2024 (10) TMI 1552 - AT - IBC

Dissolution of the Corporate Debtor - direction for conducting a transaction audit - It is submitted that CoC, who resolved to file application for dissolution instead of a liquidation, since neither the CD has the assets, nor there are any amount available to bear the cost of liquidation - HELD THAT - In the present case, the Adjudicating Authority has not exercised its jurisdiction in allowing the application filed by the CD for dissolution referring to Section 54 of the IBC and Regulation 14 of the Liquidation Regulations. The scheme of the IBC clearly provides that dissolution is a step subsequent to the Corporate Debtor having been completely liquidated. In the present case, the liquidation proceedings have not been undertaken and resorting to Section 54 could not have been taken as per the scheme of the IBC. The facts of the present case indicate that CIRP has been completed without any Plan having been received, inspite of Form- G published twice. The Adjudicating Authority did not pass any order for liquidation, which could have been passed under Section 33, sub-section (1). Thus, the CIRP having been unsuccessful and no liquidation order having been passed, recourse to Section 54, could not have been taken by the RP. In the present case, the RP could have intimated the Registrar of Companies for striking off the name of the Company. In the facts of the present case, where company is not carrying on any business and there are no assets of the Company, dissolution of the Company under Section 54, is a step, which could have been taken as per the statutory scheme of the IBC. This Tribunal s judgment in Shyson Thomas 2023 (6) TMI 102 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , CHENNAI was a case where Adjudicating Authority exercising its jurisdiction has directed for dissolution by allowing the application - In the present case, the Adjudicating Authority had rejected the application, relying on the provisions of Section 54 of the IBC and Regulations 14 of the Liquidation Regulations. CoC has decided not to make any contribution towards the liquidation process and liquidation, hence, was not directed. In the present case, CoC consisted of sole Financial Creditor, who had initiated the CIRP against the CD. When the entity, who has initiated the CIRP is not ready to proceed any further and CIRP period having already come to an end, no further steps were required in the CIRP of the Corporate Debtor and RP could have closed the matter by intimating the Registrar of Companies for striking off the name of Company from the Register of the Companies. The impugned order dated 11.06.2024 directing for carrying out transaction audit, is set aside - Appeal disposed off.

Summary

Issues Involved:

1. Whether the application for dissolution of the Corporate Debtor (CD) without initiating liquidation was justified.
2. Whether the direction for conducting a transaction audit was appropriate.
3. The role and decision-making authority of the Committee of Creditors (CoC) in the dissolution process.
4. The applicability of Section 54 of the Insolvency and Bankruptcy Code (IBC) and Regulation 14 of the IBBI (Liquidation Process) Regulations, 2016.

Issue-wise Detailed Analysis:

1. Application for Dissolution Without Liquidation:

The primary issue was whether the application for dissolution of the Corporate Debtor without initiating the liquidation process was justified. The Resolution Professional (RP) filed an application for dissolution based on the CoC's decision, which resolved not to initiate liquidation due to the absence of assets and the unwillingness to bear liquidation costs. The Adjudicating Authority rejected the application, stating that under Section 54 of the IBC, dissolution can only occur after the assets of the CD have been completely liquidated. The Tribunal noted that the liquidation process had not been initiated, and thus, the application for dissolution was premature and not in accordance with the statutory scheme of the IBC.

2. Direction for Transaction Audit:

The Adjudicating Authority directed the RP to conduct a transaction audit from 01.04.2020 to the commencement date of the CIRP. However, the CoC had previously decided against conducting a transaction/forensic audit, deeming it unnecessary since the company had not been operational for several years. The Tribunal found the direction for a transaction audit unsustainable, as the CIRP had already ended, and no further investigation was warranted given the lack of assets and business activities. Consequently, the Tribunal set aside the order for a transaction audit.

3. Role and Decision-making Authority of the CoC:

The CoC, consisting solely of the Financial Creditor who initiated the CIRP, resolved to dissolve the CD instead of proceeding with liquidation. The CoC's decision was based on the lack of assets and the financial burden of liquidation. The Tribunal recognized the commercial wisdom of the CoC but highlighted that the statutory framework required liquidation before dissolution. The CoC's decision not to contribute to liquidation costs further complicated the process, as liquidation was not directed, and the CIRP period had ended.

4. Applicability of Section 54 of the IBC and Regulation 14:

Section 54 of the IBC outlines that dissolution can only occur after complete liquidation of the CD's assets. Regulation 14 of the IBBI (Liquidation Process) Regulations, 2016, allows for early dissolution if the realizable properties are insufficient to cover liquidation costs and no further investigation is required. The Tribunal noted that the Adjudicating Authority correctly interpreted these provisions, as no liquidation had been conducted or ordered. The Tribunal emphasized that dissolution under Section 54 was not applicable in the absence of liquidation proceedings.

Conclusion and Directions:

The Tribunal concluded that the application for dissolution was premature without initiating liquidation. It directed the RP to intimate the Registrar of Companies to strike off the company's name from the register, given the lack of assets and business activities. The Tribunal set aside the direction for a transaction audit and declared the CIRP proceedings closed, with no further steps required. Each party was directed to bear its own costs.