated that from the date of appointment of Interim Resolution Professional, “the powers of the Board of Directors or the partners of the Corporate Debtor, as the case may be, shall stand suspended and be exercised by the Interim Resolution Professional”. From a careful reading of this provision, this can be interpreted as suspension of powers of the board of directors and not their duties and responsibilities. The Board is fastened with the responsibility of running and managing the company’s affairs. If the powers of the board are suspended and the management of the affairs of the Corporate Debtor vests with the Interim Resolution Professional after his appointment, then the responsibility also lies with the Interim Resolution Professional. The suspension of the powers of the Board of Directors means suspension of the role of directors, and responsibilities emanating from such role.
# 37. Here, the main allegation was that the Respondent/ Resolution Professional has failed to take over the affairs of the Corporate Debtor and to immediately take over custody and control of the assets without taking necessary steps to ascertain the financial position of the Corporate Debtor. To this, the contention of the Resolution Professional is that he has taken symbolic possession of the Registered Office and records of the Corporate Debtor. For the purpose of the resolution, the control and custody of the assets from the corporate debtor is taken over by the resolution professional as per Section 18 (f). At this point, it is important to quote the relevant portion of Section 18 of the code which refers to the duties of Interim Resolution Professional, which is as follows:-
“18. Duties of interim resolution professional. –
(1) The interim resolution professional shall perform the following duties, namely: -
(a) collect all information relating to the assets, finances, and operations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to –
(i) business operations for the previous two years;
(ii) financial and operational payments for the previous two years;
(iii) list of assets and liabilities as on the initiation date; and
(iv) such other matters as may be specified;
(b) receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under sections 13 and 15;
(c) constitute a committee of creditors;
(d) monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the committee of creditors;
(e) file information collected with the information utility, if necessary; and
(f) take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including –
(i) assets over which the corporate debtor has ownership rights which may be located in a foreign country;
(ii) assets that may or may not be in possession of the corporate debtor;
(iii) tangible assets, whether movable or immovable;
(iv) intangible assets including intellectual property;
(v) securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies;
(vi) assets subject to the determination of ownership by a court or authority;
(g) to perform such other duties as may be specified by the Board. Explanation. – For the purposes of this 1 [section], the term “assets” shall not include the following, namely: -
(a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment;
(b) assets of any Indian or foreign subsidiary of the corporate debtor; and
(c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator.”
# 38. A plain reading of the above Section makes it clear that the Code empowers the Resolution Professional to take control and custody of any property which the Corporate Debtor has complete ownership. This power of the Resolution Professional extends to properties that are part of the court proceedings. Section mandates the IRP to preserve and protect the value of the property and to manage the operations of the corporate debtor as a going concern. But in this case, even though the RP is empowered to take possession of the Registered Office and records of the Corporate Debtor, he has taken only symbolic possession of the same and allowed the suspended Directors to enjoy for their benefits. This is against the provisions of the Code.
# 39. With the concept of Creditors in Control under IBC, after the initiation of the Corporate Insolvency Resolution Process (CIRP), the CoC assumes decision making powers for the management of the CD. IRP/ RP is an independent professional to take care of the interests of all the stakeholders. Thus both IRP/RP and CoC have to work in tandem and the overall interest of resolution while balancing the interests of all stakeholders. But here there is a clash of interest among the member of CoC and the Resolution Professional. In its first meeting of the CoC, it appointed the Resolution Professional, who was then convening and conducting the meetings of the committee. Further, as per Section 24(2), the resolution professional conducts all the meetings of the Committee of Creditors. Whereas, in this matter neither 2nd CoC nor 3rd CoC meetings were conducted by the Resolution Professional as the Chairman or even not attended the meeting. The meeting which was said to be convened was without his knowledge. As per the annexures submitted by the applicant (M/s. Wittur Elevator Components India Private Limited) in M.A. No./15/KOB/2020, only in the minutes of the 1st CoC Meeting, the RP has signed. It is also found that Applicants themselves issued agendas for the 3rd CoC Meeting and passed resolutions by themselves, even for change of the Resolution Professional.
# 40. As regards the allegation raised by the applicant/Operational creditor against the RP, we place reliance on the judgment of Hon’ble NCLAT in In Dinal Shah v. Bharti Defence Infrastructure Ltd Company Appeal (AT) (Insolvency) No. 175 of 2019 dated 29.03.2019, in which the Hon’ble NCLAT observed:
“If there was any lapse on the part of Resolution Professional which has come to the notice of the Adjudicating Authority, he should have referred the matter to the ‘Insolvency and Bankruptcy Board of India’ (IBBI) for taking appropriate action in accordance with law, which is the competent authority to take any action, after seeking explanation from the Resolution Professional.”
# 41. On verification of records of this case, it is seen that only one meeting of Committee of Creditors took place with the presence of Resolution Professional, and without making any endeavour for inviting Expression of Interest, the CoC unanimously resolved to liquidate the Corporate Debtor.
