2024 (1) TMI 896 - AT - Insolvency and Bankruptcy

Penalty u/s 65 of the Insolvency and Bankruptcy Code, 2016 on assenting CoC members - assenting CoC members jointly voted in favour of the liquidation of the CD without even exploring the possibility of resolution of the Corporate Debtor - HELD THAT - There is no dispute that the CoC took a decision for liquidation of the CD after holding five meetings and by voting share of 88.48 per cent which meets the criteria laid down in Section 33(2) of the Code. There is an error in the approach of the Adjudicating Authority that for the purpose of taking a decision regarding the liquidation of the CD, the CoC has to complete all the steps regarding resolution of the CD because it would be against the spirit of Section 33(2) and explanation appended to it wherein the legislature has used the word any time twice i.e., firstly, in Section 33(2) and secondly, in the explanation of Section 33(2) of the Code that the CoC has the jurisdiction to pass the order of liquidation of the CD, approving it by not less than sixty six per cent of the voting share, but it should be before the confirmation of the resolution plan. In the case of Sunil S. Kakkad 2020 (8) TMI 392 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI , this Court has categorically framed a question as to whether the RP, with the approval of the CoC with sixty six per cent vote share, directly proceed for the liquidation of CD without taking any steps for resolution of the CD. In the said case, there were three meetings of CoC in which without making endeavour for inviting EOI, the CoC unanimously resolved to liquidate the CD and that issue came for adjudication before this Court in which while referring to Section 33(2) and the explanation appended thereto it has been ordered that the CoC has the power to liquidate the CD before confirmation of the resolution plan. The Adjudicating Authority has not given any reason for forming an opinion much less prima facie that it was a case of malicious intent on the part of the Applicant/RP with the connivance of assenting members of CoC to whom the show cause notice was given and finally the provision of Section 65 has no application because it would apply if the application is filed for the purpose other than liquidation. The impugned order does not deserve to survive and hence, the present appeal is allowed.

Summary

Issues involved:
The judgment involves issues related to the liquidation of a corporate debtor, the invocation of Section 65 of the Insolvency and Bankruptcy Code, 2016, and the authority of the Committee of Creditors (CoC) to decide on liquidation.

Liquidation of Corporate Debtor:
The appeal was filed by multiple trusts and Catalyst Trusteeship Limited, members of the Committee of Creditors (CoC) of a Corporate Debtor, against an order seeking explanation for liquidating the debtor. The CoC, after several meetings, voted in favor of liquidation, leading to an application for liquidation being filed. The Adjudicating Authority observed that the CoC must go through the Corporate Insolvency Resolution Process (CIRP) before liquidation. However, the CoC's decision to liquidate the debtor was taken in accordance with Section 33(2) of the Code, allowing liquidation before the confirmation of a resolution plan.

Invocation of Section 65 of the Code:
The Adjudicating Authority issued a show cause notice under Section 65 of the Code to the assenting CoC members, questioning the intent behind the liquidation application. The appellants argued that Section 65 was invoked without proper application of mind, as it pertains to malicious intent for purposes other than liquidation. They contended that the provision was wrongly applied, citing precedents and emphasizing that the CoC's decision was made in line with the Code.

Decision and Ruling:
The Tribunal found errors in the Adjudicating Authority's approach, noting that the CoC's decision for liquidation met the requirements of Section 33(2) of the Code. It emphasized that the CoC has the jurisdiction to order liquidation before the confirmation of a resolution plan. The Tribunal also highlighted that the show cause notice under Section 65 lacked a clear basis for malicious intent and was stayed by the Court. Ultimately, the appeal was allowed, setting aside the impugned order without costs.