NCLAT (18.04.2022) in Mr. Mukund Choudhary Vs. Mr. Subhash Kumar Kundra (RP for CLC Industries Ltd.) [Company Appeal (AT) (Insolvency) No. 452 of 2021] held that;
This Tribunal is of the considered view that the Court does not release the directors of the Corporate Debtor company from their duties, but only suspends their power as directors and appoints a RP for managing the company.
This Tribunal is of the considered view that the circular dated 06.03.2020 relied upon by the Appellants provides only for the procedure of filing the Forms. The circular does not anywhere specify that the Financial Statement are not to be signed by the Directors as required in the Companies Act, 2013.
.Excerpts of the order;
Aggrieved by the order dated 01.06.2021 passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi, Principal Bench) in IA-2070(PB)/2021 in CP No. (IB)-933(PB)/2019, Mr. Mukund Choudhary & Anr. preferred this Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘The Code’). By the impugned order, the Adjudicating Authority has disposed of I.A. No. 2070(PB)/2021 filed by the Resolution Professional under Section 19(2) of the Code seeking direction to the suspended directors/the Appellants herein to cooperate and provide signed copy of the financial statements for the Financial Year of 2019-2020, observing as follows:
“6. Since CIRP/Liquidation is to be completed in time bound manner, the AA cannot grant time to file Reply/Replies to various IAs filed by aggrieved parties during the process of CIRP. It is settled position of law that in terms of provisions of Section 19 of Code, the personnel of CD, its promoters or any other person associated with the management of CD shall extend all assistance and co-operation to IRP as may be required by him, in managing the affairs of CD. Therefore, in order to avoid further delay, it would be just and proper to direct the Respondents to extend the requisite co-operation to the Applicant in discharge of his functions including to provide signed copy of Financial Statements for the FY of 2019-20.
7. In the result, IA-2070(PB)/2021 in CP No. (IB)-933(PB)/2019 is hereby disposed by directing the Respondents to cooperate and provide signed copy of the financial statements for FY of 2019-2020, within a period two weeks from the date of receipt of copy of this order. And the Applicant is also directed to furnish the requisite documents, if any, asked for by the Respondents for the above purpose.”
# 2. It is the case of the Appellants that in view of the management being in control of the Respondent / Resolution Professional (RP), the balance sheet as on 31.03.2021 being prepared by him had some objectionable entries and therefore, the Appellants have serious objection to the various entries in the Balance Sheet and accordingly had sought for clarification. It is submitted that the Appellant are not inclined to sign the financial statement as prepared by the RP without due justification and clarity.
# 3. It is further submitted that the Adjudicating Authority disposed of the Application without giving opportunity to the Appellants to file reply placing on record their objections, while directing the Appellants to cooperate and provide the signed copy of the Financial Statement for Year 2019-20 within a period of two weeks from the date of receipt of the impugned order copy. It is submitted that the RP acts and executes in the name and on behalf of the Corporate Debtor all deeds, receipts and other documents and hence the RP is competent to sign the Balance Sheet prepared by him and the Appellant should not be coerced to sign the Financial Statement as they are already suspended from the management by the Corporate Debtor company.
# 4. It is further contended that the draft Balance Sheet prepared by the RP had serious discrepancies and hence the Appellants sought clarification vide email dated 04.03.2021 but there was no reply. Learned Counsel appearing for the Appellants draw our attention to the General Circular No. 08/2020 dated 06.03.2020 relating to filing of Form in the Registry (MCA-21) by the IRP/RP/Liquidator appointed under the Insolvency and Bankruptcy Code, 2016, the relevant para of which is detailed as hereunder:
“(iii) The IRP/RP/Liquidator shall be responsible for filing all the eforms in the MCA portal and sign the form in the capacity of CEO in order to meet filing protocol in the existing forms architecture. However, this shall in no way affect his legal status as IRP/RP/Liquidator. All filings of eforms including AOC-4 and MGT-7 shall be filed through e-form GNL-2 by way of attachments till the company is under CIRP. In the existing field no. 3 of form no. GNL-2, IRP/RP/Liquidator will choose radio button “Filings under IBC”.
# 5. It is the case of the Appellants that in view of the circular, it is the RP who should sign the Form in the capacity of CEO in order to meet the filing protocol and further it is not the suspended director who has to sign the Financial Statement for the Year 2019-20.
# 6. Learned Counsel for the Respondent / RP strenuously contended that despite repeated requests, the Appellants did not co-operate in signing the Financial Statement and therefore, he was constrained to file I.A. No. 2070(PB)/2021 before the Adjudicating Authority seeking direction to them to co-operate. It is further submitted that the RP got Books of Accounts prepared for the Financial Year 2019-20 and accordingly M/s R.N. Marwah & Co. LLP, Charter Accountant were appointed as statutory auditor of the Corporate Debtor way back on 2017 itself and the same Auditor had prepared the statements. The draft Financial Statement and draft audit report for the financial year 2019-20 received from the auditor was sent to the Appellants vide email dated 12.02.2021, to review the accounts and signed the same in order to enable the RP to file it before the RoC in terms of the extant provisions of the Companies Act, 2013. All the requisite documents as required and requested by the Appellants was provided to them, but there was no response.
# 7. It is further contended that the Adjudicating Authority has rightly observed that the Appellants have to extend their co-operation to the RP in discharge of his functions including providing the signed copy of the Financial Statement for the Year 2019-20.
