2023 (1) TMI 305 - AT - Insolvency and Bankruptcy

Seeking initiation of the liquidation of the Corporate Debtor - Section 33 sub-section (2) read with Section 34 of Insolvency and Bankruptcy Code 2016 - HELD THAT - The Explanation to Section 33 sub-section (2) contains a legislative declaration empowering the CoC to take a decision to liquidate the Corporate Debtor any time after its constitution as per sub-section (1) of Section 31 and before the confirmation of the Resolution Plan including at any time before the preparation of the Information Memorandum. The Explanation thus clarifies that CoC is fully empowered to take a decision to liquidate any time after the constitution under sub-section (1) of Section 21 but before (i) the confirmation of the Resolution Plan; and (ii) at any time before the preparation of Information Memorandum - There is no material to indicate that CoC has taken into consideration the Explanation to Section 33 sub-section (2) before taking a decision to liquidate the Corporate Debtor. Explanation to Section 33 sub-section (2) has to be given some meaning. There is no doubt that in Section 33 sub-sections (1) and (2) legislature has used the expression shall . However the obligation of the Adjudicating Authority to direct for liquidation shall rise only when decision of the CoC is in accordance with the Code. Judicial review of the decision of the CoC in a particular case is not precluded. In Sreedhar Tripathy it has been clearly held that judicial review of the decision of the CoC is not precluded and it depends on facts of each case. Coming to the facts of the present case Form-G having been issued after preparation of the Information Memorandum and the last date fixed by the CoC being 24.10.2022 for receiving Expression of Interest we are satisfied that Adjudicating Authority did not commit any error in rejecting for liquidation and asking the CoC to reconsider its decision. The order of Adjudicating Authority clearly empowers the CoC to reconsider its decision and take an appropriate decision taking into consideration further facts and events - Appeal dismissed.

Summary

Issues Involved:
1. Legality of the Adjudicating Authority's refusal to order liquidation under Section 33(2) of the Insolvency and Bankruptcy Code (IBC).
2. The role and discretion of the Committee of Creditors (CoC) in deciding liquidation.
3. Judicial review of CoC's decision for liquidation.
4. Applicability and interpretation of relevant statutory provisions and judicial precedents.

Detailed Analysis:

1. Legality of the Adjudicating Authority's Refusal to Order Liquidation:
The appeal challenges the order dated 23.11.2022 by the National Company Law Tribunal (NCLT), New Delhi Court-VI, which dismissed the application for liquidation of the Corporate Debtor under Section 33(2) read with Section 34 of the Insolvency and Bankruptcy Code, 2016. The NCLT directed the CoC to reconsider the application, emphasizing that the approach of the CoC was "not in the spirit of IB Code as Insolvency Resolution is the focus of the act." The NCLT noted that the CoC resolved for liquidation even before the deadline for receiving Expressions of Interest (EOI) had elapsed, thereby not adopting a judicious approach to exploring the possibility of resolution.

2. The Role and Discretion of the CoC in Deciding Liquidation:
The CoC, constituted with the appellant as the sole member, resolved for liquidation on 19.10.2022, prior to the EOI deadline of 24.10.2022. The appellant argued that under Section 33(2), it was mandatory for the Adjudicating Authority to pass an order of liquidation once the CoC, with not less than 66% voting share, decided to liquidate. The appellant relied on the legislative declaration in the Explanation to Section 33(2), which empowers the CoC to decide on liquidation any time after its constitution and before the confirmation of the resolution plan.

3. Judicial Review of CoC's Decision for Liquidation:
The judgment in Sreedhar Tripathy vs. Gujarat State Financial Corporation and Ors. was cited, where the CoC's decision for liquidation was upheld due to the Corporate Debtor being non-functional for 19 years, with machinery turned to scrap and no possibility of revival. The tribunal in that case emphasized that the decision of the CoC is subject to judicial review to ensure it aligns with the IBC. The Supreme Court's judgment in Vidarbha Industries Power Limited vs. Axis Bank Ltd. was also referenced, which distinguishes between the mandatory nature of Section 9(5)(a) and the discretionary nature of Section 7(5)(a) in admitting CIRP applications, highlighting that judicial review is permissible to examine the expedience of initiation of CIRP.

4. Applicability and Interpretation of Relevant Statutory Provisions and Judicial Precedents:
Section 33(2) mandates the Adjudicating Authority to pass a liquidation order upon the CoC's decision, but this is contingent upon the decision being in accordance with the Code. The tribunal noted that the CoC must consider the Explanation to Section 33(2), which allows for liquidation decisions before the preparation of the Information Memorandum. The tribunal found no material indicating that the CoC considered this Explanation before deciding on liquidation. The tribunal upheld the NCLT's order, which allowed the CoC to reconsider its decision, emphasizing that judicial review is necessary to ensure decisions align with the IBC.

Conclusion:
The appeal was dismissed, affirming the NCLT's directive for the CoC to reconsider its liquidation decision. The tribunal emphasized the necessity of judicial review to ensure CoC decisions comply with the legislative intent of the IBC, prioritizing insolvency resolution over liquidation. The tribunal found no error in the NCLT's order, which aimed to ensure a judicious approach by the CoC in exploring all possibilities of resolution before opting for liquidation.