national company law appellate tribunal

National Company Law Appellate Tribunal, New Delhi: In an appeal filed against an order questioning the decision of the Committee of Creditors (CoC) to liquidate a Corporate Debtor and the subsequent show cause notice issued under Section 65 of the Insolvency and Bankruptcy Code, 2016 (IBC), a division bench comprising of Rakesh Kumar Jain,* J., and Mr. Naresh Salecha (Technical Member), ruled in favor of the appellants, emphasising the CoC’s authority to decide on liquidation and rejecting the invocation of Section 65 without evidence of malicious intent.

Factual Matrix

In the instant matter, an application under section 9 the Insolvency and Bankruptcy Code, 2016 (IBC) was filed against the Corporate Debtor. The Corporate Debtor did not respond, leading to ex-parte proceeding. The Committee of Creditors (CoC) voted for liquidation due to the Corporate Debtor’s prolonged closure, directors’ resignation, and other financial challenges.

Several CoC meetings were held on 6-04-2021, 27-05-2021, 23-06-2021, and 27-07-2021 to discuss and ultimately decide on the liquidation of the Corporate Debtor. E-voting on liquidation occurred between 16-08-2021 and 18-08-2021, with 88.48% of CoC members, including financial creditors, voting in favor.

The Interim Resolution Professional (IRP) filed a liquidation application, and the Adjudicating Authority issued a show cause notice to CoC members, questioning the decision to liquidate without exploring resolution possibilities, possibly acting against the IBC’s scheme. The Adjudicating Authority expressed a prima facie opinion of malicious intent in initiating liquidation proceedings and initiated a penalty proceeding under Section 65 of the IBC. Aggrieved by the impugned order passed by the Adjudicating Authority, the appellants contested the order, challenging the invocation of Section 65 and the misinterpretation of Section 33(2) of the IBC.

Grounds of Appeal

The appellants argued that the CoC, with 88.48% voting share, had the authority to decide on liquidation under Section 33(2) of the IBC. The appellants contended that the Adjudicating Authority misunderstood the IBC provisions and misread Sunil S. Kakkad v. Atrium Infocom (P) Ltd., 2020 SCC Online NCLAT 1160, which affirmed the CoC’s power to order liquidation and was upheld by the Supreme Court in 2021 SCC OnLine SC 723. The appellants contended that the Adjudicating Authority erred in invoking Section 65 without establishing malicious intent, as the proceedings were for liquidation.

NCLAT’s Assessment

The NCLAT held that the CoC had the jurisdiction to decide on liquidation at any time before the confirmation of the resolution plan. The NCLAT emphasised that the Adjudicating Authority’s view, requiring completion of all steps related to resolution, contradicted the spirit of Section 33(2) and its explanation. Additionally, The NCLAT found the invocation of Section 65 without sufficient grounds to be improper, as the proceedings were initiated for liquidation, not for ulterior purposes.

NCLAT’s Decision

The NCLAT deemed the Adjudicating Authority’s interpretation erroneous and set aside the impugned order. The appeal was allowed and no order as to costs was issued.

[ACRE – 81 Trust v. Pawan Kumar Goyal, 2024 SCC OnLine NCLAT 90, order dated 17-01-2024]

*Judgment by Justice Rakesh Kumar Jain

Advocates who appeared in this case :

Mr. Arun Kathpalia, Sr. Advocate with Mr. Ujjal Banerjee and Mr. Akash Khurana, Counsel for the Appellant

Mr. Rishi Singhal, Counsel for the Respondent 1/IRP

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