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Rajasthan Land Holdings Seeks During : NCLT Jaipur
The , delivered a on Monday on whether it can grant blanket protection from statutory, civil, and penal consequences arising from alleged defaults during a company’s Corporate Insolvency Resolution Process (). Technical Member Kavita Bhatnagar held that such consequences must be examined by authorities empowered under the respective statutes, while Judicial Member Reeta Kohli took a contrary view and allowed the application seeking protection. The matter has been directed to the NCLT President for appropriate orders, leaving the legal position in limbo until a final determination is made.
Background of the Dispute
The case arose from an application filed by Rajasthan Land Holdings Limited (RLHL), seeking protection for itself, its subsidiaries Chirayu Kath Real Estate Private Limited and Devika Build Estate Private Limited, and their directors from consequences arising from alleged statutory non-compliances during the . RLHL attributed the alleged lapses to the erstwhile , Anuradha Gupta, who had been in charge of the company’s affairs during the insolvency process.
RLHL’s was admitted on . During the process, approximately ₹7 crore was lying in the company’s bank account against operational creditors’ claims of about ₹26.76 lakh. The tribunal terminated the on , after recording concerns over its continuation despite the company’s available funds and the costs incurred. The earlier order noted costs of about ₹73.31 lakh, including RP remuneration of about ₹41.13 lakh.
After control was restored to the erstwhile management, RLHL alleged that statutory compliances had not been undertaken during the period. These included filing annual returns and financial statements, holding annual general meetings, filing income tax and GST returns, and maintaining books of account. RLHL contended that the alleged defaults could expose the company, its subsidiaries, and their directors to fines, penalties, and other adverse consequences.
The : Two Divergent Views
The core legal question was whether the NCLT could exercise its under to grant from liabilities arising under independent statutes such as the , the , and the GST laws.
Technical Member Kavita Bhatnagar’s Ruling
Technical Member Bhatnagar held that the NCLT could not use its to grant general or prospective immunity from consequences under independent statutes. She ruled that whether a statutory default occurred, who was responsible for it, and what consequences followed must be determined under the relevant law by the authority empowered to do so. She observed:
“The consequences of a default under the , the or the are required to be examined by the authorities competent under the respective enactments, having regard to the nature of the particular default, the statutory provision governing it, the period during which it occurred and the person upon whom the concerned statute places responsibility.”
She further clarified that the NCLT’s earlier observations concerning the RP’s conduct could not be treated as a determination of individual liability for every alleged statutory default. According to her, an observation regarding the conduct or responsibility of the RP cannot be converted into a general adjudication extinguishing liabilities arising under separate statutes. She also considered the circular dated , which requires an insolvency professional to exercise , but held that the circular does not automatically make an RP responsible for every subsequent statutory non-compliance. Responsibility depends on the particular statutory obligation, the period involved, and the person on whom the law places that obligation.
Consequently, the Technical Member dismissed the application seeking blanket protection. She clarified that RLHL, its subsidiaries, and their directors could rely before the competent statutory authorities on the earlier NCLT orders, the vesting of management in the RP during , and the RP’s statutory responsibilities.
Judicial Member Reeta Kohli’s Ruling
Judicial Member Kohli took a different view and allowed the application. She relied on the tribunal’s earlier findings that the RP was bound to ensure compliance. In her order, she stated:
“The RP was duty-bound to ensure compliance with all applicable laws on behalf of the Corporate Debtor during the process and the said fact has been duly taken note by this Adjudicating Authority in its Order dated 20.04.2023.”
She also relied on the earlier orders, which she noted had attained , along with the circular and the circumstances of the case. She observed:
“Keeping in view the totality of the circumstances, the peculiar facts and circumstances of the present case, and the observations made by this Adjudicating Authority in its earlier orders, which have attained , there is no other option left but to allow the present application.”
She accordingly allowed the application, granting the blanket protection sought by RLHL.
Implications for Insolvency Practice
The raises significant questions about the scope of the NCLT’s powers under Rule 11 and the extent to which corporate debtors can seek immunity from statutory liabilities incurred during the . For insolvency professionals, the decision underscores the importance of meticulous compliance during the resolution process. The circular of January 2018 already imposes a duty on RPs to exercise reasonable care, but the split decision highlights the lack of clarity on whether non-compliance by an RP can be remedied through a blanket order from the NCLT.
Legal practitioners will note that the Technical Member’s reasoning aligns with the principle that specialized statutes have their own enforcement mechanisms and that the NCLT should not override them. The Judicial Member’s view, on the other hand, emphasizes the practical difficulties faced by companies when RPs fail to comply with statutory obligations.
The matter now rests with the NCLT President, who will either refer the case to a or issue a final order. Until then, companies undergoing and their directors remain in a state of uncertainty regarding their exposure to statutory liabilities arising from the RP’s actions.
Broader Impact on the Legal Community
This case is a reminder of the complex interplay between insolvency law and other regulatory frameworks. The NCLT’s ability to grant immunity from statutory liabilities has been a contentious issue, and the reflects the lack of a uniform judicial approach. A final resolution by the NCLT President will likely set a precedent for future cases where corporate debtors seek protection from consequences of non-compliance during .
The decision also highlights the importance of clear statutory guidance. The may consider issuing further clarifications on the RP’s responsibility for statutory compliance and the remedies available to companies if the RP fails in this duty.
For now, the legal community awaits the NCLT President’s order, which will determine whether the Jaipur Bench’s will be harmonized or lead to a reference to a .
Conclusion
The NCLT Jaipur Bench’s on from statutory liabilities during has left the law in a state of flux. While Technical Member Kavita Bhatnagar emphasized the primacy of independent statutory authorities, Judicial Member Reeta Kohli focused on the RP’s duty and the of earlier orders. The matter now lies with the NCLT President, whose decision will have far-reaching implications for insolvency practitioners, corporate debtors, and directors navigating the complexities of the .
