Resolution Professional's Failure to Ensure Compliance During CIRP Leads to Legal Complications for Corporate Debtor and Subsidiaries
The Jaipur Bench of the National Company Law Tribunal (NCLT) has dismissed an application filed by Rajasthan Land Holdings Limited (RLHL) seeking indemnification from statutory and penal consequences for alleged non-compliance during its Corporate Insolvency Resolution Process (CIRP). The application, which also included RLHL's subsidiaries and their directors, was denied on the grounds that the NCLT cannot grant immunity from statutory liabilities under independent enactments such as the Companies Act, Income Tax Act, and GST Act.
The case unfolded as M/s Rajputana Constructions Private Limited initiated CIRP proceedings against RLHL. During the CIRP, a series of alleged non-compliances by the erstwhile Resolution Professional (RP), Ms. Anuradha Gupta, came to light. These included failures to file annual returns, conduct annual general meetings, and file tax returns, potentially exposing RLHL and its directors to significant penalties and legal repercussions.
The Tribunal, while recognizing the RP's obligation to ensure statutory compliance during CIRP, emphasized that such responsibilities do not absolve the corporate debtor or its directors from liabilities under independent statutes. Inherent powers under Rule 11 of the NCLT Rules, 2016, were deemed insufficient to override substantive jurisdiction vested in authorities under respective enactments.
Moreover, the Tribunal criticized the RP's management of the CIRP, citing negligent conduct and disproportionate costs, including an excessive RP fee, given the financial position of RLHL which had adequate liquidity to settle its debts. Despite the Tribunal's earlier orders directing remedial actions, the RP's non-compliance contributed to the dismissal of the indemnity application.
The decision underscores the limitations of the NCLT's jurisdiction in granting prospective immunity from liabilities arising under different legal frameworks. It also highlights the critical role of resolution professionals in maintaining compliance to safeguard corporate debtors during insolvency proceedings.
Legal experts note that while the NCLT's decision does not automatically exonerate RLHL's directors from potential statutory liabilities, it permits them to contest any such liabilities in competent forums, citing the RP's management during CIRP as a factor.
Bottom Line :
Resolution Professional's obligation to ensure statutory compliance during CIRP - Tribunal cannot grant blanket immunity to corporate debtor, subsidiaries, and directors from statutory penalties under independent enactments.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 18, 25, and 208; National Company Law Tribunal Rules, 2016 - Rule 11; Companies Act, 2013; Income Tax Act, 1961; Goods and Services Tax Act, 2017
