Management of affairs of Corporate Debtor by Interim Resolution Professional during CIRP under Insolvency and Bankruptcy Code 2016 (IBC)

CIRP
Management of affairs by IRP

Management of affairs of corporate debtor by Interim Resolution Professional

I. Management of affairs of corporate debtor by Interim Resolution Professional[Sec. 17]

1. Cease the powers of Managements [Sec. 17(1)]

From the date of appointment of the interim resolution professional(IRP):

(a) the management of the affairs of the corporate debtor shall vest in the IRP;

(b) the powers of the board of directors or the partners of the corporate debtor, as the case may be, shall stand suspended and be exercised by the IRP;

(c) the officers and managers of the corporate debtor shall report to the IRP and provide access to such documents and records of the corporate debtor as may be required by the IRP;

Officer defined under Section 5(19) as officer for the purposes of Chapter VII of this Part, means an officer who is in default, as defined in clause (60) of section 2 of the Companies Act, 2013 or a designated partner as defined in clause (j) of section 2 of the Limited Liability Partnership Act, 2008, as the case may be;

(d) the financial institutions maintaining accounts of the corporate debtor shall act on the instructions of the IRP in relation to such accounts and furnish all information relating to the corporate debtor available with them to the IRP.

NCLAT in the matter of Arunava Sikdar Vs. Sanjeev Saxena & Ors. – NCLAT held that the proceedings under the provisions of the Code is binding on all the Stakeholders/Central Government/State Government and the Local Authorities and the State Government cannot change the Board of Directors as it stands suspended in terms of Section 17 of the Code.

Hon’ble Supreme Court in the matter of Innoventive Industries Ltd. (Corporate Debtor) Vs. ICICI Bank & Anr. 55(IBC)01/2017 held hat once an insolvency professional is appointed to manage the company, the erstwhile directors who are no longer in management, obviously cannot maintain an appeal on behalf of the company. 

2. Act on behalf of the Corporate Debtor [Sec. 17(2)]

The interim resolution professional vested with the management of the corporate debtor shall:

(a) act and execute in the name and on behalf of the corporate debtor all deeds, receipts, and other documents, if any;

(b) take such actions, in the manner and subject to such restrictions, as may be specified by the Board;

(c) have the authority to access the electronic records of corporate debtor from information utility having financial information of the corporate debtor;

(d) have the authority to access the books of account, records and other relevant documents of corporate debtor available with government authorities, statutory auditors, accountants and such other persons as may be specified; and

(e) be responsible for complying with the requirements under any law for the time being in force on behalf of the corporate debtor.

NCLAT in the matter of Mr. Bohar Singh Dhillon Vs. Mr. Rohit Sehgal (IRP) & Ors. held that the application under Section 7 is maintainable while step has been taken by the SEBI the Resolution Professional is required to act in terms of Section 17(2) (e) of the Code for complying with the requirements under the SEBI Act and Regulations framed thereunder as well as the guidelines issued by the Regulatory Authority. It is also made clear that the SEBI is however entitled to take action against individual including the former Directors and Shareholders of the Corporate Debtor.

3. Access the books of account, records and other relevant documents and information [CIRP Reg.-4]

The IRP may access the books of account, records and other relevant documents and information, to the extent relevant for discharging his duties under the Code, of the corporate debtor held with-

(a) depositories of securities;

(b) professional advisors of the corporate debtor;

(c) information utilities;

(d) other registries that records the ownership of assets;

(e) members, promoters, partners, board of directors and joint venture partners of the corporate debtor; and

(f) contractual counterparties of the corporate debtor.

II. Duties of interim resolution professional[Sec. 18]

The interim resolution professional shall perform the following duties, namely:—

(a) collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to—

(i) business operations for the previous two years;

(ii) financial and operational payments for the previous two years;

(iii) list of assets and liabilities as on the initiation date; and

(iv) such other matters as may be specified;

(b) receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under sections 13 and 15; (in details in next topics)

(c) constitute a committee of creditors;(in details in next topics)

(d) monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the committee of creditors;

(e) file information collected with the information utility, if necessary; and

(f) take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including—

(i) assets over which the corporate debtor has ownership rights which may be located in a foreign country;

(ii) assets that may or may not be in possession of the corporate debtor;

(iii) tangible assets, whether movable or immovable;

(iv) intangible assets including intellectual property;

(v) securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies;

(vi) assets subject to the determination of ownership by a court or authority;

The term “assets” shall not include the following:—

(a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment;

(b) assets of any Indian or foreign subsidiary of the corporate debtor; and

(c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator.

