Richa Infrastructure Limited engaged in the construction of roads is in default in repayment of loans due to general slowdown in construction industry. Repeated follow-up by the financial institutions with the Corporate

CS Professional · Insolvency - Law and Practice · PYQS · December 2019
Richa Infrastructure Limited engaged in the construction of roads is in default in repayment of loans due to general slowdown in construction industry. Repeated follow-up by the financial institutions with the Corporate Debtor, 'Richa Infrastructure Ltd.' for submitting its specific plan for repayment of dues did not evoke any response. One of the financial creditors filed a case against Richa Infrastructure Ltd. before the Debt Recovery Tribunal. Richa Infrastructure Ltd. had issued some cheques to some Operational Creditors. All the cheques issued to creditors were dishonored/returned by the banker due to insufficient funds in the account. Consequently, Operational Creditors issued legal notices to Richa Infrastructure Ltd, with clear intimation that if due amount is not paid within 15 days from the date of receipt of legal notice, criminal complaint shall be filed against Richa Infrastructure Ltd. under the Negotiable Instrument Act, 1881 and criminal complaints were filed. After a joint lenders meeting, all the financial institutions unanimously decided to apply under the provisions of the Insolvency and Bankruptcy Code, 2016 to the National Company Law Tribunal (NCLT) for starting the process of Insolvency Resolution. Their application was admitted by NCLT on 30th June, 2018 and orders were issued for commencement of a moratorium period of 180 days, appointment of an Interim Resolution Professional and issue of public announcement inviting claims from all concerned. After public announcement and the responses thereto, following details were brought out: (1) Financial debts due to unsecured creditors (F1) - ₹15 Crores. (2) Workmen's due for the period of 24 months preceding the liquidation commencement date (F2) - ₹25 Crores. (3) Debts due to a secured creditor who has relinquished his security (F3) - ₹30 Crores. (4) Amount due to the Central Government (F4) - ₹27 Crores. (5) Debts due to a secured creditor after the enforcement of security interest (F5) - ₹36 Crores. Insolvency Resolution Professional (IRP) approached the promoters, directors and officials of Richa Infrastructure Ltd to provide the necessary information, documents, statutory records, books of accounts to verify the claims filed by creditors. The promoters, directors and officials of Richa Infrastructure Ltd. ignored the request of Resolution Professional. M/s ANG & Associates, Chartered Accountants were the Statutory Auditors of Richa Infrastructure Ltd. They audited the accounts for the financial year end March, 2018 of Richa Infrastructure Ltd. and submitted the Annual Accounts for approval of the Board of Directors. The Resolution Professional has appointed valuers and has received the valuation reports. The Resolution Professional then started the efforts to get resolution proposals. However during the normal resolution process period of 180 days, no resolution proposal could be finalized. The Committee of Creditors decided that Resolution Professional should get the extension as per the provisions of Insolvency and Bankruptcy Code, 2016. Based on the above facts, answer the following questions: Who will sign the Annual Financial Statements of the Corporate Debtor undergoing Corporate Insolvency Resolution Process ?

Answer & Explanation:

Section 17(1)(b) of the Insolvency and Bankruptcy Code, 2016 provides that the powers of the Board of directors (Board) or the partners of the corporate debtor, shall stand suspended and be exercised by Interim Resolution Professional (IRP). It may be noted that though the powers of the Board are suspended, they are bound to provide all assistance to Insolvency Professional as only the powers of the Board are suspended and not their duties. Further, Section 19 of the Insolvency and Bankruptcy Code, 2016 imposes an obligation on the personnel and promoters of the corporate debtor to extend all assistance and cooperation required by the IRP in the management of the affairs of the corporate debtor. Where the personnel of the corporate debtor or any other person required to co-operate with the IRP do not extend co-operation or assistance to the IRP, he may apply to the Adjudicating Authority for an order. The Adjudicating Authority may, by order, direct the personnel to comply with the instructions of the IRP or to provide information to the IRP. 'Personnel' includes the directors, managers, key managerial personal, designated partners and employees, if any, of the corporate debtor. Moreover, the powers of the resolution professional do not include the power to represent the corporate debtor or initiate proceedings on behalf of the corporate debtor. The suspension is of the functioning of the Board and not of the directors. Signing of the Annual Report is a duty of the Board and the Board as a whole has to take the legal responsibility for the correctness of the report. This is further clarified by the NCLAT in the matter of 'Steel Konnect (India) Pvt. Ltd. v. M/s. Hero Fincorp Ltd.' that directors of the company do not cease to be directors, as they are not suspended but their function as 'Board of directors' is suspended. The members of the Board also has to work under the Insolvency Professional which again means that if the professional asks them to consider the financial statement, they have to do so. In the aforesaid context, the existing directors of corporate debtor shall sign the financial statements of Corporate Debtor undergoing CIRP.

Topics: Corporate Insolvency Resolution Process (CIRP)

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