Imp. Rulings - Section 19(2) Applications
Index;
NCLAT (2023.10.19) in Mr. Rahul Gupta Vs. Chandra Prakash [Company Appeal (AT) (Insolvency) No. 966 of 2022 ]
NCLT Chandigarh (2023.02.28) In Mr. Ajay Kumar Siwach. Vs. Shri Virender Dawar (Director of Suspended Board of Corporate Debtor) & Ors.[IA No. 295/2021 In CP (IB) No.19/ Chd/ Hry/ 2019 ]
NCLAT (2023.02.17) In Rajasthan State Mines & Minerals Ltd. Vs. Parag Sheth & Ors. [Company Appeal (AT) (Insolvency) No. 170 of 2023 ]
NCLT Mumbai-1 (2023.01.03) in Mr. Mahesh Sureka Resolution Professional Vs. Minesh Prints Limited & others, [I.A. 87 OF 2021 in C.P.(IB) No. 4461/MB/2019 ]
NCLT Kochi (2022.12.22) in K. Parameswaran Nair Vs. Mr. Jacob Samson & Ors. [IA(IBC)/ 230/ KOB/2022 IN CP(IB)/05/KOB/2021]
NCLAT (2022.11.29) in Ashok Mahindru & Anr. Vs. Vivek Parti (Company Appeal (AT) (Insolvency) No.1324 of 2022)
NCLT Indore (2022.07.18) in Sajjan Kumar Dokania RP of Divya Jyoti Industries Ltd V/s Gopal Nyati & Ors [IA/102(MP)2021 in TP 241 of 2019, CP(IB) 628 of 2018]
NCLT Guwahati (2022.02.04) in Sandeep Khaitian, IRP Vs. Piyush Periwal & others.(Cont. Application No. 1/2021 IN CP (IB)/09/GB/2019)
NCLAT (2021.07.05) in Mr. Venugopal Dhoot & Anr. Vs. Mr. Pravin R. Navandar RP & Ors. [Company Appeal(AT)(Insolvency) No. 173 of 2021],
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1). NCLAT (2023.10.19) in Mr. Rahul Gupta Vs. Chandra Prakash [Company Appeal (AT) (Insolvency) No. 966 of 2022 ] held that;
“The offences and penalties” as prescribed and dealt with in Chapter VII and appropriate Order of punishment can be passed only by way of trial of offences by a Special Court in terms of Section 236 of the Code.
That issuing of non- bailable warrant by the National Company Law Tribunal against the erstwhile directors for ensuring the compliance of the provisions of the Code fell within the ambit of Section 19 of the Code.
An act which is termed as offence within specific provision of Chapter VII of Part-II could not have been indirectly dealt with by the Adjudicating Authority by imposing a fine.”
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2). NCLT Chandigarh (2023.02.28) In Mr. Ajay Kumar Siwach. Vs. Shri Virender Dawar (Director of Suspended Board of Corporate Debtor) & Ors.[IA No. 295/2021 In CP (IB) No.19/ Chd/ Hry/ 2019 ] held that;
The present application is filed under Section 19(2) of the Insolvency and Bankruptcy Code, 2016 to pass necessary directions to respondents to cooperate with the IRP which is not maintainable against Respondent No. 3 as this adjudicating authority cannot adjudicate upon the dispute between the parties.
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3). NCLAT (2023.02.17) In Rajasthan State Mines & Minerals Ltd. Vs. Parag Sheth & Ors. [Company Appeal (AT) (Insolvency) No. 170 of 2023 ] held that;.
We are of the view that Adjudicating Authority ought to have issued notice to the Appellant before passing any order on the Application [Under Section 19(2)].
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4). NCLT Mumbai-1 (2023.01.03) in Mr. Mahesh Sureka Resolution Professional Vs. Minesh Prints Limited & others, [I.A. 87 OF 2021 in C.P.(IB) No. 4461/MB/2019 ] held that;
The Applicant has sought directions from this Tribunal to make the Suspended Board to contribute to the Corporate Debtor in terms of Section 19(2) of the Code, to the extent the money is not paid by the stated parties. However, we are of the considered view that such directions are not permissible under section 19(2) and this Bench can not direct them to co-operate.
