National Company Law Tribunal upholds the finality of the approved Resolution Plan, emphasizing the Clean Slate Principle and statutory framework of the Insolvency and Bankruptcy Code, 2016.
The National Company Law Tribunal (NCLT) in Bengaluru has dismissed an application filed by Smt. Yogitha Vijaykumar, the operational creditor and proprietor of Shree Ratna Farm Products, seeking to reopen the Corporate Insolvency Resolution Process (CIRP) of Maylari Agro Products Ltd. The application was filed under Section 420(2) of the Companies Act, 2013, challenging the resolution plan approved on February 15, 2023.
The tribunal, comprising Mr. Sunil Kumar Aggarwal and Mr. Radhakrishna Sreepada, ruled that the resolution plan, approved by the Committee of Creditors (CoC) with 100% voting share, has attained finality under Section 31 of the Insolvency and Bankruptcy Code, 2016. The bench emphasized that reopening the CIRP based on allegations primarily derived from pre-existing materials would undermine the principles of finality and commercial certainty enshrined in the Code.
The applicant had raised concerns about alleged financial irregularities, including preferential, undervalued, and fraudulent transactions during the CIRP. It was also alleged that the resolution professional, Mrs. Shirley Mathew, failed in her duties, and a forensic audit was necessary to uncover the full extent of the fraud. However, the tribunal noted that these allegations were based on materials available during the CIRP process and that no new evidence or subsequently discovered fraud had been presented.
The tribunal referred to landmark judgments by the Supreme Court, such as the Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited, to reinforce the Clean Slate Principle. This principle ensures that resolution applicants are not burdened with undecided claims or liabilities from the pre-resolution period, thus maintaining commercial confidence.
The tribunal also clarified that the scope of Section 420(2) is limited to rectifying mistakes apparent on record and does not extend to re-evaluating evidence or reconsidering conclusions from concluded proceedings. The application, according to the tribunal, was an attempt to indirectly review and reopen the approved resolution plan, which is impermissible under the current legal framework.
The decision underscores the importance of adhering to the statutory framework of the Insolvency and Bankruptcy Code, 2016, which aims to provide timely resolution and certainty in insolvency proceedings. The tribunal's order serves as a reminder that allegations of fraud must be substantiated with new and compelling evidence to warrant a reopening of concluded CIRP proceedings.
Bottom line:-
Insolvency and Bankruptcy Code, 2016 - Reopening of concluded CIRP proceedings based on pre-existing materials and allegations of fraud is impermissible under the principles of finality, clean slate, and commercial certainty.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 31, 53, 420(2) of Companies Act, 2013.
Yogitha Vijaykumar v. Shirley Mathew, (NCLT)(Bengaluru) : Law Finder Doc id # 2933871
