“Explore an IBC case study on the consequences of a delay in the appointment of valuers. Understand the legal violations, impact on the Corporate Insolvency Resolution Process (CIRP), and implications for the Resolution Professional (RP). Stay informed on Insolvency and Bankruptcy Code intricacies.”
M/s. XYZ Private Limited (Corporate Debtor or CD), the National Company Law Tribunal, (AA) vide its order dated 26th August 2019, admitted the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (Code) for Corporate Insolvency Resolution Process (CIRP) of the CD and appointed Mr. X as Interim Resolution Professional. He was later confirmed as Resolution Professional (RP).
Section 25(2)(d) of the Code cast duty upon the RP to appoint accountants, legal or other professionals in the manner specified by the Board. Regulation 27 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”) provides that the RP shall, within seven days of his appointment but not later than forty-seventh day from the insolvency commencement date, appoint two registered valuers to determine the fair value and the liquidation value of the CD in accordance with Regulation 35 of CIRP Regulations.
In the first Committee of Creditors (“CoC”) meeting, the RP had put the agenda for the appointment of valuers where it was decided that the RP is authorised to appoint two registered valuer and confirmation may be taken in next CoC. However, due to talks of settlement of CD with the financial and operational creditors, the appointment of valuers was postponed till third CoC meeting held on 18th February 2020. The RP appointed valuers only when the extension to CIRP was granted by AA on 3rd March 2020.
The Board observed that the valuers were appointed only on 12th March 2020 i.e with a delay of 147 days. Appointing valuers with such a substantial delay has eventually delayed the entire CIRP process, thus defeating the essence of the Code which envisages that the various timelines for completing each step in the CIRP process. Accordingly, the Board was of the prima facie opinion that the RP had, inter alia, violated section 25(2)(d) of the Code, Regulation 27 of CIRP Regulations and Clause 3, 5 and 13 of Code of Conduct as specified in the First Schedule of IP Regulations.
Solution: The CIRP against CD was admitted by AA on 26th August 2019. The Code envisages time bound insolvency resolution mechanism to maximise the value of the assets. To achieve this purpose the regulations framed under the Code provides timelines for every activity which should be adhered to by the Insolvency Professionals to achieve the objectives of the Code. The reasoning provided by the RP with respect to the ongoing settlement process by the CD as not acceptable for delay in appointment of valuers. The RP is duty bound to conduct the CIRP in the time bound manner. Accordingly, the RP is in violation of section 25(2)(d) of the Code, regulation 27 of CIRP Regulations and Clause 3, 5 and 13 of Code of Conduct as specified in the First Schedule of IP Regulations. [Please refer DC Order No. IBBI/DC/156/2023, dated 23rd March, 2023]