Adjudicating Authority is obligated to give direction for liquidation only when CoC’s decision is in accordance with IBC: NCLAT


National Company Law Appellate Tribunal, New Delhi: A bench consisting of Ashok Bhushan*, J. and Shreesha Merla (Technical Member) held that the obligation of the Adjudicating Authority to direct for liquidation shall rise only when decision of the CoC is in accordance with the IBC.

In the instant matter the Appellant/Financial Creditor initiated proceedings under S. 13(4) of the SARFAESI Act, 2002, against the Corporate Debtor for default in repayment of the loan facilities provided by the appellant. The Adjudicating Authority vide order dated 08-07-2022 directed the commencement of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The CoC (Committee of Creditors was constituted with Appellant as the sole Member) passed Resolution for liquidation of the Corporate Debtor on 19-10-2022. The Respondent/Resolution Professional filed application under S. 33(2) read with S. 34 of the Insolvency and Bankruptcy Code, 2016 (IBC) seeking initiation of the liquidation of the Corporate Debtor and appointment of liquidator. The Adjudicating Authority observed that the CoC has recommended the liquidation even before the time period for seeking Expression of Interest (EOI) had elapsed and directed the CoC to reconsider the application filed by the respondent. Aggrieved by impugned order dated 23-11-2022 passed by the Adjudicating Authority, the appellant filed the present appeal challenging the same.

The Tribunal took notice of S. 33(1) and (2) IBC and observed that the Explanation to S. 33(2) IBC clearly states that CoC is fully empowered to take a decision to liquidate any time after the constitution under S. 21(1) and at any time before preparation of the Information Memorandum.

The Tribunal observed that some meaning should be given to Explanation to S. 33(2) IBC and there is no material to indicate that before taking a decision to liquidate the Corporate Debtor, CoC has taken into consideration the Explanation to S. 33(2) IBC.

Relying on Sreedhar Tripathy v. Gujarat State Financial Corpn., Company Appeal (AT) (Insolvency) No.1062 of 2022, the Tribunal observed that the decision taken by the CoC is subject to judicial review depending upon on facts of each case and the Tribunal can very well look into as to whether the decision is in accordance with the Code or not. The Tribunal stated that

“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 the 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.”

Dismissing the appeal, the Tribunal held that there is no ground to interfere with the impugned order as the Adjudicating Authority did not commit any error in rejecting for liquidation and asked the CoC to reconsider its decision.

[Hero Fincorp Ltd. v. Hema Automotive (P) Ltd., Company Appeal (AT) (Insolvency) No. 1540 of 2022, decided on 06-01-2023]

*Judgment by Justice Ashok Bhushan

Messiah of the sufferers: Bidding adieu to Justice Ashok Bhushan

Advocates who appeared in this case :

Mr. Sanjeev Singh, Ms. Taniya Bansal, Ms. Ridhi Pahuja and Ms. Pallavi Aggarwal, Counsel for the Appellant.

*Ritu Singh, Editorial Assistant has put this report together.

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