# 8. The facts in dispute are that CIRP commenced on 03.01.2020 and M/s R.N. Marwah & Co. LLP was appointed as Statutory Auditor for three consecutive years i.e. on 25.09.2017 and the same auditors continued for 2019-20. The material on record establishes that the 3rd quarter statement for financial year 2019-20 was audited by the same Auditor and signed by the Appellants. It is an admitted fact that the draft review report quarterly ending 2019-20 was already shared with the Appellants. Material on record establishes that the RP had sent repeated requests to the Appellant herein to sign the Financial Statements by emails on 22.01.2021, 15.02.2021, 19.02.2021, 20.02.2021 and 26.02.2021, but received no response. It is the case of the RP that after 20 days of receiving the drafts and report, the Appellants on 04.03.2021 declined that they are not in agreement of the financial statement and refused to sign. They had objected in the presence of the Statutory Auditor which is only to delay the proceedings and demanding for comparatives of the provisional directions and financial statements for the 3rd financial year 2019-20 and all the documents which were already available with them.
# 9. At the outset, we address to the contention of the Appellants that it is the RP who has to sign the Financial Statement and not the Appellants who are the suspended directors of the Corporate Debtor company. This Tribunal is of the considered view that the Court does not release the directors of the Corporate Debtor company from their duties, but only suspends their power as directors and appoints a RP for managing the company. At this juncture, we find it pertinent to reproduce Sections 129 and 134 of the Companies Act, 2013 which read as hereunder:
# 10. The submissions of the Learned Counsel for the Appellants that it is the RP who has to sign Financial Statement is untenable, keeping in view the facts and circumstances of the attendant case as it is not disputed that the Appellants had signed the first three quarters of the Financial Year and are now objecting to sign the last quarter raising some clarifications which have already been addressed to by the RP and the Statutory Auditor (who is the same auditor who had audited the Financial Statements/Accounts for the past three years of the Corporate Debtor company). Section 19(2) of the Code clearly specified that the personnel of the Corporate Debtor, as promoters or any other persons are required to assist the RP failing which an Application can be filed before the Adjudicating Authority seeking direction for co-operation. This Tribunal is of the considered view that the circular dated 06.03.2020 relied upon by the Appellants provides only for the procedure of filing the Forms. The circular does not anywhere specify that the Financial Statement are not to be signed by the Directors as required in the Companies Act, 2013. The emails and the communications on record evidence that the RP and the statutory auditor had prepared all the information as demanded time and again by the Appellants, requesting them to sign the Financial Statements in order to enable the RP to proceed in accordance with law. The impugned order dated 01.06.2021, whereby two weeks’ time was granted to the Appellants herein to co-operate and sign the Financial Statements was not complied with causing further delay. We do not see any illegality in the well reasoned order of the Adjudicating Authority as we do not find it a fit case, in the interest of justice and to avoid any further delay in this time bound proceedings, in remitting the matter to the Adjudicating Authority. At the cost of repetition, we observe that it is the duty of the Appellants to cooperate and sign the Financial Statements which is in terms of the provisions of the Code as well as in compliance of the Companies Act, 2013.
For the above reasons, this Appeal fails and is accordingly dismissed.
# 11. The Registry is directed to upload the Judgment on the website of this Tribunal and send a copy of this Judgment to the Adjudicating Authority (National Company Law Tribunal), New Delhi, Principal Bench, forthwith.
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Blogger’s Comments; The questions which neither of the applicant or respondent had either raised or replied are
RP had asked the suspended directors to sign the financial statements, but in which capacity ?
Can a suspended director execute any document on behalf of the CD as Managing Director/ Executive Director/ Director of the company during CIRP ?
Whether IRP/RP asking suspended directors to sign the financial statements tantamount to outsourcing of duties an IRP/RP required to perform under the provisions of the Code. [section 17(1)(b) read with Section 17(2)(a)]
Following are provisions of the The Companies Act in respect of signing of the financial statements of the company.
The Companies Act, 2013
Section 134. Financial statement, Board’s report, etc
1. The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board by the chairperson of the company where he is authorised by the Board or by two directors out of which one shall be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the Company Secretary of the company, wherever they are appointed, or in the case of One Person Company, only by one director, for submission to the auditor for his report thereon.
During CIRP, as all the directors of the company stands suspended, thus the “Board of Directors” becomes defunct. In absence of any operational “Board of Directors”, how can a suspended director be asked to sign financial statements on behalf of the “Board of Directors”.
Insolvency and Bankruptcy Code. 2016
# Section 17. Management of affairs of corporate debtor by interim resolution professional. -
(1) From the date of appointment of the interim resolution professional, -
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(b) 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;
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(2) The interim resolution professional vested with the management of the corporate debtor, shall-
(a) act and execute in the name and on behalf of the corporate debtor all deeds, receipts, and other documents, if any;
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As per section 17(1)(b) IRP is required to exercise the powers of the board of directors from the date of his appointment. Further Section 17(2)(a) specifically provides that all the documents will be executed by IRP on behalf of the CD.
In my opinion the said orders of NCLT & NCLAT are per-incuriam, as violative to the provisions of the statutes.
Hon’ble Supreme Court in Government of A.P. and Another v. B. Satyanarayana Rao (dead) by LRs. and Others (2000) 4 SCC 262 observed as under:
“The rule of per incuriam can be applied where a court omits to consider a binding precedent of the same court or the superior court rendered on the same issue or where a court omits to consider any statute while deciding that issue."
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