Liquidation Process against corporate Debtor [ section 33 ] - Insolvency Resolution And Liquidation For Corporate Persons - IBC

Initiation of Liquidation [ Section 33 ] In the following cases the Adjudicating Authority can order the liquidation of the Corporate Debtor (a) The Adjudicating Authority may order for the liquidation of the corporate debtor in the following cases:- before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the corporate insolvency resolution process under section 12 or the fast track corporate insolvency resolution process under section 56 , as the case may be, or does not receive a resolution plan under section 30(6) . [ Section 33(1)(a) ] (b) The Adjudicating Authority Rejects the resolution plan under section 31 for the non-compliance of the requirements specified therein, (i) pass an order requiring the corporate debtor to be liquidated in the manner as laid down in this Chapter; (ii) issue a public announcement stating that the corporate debtor is in liquidation; and (iii) require such order to be sent to the authority with which the corporate debtor is registered. [ Section 33(1)(b) ] (c) Where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of 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 section 33(1) . Explanation .-For the purposes 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 section 21(1) and before the confirmation of the resolution plan, including at any time before the preparation of the information memorandum. [ Section 33(2) ] (d) Where the resolution plan approved by the Adjudicating Authority under section 31 or under section 54L(1) , is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of section 33(1) . [ Section 33(3) ] Determination of contravention of the provisions of the resolution plan [ Section 33(3) ] if the Adjudicating Authority determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of section 33(1) . Bar to filing of suits and legal proceedings [ Section 33(5) ] Subject to section 52 , when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor. A suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority. Exception:- The provisions of section 33(5) shall not apply to legal proceedings in relation to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. [ Section 33(6) ] Order of Liquidation deemed to be notice of discharge [ Section 33(7) ] The order for liquidation under this section shall be deemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor, except when the business of the corporate debtor is continued during the liquidation process by the liquidator. Relevant Case Law Edelweiss Asset Reconstruction Co. Ltd. Vs. Shri Shyam Sundar Rathi Anr. [CA (AT) (Ins.) No. 683 of 2020] NCLAT order dt. 14.08.2020 The CoC unanimously decided to send the CD into l iquidation for want of resolution plans. Once the application under section 33 was moved it was left with no option but to order liquidation Siva Rama Krishna Prasad Vs. S Rajendran Ors. - NCLAT Dated 04.09.2020 Liquidation was ordered by the AA as a last option since there was no response from any viable prospective resolution applicant, despite an extension of time period. Sunil S. Kakkad Vs. Atrium Infocom Pvt. Ltd. and Ors. - NCLAT Dated 10.08.2020 The decision of CoC to liquidate the CD without taking any steps for resolution of the CD is covered under the Explanation to sub-clause (2) of section 33(2) of the Code which is based on the commercial wisdom and is non-justiciable given the law laid by the SC in case of K. Sashidhar vs. Indian Overseas Bank. RMS Employees Welfare Trust Vs. Anil Goel - NCLAT Dated 30.05.2019 In the event of liquidation, the amount to be paid to the Central Government or the State Government against the operational debt should not be less than an amount to be paid to the OC. Punjab National Bank Vs. Mr. Kiran Shah - NCLAT Dated 21.01.2020 The CoC has no role to play after the order of liquidation. They are mere claimants, whose matters are to be determined by the liquidator. They cannot move an application for removal of the liquidator. Y. Shivram Prasad Vs. S. Dhanapal Ors. - NCLAT Dated 27.02.2019 During the liquidation process, it is necessary to take steps for revival and continuance of the CD by protecting it from its management and from a death by liquidation. Ratna Singh and Anr. Vs. Theme Export Pvt. Ltd. Anr. - NCLAT Dated 18.11.2020 An appeal against a liquidation order passed under section 33 may be filed on the grounds of material irregularity or fraud committed in relation to liquidation order. The Code is not for initiating proceedings for prevention of oppression and mismanagement but is armed with provisions for initiation of actions against wrong doers/illegal transactions, etc. Chennai Metro Rail Ltd. Vs. Lanco Infratech Ltd. (Represented by the Liquidator) Ors. - HC, Madras order Dated 15.10.2020 i. Section 279 of the Companies Act, 2013 applies only in cases of winding up under the Companies Act, 2013 and not the Code; ii. Section 279 of the Act deals with both pending suits and institution of new suits, while section 33(5) of the Code deals with new proceedings; and iii. Section 33(5) of the Code overrides section 279 of Act, by virtue of section 238 and by the principle special law overrides general law . Orbit Electro Equipments Pvt. Ltd. Anr. Vs. Mr. Kapil Dev Taneja Anr. NCLAT Dated 02.07.2021 The Code provides for liquidation of the CD in case of failure of the approved resolution plan. Under no circumstance on the failure of the approved resolution plan, CoC is empowered for fresh consideration. While dealing with insolvency matters, the role of AA is confined to the four corners of the Code.