Failure of Liquidator To Comply With Regulation 45 Of Liquidation Regulations, NCLT Kolkata Rejects Application For Dissolution, Recommends Investigation Against Liquidator

The National Company Law Tribunal (NCLT), Kolkata Bench, comprising of Ms. Bidisha Banerjee (Judicial Member) and Shri Balraj Joshi (Technical Member), has rejected an application for dissolution of Corporate Debtor since the Liquidator failed to comply with requirements under Regulation 45 of IBBI (Liquidation Process) Regulations 2016. The Bench has further recommended IBBI to conduct an investigation on the conduct of the Liquidator. Background Facts In 2019, Venkateshwara Capital Management Ltd. (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the NCLT. Thereafter, on 29.11.2019 the NCLT ordered liquidation of Corporate Debtor. In 2022, the Liquidator filed an application under Section 54 of IBC seeking dissolution of Corporate Debtor. The Liquidator submitted that the Corporate Debtor had investment in Godavari Commercial Services Pvt. Ltd. and Coastal Fertilisers Ltd., which were required to be liquidated prior to dissolution of the Corporate Debtor. However, the shares of Godavari Commercial Services Pvt. Ltd. and Coastal Fertilisers Limited had already been sold to Moonview Infra realtors Pvt. Ltd. to set off liability against the same as on 01.04.2018 i.e., before the commencement of CIRP. Therefore, there were no assets in the Corporate Debtor for realization. It was further contended that as per last filed Audited Balance Sheet for financial year 2016-2018, the Corporate Debtor has been a loss-making company with no transactions and/or business since last several years. The revenue generated from operation is in negative and the Corporate Debtor has no employees. Relevant Law Regulation 45 of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations 2016 “45. Final report prior to dissolution. (1) When the corporate debtor is liquidated, the liquidator shall make an account of the liquidation, showing how it has been conducted and how the corporate debtor’s assets have been liquidated. (2) If the liquidation cost exceeds the estimated liquidation cost provided in the Preliminary Report, the liquidator shall explain the reasons for the same. (3) The liquidator shall submit an application along with the final report and the compliance certificate in form H to the Adjudicating Authority for – (a) closure of the liquidation process of the corporate debtor where the corporate debtor is sold as a going concern; or (b) for the dissolution of the corporate debtor, in cases not covered under clause (a).” NCLT Verdict The Bench observed that the Liquidator spent a considerable period in carrying out liquidation process only to state that assets are not realizable. The Liquidator while praying for dissolution of Corporate Debtor has not even stated what has been sold and left in liquidation. It was observed that the Liquidator did not submit a final report and Compliance Certificate in Form H before seeking dissolution. Therefore, the application has been rejected for being incompliant of Section 54 of IBC and Regulation 45 of Liquidation Regulations. “The whole thrust of the liquidator after spending a considerable period in carrying out the liquidation is to only state that the assets are not realisable and also by the quirk of fate the securities held by the corporate debtor have been sold surreptitiously. On this ground the winding up of the corporate debtor is being prayed for even as it is not clearly mentioned as to what was the subject matter of the liquidation and what was sold and what was left. There is no proper record of CoC and/or the SCC meetings from where the chain of events could be traced to draw some conclusions about the process integrity. In absence of the mandatory form ‘H”, the final progress report as required under Regulation 45(3) of the Liquidation process regulations, this Adjudicating Authority rejects this application as it does not comply with the requirements of Section 54 of IBC 2016 read with relevant IBBI regulations.” The Bench has further recommended that the IBBI may investigate the conduct of the Liquidator. “This Adjudicating Authority also recommends an investigation be carried out by the IBBI on the conduct of the liquidator in the present case.” Case Title: Religare Finvest Ltd. v Venkateshwara Capital Management Ltd. Case No.: C.P.(I.B.) No. 1096/KB/2018 Counsel for Applicant: Ms. Urmila Chakraborty and Ms. Sonu Jain. Click Here To read/Download Order

Failure of Liquidator To Comply With Regulation 45 Of Liquidation Regulations, NCLT Kolkata Rejects Application For Dissolution, Recommends Investigation Against Liquidator

Pallavi Mishra

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