{"id":312265,"date":"2024-01-26T10:00:05","date_gmt":"2024-01-26T04:30:05","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=312265"},"modified":"2024-02-02T14:20:51","modified_gmt":"2024-02-02T08:50:51","slug":"nclat-affirms-committee-of-creditors-authority-to-opt-for-liquidation-under-section-332-of-the-ibc-scc-blog","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2024\/01\/26\/nclat-affirms-committee-of-creditors-authority-to-opt-for-liquidation-under-section-332-of-the-ibc-scc-blog\/","title":{"rendered":"NCLAT affirms Committee of Creditors\u2019 authority to opt for liquidation under Section 33(2) of the IBC; sets aside show cause notice"},"content":{"rendered":"
\n

National Company Law Appellate Tribunal, New Delhi:<\/span> 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<\/a> of the Insolvency and Bankruptcy Code, 2016<\/a> (IBC), a division bench comprising of Rakesh Kumar Jain,* J.<\/span>, 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.<\/p>\n

Factual Matrix<\/p>\n

In the instant matter, an application under section 9<\/a> the Insolvency and Bankruptcy Code, 2016<\/a> (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.<\/p>\n

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.<\/p>\n

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<\/a> of the IBC<\/a>. 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)<\/a> of the IBC<\/a>.<\/p>\n

Grounds of Appeal<\/p>\n

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

NCLAT’s Assessment<\/p>\n

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.<\/p>\n

NCLAT’s Decision<\/p>\n

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.<\/p>\n

[ACRE – 81 Trust<\/span> v. Pawan Kumar Goyal<\/span>, 2024 SCC OnLine NCLAT 90<\/a>, order dated 17-01-2024<\/span>]<\/p>\n

*Judgment by Justice Rakesh Kumar Jain<\/span><\/strong><\/p>\n\n

Advocates who appeared in this case :<\/p>\n

Mr. Arun Kathpalia, Sr. Advocate with Mr. Ujjal Banerjee and Mr. Akash Khurana, Counsel for the Appellant<\/p>\n

Mr. Rishi Singhal, Counsel for the Respondent 1\/IRP<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

The NCLAT held that the CoC had the jurisdiction to decide on liquidation as per Section 33(2) and its explanation, even before completing all steps for resolution.<\/p>\n","protected":false},"author":67514,"featured_media":293392,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,11],"tags":[32458,38099,29690,62412,30182,22014,64712,18281],"class_list":["post-312265","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-tribunals_commissions_regulatorybodies","tag-committee-of-creditors","tag-justice-rakesh-kumar","tag-liquidation","tag-mr-naresh-salecha-technical-member","tag-national-company-law-appellate-tribunal","tag-nclat","tag-section-332-of-the-ibc","tag-show-cause-notice"],"yoast_head":"\nNCLAT affirms Committee of Creditors' authority to opt for liquidation under Section 33(2) of the IBC | SCC Blog<\/title>\n<meta name=\"description\" content=\"NCLAT affirmed Committee of Creditors' authority to opt for liquidation under Section 33(2) of the IBC and set aside the show cause notice.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.scconline.com\/blog\/post\/2024\/01\/26\/nclat-affirms-committee-of-creditors-authority-to-opt-for-liquidation-under-section-332-of-the-ibc-scc-blog\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"NCLAT affirms Committee of Creditors\u2019 authority to opt for liquidation under Section 33(2) of the IBC; 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Upholding the NCLT's order, the Tribunal held that when the CoC's decision for liquidation is in accordance with IBC, then only NCLT's obligation to direct liquidation will arise.","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"NCLAT","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/12\/MicrosoftTeams-image-395.jpg?resize=350%2C200&ssl=1","width":350,"height":200},"classes":[]},{"id":268888,"url":"https:\/\/www.scconline.com\/blog\/post\/2022\/06\/23\/homebuyers-resolution-professional-delayed-claims-information-memorandom-corporate-insovency-ibc-nclat-legal-research-updates-news\/","url_meta":{"origin":312265,"position":3},"title":"Should Resolution Professional include delayed claims of homebuyers under \u00a0memorandum of information? NCLAT decides","author":"Editor","date":"June 23, 2022","format":false,"excerpt":"National Company Appellate Tribunal, New Delhi: The Coram of \u00a0Ashok Bhushan, J (Chairperson), Shreesha Merla (Technical member), and Naresh Salecha (Technical member) has held that regardless of the delay made in filing the claims by homebuyers, a resolution professional should include the corporate debtor\u2019s liabilities as mentioned in the Memorandum\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"NCLAT","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":224562,"url":"https:\/\/www.scconline.com\/blog\/post\/2020\/01\/27\/nclat-nclts-order-directing-liquidation-of-corporate-debtor-upheld-where-resolution-applicant-was-a-related-party-and-thus-not-eligible-under-s-29-a-ibc\/","url_meta":{"origin":312265,"position":4},"title":"NCLAT | NCLT’s order directing liquidation of corporate debtor upheld where resolution applicant was a ‘related party’ and thus not eligible under S. 29-A IBC","author":"Bhumika Indulia","date":"January 27, 2020","format":false,"excerpt":"National Company Law Appellate Tribunal (NCLAT):\u00a0A Bench of Justice Venugopal M., Member (Judicial) and Balvider Singh and Ashok Kumar Mishra, Members (Technical) dismissed an appeal filed against the order of the National Company Law Tribunal. Chandigarh, whereby the resolution plan submitted by the appellant was rejected and liquidation of the\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":320870,"url":"https:\/\/www.scconline.com\/blog\/post\/2024\/04\/26\/homebuyers-allottees-with-or-without-rera-orders-are-treated-equally-under-section-71-proviso-2-ibc-nclat-scc-times\/","url_meta":{"origin":312265,"position":5},"title":"Homebuyers\/Allottees with or without RERA orders are treated equally under Section 7(1) proviso (2) IBC: NCLAT","author":"Ritu","date":"April 26, 2024","format":false,"excerpt":"The NCLAT held that the appellant, having obtained a recovery certificate from RERA, qualified as Financial Creditors.","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"National Company Law Appellate Tribunal","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/03\/resolution-plan.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/03\/resolution-plan.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/03\/resolution-plan.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/03\/resolution-plan.webp?resize=700%2C400&ssl=1 2x"},"classes":[]}],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/312265","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/users\/67514"}],"replies":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/comments?post=312265"}],"version-history":[{"count":0,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/312265\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media\/293392"}],"wp:attachment":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media?parent=312265"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/categories?post=312265"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/tags?post=312265"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}