# 42. The submission of the RP is that the 4th CoC Meeting was convened on 07.03.2020, after issuing notice to Financial Creditor, Operational Creditor, and suspended Directors of Corporate Debtor. The CoC member (FC), a representative of OC, and suspended Director attended the meeting and after elaborate evaluation of the current situation, CoC by 100% voting resolved to liquidate the Corporate Debtor and instructed the RP to file application before this Tribunal. It is also stated that the resolution passed for liquidation is before the expiry of 180 days as stipulated in Section 12 of IBC, 2016.
# 43. Section 33 of the Code enables that only after a resolution fails to yield Resolution Plan, the CD is ordered into liquidation, by an application filed by the Resolution Professional. For further clarification, we have considered the following case laws:
i. The Hon’ble Supreme Court in the matter of Arcelor Mittal India Private Limited Vs. Satish Kumar Gupta &Ors., it is observed that:
“83. …………………. The only reasonable construction of the Code is the balance to be maintained between timely completion of the corporate insolvency resolution process, and the corporate debt or otherwise being put into liquidation. We must not forget that the corporate debtor consists of several employees and workmen whose daily bread is dependent on the outcome of the corporate insolvency resolution process. If there is a resolution applicant who can continue to run the corporate debtor as a going concern, every effort must be made to try and see that this is made possible.”
ii. The Hon’ble Supreme Court in the matter of Swiss Ribbons Pvt. Ltd. &Anr. Vs. Union of India & Ors. Writ Petition (Civil) No.99 of 2018 dated 25.01.2019, it is observed that:
“What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern. … It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its management and from a corporate death by liquidation.”
iii. The Hon’ble NCLAT in the matter of Jayanta Banerjee v. Shashi Agarwal and another, Company Appeal (AT) (Insolvency) No. 348 of 2020 dated 4th June 2021, it is observed that:
“80. It is important to mention that all the statutory provisions for the conduct of CIRP are interlinked; it doesn’t leave any scope to the IRP/RP to skip any of the provisions. CIRP regulations are exhaustive and include a provision to deal with all the eventualities that may arise in the conduct of the CIRP.”
# 44. The aforementioned case laws depict that, this Tribunal is firmly rooted in the jurisprudence of ‘Actus curiae neminem gravity- the act of the Court shall harm no man. We also noticed that M/s Bajaj Finance Ltd, who is a Financial Creditor of the Corporate Debtor came with their claim belatedly filing Form-C dated 12.02.2020 under Regulation 8. The claim of the Financial Creditor was admitted on 15.02.2020 and CoC was re-constituted with a sole Financial Creditor. Before that the CoC was constituted by the RP with the Operational Creditor. Without informing the Operational creditor and discussing the entry of new Financial creditor, the RP unanimously took a decision to accept the claims of Financial Creditor – M/s Bajaj Finance Limited on 15.02.2020 reconstituting the CoC. No earlier meetings were attended by M/s. Bajaj Finance Limited and we could not understand, from where the Financial Creditor came and took over the CoC and unanimously decided to liquidate the Corporate Debtor before completion of 180 days. Even if such a decision is taken, the Resolution Professional should have objected to the same, as there is no expression invited and any resolution failed. This, in our opinion, is done in connivance with the Financial Creditor and to see that the Operational Creditors are put to trouble. It appears from the records that M/s Bajaj Finance Limited did not attend any of the CoC Meetings except the 4th Meeting in which the resolution for liquidating the Corporate Debtor was passed.
# 46. The above discussions show that in the interest of justice the time spent till now before the Adjudicating Authority from the 2nd CoC Meeting till the date of this order should be excluded from calculating the period under Section 12 (1), (2) &(3) of the IBC. Parties need not suffer for the time spent during this period before the Adjudicating Authority.
ORDER
In view of the aforesaid facts and circumstances, we dispose of the above report and application as under:
a. The Report No. 28/KOB/2020 is taken on record, except the allegations made against the Operational Creditor and the reliefs sought for in the report.
b. Since, the Committee of Creditors is reconstituted with the Financial Creditor M/s Bajaj Finance Limited and the Operational Creditor is not having any voting right in the CoC, the main prayer in MA/15/KOB/2020 to permit them to change the Resolution Professional and refer the case to Insolvency and Bankruptcy Board of India (IBBI) for proposing the name of a new RP cannot be entertained, since they have no locus standi to do so. Hence, other prayers also cannot be granted by this Tribunal.
c. In view of the fact that the Resolution Professional has without calling the Expression of Interest (EoI) and without following the mandates, accepted the approval of a CoC member to liquidate the Corporate Debtor and file this application hurriedly, this application for liquidation cannot be entertained now. The Resolution Professional is allowed to continue with the CIRP from the stage of reconstitution of CoC and proceed with the CIRP as per the Regulations. However, the fee of the Resolution Professional is to be restricted during the period of litigation before this Tribunal and the Hon’ble High Court of Kerala.
d. As we have directed to continue the CIRP with the present Resolution Professional following the mandate under the Regulations, this Tribunal is of the view that the application for the prosecution of Corporate Debtor and its Directors need not be considered at this juncture. Hence, IA/144/KOB/2020 is dismissed. It is hereby made clear that the officer/ erst-while Directors of the Corporate Debtor shall fully co-operate for the completion of the Corporate Insolvency Resolution Process.
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