NCLAT Orders IBBI Probe Into Ritzy Chemicals RP As He Allowed CoC Vote On Plan Without Full Disclosure

The National Company Law Appellate Tribunal (NCLAT) has directed an investigation by the Insolvency and Bankruptcy Board of India into the conduct of the resolution professional in the insolvency of Ritzy Chemicals Pvt. Ltd. after allowing the committee of creditors to vote on the resolution plan without being apprised of the pendency and details of avoidance transactions.

The tribunal also dismissed appeals against rejection of the resolution plan.

A bench of Judicial Member Justice Mohd. Faiz Alam Khan and Technical Member Arun Baroka ordered, “We have carefully gone through the submissions of the erstwhile RP, SRA and also perused the material placed on record and do not find any grounds to interfere with the findings of the Adjudicating Authority as we find that the whole CIRP process has not been conducted in a transparent and fair manner and violates the provisions of the Code and related Regulations. We accordingly dismiss both the Appeals. All related IAs are also disposed of. No orders as to costs. We further direct that the conduct of the RP be investigated by IBBI."

The appellate tribunal upheld the order rejecting the resolution plan, which had been approved by the committee of creditors with a 100 percent voting share. It also upheld the directions, replacing the resolution professional and directing a fresh corporate insolvency resolution process to be undertaken within 120 days, failing which the corporate debtor would stand deemed to be liquidated.

The case arose from the corporate insolvency resolution process of Ritzy Chemicals, where the resolution plan submitted by the successful resolution applicant was approved by the committee of creditors.

A transaction auditor had identified preferential and fraudulent transactions aggregating to about Rs. 83 crores. However, the tribunal noted that while there was discussion on the transaction audit, “the contents and the total amount quantified with respect to the transaction audit was not noted in the minutes.”

The successful resolution applicant contended that the commercial wisdom of the committee of creditors is non justiciable and that the Adjudicating Authority cannot sit in appeal over such decisions.

It was further contended that avoidance proceedings are independent and do not affect the validity of the resolution plan and that the applicant cannot be penalised for lapses on the part of the resolution professional.

The resolution professional submitted that the process was conducted within the statutory timelines and in accordance with the commercial wisdom of the committee of creditors.

Rejecting these submissions, the tribunal noted that applications in respect of such transactions were filed after approval of the resolution plan and observed that “it is a matter of concern as to how the resolution plan could be put to vote for approval and it approved, when the CoC is not apprised about the pendency of such applications.”

It also took note of the provision in the plan for sharing recoveries from such transactions and found that such an arrangement is contrary to the scheme of the Code, since assets recovered through such proceedings constitute assets of the corporate debtor for the benefit of creditors.

Agreeing with the findings of the Adjudicating Authority on various noncompliances in the conduct of the process, the tribunal declined to interfere and directed that the conduct of the resolution professional be investigated