Resolution Applicant Wilfully Fails To Implement Plan, NCLT Mumbai Orders Liquidation Without Monitoring Committee’s Mandate

Background Facts

BMW Financial Services Pvt. Ltd. (“Financial Creditor”) filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against S.K. Wheels Pvt. Ltd. (“Corporate Debtor”). On 29.03.2019 the Adjudicating Authority initiated CIRP against the Corporate Debtor.

The erstwhile Promoter of the Corporate Debtor (“Resolution Applicant”) submitted a Resolution Plan, which was approved by the Committee of Creditors as well as the Adjudicating Authority. Subsequently, an Implementation and Monitoring Committee (“IMC”) was constituted for implementation of the Resolution Plan. The Resolution Applicant was obligated to make an upfront payment of Rs. 10.07 Crores to the respective stakeholders within 60 days of plan approval. However, the Resolution Applicant failed to fulfill its obligations under the resolution plan on repeated occasions.

On 04.03.2022 the IMC passed a resolution to liquidate the Corporate Debtor. The Resolution Professional filed an application before the Adjudicating Authority seeking liquidation of Corporate Debtor which was pending adjudication.

In the meantime, the Resolution Applicant filed an application seeking time extension for implementation of the Resolution Plan. On 04.05.2022 the Adjudicating Authority passed a common order and dismissed the extension application while holding that such extension would amount to modification of the Resolution Plan and is impermissible under IBC. In reference to the liquidation application, the Bench directed the Resolution Professional to convene a CoC meeting and file an Application for liquidation with the mandate of the COC.

When a CoC meeting was conducted on 08.07.2022, the Resolution Applicant again sought extension for paying the upfront amount. The majority of CoC members voted against liquidation.

Subsequently, Edelweiss Asset Reconstruction Company Ltd. (“Applicant”), being one of the financial creditors, filed an application seeking liquidation of the Corporate Debtor and orders to be passed against the Resolution Applicant for wilful non-compliance of the plan.

The Applicant argued that grant of time extension to the Resolution Applicant would amount to modification of the Resolution Plan, which is not permissible post approval of plan by CoC. Further, the creditors of the Corporate Debtor have lost faith in the Resolution Applicant’s ability to meet its obligations. Therefore, the Corporate Debtor must be liquidated.

Issue

Whether the Adjudicating Authority should liquidate the Corporate Debtor under Section 33(3) of the IBC for non- implementation of the Resolution Plan, without the mandate of the Implementation and Monitoring Committee (IMC)?

NCLT Verdict

The Bench held that the Resolution Applicant defaulted on multiple occasions to make payments as proposed in the Resolution Plan. Further, the Resolution Applicant has made all attempts to regain the company through the back door, without implementing the Resolution Plan. Even after approval of the Resolution Plan there was no infusion of funds by the Resolution Applicant till date.

“…it is established beyond the doubt that the continuous defaults committed by the Resolution Applicant are his willful acts leading to the contravention and stalling the implementation of the Resolution Plan. On the grounds of blatant violation as discussed, the Tribunal has left with no choice except to put the Corporate Debtor Company into Liquidation as per the Code as well as also to protect the asset of the Corporate Debtor from further deterioration. Further the Resolution Applicant has breached the Resolution Plan not only by contravening the timelines but also defeating the purpose and objectives envisaged under IBC Code. Therefore, the Resolution Applicant will attract penal provision envisaged under Section 74 of the Code.”

The Bench held that the Resolution Applicant had willfully stalled the implementation of the Resolution Plan. Therefore, the Corporate Debtor must be sent into liquidation to protect the assets of the same. Further, the Bench invoked Section 74 of the IBC to penalize the Resolution Applicant for contravening timelines and defeating the purpose of IBC.

The Bench has ordered liquidation of the Corporate Debtor and Mr. Sachin Shrinivas Bhattad has been appointed as the Liquidator.

Case Title: BMW Financial Services Pvt. Ltd. v S.K. Wheels Pvt. Ltd.

Case No.: C.P.(I.B.) No. 4301 of 2018

Counsel For Applicant: Mr. Nausher Kohli, Ms. Sudeshna Guha Roy, Ms, Samiridhi Lodha, Mr. Alabh Lal and Mr. Rozat Akolawala, i/b Bharucha &Partners. (Advocates)

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