NCLT Ahmedabad Orders Liquidation of Eskay K'N'IT After CIRP Yields No Resolution Plan

The National Company Law Tribunal (NCLT) at Ahmedabad has recently ordered the liquidation of Eskay K'N'IT (India) Limited and appointed insolvency professional Sunit Jagdishchandra Shah as liquidator, rejecting the Committee of Creditors' recommendation to retain the existing Resolution Professional, Ajit Kumar, as the liquidator.

A bench of Judicial Member Chitra Hankare and Technical Member Dr Velamur G Venkata Chalapathy passed the order on November 28 after reviewing the prolonged pendency of the insolvency proceedings of the textile company.

The bench noted the lack of progress in the company's revival and recorded that “The CD is under liquidation for a considerable period mainly due to pending IAs and the litigations on the assets of the property. The RP has not been able to put up a proposal for revival of the CD. Hence we may allow the proposal to liquidate the CD."

The company had entered into CIRP on February 17, 2020 after the tribunal admitted a Section 7 petition filed by Bank of India. Despite extensions, appointment of bid process advisors and outreach to industry players, no viable resolution applicant emerged. The two expressions of interest received in June 2021 were found ineligible and the Resolution Professional informed the CoC that large textile companies such as Welspun Group and Arvind Ltd had declined to participate due to the complex asset structure of the corporate debtor.

As the CIRP period approached expiry, the CoC resolved in June 2021 to liquidate the company and approved Ajit Kumar as liquidator. After the IBBI suspended the registration of the then RP, Subrata Mondal, in May 2022, the tribunal appointed Ajit Kumar as RP, and he substituted himself as the applicant in the liquidation proceedings.

Kumar placed before the tribunal the IBBI circular dated 18 July 2023, which recommends appointing an insolvency professional other than the resolution professional as liquidator. Acting on a previous direction of the Tribunal, the circular was placed before the CoC. At its eleventh meeting, the CoC reaffirmed Ajit Kumar's appointment as liquidator with 88.17 percent voting share and argued that the circular was not binding because it did not amend the Liquidation Regulations. It relied on precedents to argue that guidelines cannot substitute subordinate legislation and submitted that its continued confidence in the RP justified his continuation.

The tribunal rejected the CoC's objections and held that the circular recommending appointment of a liquidator other than the resolution professional should be applied in the present case. It held that “We approve the proposal of the applicant which is submitted with the approval of COC under Sec 33(2) of IBC 2016 and replace the RP with new liquidator under Sec 33(4)(b) and the charges to the liquidation process will be in terms of Sec 33(4)(8) and (9) of IBC 2016 and will function in terms of the powers and duties specified under Sec 35 of IBC 2016.”

The tribunal made liquidation effective from the date of its order, declared that the moratorium imposed in February 2020 had ceased to exist and appointed Sunit Jagdishchandra Shah from the IBBI panel as liquidator in place of Ajit Kumar.

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