When IBC is used as a mechanism to wash off the liabilities – The interface with the rule of law

The Hon’ble NCLAT by its Judgment dated 09.01.2023 in the matter titled as Hindalco Industries Ltd. Vs Hirakud Industrial Works Ltd. & Ors. has examined the vital fact as to when the resolution process had been kicked at the whims and fancies of the Corporate Debtor in close nexus with its related parties for getting a Resolution Plan approved at will and when the Hon’ble NCLAT based upon the Judgment of the Hon’ble Supreme Court in the mater of S.P. Chengalvarayudu viz. 1994 1 SCC 1 has conclusively not only set aside the Resolution Plan so formulated but has also clamped huge costs both upon the resolution applicant as also the Financial Creditor in the process and has also directed that the IBBI investigate the conduct of the Resolution Professional in the matter. The cost in this case has been imposed upon the Corporate Debtor and the Financial Creditor to the extent of Rs.50 lakh each and the successful Resolution Applicant who had deposited the amount has been directed to reverse the entire amount.

This particular Judgment is an eye opener for those Corporate Debtor entities who are center-staging the process of IBC to get the Resolution Plan get approved through the Committee of Creditors and are resorting to a fraud upon the economic fragment of the society by the use and abuse of the process of IBC. It has been noticed in the past six years that whether the honest Resolution Plans or the dishonest Resolution Plans but normally the Resolution Plans deal with huge hair-cut for the Government Authorities, for the Operational Creditors, for the Financial Creditors and also in the name of revival leads to the situation of uncertainty for the employees who are so associated and who have given their sweat and energy to the Company.  The IBC as it was introduced for the purpose of the Corporate Insolvency Resolution in a time bound manner so that a Company is not made to suffer and there is a general and honest revival of a financially unviable entity.  However, because of the commercial wisdom which has been considered as superhuman, the Resolution Plans have seen the washing off liabilities and at times are being triggered at the whims and fancies of the Corporate Debtor.  Such designs are to be definitely nailed with heavy hand and the endeavor made by NCLAT in this regard is undoubtedly a bold endeavor and will hopefully prevent a situation and clamp those particular Resolution Plans and also the Resolution Professionals who are mischievously bulldozing the entire exercise for their ulterior objectives.  Let us  hope that the Hon’ble NCLAT has been able to unwrap and unfold the fraud which had perpetuated in the matter of Hirakud Industrial Works Ltd., the other cases are also unraveled and the resolution process under the IBC is not permitted to be used and abused for the beneficent interest of the people who are only interested in diluting the financial liabilities casted upon a Corporate Debtor entity in the name of Corporate Insolvency Resolution Process.