NCLT Kolkata Invokes Penal Provisions Under IBC Against Tax Haven Based Resolution Applicant

The order was passed on 20.04.2022, touching upon various aspects of insolvency such as locus standi of Chairman of the Monitoring Committee, law relating to disclosure of confidential information, commencement of fresh CIRP, punishment for contravention of resolution plan, impudent affidavits filed before Adjudicating Authority and Indian judicial process being taken on a ride by Successful Resolution Applicant. The other aspects of the Order have been dealt with in separate news articles.

Facts Of The Case

A petition under Section 9 of the IBC was filed by Mr. Beni Gopal Singhi ("Operational Creditor") against EMC Limited ("Corporate Debtor") before the NCLT, Kolkata Bench ("Adjudicating Authority"). On 12.11.2018 the Corporate Debtor was admitted into Corporate Insolvency Resolution Process ("CIRP"). After deliberations, the resolution plan of Almas Global Opportunity Fund SPC ("Successful Resolution Applicant"/"SRA"), a Segregated Portfolio Company (SPC) incorporated in the tax haven Cayman Islands, was approved by the Committee of Creditors (CoC) with 80.18% votes. The Plan was also approved by the Adjudicating Authority on 21.10.2019. Following which, the CoC was dissolved and a Monitoring Committee was appointed to supervise the implementation of the Resolution Plan.

Contravention Of The Approved Resolution Plan

Relevant law: Section 74(3) of IBC, 2016.

Section 74- Punishment for contravention of moratorium or the resolution plan.

74(3) Where the corporate debtor, any of its officers or creditors or any person on whom the approved resolution plan is binding under section 31, knowingly and wilfully contravenes any of the terms of such resolution plan or abets such contravention, such corporate debtor, officer, creditor or person shall be punishable with imprisonment of not less than one year, but may extend to five years, or with fine which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both.

Non-Fulfillment Of Obligations And Doubtful Credentials

As per the Resolution Plan, the SRA was obligated to make full payment of Rs. 568 Crores by 20.12.2019 but it failed to do so despite several opportunities granted to it. Further, the Performance Bank Guarantees (PBG) given by the SRA were in contradiction to clause 1.8.1 of the Request for Resolution Plans ('RFRP'), where it was specifically mentioned that the bank guarantees should be executed from a scheduled bank located in India. Few observations made of one of the Financial Creditors, Syndicate Bank, on the PBGs issued by the SRA were as follows:

1. The credentials of Axios Credit Bank, Gambia, are not verified;
2. The SWIFT code of Axios Credit Bank (AXCDGMG1) ends with 1 (eighth character is 1- the SWIFT Code cannot be used for direct communication with the bank).
3. The Applicant of the BG is Konig General Trading FZE, UAE, on behalf of Almas Global Opportunity Fund. The relationship/consideration between the two is not known.
4. Invocation of the BG is to be done by presentation of copy of BG at the counters of the Axios Credit Bank, Singapore within last 15 days of expiry. Invocation through SWIFT is not possible.
5. Invocation of BG is to be accompanied with a BG amendment to be issued at the request of the applicant. Therefore, the beneficiary is dependent on the applicant for invocation.
6. A discrepant claim for payment will lead to immediate termination of the BG. It is evident that the payment of the BG is solely dependent on the applicant. The BG should be unconditional as far as payment is considered.

Interim Application Filed By The Chairman Of Monitoring Committee

The conduct of the SRA clarified that it had no intention to implement the Resolution Plan. On 23.11.2020 the Chairman of the Monitoring Committee moved an application under Section 60(5) of the IBC before the Adjudicating Authority, seeking cancellation of the Resolution Plan of the SRA; commencement of fresh CIRP; direction to SRA to disclose the names and particulars of persons responsible for the violation of the approved Resolution Plan; and imposition of punishment and fine under Section 74(3) of IBC over persons in control of SRA.

Reasons Given For Non-Payment

During the pendency of the said application, the SRA paid Rs. 30 Crores on 08.01.2021 towards Earnest Money Deposit and Performance Bank Guarantee. No payments were received after that. The Adjudicating Authority had directed the SRA to file affidavits stating the reasons for not complying with the Resolution Plan and disclosing the road map ahead for discharging obligations under the Resolution Plan. The affidavits enumerated that payments could not be made due to Covid-19 pandemic restrictions and its effect on transfer of payments; and because of non-issuance of 'in-principle NoC' on the part of the secured Financial Creditors requiring their consent to release all charges over the assets of the Corporate Debtor. Also, one of the affidavits was not notarized.

Non-Disclosure Of Information By SRA

The SRA had submitted that as per Confidentiality law of the Cayman Islands, the SRA cannot reveal commercial information ostensibly related to funding of the Resolution Plan.

Observations Made By The Adjudicating Authority

The Adjudicating Authority rejected the contentions of the SRA regarding COVID-19 pandemic, since the entire payment was to be made through online mode and at least three months before the pandemic hit globally. It was observed that the affidavits of the SRA do not inspire any confidence as no explanation has been proffered as to why the commitments made to the Adjudicating Authority could not be met.

Confidential Information Disclosure Law Of Cayman Islands

The Adjudicating Authority observed that the Legislature of Cayman Islands had enacted Confidential Information Disclosure Law (CIDL), 2016, on 22.07.2016. The Section 3(1)(a) of CIDL recognizes that where a person owes a duty of confidence, the disclosure by that person of confidential information in compliance with the directions of a court pursuant to Section 4 of CIDL shall neither constitute a breach nor be actionable against such person. Section 4 also provides the mechanism by which such confidential information may be disclosed if required to do so by any court, tribunal or other authority, in a situation where the person has not been provided with the express consent of the principal for disclosure. The Bench observed that the person who is required to disclose such information either in evidence or in proceedings, whether in the Cayman Islands or elsewhere, is required to make an application to the Grand Court, which is in session throughout the year.

Impudent Affidavit

The Bench observed that the affidavit filed by SRA was 'impudent' and it seemed to assume that the judicial authorities in India do understand anything beyond the limited territorial jurisdiction of India.

"It cocked a snook even at the very Code itself, the processes envisaged thereunder and the authority of court. It is so brazen that it is almost laughable, if not for the solemnity of these proceedings."

Decision Of The Adjudicating Authority

The Adjudicating Authority disposed off the interim application by forfeiting the amount of Rs. 30 Crores paid by the SRA through invocation of Performance Bank Guarantee; proceeded against SRA and its concerned officers under Section 74(3) of IBC; and initiated fresh CIRP against the Corporate Debtor.

Case title: Beni Gopal Singhi v EMC Limited, CP (IB) No.1237/KB/2018.

Counsel for Applicant: Sr. Adv. Mr. Joy Saha, Adv. Pratik Mukhopadhyay, Adv. Saptarishi Mandal.

Counsel for Respondent: Sr. Adv. Ratnanko Banerji, Adv. Soorjya Ganguli, Adv. Ms. Shreya Choudhary.

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