The National Company Law Tribunal (NCLT) has ordered the liquidation of Gitanjali Gems, a jewellery retailer promoted by absconding diamantaire Mehul Choksi, under Section 33 of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016). The order was pronounced on February 7, 2024, by a division bench consisting of Judicial Member Kuldip Kumar Kareer and Technical Member Anil Raj Chellan, after the resolution professional of the company filed an application for liquidation.
Gitanjali Gems, with liabilities of over Rs 12,558 crore, was admitted under the Corporate Insolvency Resolution Process (CIRP) in October 2018. However, due to the alleged fraud perpetrated by Choksi and his associates in the Rs 13,500 crore Punjab National Bank (PNB) fraud case, the company’s assets were attached by various law enforcement agencies such as the Enforcement Directorate (ED) and the Central Bureau of Investigation (CBI). Choksi is currently facing extradition proceedings in Dominica, where he was arrested after fleeing from Antigua and Barbuda.
The resolution professional informed the tribunal that he was denied access to the properties, assets, stocks and records of Gitanjali Gems by the investigation authorities and that there was no possibility of receiving any resolution plan from prospective bidders. He also declined to serve as the liquidator of the company.
The NCLT observed that in view of the ongoing investigations, attachment of assets and bleak chances of insolvency resolution, it was necessary to proceed with the liquidation of Gitanjali Gems. The tribunal also appointed Santanu T Ray as the liquidator, who will complete the liquidation process as per the provisions of the IBC, 2016.
The liquidation process under IBC, 2016 is a time-bound process that aims to maximise the value of the assets of the corporate debtor and distribute them among its stakeholders in an equitable manner. The liquidator is responsible for taking custody and control of the assets of the corporate debtor, verifying and admitting the claims of creditors and contributories, selling the assets through public auction or private contract, distributing the proceeds to the claimants as per the order of priority prescribed under Section 53 of IBC, 2016 and filing reports and applications to the NCLT as required.
The order of priority or waterfall mechanism under Section 53 of IBC, 2016 is as follows:
- The insolvency resolution process costs and liquidation costs
- The workmen’s dues for twenty-four months preceding the liquidation commencement date and debts owed to secured creditors
- Wages and unpaid dues owed to employees other than workmen for twelve months preceding the liquidation commencement date
- Financial debts owed to unsecured creditors
- Any amount due to Central Government or State Government or local authority
- Any remaining debts and dues
- Preference shareholders
- Equity shareholders or partners
The liquidation order of Gitanjali Gems is another blow to Choksi, who is wanted in India for his alleged involvement in one of the biggest banking frauds in India’s history.
Recent Blog : UIDAI Confirms: No Aadhaar Number Cancelled