In a recent appeal case, the National Company Law Appellate Tribunal (NCLAT), Chennai Bench, comprising Justice M. Venugopal (Judicial Member) and Ms. Shreesha Merla (Technical Member), made a significant ruling concerning the constitution of the Committee of Creditors (CoC) under the Insolvency and Bankruptcy Code, 2016 (IBC). The case in question was V. Duraisamy v Jeyapriya Fruits and Vegetables Commission Agent, where the NCLAT terminated the Corporate Insolvency Resolution Process (CIRP) of a Corporate Debtor due to the absence of claims from any Financial Creditors, leaving only a single Operational Creditor.
The dispute arose when HGS Dairies and Agro Limited ("Corporate Debtor") was struck off by the Registrar of Companies (RoC) on August 2, 2019, for failing to file its financial statements. Following this, an Operational Creditor filed a petition under Section 9 of the IBC, seeking the initiation of the CIRP against the Corporate Debtor.
The NCLT, in an order dated January 20, 2010, initiated the CIRP against the Corporate Debtor. However, the Interim Resolution Professional (IRP) received only one claim from the lone Operational Creditor. Subsequently, the IRP sought the closure of the CIRP, citing the lack of any Financial Creditor to constitute the CoC.
On December 6, 2021, the NCLT ruled that the IRP must form the CoC with the sole Operational Creditor. Additionally, the IRP was directed to file an application before the NCLT to restore the name of the Corporate Debtor under Section 252 of the Companies Act, 2013.
Upon reviewing the case, the NCLAT Bench made an important observation – no claims were submitted to the IRP after the public announcement of the CIRP, and the Corporate Debtor's name had been struck off by the RoC due to non-filing of financial statements.
Based on this observation, the NCLAT arrived at the conclusion that the IBC does not provide for the constitution of the CoC with a single Operational Creditor when no claims are received by the IRP after the public announcement of the CIRP. As a result, the NCLAT terminated the CIRP of the Corporate Debtor.
The Bench emphasized that the Code lacks provisions for forming the CoC with only an Operational Creditor, especially when no claims have been received by the IRP despite a public announcement inviting such claims. Moreover, considering that the CoC was not constituted due to the absence of claims and the Corporate Debtor's name being struck off from the RoC, the NCLAT found it appropriate to close the CIRP with respect to the subject company.
The NCLAT's ruling in V. Duraisamy v Jeyapriya Fruits and Vegetables Commission Agent has clarified the provisions regarding the constitution of the CoC under the IBC. The judgment establishes that the CIRP cannot be constituted with a single Operational Creditor, especially in cases where no claims are received by the IRP after the public announcement. This decision reinforces the importance of multiple stakeholders participating in the CIRP process and ensures fairness and transparency in resolving insolvency issues.