Dissolution Of Corporate Debtor Can Be Sought U/S 54 Of IBC Only After Complete Liquidation: NCLAT

Brief Facts

This Appeal by the Resolution Professional (“RP”) of Infrabuild Pvt. Ltd. has been filed challenging order dated 11.06.2024 passed by NCLT. By the impugned order, the Adjudicating Authority has rejected IA No.14 of 2024 filed by the RP praying for dissolution of the Corporate Debtor (“CD”).

On an Application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the “IBC”) by AVB Global Ventures Pvt. Ltd., claiming dues of Rs.2,38,95,357/- the Adjudicating Authority passed an order on 09.11.2023 admitting Section 7 Application and appointing Janak Jagjivan Shah as the Interim Resolution Professional (“IRP”).

Fifth CoC Meeting was held on 29.04.2024. The RP informed the CoC that since permitted period of CIRP is going to over on 06.05.2024 and no EoI has been received, liquidation process should be initiated. The CoC resolved not to initiate liquidation process and decided to file an application for dissolution of the CD.

In pursuance of the resolution passed by the CoC in its fifth Meeting dated 29.04.2024, an IA was filed by the RP which came to be rejected by the Adjudicating Authority. The Adjudicating Authority took the view that Application under Section 54 for dissolution of the Corporate Debtor can be filed only when assets of the Corporate Debtor are liquidated.

The Adjudicating Authority has also referred to the provisions of IBBI (Liquidation Process) Regulations, 2016 (hereinafter referred to “Liquidation Regulations”) Regulation 14 and Section 54 of the IBC and opined that in exercise of power conferred under Section 54 of the IBC, the Adjudicating Authority is not inclined to order dissolution of the CD. Consequently, the Application was rejected. Aggrieved this order, this Appeal has been filed.

Contentions

The appellant submitted that the CoC decided not to bear any expenses on liquidation, hence, the dissolution of CD was approved. Form-G was twice published under the decision of the CoC and no EoI was received. The CoC rejected the resolution to initiate the liquidation and with 100% majority approved the resolution for direct dissolution.

The Appellant in support of his submission relied on judgment of NCLAT Chennai Bench in the matter of Shyson Thomas vs. Mr. Madhugiri Venkatarayappa Sudarshan (2020) and submitted that when CoC is not ready to bear the liquidation cost and the CD has no assets to be liquidated, filing of liquidation application will further burden the CoC.

The learned Counsel for the CoC has also supported the submissions of the Appellant.

NCLAT's Analysis

The NCLAT at the outset perused the agendas in the fifth CoC meeting in which decision to dissolve the corporate debtor was taken and observed that “in the CoC Meeting, it was noted that CIRP is coming to an end in May 2024, the CIRP having already come to an end on 06.05.2024, there being no prayer for extension of CIRP period, we fail to see any reason for direction of transaction audit as directed by the Adjudicating Authority.”

The Tribunal further noted that the liquidation value of the CD was already obtained, which was Rs.1,535/- only. There was no cash or cash balance except of a meagre amount of Rs.1,451/- no other assets were found and CIRP having come to an end, direction by the Adjudicating Authority dated 11.06.2024 for transaction audit is unsustainable and is set aside.

The tribunal discussed the law laid down by the NCLAT in Shyson Thomas (supra) wherein it was held that If the facts and circumstances of a case, justify there would not serve any purpose to keep the Corporate Debtor under regular CIRP proceedings, and thereafter under Liquidation proceedings, under the provisions of Code, the Adjudicating Authority, by exercising its inherent powers conferred under the Code can order the dissolution of the CD.

However, the tribunal distinguished the facts of the above case with the present case and observed that in the present case, the Adjudicating Authority has not exercised its jurisdiction in allowing the application filed by the CD for dissolution referring to Section 54 of the IBC and Regulation 14 of the Liquidation Regulations.

The scheme of the IBC clearly provides that dissolution is a step subsequent to the Corporate Debtor having been completely liquidated. In the present case, the liquidation proceedings have not been undertaken and resorting to Section 54 could not have been taken as per the scheme of the IBC.

The tribunal further observed that in the present case, the RP could have intimated the Registrar of Companies for striking off the name of the Company. The Tribunal further observed that where company is not carrying on any business and there are no assets of the Company, dissolution of the Company under Section 54, is a step, which could have been taken as per the statutory scheme of the IBC.

The tribunal concluded that the RP may send intimation to Registrar of Companies, giving the facts and details, praying that Company's name be struck off from the Register of Companies. The CIRP having come to an end and liquidation has not been ordered, no further steps are required to be taken by the RP. The CIRP proceedings may be treated to be closed. Accordingly, the present appeal was dismissed.

Case Title: Janak Jagjivan Shah Resolution Professional v. Committee of Creditors Rainbow Infrabuild Pvt. Ltd.

Case Reference: Company Appeal (AT) (Insolvency) No.1406 of 2024

Judgment Date: 28/10/2024