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2020 (8) TMI 392 - AT - Insolvency and BankruptcyLiquidation of Corporate Debtor - Sections 33(1), 33(2) and 33(3) of the I B Code, 2016 - Appeal is filed mainly on the ground that the Adjudicating Authority has failed to acknowledge the fact that the Respondent No.2/IRP Mr Manish Kumar Bhagat was unable to perform any of the necessary steps under the CIR Process, i.e. to prepare Information Memorandum, evaluation matrix, evaluation of assets etc. which are significant towards achieving the objective of the Code. Can the Resolution Professional, with the approval of CoC with 66% vote share, directly proceed for the liquidation of Corporate Debtor Company without taking any steps for Resolution of the Corporate Debtor? - HELD THAT - It is apparent that statutory provision permits CoC to take the decision for liquidation of Corporate Debtor at any stage of CIRP, but before confirmation of Resolution Plan. In the instant case, the CoC intentionally deferred the matter for approving EoI for inviting the Expression of Interest for submission of Resolution Plan and unanimously decided to liquidate the Corporate Debtor. As per the explanation added to sub-clause (2) of Section 33 of the I B Code, it is clear that the CoC has the power to order for liquidation at any stage of CIRP but before confirmation of Resolution Plan - It is germane to mention that CIRP of the Corporate Debtor was initiated on 10th July 2019 and during Corporate Insolvency Resolution Process, the CoC unanimously, with 100%vote share took the commercial decision to liquidate the Corporate Debtor, which is non-justiciable. There is no illegality in the decision of CoC in liquidating the Corporate Debtor before taking any steps for inviting Expression of Interest for submission of Resolution Plan - Appeal dismissed.
Issues Involved:
1. Whether the Committee of Creditors (CoC) can decide to liquidate the Corporate Debtor without taking steps for its resolution. 2. Whether the Adjudicating Authority erred in passing the liquidation order without following due process and principles of natural justice. Issue-wise Detailed Analysis: Issue 1: Whether the Committee of Creditors (CoC) can decide to liquidate the Corporate Debtor without taking steps for its resolution. The Appellant, a shareholder/promoter and erstwhile Director of the Corporate Debtor, challenged the liquidation order passed under Section 33(2) of the Insolvency and Bankruptcy Code (I&B Code). The Appellant argued that liquidation should be a last resort and must follow due process of resolution. The Appellant contended that the CoC, with 100% vote share, decided to liquidate the Corporate Debtor without issuing a notice in Form-G for inviting Expression of Interest (EoI) for submission of a Resolution Plan and without taking any steps for the resolution of the Corporate Debtor. The judgment emphasized that Section 33(2) of the I&B Code allows the CoC to decide on liquidation at any stage during the Corporate Insolvency Resolution Process (CIRP) before the confirmation of a Resolution Plan. The explanation added to sub-section (2) of Section 33 by the amendment effective from 16th August 2019 specifies that the CoC can decide to liquidate the Corporate Debtor at any time after its constitution under sub-section (1) of Section 21 and before the confirmation of the Resolution Plan, including before the preparation of the Information Memorandum. In this case, the CoC held three meetings and unanimously resolved to liquidate the Corporate Debtor without inviting EoI. The minutes of the second CoC meeting revealed that the Interim Resolution Professional (IRP) had prepared documents for EoI, but the CoC deferred the decision to publish EoI until the next meeting. In the third CoC meeting, the CoC decided to liquidate the Corporate Debtor, stating that the company had not been operational for the last five years and there was no hope for a Resolution Plan. The judgment referenced the Supreme Court's decision in K. Sashidhar v. Indian Overseas Bank, which held that the commercial decisions of the CoC are non-justiciable and cannot be reversed by the adjudicating authority or the appellate authority. The CoC's decision to liquidate the Corporate Debtor, being a commercial decision, is thus non-justiciable. Issue 2: Whether the Adjudicating Authority erred in passing the liquidation order without following due process and principles of natural justice. The Appellant argued that the Adjudicating Authority failed to appreciate that the IRP did not perform necessary steps under the CIRP, such as preparing the Information Memorandum and evaluation matrix, which are essential for maximizing the assets of the Corporate Debtor. The Appellant also claimed that the Adjudicating Authority did not adhere to the prescribed timeline under the Code and intentionally delayed the process, pushing the Corporate Debtor into liquidation without affording a chance for resolution. The judgment clarified that the Adjudicating Authority passed the liquidation order based on the unanimous decision of the CoC, which is in line with Section 33(2) of the I&B Code. The CoC is fully empowered to decide on liquidation at any stage of the CIRP before the confirmation of the Resolution Plan. The CoC's decision to liquidate the Corporate Debtor, without taking steps for inviting EoI, is covered under the explanation to sub-clause (2) of Section 33 of the I&B Code and is thus legal. The judgment concluded that there was no illegality in the CoC's decision to liquidate the Corporate Debtor before taking steps for inviting EoI. Therefore, the appeal was dismissed, and no order as to costs was made.
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