NCLAT Delhi: Decisions To Liquidate Corporate Debtor By CoC U/S 33(2) Of IBC Must Be With Reasons And Cannot Be Done Arbitrarily
The National Company Law Appellate Tribunal ('NCLAT'), New Delhi Bench comprising of Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) held that decisions of the Committee of Creditors ('CoC') to liquidate under Section 33(2) of Insolvency and Bankruptcy Code, 2016 ('IBC') have to be with reasons and the liquidation cannot be decided...
The National Company Law Appellate Tribunal ('NCLAT'), New Delhi Bench comprising of Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) held that decisions of the Committee of Creditors ('CoC') to liquidate under Section 33(2) of Insolvency and Bankruptcy Code, 2016 ('IBC') have to be with reasons and the liquidation cannot be decided arbitrarily.
Background Facts:
On 10.08.2023, the Adjudicating Authority admitted the application of the Corporate Insolvency Resolution Process ('CIRP') against Metro Jet Airways Training Pvt. Ltd. & Ors ('Corporate Debtor') under Section 9 of IBC.
The Interim Resolution Professional ('IRP') made the publication wherein only one claim of Jaipur Trade Expocentre Pvt. Ltd. ('Operational Creditor'), the Appellant who filed the CIRP application was received. Post which, a CoC was constituted by the IRP, and since no other claim was received, in the 03rd Meeting of the CoC, a resolution was passed for liquidation against the Corporate Debtor on 27.09.2022.
The Adjudicating Authority directed the CoC to take steps following IBC in successfully resolving the Corporate Debtor including publication of Form-G and an appointment of valuers.
The present appeal has been filed by the Operational Creditor against the Adjudicating Authority's order dated 31.08.2023 rejecting the application for liquidation.
NCLAT Verdict:
The NCLAT New Delhi allowed the appeal and held that the decisions of the CoC to liquidate under Section 33(2) of IBC have to be with reasons and the liquidation cannot be decided arbitrarily.
The Appellate Tribunal pointed out that the CoC has given reasons that there are no employees, no business, no registered office, no filing of annual account of the Ministry of Corporate Affairs since 31.03.2011, no returns, and no transactions since 2017. Further, the scheme of the IBC as delineated by Section 33(2) empowers of CoC to decide to liquidate after the constitution of the CoC.
It observed that the decisions of the CoC to liquidate have to be with reasons and that cannot be arbitrarily done, however, presently on the perusal of the resolution of the CoC it is clear that there was objective consideration by the CoC for deciding to liquidate.
The NCLAT also pointed out that the NCLAT Chennai Bench's decision in V. Duraisamy vs. Jeyapriya Fruits and Vegetables Commission Agent & Ors. cannot be relied upon in the present case. It was held by the NCLAT Chennai Bench in Paragraphs 4, 5, and 6 that in cases where no claim was filed, no CoC can be constituted. However, NCLAT New Delhi observed that presently, that was not the case since the CoC was constituted by a single Operational Creditor and thus, the ratio cannot be read to that effect.
In conclusion, the NCLAT allowed the appeal and set aside the order passed by the Adjudicating Authority, and directed the Corporate Debtor for Liquidation. It also ordered the Adjudicating Authority to pass an order for the appointment of a liquidator to proceed with the liquidation proceeding.
Case Title: Jaipur Trade Expocentre Pvt. Ltd. vs. Metro Jet Airways Training Pvt. Ltd. & Ors.
Case No.: Company Appeal (AT) (Ins.) No. 1224 of 2023
Counsel for Appellants: Mr. Sanyat Lodha, Ms. Sanjana Saddy and Mr. Lavam Tyagi, Advocates.
Counsel for Respondent: Mr. Aditya Vijay and Ms. Anusha Jain, Advocates for R-3,4.