NCLT Orders Liquidation Without Monitoring Committee's Mandate as Resolution Applicant Wilfully Failed to Implement Resolution Plan

NCLT Orders Liquidation Without Monitoring Committee's Mandate as Resolution Applicant Wilfully Failed to Implement Resolution Plan

The Mumbai bench, National Company Law Tribunal (NCLT) by its division bench comprising of Shri H.V. Subba Rao (Judicial Member) and Ms. Madhu Sinha (Technical Member), ordered liquidation of the Corporate Debtor without the mandate of the Implementation and Monitoring Committee (IMC) as the Resolution Applicant had willfully failed to implement the resolution plan.

In the present case 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 29th March, 2019 the Adjudicating Authority initiated CIRP against the Corporate Debtor.

The Applicant submitted that, after the commencement of the CIRP, during the 4th Committee of Creditors (COC) meeting, held on 11th July, 2019, the Resolution Professional informed the COC that an Expression Of Interest (EOI) was received by the Resolution Applicant i.e., Mr. Anil Kumar who was an erstwhile Promoter of the Corporate Debtor met the eligibility criteria under Section 29A (h) of the IBC read with Section 240A(1) of the IBC to submit a Resolution Plan.

Further, the Applicant stated that during the 12th meeting COC meeting, held on 23rd January, 2020, the Resolution Applicant after receiving suggestions from the stakeholders, submitted a revised Resolution Plan.

This Resolution Plan by the Resolution Applicant assured the members of the COC that an amount Rs. 132.86 crore will be paid towards the full and final settlement of all the liabilities of the Corporate Debtor. These payments were to be carried out in a staggered manner, wherein an upfront amount of Rs. 10.07 crore was to be paid to all the stakeholders within 60 days after the approval of the Resolution Plan by the Tribunal.

In accordance to this, the Applicant was entitled to receive Rs. 29.3 crore towards full and final settlement of its admitted claim, wherein upfront payment of Rs. 50 Lakhs was to be paid within a period of 60 days from the approval of the Resolution Plan and the balance amount was to be paid over the period of 5 years.

Subsequently, the Tribunal vide an Order dated 9th November, 2021 under Section 31 (1) of the Insolvency and Bankruptcy Code, 2016 approved the Resolution Plan submitted by the Resolution Applicant. With terms of the approval of the Resolution Plan, an Implementation and Monitoring Committee (hereinafter referred as "IMC") was constituted towards the implementation of the Resolution Plan.

The Applicant further stated that as assured under the Resolution Plan, the Resolution Applicant was obligated to make an upfront payment of Rs. 10.07 crore to the respective stakeholders within 60 days i.e., on or before 8th January, 2022. However, the Resolution Applicant defaulted in making the payment. During the 2nd IMC meeting held on 11th February, 2022, it was discovered that the Resolution Applicant had breached the provisions of the Resolution Plan and the IBC by defaulting in making the upfront payments.

Furthermore, in spite of various opportunities, the Resolution Applicant had consistently failed to meet his obligations under the Resolution Plan therefore, the other creditors have lost the faith in the Resolution Applicant to meet his obligations.

The primary issue presented before the Tribunal was, whether, the Adjudicating Authority should liquidate the Corporate Debtor under section 33(3) of the IBC in a case of contravention/ non- implementation of the Resolution Plan without the mandate of the Implementation and Monitoring Committee (IMC)?

The bench noted that that till date the Resolution Applicant defaulted in payment even after the expiry of the payment term for more than a year. The Corporate Debtor had further sought an extension in the 4th IMC meeting held on 8th July, 2022, stating that the first upfront payment will be made by 30th September, 2022, this was put on Resolution by the IMC and 59.73% voted not to liquidate the Corporate Debtor.

However, the Resolution Applicant again failed to adhere the timeline assured, which was evidenced by an email dated 21st September, 2022, sent by the Applicant to the IMC members. The stand taken by the IMC members not to liquidate will lead to the modification of the Resolution Plan which was impermissible in Code, opined the bench.

The NCLT was satisfied beyond doubt that defaults committed by the Resolution Applicant were 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 having left with no choice decided to put the Corporate Debtor Company into Liquidation as per the IBC as well as also to protect the asset of the Corporate Debtor from further deterioration.

Further, non-implementation of the Resolution Plan constitutes an offence under Section 74 of the Insolvency Bankruptcy Code, 2016 and therefore, the Resolution Applicant attracted the penal provision.

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