Sponsored
    Follow Us:
Sponsored

Corporate insolvency and liquidation processes involve various statutory requirements and regulatory filings that must be diligently addressed. This article discusses the key statutory provisions related to regulatory filings during these processes, challenges faced by insolvency professionals, and insights from important judgments.

Statutory Provisions

In accordance with the provisions of the Insolvency & Bankruptcy Code, 2016 and Regulations made thereunder, as amended from time to time (including any statutory modification(s) or re-enactment thereof for the time being in force), the IRP / RP / Liquidator shall vested with the powers of Board of Directors and be responsible for the proper management of the Company. The relevant provisions of the Insolvency & Bankruptcy Code, 2016 have been reiterated hereunder:

Section 17(1) of the Insolvency & Bankruptcy Code 2016

From the date of appointment of the Interim Resolution Professional –

1. the management of the affairs of the Corporate Debtor shall vest in the Interim Resolution Professional;

2. 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 Interim Resolution Professional;

Section 17(2)(e) of the Insolvency & Bankruptcy Code 2016

The Interim Resolution Professional vested with the management of the Corporate Debtor, shall be responsible for complying with the requirements under any law for the time being in force on behalf of the Corporate Debtor.

Section 34(2) of the Insolvency & Bankruptcy Code 2016

On the appointment of a Liquidator, all powers of the Board of Directors, Key Managerial Personnel and the Partners of the Corporate Debtor, as the case may be, shall cease to have effect and shall be vested in the Liquidator. 

However, on the other side, as per the Regulation 6(3) of the IBBI (Liquidation Process) Regulations, 2016, the registers and books may be maintained in the forms indicated in Schedule III, with such modifications as the Liquidator may deem fit in the facts and circumstances of the Liquidation Process. That means it gives an option to the Liquidator to maintain the accounts as per Schedule III.   

Furthermore, the Ministry of Corporate Affairs vide its Circular 4/2020 dated 17th February, 2020 and Circular 8/2020 dated 6th March, 2020 have clarified that the IRP/RP/Liquidator shall be responsible to file all necessary documents /disclosures/ returns for the purpose of compliances under Companies Act, 2013 in the capacity of CEO. All the filings of e-forms including Form AOC 4 and Form MGT 7 shall be filed through e-form GNL 2 by way of attachment till the Company is under CIRP/Liquidation.

On perusal of the aforesaid provisions and MCA Circulars, the IRP/ RP/ Liquidator shall require to get the accounts audited by the Statutory Auditor and prepare the Audited Financial Statements which shall be adopted in the Annual General Meeting of the Corporate Debtor in accordance with the provisions of the Companies Act, 2013.

In nutshell, the Insolvency Professional is responsible for getting the accounts audited and preparation of Audited Financial statement and all the regulatory filings under various applicable laws for the Corporate Debtor.

Ground Difficulties & Possibility of Default

The aforesaid provisions and circulars, it has been clarified that the Insolvency Professional shall have to comply with the various compliances and regulatory filings under Companies Act, 2013 and other laws, as applicable during CIR process and Liquidation Process. But practically, the Insolvency Professional shall have to face various practical issues which hinders the process of compliances such as preparation of Audited Financial Statements. A few of which factors have been listed below:

1. Non-co-operation from the erstwhile management of the Corporate Debtor;

2. Non-availability of data and/ or deficiency of Data;

3. Members of erstwhile management are absconding;

4. Status of Corporate Debtor is “In-active” due to non-filing of INC 22A;

5. Members of suspended Board of Directors were disqualified under Section 164 of Companies Act, 2013 due to which they shift the liability stating that they were not empowered to do the compliances, consequently no records have been maintained properly;

6. Non-availability of Secretarial records such as minutes of Board Meetings and general meetings;

7. Difficulty in attaining Compliance Certification (Form MGT 8) from Practising Company Secretary due to lack of secretarial records for the Corporate Debtor;

8. Difficulty in conducting Annual General Meeting due to non-co-operation from the shareholders of the Corporate Debtor;

Insolvency Resolution & Liquidation Process

9. If the Corporate Debtor is having existing status as “under Liquidation” due to appointment of Official Liquidator under Companies Act, then it has to be removed and shall be updated to “under CIRP” on commencement of CIRP under IBC, 2016. Otherwise, the IRP/RP shall not be able to do any filing at MCA portal due to conflict of status;

10. Non-editable/ inflexible formats of forms at various portals due to which forms remains incomplete and could not be filed with correct information;

11. Technical glitches at portal for association of DSC for Insolvency Professional at various regulatory portals such as MCA; Income Tax; GST portal etc;

12. Since the Corporate Debtor is non-operational, GSTIN was in-active or cancelled, and IP did not apply for the fresh GST registration to avoid additional burden of cost for filing NIL returns periodically;

13. Records of the Corporate Debtor destroyed due to theft, fire incidents, or any other mis-happening;

14. Non-filing of returns under Income Tax Act due to non-availability of login credentials and lack of information. Also not able to address the notices received from the department for past assessments due to non-availability of proper information and data;

15. Non-availability of records for the employees / workmen and dues thereof, due to which not able to do compliance under EPF Act and ESI Act.

Considering the aforesaid difficulties, it is very difficult for the Insolvency Professional to comply with the regulatory filings with the various regulators.