NCLAT in the matter of Encore Asset Reconstruction Company Pvt. Ltd. Vs. Ms. Charu Sandeep Desai & Ors held that as per section 18, it is the duty of the IRP to take over the control and custody of any assets over which the Corporate Debtor has ownership rights as recorded in the balance sheet of the Corporate Debtor which includes the assets that may or may not be in possession of the Corporate Debtor. Even if it is not in possession of the Corporate Debtor, a person who is in possession of the same is bound to hand over the same to the Resolution Professional, when title still vests with Corporate Debtor. From the explanation below Section 18, the term “assets” do not include the assets owned by a third party in possession of the Corporate Debtor.  

NCLAT in the matter Orbit Lifescience Private Limited Vs. Raj Ralhan (RP of the CD) PwC Professional Services LLP  upheld the decision of AA where as there were dues payable by the Appellant, the Corporate Debtor could exercise lien on the goods which were available with the Corporate Debtor and the Adjudicating Authority rightly protected the interest of the Appellant as well as Corporate Debtor by directing that while returning the goods, side by side the dues payable by the Appellant should come to the Corporate Debtor. 

III. Personnel to extend cooperation to Interim Resolution Professional [Sec. 19]

Section 19 of the I&B Code, 2016 is similar to Section 284 of the Companies Act, 2013. Section 19 imposes an obligation on the personnel and promoters of Corporate Debtor to extend all assistance and cooperation with ‘Insolvency Resolution Professional’ may require in the management of the affairs of the Corporate Debtor. The word ‘Personnel’ refers to Directors, Managers, Key Managerial Personnel, Designated partners and Employees, if any, of the Corporate Debtor by means of Section 5(23) of the Code. Furthermore, Section 19(2) empowers a Resolution Professional to file an Application before the Adjudicating Authority to seek necessary directions where any personnel does not assist or cooperate and that the Adjudicating Authority shall issue directions to such defaulting personnel. Moreover, any personnel of Corporate Debtor or Promoter does not render assistance or cooperation to the Insolvency Resolution Professional, the Adjudicating Authority (‘NCLT’) is to pass appropriate orders. Any instructions/ directions issued by an Adjudicating Authority cementing on an Application filed under Section 19 (2) of the Code shall be binding on such personnel or others as the case may be.

1. Duty of management to assist or cooperate with the IRP

The personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor shall extend all assistance and cooperation to the IRP as may be required by him in managing the affairs of the corporate debtor.

As per Sec. 5(23), personnel includes the directors, managers, key managerial personnel, designated partners and employees, if any, of the corporate debtor.

2. Does not assist or cooperate with the IRP

Where any personnel of the corporate debtor, its promoter or any other person required to assist or cooperate with the IRP does not assist or cooperate, the IRP  may make an application to the Adjudicating Authority for necessary directions.

The Adjudicating Authority, on receiving the application, shall by an order, direct such personnel or other person to comply with the instructions of the resolution professional and to cooperate with him in collection of information and management of the corporate debtor.

NCALT in the matter of Ajay Kumar Vs. Shree Sai Industries Pvt. Ltd. & Anr. held that if the Promoters do not cooperate and handover the necessary documents and information the Adjudicating Authority will take the help of the Superintendent of Police of the concerned area to ensure that the possession of the Corporate Debtor and all the records are handed over to the Resolution Professional and, if necessary, take criminal action against the Promoters.

IV. Management of operations of corporate debtor as going concern[Sec. 20]

The IRP shall make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern.  For this purposes, the IRP shall have the authority—

(a) to appoint accountants, legal or other professionals as may be necessary;

(b) to enter into contracts on behalf of the corporate debtor or to amend or modify the contracts or transactions which were entered into before the commencement of CIRP;

As per Sec. 3(33), transaction includes a agreement or arrangement in writing for the transfer of assets, or funds, goods or services, from or to the corporate debtor.

(c) to raise interim finance provided that no security interest shall be created over any encumbered property of the corporate debtor without the prior consent of the creditors whose debt is secured over such encumbered property. No prior consent of the creditor shall be required where the value of such property is not less than the amount equivalent to twice the amount of the debt.

As per Sec. 5(15), Interim finance means any financial debt raised by the resolution professional during the insolvency resolution process period and such other debt as may be notified.

(d) to issue instructions to personnel of the corporate debtor as may be necessary for keeping the corporate debtor as a going concern; and

(e) to take all such actions as are necessary to keep the corporate debtor as a going concern.

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