Had this Application been filed in terms of Section 66 of the Code meeting the conditions precedent provided therein, this Bench could have assumed jurisdiction to consider the prayer of the Application, if such prayer would otherwise be permissible under that Section.
We are of considered view that the Applicant has lien over such Goods as “Unpaid Seller” in terms of Provisions contained in Section 47 of Sale of Goods Act, 1930. Accordingly, no specific direction is necessary from this Tribunal.
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5). NCLT Kochi (2022.12.22) in K. Parameswaran Nair Vs. Mr. Jacob Samson & Ors. [IA(IBC)/ 230/ KOB/2022 IN CP(IB)/05/KOB/2021] held that;
Accordingly, we direct all the Respondents to co-operate with Applicant/Resolution Professional and provide all the information/documents/clarifications sought for by the applicant Resolution Professional within a period of two weeks from the date of receipt of a copy of this order. It is made clear that failure to do so will attract the provisions of Section 70 of IBC, 2016.
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6). NCLAT (2022.11.29) in Ashok Mahindru & Anr. Vs. Vivek Parti (Company Appeal (AT) (Insolvency) No.1324 of 2022) held that;
Interim moratorium shall be for such proceedings which relate to a liability or obligation due i.e. due on date when interim moratorium has been declared. Section 96(1)(b) cannot be read to mean that any future liability or obligation is contemplated to be stayed.
Thus, stay of proceedings under Section 19(2) and Section 66-67 is not contemplated under Section 96(1)(b) and the scheme of Code in no matter provide for stay of such applications.
Section 66 of IBC empowered the Tribunal to pass appropriate orders when the suspended directors or insolvency professional of the Corporate Debtor carried on fraudulent trading or business during resolution process.
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7). NCLT Indore (2022.07.18) in Sajjan Kumar Dokania RP of Divya Jyoti Industries Ltd V/s Gopal Nyati & Ors [IA/102(MP)2021 in TP 241 of 2019, CP(IB) 628 of 2018] held that
We direct the Suspended Management to handover all the documents, assets to the RP and provide assistance as required by the RP within ten days from the date of this order, failing which the RP is at liberty to approach local police on the basis of this order and local police to render all necessary assistance to RP.
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8). NCLT Guwahati (2022.02.04) in Sandeep Khaitian, IRP Vs. Piyush Periwal & others.(Cont. Application No. 1/2021 IN CP (IB)/09/GB/2019) held that;
When sufficient provisions are available in the IBC especially under Sections 19, 66 and 74 of IBC to deal with the situations of non-cooperation by the Suspended Management to the RP in completion of CIRP, fraudulent trading or wrongful trading, if any, during Corporate Insolvency Resolution Process or a Liquidation Process, and Punishment for Contravention of Moratorium provisions of Section 14 of IBC then why he had filed FIR on 23.04.2020 with Margherita, Police Station.
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9). NCLAT (2021.07.05) in Mr. Venugopal Dhoot & Anr. Vs. Mr. Pravin R. Navandar RP & Ors. [Company Appeal(AT)(Insolvency) No. 173 of 2021], held that;
This Appellate Tribunal was repeatedly asking the parties the requirement of various documents and sources from where the documents can be obtained. Based on these observations on 10.06.2021 both the parties agreed the suggestions for a list of requisite documents and from where the documents can be obtained by the RP.
The sum and substance of both the submissions of Appellant and Respondents reveals that the Financial Statement of the CD is available with RP. What he is seeking is the details of the assets of the subsidiaries which is governed by the explanation to Section 18 of the Code and the same is stated as below:…..
The most important thing is the tally data of the CD which has to be obtained from Resolution Professional of VIL i.e. its holdings Company of CD. The bank accounts details for the last five years can be obtained by the Respondent No.1 from the Bank which are under his control at the moment and details of the Directors can be obtained from the MCA website.
On a specific query by the Bench, why RP for more than one year could not get the books reconstructed with the assistance of expert IT Professional from outside to ascertain avoidable transactions of the Code, if he suspects something based on inputs available with him.
