NCLT Chennai: Liquidation Is A Time-Bound Process And Liquidator Is Accountable To Explain Delay In Liquidation Process

Background Facts:

On 27.03.2018, liquidation was commenced against Daehsan Trading India Pvt. Ltd. (Corporate Debtor), and S. Rajendran, Respondent 1, was confirmed as the Liquidator. State of Tamil Nadu, State Tax Department (Applicant) has not filed its claim before the Liquidator, however, the Liquidator communicated to the Applicant stating that as per the Assessment order dated 19.04.2018, a payment of Rs.1.74 Lakhs has been released to the Applicant following Section 53(1)(e) of Insolvency and Bankruptcy Code, 2016 ('IBC'). Only thereafter, the Applicant on 11.05.2019 preferred the claim before the Liquidator in Form C for a sum of Rs.33.49 Crores.

By the time, the Applicant filed its claim, the distribution under Section 35 of IBC had commenced. After distributing the entire amount to the stakeholders, the Liquidator filed an Application seeking dissolution of the Corporate Debtor, and the same is pending adjudication. The present application has been preferred by the Applicant praying that the impugned communication rejecting the claim of Rs.33.47 crores be modified and the claim may kindly be ordered to be accepted.

NCLT Verdict:

The NCLT Chennai dismissed the application and held that Liquidation is a time-bound process and the Liquidator being made accountable is required to explain if there is any delay caused in the liquidation process.

The Tribunal observed that the claim by the Applicant was not filed before the Liquidator within the stipulated time period. The claim has been filed post the Liquidator has distributed the amount to the stakeholders as per Section 53 of IBC and has also filed an Application seeking dissolution of the Corporate Debtor.

It placed reliance on NCLAT's decision in Deputy Commissioner Commercial Taxes (Audit), Raichur vs Surana Industries Ltd. (In Liquidation) & Anr. wherein the Applicant's application relating to Appeal against the Liquidator's order was dismissed holding that the liquidation process is a time-bound process and the Liquidator has to conclude the proceedings within one year.

NCLT took note that under Regulation 44(1) of the IBBI (Liquidation Process) Regulations, 2016, the Liquidator has been directed to liquidate the Corporate Debtor within one year from the date of commencement of the liquidation proceedings. Further, the Regulation 44(2) stipulates that, after the expiry of one year, the liquidator shall file an application to the Authority to continue the liquidation period along with a report and explain why the liquidation has not been completed.

NCLT in conclusion placed reference to the Supreme Court's decision in Gaurav Hargovindbhai Dave vs Asset Reconstruction Company (I) Ltd. & Another wherein it was held to the aspect of limitation that it is a well-established and well-settled principle that “there is no equity about limitation”, we are unable to entertain this Application/Appeal.

Case Title: State of Tamil Nadu vs. S. Rajendran, Liquidator of Daehsan Trading India Pvt. Ltd. and Anr.

Case No.: IA/1318/IB/2020 in TCP/111/IB/2017

Counsel for Applicant: B. Dinesh, Advocate

Counsel for Respondent: Elamathi, Advocate

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