Terming it "unfortunate", the appellate tribunal observed that even after the lapse of 981 days and repeated compliance by the Resolution Professional to initiate the liquidation process, the NCLT had not considered it.
The sale of assets as a going concern under liquidation is very similar to a Resolution Plan during the insolvency and resolution process.
The National Company Law Appellate Tribunal (NCLAT) has directed to initiate liquidation process of leading integrated edible oil company K S Oils Ltd and set aside an NCLT order passed against it.
Terming it “unfortunate”, the appellate tribunal observed that even after the lapse of 981 days and repeated compliance by the Resolution Professional to initiate the liquidation process, the NCLT had not considered it.
A two-member NCLAT bench headed by Acting Chairperson Justice B L Bhat allowed the appeal filed by the Resolution Professional (RP) saying fitness of situation allows to initiate liquidation of the corporate debtor K S Oils.
“The Appeal is allowed and the impugned order dated January 1, 2021, passed by the Adjudicating Authority (NCLT) is set aside and at the same time the order for initiation for liquidation of the Corporate Debtor Ms. K.S.Oils Ltd is also allowed. The Corporate Debtor- K S Oils shall liquidate in the manner as laid down in Chapter-III of the Code, it said.
Earlier, on January 1, 2021, the Indore Bench of the National Company Law Tribunal (NCLT) had dismissed the application filed by the RP of the debt-ridden company to initiate liquidation against K S Oils after it could not attract a buyer within the permissible time frame.
The NCLT had rejected the RP’s plea, after 981 days from the date of filing, terming it as not maintainable and being infructuous.
This was challenged by RP Kuldeep Verma before the NCLAT.
According to RP, NCLT after commencing 31 hearings over its application to initiate liquidation from May 11, 2018, to January 1, 2021, dismissed it despite the mandatory 270 days for completing insolvency had lapsed.
The insolvency resolution process was initiated against K S Oils by NCLT on July 21, 2017, over the plea filed by SREI, a financial creditor. SREI itself had submitted a Resolution Plan but was rejected by a vote of 71.34 per cent.
After the conclusion of 270 days on April 16, 2018 without a Resolution Plan approved by the CoC, the RP filed an application to consider passing of orders for liquidation, however, NCLT asked RP to consider addendum III (revised plans) dated May 4, 2018 submitted by SREI and for placing before the CoC.
This was again rejected by the CoC with 76.50 per cent votes. In subsequent hearings, NCLT asked to consider five addendums filed by SREI, which were rejected by the Committee of Creditors.
Leading bank SBI, one of the CoC Member, on behalf of joint lenders forum who collectively holds 76.53 per cent had moved NCLAT based on which the appellate tribunal had on November 18, 2019, directed lenders to consider revised plans if any within two weeks and directed NCLT to pass appropriate order in accordance with law.
Even after this, NCLT heard the matter 12 times between November 22, 2019, and December 10, 2020, and finally dismissed it on January 1, 2021.
Allowing RP’s plea, NCLAT observed that the Insolvency & Bankruptcy Code (IBC) had come into force with the basic objective of resolution in a time-bound manner and if NCLT takes such a considerable time it will defeat a very purpose of the Code.
“Section 12 of the Code has already laid down a period of 330 days on the outer side, although it is directory in nature. This also suggests that the need for giving multiple opportunities to the sole Resolution Applicant is not warranted to defeat the very purpose of the Act,” it said.
The NCLAT further said it appreciates that the year 2020 has faced unprecedented global pandemic Covid-19 and it might have acted as a bottleneck to the NCLT but it may not have allowed repeated reference of Resolution Applicant for the consideration of the CoC when the CoC was repeatedly rejecting their variants of proposals.
“It is unfortunate to observe that even after the lapse of 981 days and repeated compliance by the RP of the direction of the Adjudicating Authority; the Adjudicating Authority has not yet considered initiation of Liquidation as per Section 33 / Chapter III of the Code’.
Neither the NCLT nor the NCLAT is supposed to look into the commercial wisdom of CoC or to reverse the commercial wisdom of CoC as repeatedly observed by the Supreme Court, it added.
It is abundantly clear that the Object of the Code (IBC), IBBI Regulations, this Appellate Tribunal Judgments, Apex Court Judgments all this suggests that time is the essence of the Code. The Adjudicating Authority naturally, is to keep this factor in mind, liquidation sale can be in the format of anyone. , the NCLAT order said adding NCLT has failed to implement the order of the Appellate Tribunal dated November 18, 2019.