What we find basically that a culture has come were Accounts people wants to do the job of Auditor, Auditor wants to do the job of Vigilance and Vigilance wants to do the job of CBI.
The RP being a competent professional and bankers within his charge, he should have reconstructed a book showing cash flow for the specified period as per the Code and by this time could have detected that whether any preliminary finding is for avoidance transactions and then the other party could have proved either way by this time.
The RP can take the assistance of concerned Registrar of Company / MCA website and could have obtained financial statements /annual return and his apprehension could have been proved either way.
Hence, we are unable to confirm that Appellants are fully responsible for non- availability of the documents with whatever data what has been provided to us. Hence, we are unable to sustain the Adjudicating Authority order at this juncture which has been passed in haste.
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Section 19 read with Section 18 & Regulations,
It will be interesting to find, whether application filed under section 19(2) is frivolous or not in light of the provisions of Section 19 read with Section 18 & Regulations 3A (CIRP Regulations)
# Section 19. Personnel to extend co-operation to interim resolution professional. - (1) The personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor shall extend all assistance and cooperation to the interim resolution professional as may be required by him in managing the affairs of the corporate debtor.
(2) Where any personnel of the corporate debtor, its promoter or any other person required to assist or cooperate with the interim resolution professional does not assist or cooperate, the interim resolution professional may make an application to the Adjudicating Authority for necessary directions.
(3) The Adjudicating Authority, on receiving an application under sub-section (2), shall by an order, direct such personnel or other person to comply with the instructions of the resolution professional and to cooperate with him in collection of information and management of the corporate debtor.
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# Section 18. Duties of interim resolution professional. -
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.
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Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
# 3A. Assistance and cooperation by the personnel of the corporate debtor.
(1) The interim resolution professional or resolution professional, as the case may be, shall take custody and control as specified under this regulation from the personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor as the case may be, of the following:-
the records of information relating to the assets, finances and operations of the corporate debtor referred in clause (a) of section 18 and such other information required under regulation 36;
the assets recorded in the balance sheet of the corporate debtor or in any other records referred in clause (f) of section 18.
(2) The personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor shall provide to the interim resolution professional or resolution professional, as the case may be, a list of assets and records while handing over their custody and control, and the interim resolution professional or resolution professional may, after taking such custody and control, if deemed necessary, identify person(s) in whose possession these assets and records will be held.
(3) Where any asset or record has not been handed over or the list has not been provided under sub-regulation (2), the interim resolution professional or resolution professional, as the case may be, shall himself prepare a list of assets and records while taking custody and control of assets and records, and the interim resolution professional or resolution professional may, after taking such custody and control, if deemed necessary, identify person(s) in whose possession these assets and records will be held.
(4) Each list of assets and records under sub-regulation (2) and (3) shall be signed by the parties present and by at least two individuals who have witnessed the act of taking control and custody of such assets and records.
(5) The interim resolution professional or resolution professional, as the case may be, shall requisition from the personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor as the case maybe, the information relating to the assets, finances and operations of the corporate debtor referred in clause (a) of section 18 and such information required under regulation 36 which were required to be maintained by the corporate debtor but have not yet been handed over.
(6) The interim resolution professional or resolution professional, as the case may be, shall requisition from the personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor as the case maybe, the assets which are recorded in the balance sheet or in any other records referred in clause (f) of section 18 and whose custody has not been handed over.
(7) An application made under sub-section (2) of section 19 in respect of failure to provide any asset or record as requisitioned under the Code and this regulation, shall show presence of such asset or record in the notice of requisition and absence of such asset or record in the list of assets and records taken in control and custody under sub-regulation (2) and (3).
# 36. Information memorandum.
(1) Subject to sub-regulation (4), the resolution professional shall submit the information memorandum in electronic form to each member of the committee on or before the ninety-fifth day from the insolvency commencement date and its subsequent updates thereof.
