Can Committee of Creditors decide to Liquidate Corporate Debtor in the first meeting?

Sreedhar Tripathy appellant filed an Appeal against the order dated 23.06.2022 by which order the NCLT (Adjudicating Authority) has directed for liquidation of the Corporate Debtor.

Facts of the Case

1. CoC in its First Agenda decided the withdrawal of CIRP (Corporate Insolvency Resolution Process) as the Corporate Debtor was not operational for the last 19 years and there is no possibility of it being going concern and in such circumstances continuation of CIRP would involve more cost without corresponding advantage.
2. Since Withdrawal of Application made under section 10 of the Insolvency Bankruptcy Code is not permissible, Thus, in second agenda, CoC took decision of the Liquidation of Corporate Debtor.

Grounds of Appeal

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Appellant stated that the decision of the Committee of Creditors (CoC) has been arbitrarily taken. Appellant also submitted that the CoC never wanted to continue with the CIRP and after having been constituted, after admission of Section 10 application assets, were never handed over to the Resolution Professional, hence, Resolution Professional could not draw Information Memorandum and issue EOI.

Provisions of Section 33 of Insolvency and Bankruptcy Code (IBC): –

Section 33 of IBC states, where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of the resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors approved by not less than sixty-six per cent. of the voting share to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).

Explanation – For the purpose of this sub-section, it is hereby declared that the committee of creditors may take the decision to liquidate the corporate debtor, any time after its constitution under subsection (1) of section 21 and before the confirmation of the resolution plan, including at any time before the preparation of the information memorandum.

The above explanation of section 33(2) of IBC, empowers CoC to take decision of liquidation of the Corporate Debtor at any time once it has been admitted by adjudicating authority (NCLT) under IBC.

GROUNDS FOR DISMISSAL OF APPEAL BY HON’BLE NATIONAL COMPANY LAW APPELLATE TRIBUNAL(NCLAT)

1. The Explanation under Section 33 (2) of IBC has been inserted by Act of 26 of 2019 contains the legislative declaration and intention. The CoC in the Legislative Scheme has been 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.
2. 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 NCLT and this Appellate Tribunal. It depends on the facts of each case as to whether the decision to liquidate the Corporate Debtor is in accordance with the IBC or not.

Conclusion

The appellant here, although representing aggrieved party, may have the right intentions in their heart to see a turnaround of a company via resolution through CIRP rather than liquidation. But as facts suggest no business for the last 2 decades, the CoC were well with their rights to exercise their vote on going in for liquidation with the haircut in their recovery rather than dragging the process further.

NCLAT rejection of the appeal is just and maybe sets precedent so that such cases of appeals are outrightly rejected saving up precious time of all stakeholders.

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