Liquidator Can’t Be Permitted To Dissipate Assets Of Company As It Will Defeat Entire Liquidation Process: Delhi HC
The Delhi High Court said that the Liquidator cannot be permitted to dissipate assets of the company as the same defeats the entire liquidation process under the Insolvency and Bankruptcy Code, 2016 (IBC).
A man had preferred a writ petition against the order of the Disciplinary Committee of the Insolvency and Bankruptcy Board of India (IBBI), suspending his registration for a period of two years.
A Single Bench of Justice Subramonium Prasad observed, “A perusal of the Scheme of the IBC shows that once the attempts to resurrect a company fails, the company goes into liquidation and very often the Resolution Professional, who is resurrecting the company, is appointed as the Liquidator of the company. The purport of the Liquidator is to ensure that maximum value of the assets of the company is released by selling assets of the company so that the debtors, which include the financial institutions; Public Sector Banks; employees; etc, are paid in full. The Liquidator cannot be permitted to dissipate the assets of the company as the same will defeat the entire liquidation process and this would go contrary to the very scheme of the IBC.”
Senior Advocate Ramji Srinivasan appeared on behalf of the petitioner while Advocate Vikas Mehta appeared on behalf of the respondent.
Factual Background -
ABG Shipyard Limited (Corporate Debtor) was in the business of shipbuilding and pursuant to an application filed by the ICICI Bank under Section 7 of IBC, the National Company Law Tribunal (NCLT) passed an order admitting the application, commencing the Corporate Insolvency Resolution Process (CIRP). The petitioner was appointed as the Interim Resolution Professional (IRP) of Corporate Debtor. The NCLT directed Corporate Debtor to undergo liquidation under Section 33(2) of IBC and the petitioner was to act as a Liquidator to discharge duties under Section 35 of IBC.
Thereafter, the petitioner received a notice of inspection of the liquidation assignment of Corporate Debtor which was being handled by the petitioner. Based on the draft inspection report, a show cause notice was issued to the petitioner by IBBI, asking the petitioner to show cause as to why disciplinary action should not be taken against him for influencing registered valuer to change valuation of assets, prescribing non-refundable participation fee, appointment of unregistered valuers to conduct valuation in the process of liquidation, and paying excess fee to a support service. Pursuantly, after hearing the petitioner, the IBBI suspended his registration and hence, he approached the High Court.
The High Court after hearing the contentions of the counsel noted, “The role of the liquidator in insolvency proceedings is paramount to the entire process. The liquidation proceedings revolve around the official liquidator and he has to discharge his functions keeping in mind the benefit of the company which is under liquidation. They must adhere to the highest standards of ethical conduct, diligence, and impartiality to uphold the integrity of the process. As fiduciaries, they are entrusted with the responsibility of managing the affairs of insolvent entities and any hint of impropriety or conflict of interest could undermine the credibility of the entire insolvency process.”
The Court added that a liquidator is entrusted with safeguarding the interests of all parties involved, navigating complex legal and financial terrain with complete transparency and with such authority comes a heightened obligation to exercise discretion judiciously and in the best interests of all stakeholders involved.
“Therefore, while the official liquidator enjoys a significant degree of autonomy, they are bound to wield their power responsibly and ethically within the confines of the IBC framework. Upholding ethical principles and demonstrating unwavering commitment to fairness are paramount for an official liquidator to effectively discharge their duties under the IBC. At the same time, it is imperative that a liquidator is given the autonomy that is required to take decisions that may help in actualizing the real value of the assets or materials that are being liquidated”, it said.
Furthermore, the Court observed that the act of the petitioner is not in conformity with the purport and purpose of the liquidation process and a Liquidator cannot permit a Corporate Debtor, which is in liquidation, to bleed the company which itself is in liquidation.
“The amount given is meant to clear the debts of the creditors and payments of the employees. The fact that the Petitioner does not strictly falls as a related party within the scope of Section 5(24) of the of the IBC cannot absolve the Petitioner, who has appointed a firm, in which he is a partner, to provide support services and allowing the said firm to raise bills which are higher than the fee of the Petitioner himself. The act of the Petitioner is contrary to the intent of the liquidation process. The facts of the case cries aloud that BRAL has not only been engaged to provide support services. The actual motive of the Petitioner behind appointing BRAL was to increase his own fee by circumventing Regulation 4 of the Liquidation Regulations”, it also added.
Accordingly, the High Court disposed of the petition.
Cause Title- Sundaresh Bhat v. Insolvency and Bankruptcy Board of India (Neutral Citation: 2024:DHC:4546)
Appearance:
Petitioner: Senior Advocate Ramji Srinivasan, Advocates Milanka Chaudhary, Ashly Cherian, and Swet Shikha.
Respondent: Advocates Vikas Mehta, Rashi Rampal, Apoorv Khaton, and Ankit Vashisht.