Tribunal Cites Non-Compliance with Insolvency Code and Material Irregularities in CIRP Process
In a significant decision, the Mumbai Bench of the National Company Law Tribunal (NCLT) has dismissed the resolution plan submitted by Mr. Armaan Sunil Kothari for 4B Networks Private Limited. The plan, which was approved by 83.46% of the Committee of Creditors (CoC), was rejected due to non-compliance with key provisions of the Insolvency and Bankruptcy Code, 2016, and material irregularities in the Corporate Insolvency Resolution Process (CIRP).
Presided over by Shri Ashish Kalia, Member (Judicial), and Shri Sanjiv Dutt, Member (Technical), the tribunal found that the resolution plan did not align with the requirements specified under Section 30(2) of the Code. It highlighted the problematic handling of proceeds from Preferential, Undervalued, Fraudulent, and Extortionate (PUFE) transactions. The tribunal emphasized that recoveries from PUFE transactions should be used to clear creditors' dues, as per Section 36(3)(f) of the Code, and not retained by the Successful Resolution Applicant (SRA).
The NCLT also noted the lack of transparency and material irregularities in the conduct of the CIRP by the Resolution Professional (RP). The tribunal criticized the CoC's decision to grant exclusive rights over PUFE transaction proceeds to the SRA, which was deemed legally incorrect. This decision, according to the tribunal, contravened relevant judicial precedents and the Code's provisions.
Furthermore, the tribunal pointed out the failure to disclose adequate details about the SRA’s affiliated companies and their eligibility under Section 29A of the Code. Concerns were raised about the non-disclosure of essential information, such as net worth details of the SRA's companies, which violated CIRP regulations.
The tribunal concluded that the resolution plan did not meet the required legal standards and, therefore, rejected it. The NCLT granted liberty to the CoC and RP to restart the CIRP process in strict compliance with the Code and regulations, with an extension of four months for the CIRP period.
This ruling underscores the tribunal's commitment to ensuring that insolvency resolutions adhere to the legal frameworks designed to protect creditors' interests and uphold the integrity of the CIRP process.
Bottom line:-
Insolvency and Bankruptcy Code, 2016 - Approval of Resolution Plan under Section 31(2) - Resolution Plan rejected due to non-compliance with the provisions of the Code, including contraventions relating to PUFE applications, lack of transparency in CIRP process, and material irregularities in the conduct of the process by the Resolution Professional.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 29A, 30(2), 31(2), Section 36(3)(f); Regulations 35A, 38(2), 39 of the CIRP Regulations.