(2) The information memorandum shall highlight the key selling propositions and contain all relevant information which serves as a comprehensive document conveying significant information about the corporate debtor including its operations, financial statements, to the prospective resolution applicant and shall contain the following details of the corporate debtor-] -
assets and liabilities including contingent liabilities with such description, as on the insolvency commencement date, as are generally necessary for ascertaining their values.
Explanation: ‘Description’ includes the details such as date of acquisition, cost of acquisition, remaining useful life, identification number, depreciation charged, book value, geographical coordinates of fixed assets] and any other relevant details.
the latest annual financial statements;
audited financial statements of the corporate debtor for the last two financial years and provisional financial statements for the current financial year made up to a date not earlier than fourteen days from the date of the application;
a list of creditors containing the names of creditors, the amounts claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims;
particulars of a debt due from or to the corporate debtor with respect to related parties;
details of guarantees that have been given in relation to the debts of the corporate debtor by other persons, specifying which of the guarantors is a related party;
the names and addresses of the members or partners holding at least one per cent stake in the corporate debtor along with the size of stake;
details of all material litigation and an ongoing investigation or proceeding initiated by Government and statutory authorities;
(ha) details of all identified avoidance transactions, if any, under Chapter III or fraudulent or wrongful trading under Chapter VI of Part II of the Code and subsequent filings before Adjudicating Authority, as referred under sub-regulation (3A) of regulation 35A;]
the number of workers and employees and liabilities of the corporate debtor towards them;
company overview including snapshot of business performance, key contracts, key investment highlights and other factors which bring out the value as a going concern over and above the assets of the corporate debtor such as brought forward losses in the income tax returns, input credit of GST, key employees, key customers, supply chain linkages, utility connections and other pre-existing facilities
Details of business evolution, industry overview and key growth drivers in case of a corporate debtor having book value of total assets exceeding one hundred crores rupees as per the last available financial statements]
(ka) fair value:
Provided that the committee may decide not to disclose the fair value if, for reasons to be recorded in writing, it considers such non-disclosure to be beneficial for the resolution process.]
other information, which the resolution professional deems relevant to the committee.
(3) A member of the committee may request the resolution professional for further information of the nature described in this Regulation and the resolution professional shall provide such information to all members within reasonable time if such information has a bearing on the resolution plan.
(3A) The creditors shall provide to the resolution professional the latest financial statements and other relevant financial information of the corporate debtor available with them.]
(4) The resolution professional shall share the information memorandum after receiving an undertaking from a member of the committee to the effect that such member or resolution applicant shall maintain confidentiality of the information and shall not use such information to cause an undue gain or undue loss to itself or any other person and comply with the requirements under sub-section (2) of section 29.
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Implications of non compliance of provisions of section 19.
# Section 70. Punishment for misconduct in course of corporate insolvency resolution process. -
(1) On or after the insolvency commencement date, where an officer of the corporate debtor;
(a) does not disclose to the resolution professional all the details of property of the corporate debtor, and details of transactions thereof, or any such other information as the resolution professional may require; or
(b) does not deliver to the resolution professional all or part of the property of the corporate debtor in his control or custody and which he is required to deliver; or
(c) does not deliver to the resolution professional all books and papers in his control or custody belonging to the corporate debtor and which he is required to deliver; or
(d) fails to inform their solution professional the information in his knowledge that a debt has been falsely proved by any person during the corporate insolvency resolution process; or
(e) prevents the production of any book or paper affecting or relating to the property or affairs of the corporate debtor; or
(f) accounts for any part of the property of the corporate debtor by fictitious losses or expenses, or if he has so attempted at any meeting of the creditors of the corporate debtor within the twelve months immediately preceding the insolvency commencement date,
he shall be punishable with imprisonment for a term which shall not be less than three years, but which may extend to five years, or with fine, which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both:
Provided that nothing in this section shall render a person liable to any punishment under this section if he proves that he had no intent to do so in relation to the state of affairs of the corporate debtor.
(2) If an insolvency professional deliberately contravenes the provisions of this Part the shall be punishable with imprisonment for a term which may extend to six months, or with fine which shall not less than one lakh rupees, but may extend to five lakhs rupees, or with both.
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