NCLAT upholds liquidation order passed by NCLT in Theme Export matter
The Appellate Tribunal found no material irregularity or fraud committed in relation to the liquidation order which is why it found no reason to interfere with the liquidation order passed by the Adjudicating Authority
The Appeals filed by the ex-Directors of M/s. Theme Export Pvt. Ltd., under Section 61 read with Section 33(2) of the Insolvency and Bankruptcy Code, 2016 (I&B Code, 2016) against the impugned order passed by the Adjudicating Authority (National Company Law Tribunal/NCLT, New Delhi) have been dismissed by the National Company Law Appellate Tribunal (NCLAT).
The Adjudicating Authority had allowed the Petition and ordered liquidation of the Corporate Debtor -primarily on the basis of the recommendation of the Committee of Creditors (CoC) and the CoC had recommended liquidation with the strength of 98.5% voting shares.
Aggrieved by the order, both ex-Directors filed this Appeal for staying the liquidation proceedings and quashing the impugned liquidation order dated 29 July, 2020 passed by the Adjudicating Authority; apart from directing the Insolvency Resolution Professional (IRP) to continue the Corporate Insolvency Resolution Process (CIRP) and also bring back the money belonging to the Corporate Debtor etc.
The Appellants mainly contended that the Respondent - Ms. Nandani Singh, a Director of the Corporate Debtor (CD), had committed cheating and fraud and had diverted/syphoned off money elsewhere which belonged to M/s. Theme Export Pvt. Ltd., the Corporate Debtor, and had opened foreign bank accounts in the name of her daughters. The IRP had neither conducted any physical verification of accessories stock nor fabric and machinery lying dismantled in the factory premises of the Corporate Debtor.
The Appellants also stated that the Corporate Debtor had availed financial credit facility from Bank of Baroda to the tune of Rs. 25 crore mortgaging its plant, machinery and assets including accessories stock and fabric as primary security and the factory at Okhla along with personal/corporate guarantees of the three Directors and the same was getting renewed by the bank since 2005.
The Appellate Tribunal observed that the Corporate Debtor comprised three Directors – the two appellants were the Directors and the other Director was Ms. Nandani Singh whereas shareholding in the Corporate debtor of Ms. Nandani Singh was 92% and of the Appellants was 8%.
It was put forth that Chapter -III of Part -II of the IBC, 2016 has a mechanism even during the liquidation process to initiate action for various wrong doings from Section 43 to Section 51 and Section 66; these are all related to undervalued transactions, avoidable transactions, defrauding creditors, fraudulent trading or wrongful trading etc.
The liquidator, a former IRP, is required to take necessary action and Bank of Baroda is to provide appropriate assistance. Bank of Baroda was supposed to check the flow of inventory, cash to cash cycle etc. as it had lent Rs. 25 crore.
The judgments of the Hon'ble Supreme Court in the case of K. Shasidhar Vs. Indian Overseas Bank and the CoC of Essar Steel Vs. Satish Kumar Gupta and ors. were also referred to wherein it has been confirmed that the commercial wisdom of the CoC cannot be looked into by either the Adjudicating Authority or the Appellate Authority.
An appeal against the liquidation order passed under Section 33 may be filed on the grounds of material irregularity or fraud committed in relation to the liquidation order. The Appellate Tribunal found no material irregularity or fraud committed in relation to the impugned order.
The I&B Code, 2016, is not meant for initiating proceedings for prevention of oppression and mismanagement but is armed with provisions under part -II Chapter – III for initiation of action against wrong doers/illegal transactions etc.
The Appellate Tribunal opined that there was no reason to interfere with the liquidation order passed by the Adjudicating Authority dated 29 July, 2020 and so, the Hon'ble NCLAT upheld the order passed by the Adjudicating Authority with the above observations.