NCLAT Delhi: Once CIRP Has Stayed, Resolution Professional Can't Be Directed To Hand Over The Charge Of Corporate Debtor To Ex-Management
Sachika Vij
4 Jan 2024 12:30 PM GMT
The National Company Law Appellate Tribunal ('NCLAT'), New Delhi Bench comprising of Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) allowed the appeals and held that RP cannot be directed to hand over the charge of Corporate Debtor to the Ex-management, once CIRP has stayed. Background Facts: On 19.01.2021, the Corporate Insolvency Resolution...
The National Company Law Appellate Tribunal ('NCLAT'), New Delhi Bench comprising of Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) allowed the appeals and held that RP cannot be directed to hand over the charge of Corporate Debtor to the Ex-management, once CIRP has stayed.
Background Facts:
On 19.01.2021, the Corporate Insolvency Resolution Process ('CIRP') was initiated against CMYK Printech Ltd. ('Corporate Debtor), and the Interim Resolution Professional ('IRP') appointed Mr. Navin Kumar Upadhyay (Respondent 1) as the Executive Editor of the Pioneer Newspaper run by the Corporate Debtor.
On the dismissal of the appeal by NCLAT against the Order admitting CIRP on 16.12.2021, two civil appeals were filed in the Supreme Court and an Interim Order was passed putting a stay on the CIRP and NCLAT's Order.
Mr. Mukesh Jain ('Appellant') was made the Resolution Professional ('RP') and issued a letter to Respondent No. 1 informing that contract of Respondent No. 1 expired on 31.05.2022 and after taking over charge as RP, he has continued month to month upon expiry of the contract, further, Respondent No. 1 has already attained the age of 60 years and Respondent No. 1 was relieved from his position of Executive Director.
Respondent No. 1 applied to NCLT challenging his removal. The NCLT New Delhi on 30.05.2023 directed the RP to immediately hand over the management of the Corporate Debtor to the CEO/Management of the Corporate Debtor. Further, it also held that all actions taken by the RP after the Order dated 25.02.2022 passed by the Supreme Court including the removal of the Applicant and appointment of Mr. Vishal Bakshi are declared to be null and void.
The appeals have been filed challenging the order of NCLT New Delhi dated 30.05.2023.
NCLAT Verdict:
The NCLAT New Delhi allowed the appeal and held that RP cannot be directed to hand over the charge of Corporate Debtor to the Ex-management, once CIRP has been stayed.
It pointed out that handing over the charge of the Corporate Debtor to Ex-management can be dangerous and the same is prone to misuse the assets and the assets shall be diminished, which may adversely affect the creditors of the Corporate Debtor in case of stay of the CIRP.
The Appellate Tribunal observed that NCLAT's decision in Ashok Kumar Tyagi vs. UCO Bank based on which the NCLT New Delhi passed its Order does not lay down any proposition that when the Order of initiating CIRP has been stayed, the result would be to hand over the Corporate Debtor to the ex-management by RP. The decision only related to the the difference between stay of an Order and the quashing of an Order.
The Appellate Tribunal also pointed out that the RP was not discharged from the CIRP and even if as per the directions the RP could not have taken any steps in the CIRP, however, the RP has to look upon the day-to-day affairs of the Corporate Debtor when ex-management being not in place.
The NCLAT emphasized that not allowing the RP to look after the day-to-day affairs of the Corporate Debtor will create a situation where all chances to revive the Corporate Debtor shall be diminished it being not a functioning unit.
It also emphasized that when the Appeal was pending before the Supreme Court, NCLT New Delhi should have stayed its hands to issue any direction to hand over the management of the Corporate Debtor to the ex-management and it should have relegated to parties to approach the Supreme Court for any further direction.
In conclusion, the NCLAT highlighted that the stay of CIRP would mean that the RP would have to await the order of the Appellate Court and cannot take any further steps and thus, such a direction is wholly unjustified and is liable to be set aside. It directed that both parties are at liberty to make appropriate applications before the Supreme Court in pending Civil Appeals.
Case Title: Mr. Mukesh Kumar Jain vs. Navin Kumar Upadhyay & Anr
Case No.: Company Appeal (AT) (Insolvency) No. 930-931 of 2023
Counsel for Appellants: Mr. Gautam Singhal, Mr. Rajat Chaudhary, Advocates and Mr. Manish Kaushik, Mr. Ajit Singh Joher, and Ms. Anshita Agarwal, Advocates.
Counsel for Respondent: Mr. Saurav Agrawal, Mr. Asav Rajan, Mr. Ajay Sharma, Advocates for R-1, Mr. Gautam Singhal, Advocate for RP/R-2.
