COC's Decision For Liquidation Is Open To Judicial Review By NCLT And NCLAT: NCLAT Delhi

Background Facts

The Corporate Debtor was admitted into Corporate Insolvency Resolution Process ("CIRP") by the Adjudicating Authority. Thereafter, on 05.04.2021 the CoC had taken a decision for withdrawal under Section 12A of the IBC. The decision was arrived at upon the premise that the Corporate Debtor was non-functional and completely shut since the year 2002. Its machinery had become scrap and land and building was also in a dilapidated condition. The Corporate Debtor was not a going concern since last 19 years and there was no possibility of revival. Therefore, continuation of CIRP would only involve more expenses and cost without any corresponding advantage.

However, the withdrawal by the CoC was not permissible under Section 10 of IBC, since it was application by the Corporate Debtor itself on which IBC proceeding was initiated. Hence, the CoC took decision for liquidation of the Corporate Debtor. The Adjudicating Authority vide its order dated 23.06.2022 had directed for liquidation of the Corporate Debtor.

The ("Appellant") filed an appeal before NCLAT against the Order dated 23.06.2022. It was argued that CoC's decision was arbitrary and cannot be said to have been taken in commercial wisdom.

Decision Of NCLAT

The Bench observed that CoC is empowered to take decision to liquidate the Corporate Debtor, any time after its constitution and before confirmation of the resolution plan. The power given to the CoC to take decision for liquidation is very wide power which can be exercised immediately after constitution of the CoC.

It was observed that since Corporate Debtor has not been functioning since 19 years and CIRP will involve huge costs, CoC's decision of liquidation was not arbitrary. CoC is empowered to take decision under the statutory scheme and the decision has been approved by the Adjudicating Authority. Hence, there is no good ground to interfere.

"However, we make it clear that the decision taken by the CoC was in the facts of the present case and it cannot be said that whenever decision is taken for liquidation the same is not open to judicial review by the Adjudicating Authority and this Appellate Tribunal. It depends on the facts of the each case as to whether the decision to liquidate the Corporate Debtor is in accordance with the IBC or not."

The Appeal was dismissed.

Case Title: Sreedhar Tripathy V Gujarat State Financial Corporation & Ors

Case No.: Company Appeal (AT) (Insolvency) No. 1062 of 2022

Counsel For Appellant: Mr. Rajesh Bohra, Advocate.

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