CoC Can Direct Liquidation Of Corporate Debtor Any Time Before Confirmation Of Resolution Plan U/S 33(2) Of IBC: NCLAT

Brief Facts

The present appeal filed under Section 61 of Insolvency and Bankruptcy Code 2016 ('IBC' in short) by the Appellant arises out of the Order dated 30.10.2023 (hereinafter referred to as 'Impugned Order') passed by the Adjudicating Authority. By the impugned order, the Adjudicating Authority has ordered liquidation of the Corporate Debtor as approved by the Committee of Creditors ('CoC' in short). Aggrieved by the impugned order, the present appeal has been preferred by the shareholder and Ex-Director of the Corporate Debtor.

Corporate Debtor-Sujyot Infrastructure Private Limited which was engaged in the business of construction of re-modelling of buildings was admitted into Corporate Insolvency Resolution Process ('CIRP' in short) on 22.12.2021.

The CoC in its first meeting held on 28.01.2022 disapproved the agenda for issuance of Form-G and decided to consider the agenda of liquidation of the Corporate Debtor in their next meeting.

The second CoC meeting was held on 09.05.2022 wherein the CoC voted against extension of CIRP period for 90 days on completion of 180 days on 19.06.2022. The second CoC meeting also voted against issue of Form-G by 100% vote share besides ratifying the liquidation of Corporate Debtor with 100% vote share.

The RP thereafter preferred an application before the Adjudicating Authority on 17.06.2022 under Section 33 of IBC for approval of the proposal to liquidate the Corporate Debtor. The Adjudicating Authority passed the impugned order on 30.10.2023 allowing the liquidation application preferred by RP for initiation of liquidation process.

Contentions

The appellant submitted that the RP and CoC committed an error in not finding resolution for the Corporate Debtor and resorting to liquidation in the first instance itself. Though the RP had submitted before the CoC that three prospective investors were interested in reviving the Corporate Debtor.

That Adjudicating Authority cannot rubber-stamp the decision of the CoC when the decision of the CoC violated the primary objective of IBC which is revival of the Corporate Debtor and that t the Hon'ble Supreme Court in Swiss Ribbons Private Limited V/s UoI, 2018 has clearly held that the primary objective of IBC is reviving the Corporate Debtor and liquidation is available only as last resort.

That the Hon'ble Supreme Court in Vallal Rck v/s M/s Siva Industries & Holdings Ltd. and Ors., 2022 has held that if the decision of CoC is ex-facie arbitrary, the decision of CoC can be set aside.

NCLAT's Analysis

The tribunal, at the outset, referred to section 33 particularly clause 2 of the IBC which states that it is not incumbent upon the CoC to complete the steps for resolution of the Corporate Debtor before exercise of its jurisdiction to pass an order of liquidation of the Corporate Debtor. Such a decision can be taken “any time” during the CIRP as long as it precedes confirmation of the resolution plan.The power given to the CoC to take decision for liquidation is of a wide amplitude which can be exercised immediately after constitution of the CoC.

In terms of the statutory construct of IBC, it is therefore not required for the CoC to complete all the steps relating to resolution of the Corporate Debtor prior to the liquidation of the Corporate Debtor and any interpretation to the contrary would clearly be antithetical to the spirit of Section 33(2) and Explanation appended to it wherein the legislature has consciously used the words “any time” for liquidation even before inviting resolution plans, the tribunal observed while rejecting the first contention .

The second question before the tribunal was whether there were good and cogent grounds noticed by the CoC to recommend liquidation or whether their reasoning was flawed and ex-facie arbitrary.

The tribunal after pursuing the minutes of the CoC meetings, noted that the CoC members in the very first meeting had taken notice of the fact that the Corporate Debtor was not a going concern and was closed for last past 5-7 years and therefore revival was not possible.

The CoC had also noticed that there was no employee in the Company and that there were no records available of the Corporate Debtor including their financials. It had also noted that if a comparative analysis was made of assets against liability, the balance was not in favour of the revival of the Corporate Debtor.This decision of the CoC was taken keeping in view the financial position of the Corporate Debtor and does not reflect any arbitrariness, the tribunal noted.

The tribunal further noted that the suspended director was not available to provide the necessary information for preparing the IM.

Given the non-availability of documents of the Corporate Debtor, the RP could prepare only an IM based upon limited information available in the public domain basis which it would not have been possible to secure realistic resolution plans which would maximise the value of the assets of the Corporate Debtor besides causing future complications. Clearly the scenario was dim for coming up with a holistic and comprehensive IM sans which the issue of Form-G becomes a meaningless exercise, the tribunal noted.

The tribunal came to the conclusion that even though the decision for liquidation of the Corporate Debtor was taken after holding only two meetings, this decision was taken by the CoC after holding well considered deliberations with 100% vote share.

The tribunal concluded that the only grounds on which a liquidation order passed under Section 33 can be challenged are on grounds of material irregularity or fraud as provided under Section 61(4) of the IBC. As both these grounds do not arise in the facts in this case, hence the objections of the Appellants to set aside the resolution passed by the CoC to initiate liquidation has no merit.

Accordingly, the present appeal was dismissed on the grounds that the CoC in its commercial wisdom had decided to liquidate the corporate debtor and therefore the commercial wisdom has to be respected in the given facts and circumstances of the case.

Case Title: Sunil Surrendrakumar Kakkad Shareholder & Suspended Director of Sujyot Infrastructure Pvt. Ltd. Versus Sujyot Infrastructure Pvt. Ltd. and Anr.

Case Reference: Company Appeal (AT) (Insolvency) No. 1423 of 2024

Judgment Date: 14/11/2024

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