Signing of the Financial Statements during CIRP & Liquidation Process 

Section 17(1)(b) of the Code provides that the powers of the Board of Directors or the Partners of the Corporate Debtor, shall stand suspended and be exercised by IRP. It may be noted that though the powers of the Board of Directors (Board) are suspended, they are bound to provide all assistance to IP as only the powers of the Board are suspended and not their duties. Further, Section 19(1) of the Code provides that 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. In the aforesaid context, it appears that IRP/RP along with existing Directors of Corporate Debtor shall sign the financial statements of Corporate Debtor undergoing CIRP.

Important Judgements

1. Mukund Choudhary Vs. Mr. Subhash Kumar Kundra (RP for CLC Industries Ltd.)

The Hon’ble NCLAT held that the Court does not release the directors of the Corporate Debtor from their duties, but only suspends their power as directors and appoints a RP for managing the company. It observed that the submissions of the Learned Counsel for the Appellants that it is the RP who has to sign Financial Statement is untenable, keeping in view the facts and circumstances of the attendant case as it is not disputed that the Appellants had signed the first three quarters of the Financial Year and are now objecting to sign the last quarter raising some clarifications which have already been addressed by the RP and the Statutory Auditor (who is the same auditor who had audited the Financial Statements/Accounts for the past three years of the Corporate Debtor). Section 19(2) of the Code clearly specified that the personnel of the Corporate Debtor, as promoters or any other persons are required to assist the RP failing which an Application can be filed before the Adjudicating Authority seeking direction for co-operation.

The circular dated 06.03.2020 relied upon by the Appellants provides only for the procedure of filing the Forms. The circular does not anywhere specify that the Financial Statement are not to be signed by the Directors as required in the Companies Act, 2013.

It held that we do not see any illegality in the well-reasoned order of the Adjudicating Authority as in the interest of justice and to avoid any further delay in this time bound proceedings, in remitting the matter to the Adjudicating Authority. At the cost of repetition, we observe that it is the duty of the Appellants to cooperate and sign the Financial Statements which is in terms of the provisions of the Code as well as in compliance of the Companies Act, 2013. For the above reasons, this Appeal fails and is accordingly dismissed.

2. Pankaj Srivastava Vs. Narappa Manohar Reddy (Corporate Debtor: Sagar Power (Neerukatte) Pvt. Ltd.) 

The Adjudicating Authority held that it is desirable that, the respondents extent co-operation to ensure that the Liquidator functions and conducts liquidation in terms of the provisions of Insolvency and Bankruptcy Code, 2016. Accordingly, as per Section 19 and section 34 of IBC, this

Adjudicating Authority directs the respondent no 1 to provide all the original documents in the possession in support of acquisition of lands as appearing in the Audited Financial Statements.

Moreover, this Adjudicating Authority is of the view that the ex-director/management collectively and independently, must furnish information and documents and extend full co-operation to the Liquidator for completing the required compliances to various statutes for a successful completion of the liquidation of the Corporate Debtor. The respondents should co-operate with the Liquidator in respect of supply of the documents as mentioned in prayers in the IA; and they cannot escape their obligation. Therefore this Adjudicating Authority in order to implement the intention of the Code directs the ex-director/management to extent full co-operation and simultaneously furnish all the requisite documents related to Corporate Debtor as desired in the prayers.

3. M/s. Steel Konnect (India) Private Limited

The adjudication order dated 4th April 2022 passed by the Registrar of Companies Gujarat, Dadar & Nagar Haveli in the matter of adjudication of penalty under Section 454(3) of the Companies Act 2013 read with Rule 3 of the Companies (Adjudication of Penalties) Rules 2014 for violation of Section 92 and Section 137 of the Companies Act 2013 read with rules made thereunder in the matter of M/s. Steel Konnect (India) Private Limited.

Under this judgement it has been clarified that the company has to ensure compliance at all stages i.e. right from the incorporation till the company is finally liquidated through the corporate insolvency resolutions process during which time the powers of the Board of Directors of the company stands suspended and such power is vested with the RP / Liquidator. In the given case, the company had gone into Liquidation through the order of the Hon’ble NCLT and as per the order, the earlier management i.e. the directors of the company were relieved form all their responsibilities and the same has been taken over by the Liquidator and Insolvency Resolution Professional. By virtue of their taking over, they became the officer in default and assumed the responsibilities of ensuring the compliance.

Even though the company has gone to the Liquidation mode, the earlier management had been relieved from their responsibilities, still, for the non-compliance, the Liquidator and the Resolution Professional both were identified as defaulters for the required compliance of filing annual returns and annual financial statements and accordingly the Registrar of Companies penalized them.

Conclusion

On perusal of the above statutory provisions and judgements on the subject, it can be concluded that the Insolvency Professional shall endeavor to do all the compliances as applicable to the Corporate Debtor for the time being in force and explore every possible way to extract the requisite information / records for the Corporate Debtor from various means to the extent possible. However there might be possibility that despite chasing compliance under applicable laws in true spirit, but the Insolvency Professional could not achieve it due to some or other practical issue.

*****

Disclaimer: This article provides informational content and should not be construed as solicitation for any purpose. For professional advice, consult a qualified expert. For specific inquiries or further assistance, contact the author at [email protected] or 85270 73808.

Sponsored

Author Bio


Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Leave a Comment

Your email address will not be published. Required fields are marked *

Sponsored
Sponsored
Sponsored
Search Post by Date
October 2024
M T W T F S S
 123456
78910111213
14151617181920
21222324252627
28293031