JCP Industries Ltd (JIL) was incorporated in the year 2011 with an authorized share capital of ₹ 2,000 crore having its registered office located in Mumbai with the main objects to carry out the business (a) manufacturin

CS Professional · Insolvency - Law and Practice · PYQS · December 2022
JCP Industries Ltd (JIL) was incorporated in the year 2011 with an authorized share capital of ₹ 2,000 crore having its registered office located in Mumbai with the main objects to carry out the business (a) manufacturing of heavy duty earth moving machinery and their spare parts (b) purchase, sale, construction of multi-story commercial and residential apartments under own name or as under Joint Development Agreements (c) Mining of minerals and thereafter refining and processing them for sale; and (d) doing the business in the hospitality sector by running and maintaining Hotels, Resorts and Budget Hotels. The paid-up share capital of the company as on date is ₹ 1,750 crore. During the course of business, the company has approached various banks, state finance corporations and NBFCs for availing financial assistance in the nature of term loans and other facilities. However, based on the business plans and security offered, the finance proposal was approved by National Bank of India (the Bank) in the form of both fund based and non-fund based limits. The company during the course of its business operations was also availing credit for 90 days to 120 days from its creditors in connection with the purchase of raw material being used in the business of manufacturing heavy duty earth moving machineries, real estate, mining and hospitality sectors. The progress of the company since its incorporation till 31 st March, 2019 was exceptional. However, because of certain transactions carried out by the directors with their relatives and other parties between 1 st July, 2020 to 30 th June, 2021 which were in the nature purchase of raw-material for different business segments of the company including the purchase of immovable properties as well as transferring and sale of goods and assets of the company to such related and other parties by giving them preference over the other buyers ultimately resulted into mismatch in the cash flows and consequently resulted into losses to the company. With an intention to grow organically, the company also incorporated a wholly owned subsidiary in the year 2017 under the name of JCP Buildcon Ltd (JAL) which was mainly engaged in the real estate business involving construction of apartments and flats in multi-story buildings under the Joint Development Agreements being entered into with the various parties including various State Governments under Housing Schemes. JAL entered into a tripartite Joint Development Agreement with Jaipur Development Authority (JDA) for construction of apartments and flats in multi-story buildings after development of land belonging to JDA. In an attempt to extend support to JIL, JAL had also mortgaged its assets in favour of banks in the month of August, 2018 when additional financial assistance was provided to JIL. The financial condition of JIL started deteriorating after July, 2019 because of reduction in the business activities as well as default being committed in honoring the debt obligations towards banks, payment to trade creditors and delays in construction of apartments to be handed over to the buyers who had entered into agreements with the company and have paid almost 95% of the cost of the apartment. The banks, trade creditors and buyers of the flats were constantly making follow up with the management but no reply was given to them by the management of JIL as well as JAL. National Bank of India during their internal review meeting informed their legal team that the promoter/directors may have siphoned off the money which was supposed to have been used for business purposes; since it appears to them that the amounts have been advanced to related parties and diverted towards a few suspicious transactions. The bank despite the continuous follow up with the management and the Board of directors could not get any suitable response relating to the repayment plan to honor the debt obligations. Considering the situation and based on the recommendation of their legal department, the bank decided to take action against the company under the Insolvency and Bankruptcy Code, 2016 (the Code) and thus filed an application on 16 th February, 2022 before the Adjudicating Authority (AA) for initiating Corporate Insolvency Resolution Process (CIRP). In the application, the Bank had proposed name of Robin to act as Interim Resolution Professional (IRP). Simultaneously, other lenders of JAL also submitted an application before the AA to initiate CIRP against JAL for default in repayment of their dues. After hearing the parties, the AA admitted the applications in the case of JIL and JAL on 25 th April, 2022 and also confirmed the appointment of Robin as IRP in both the companies. In the case of JIL, Robin constituted a Committee of Creditors (CoC) on 15 th May, 2022 and called first meeting of the CoC on 20 th May, 2022. The constitution of CoC by Robin was challenged by the operational creditors as well as home buyers since their name was not included in the list of the CoC. Further, the members of the suspended Board of directors of JIL also challenged the actions of Robin who did not allow their participation in the first meeting of the CoC. During the first meeting of the CoC in the case of JIL, Robin was confirmed to act as Resolution Professional (RP) by the CoC and was asked to invite the Expression of Interest (EoI) from the Resolution Applicants (RA) for submitting Resolution Plan. Besides the above, JDA has also issued notice to JAL for taking over possession of the land given for the purpose of construction. Considering the above facts answer the following questions: The AA on admitting the application for CIRP against the corporate debtor and confirming the appointment of IRP is also required to issue various other orders as per the Code. State the necessity of making such further orders by the AA against the corporate debtor when the order for initiating CIRP stands approved and appointment of IRP has also been made.

Answer & Explanation:

The Adjudicating Authority (AA) being National Company Law Tribunal in the given case has accepted and admitted the application for Corporate Insolvency Resolution Process (CIRP) against JCP Industries Ltd (JIL) and JCP Buildcon Ltd. (JAL) on 25 th April, 2022 and also confirmed appointment of Robin to act as Interim Resolution Professional (IRP). As required under section 13 (1) of the Insolvency and Bankruptcy Code, 2016 (the Code), the AA after admission of the application shall by an order: Declare moratorium for the purpose mentioned under section 14 of the Code; and Cause a public announcement of the initiation of CIRP and call for submission of claims under section 15 of the Code. Appoint an interim resolution professional in the manner as laid down in section 16. The public announcement referred to in clause (b) of sub-section (1) shall be made immediately after the appointment of the interim resolution professional. The purpose and necessity of orders of such actions relating to the proceedings against the corporate debtor are as under: Declaring Moratorium The moratorium is being declared by the AA on the Insolvency commencement date for the following purposes:- to ensure that multiple proceedings are not taking place simultaneously and thus avoids the possibility of potentially conflicting outcomes of related proceedings. to ensure that the company may continue as a going concern while the creditors assess the options for resolution of default. to keep the corporate debtor's assets together during the insolvency resolution process and facilitates orderly completion of the process. Prohibition on disposal of the corporate debtor's assets ensure that the corporate debtor/management does not transfer its assets, thereby stripping the corporate debtor of value during the corporate insolvency resolution process. The moratorium so declared is primarily for prohibiting the following: the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. Cause for a public announcement Public announcement in connection with the CIRP against the corporate debtor as per section 15 caused to be made by the AA shall contain the following information:- Name and address of the corporate debtor under the corporate insolvency resolution process along with the name of the authority with which the corporate debtor is incorporated. Details of the IRP who shall be vested with the management of the corporate debtor and be responsible for receiving claims. Last date for submission of the claims, as may be specified as well the penalties for false or misleading claims, and the date on which the CIRP process against the corporate debtor shall close. Penalties for false or misleading claims, and Date on which the corporate insolvency resolution process shall close. The purpose for making the public announcement is to bring to the notice of all the parties having dealings with the corporate debtor, (such as suppliers of goods or services, the government authorities and employees / workmen, etc.) to file their true claims against the corporate debtor so that the RP can collate all such claims and constitute Committee of Creditors within the time allowed under the Code.

Topics: Corporate Insolvency Resolution Process (CIRP)

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