NCLT Allahabad Directs Liquidation of Garvit Innovative Promoters Ltd. Amidst ₹3,000 Crore Ponzi Scam, Non-Cooperation, and Missing Records
Introduction
The National Company Law Tribunal (NCLT), Allahabad Bench, comprising Mr. Praveen Gupta (Member-Judicial) and Mr. Ashish Verma (Member-Technical), ordered the initiation of liquidation proceedings against M/s Garvit Innovative Promoters Ltd. under Section 33(2) read with Section 60(5) of the Insolvency and Bankruptcy Code, 2016. The order came in response to an application filed by the Resolution Professional (RP), following the recommendation of the Committee of Creditors (CoC).
Factual Background
The Corporate Insolvency Resolution Process (CIRP) of M/s Garvit Innovative Promoters Ltd. commenced in February 2023, and an Interim Resolution Professional (IRP) was appointed. The RP reported severe challenges in conducting the CIRP due to non-cooperation by the ex-management of the corporate debtor. The management failed to provide access to records, financial statements, or information necessary to prepare the Information Memorandum and to invite Expressions of Interest (EoI) from prospective resolution applicants.
The RP also highlighted that the corporate debtor’s directors were under judicial custody, and the office premises and records had allegedly been destroyed in a fire. Moreover, authorities were simultaneously investigating a large-scale ₹3,000 crore Ponzi scheme involving the company.
Procedural Background
Given these circumstances, the RP convened the 7th meeting of the CoC, wherein liquidation of the corporate debtor was proposed. The sole CoC member, holding 100% voting share, unanimously approved the liquidation of the corporate debtor and the appointment of a liquidator. Consequently, the RP filed the present application under Section 33(2) of the IBC seeking the Tribunal’s approval for liquidation.
Issues
1. Whether the Resolution Professional had exercised due diligence in attempting to revive the corporate debtor.
2. Whether the recommendation of the CoC for liquidation met the requirements of Section 33(2) of the IBC.
3. Whether the lack of cooperation and absence of records justified the liquidation of the corporate debtor.
Contentions of the Parties
The Resolution Professional submitted that despite repeated attempts, the ex-management refused to cooperate and withheld all crucial information necessary for the CIRP. Due to the absence of books of accounts, asset details, and business records, the CIRP could not proceed effectively. The RP further submitted that the ongoing criminal investigation and the directors’ incarceration rendered revival impossible.
No representation was made by the corporate debtor, which remained absent throughout the proceedings.
Reasoning and Analysis
The Tribunal noted that the RP had made “all best possible efforts” to retrieve and collate financial information; however, the same proved futile due to the non-cooperative attitude of the ex-management. The Bench observed that the conditions under Section 33(2) were fully satisfied, as the CoC had approved the liquidation with requisite voting majority, and there was no prospect of a viable resolution plan being formulated. The Tribunal emphasized that the purpose of the IBC is resolution, not liquidation; however, when revival becomes impossible owing to non-cooperation, lack of records, and criminal investigation, liquidation remains the only logical recourse.
Implications
This order reiterates that where the management of the corporate debtor fails to cooperate and no credible financial data or assets are traceable, the NCLT may order liquidation in order to protect stakeholders’ interests and prevent further erosion of value. The case also underscores the importance of transparency and compliance during CIRP and sends a strong message regarding accountability of management involved in fraudulent or Ponzi schemes.
Order
The NCLT, Allahabad, allowed the application filed under Section 33(2) of the IBC and directed the liquidation of M/s Garvit Innovative Promoters Ltd.. Mr. Nirmal Kumar Bhesoni was appointed as the liquidator. The moratorium under Section 14 ceased to have effect, and a fresh moratorium under Section 33(5) of the IBC was declared.
In this case the applicant was represented by Mr. Govind Bhardwaj with Mr. Ashwarya, Advocates.