NCLT dismiss plea for withdrawal of CIRP on ground of settlement as corporate debtor was involved in tax evasion

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  • Last Updated on 17 September, 2021

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Corporate Insolvency Resolution Process Withdrawal of application

Case details: Huhtamaki PPL Ltd. v. Manpasand Beverages Ltd. - [2021] 130 taxmann.com 77 (NCLT - Ahd.)

Judiciary and Counsel Details

    • Madan B Gosavi, Judicial Member and Virendra Kumar Gupta, Technical Member.
    • Salil Thakore, Abhimany Bhandari, Swaroop George, M.K. Shah, Rashesh Sanjanwala, Ms. Ambrita, Tirth Nayak and Ruchir Patel for the Appearing Parties.

Facts of the Case

The operational creditor in this case filed an application under section 9 to initiate the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor. The Adjudicating Authority granted the request and admitted an Interim Resolution Process (IRP).

However, before to the formation of the Committee of Creditors (CoC), the applicants/creditors filed an immediate motion to have the corporate insolvency resolution process of the corporate debtor halted on the grounds that the corporate debtor had paid the creditors’ dues.

NCLT Held

The NCLT of Ahmedabad Bench found that serious issues in respect of poor conduct of management are involved including the tax evasion by way of claiming wrong input tax credit thereby becoming a part of that community which has failed the intend and object of inculcating a culture of fair business practices to be adopted as a matter of policy by the business community on one hand and the other hand, it is forcing the Government to keep tax rates high. Thus, thereby hampering the economic growth of the country.

Furthermore, the IRP had brought up concerns of corporate governance, such as three audit firms resigning from their positions as internal auditors or statutory auditors in a space of 11 months. Additionally, monies were moved from the corporate debtor’s bank account to the director’s account, and payment was made to the pertinent creditor from that account.

As a result, adverse orders were issued against the director for the withdrawal of excessive pay, and stock exchanges halted trade in the corporate debtor’s shares, putting a significant number of shareholders in the dark. As a result of the foregoing, severe concerns of improper management behavior were present in the instant case.

List of Cases Referred to

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