Tribunal Denies Closure, Emphasizes Statutory Compliance in Liquidation Process

The Tribunal dismissed the application for closure of the liquidation process without dissolving the Corporate Debtor, emphasizing adherence to statutory mandates of the IBC and limitations of the IBBI's regulatory powers. The Tribunal found the Liquidator's arrangement incompatible with the Companies Act and highlighted the necessity of dissolving the Corporate Debtor as mandated by Section 54 of the IBC. The Tribunal underscored its duty to ensure regulatory consistency with statutory provisions and rejected the application as misconceived.

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Issues Involved:
1. Closure of Liquidation Process without Dissolution
2. Compatibility with the Companies Act
3. Interpretation of Section 54 of the Insolvency and Bankruptcy Code (IBC)
4. Powers and Functions of the Insolvency and Bankruptcy Board of India (IBBI)
5. Validity of Liquidation Regulation 45(3)
6. Tribunal's Competency to Test Subordinate Legislation

Detailed Analysis:

1. Closure of Liquidation Process without Dissolution:
The Liquidator sought closure of the liquidation process under Regulation 45(3)(a) of the IBBI Liquidation Process Regulations, 2016, after selling the Corporate Debtor as a going concern. The Tribunal found this request problematic, stating, "We don't know where this arrangement has come from; one thing is for sure it is not compatible with the structural arrangement given under the Companies Act." The Tribunal emphasized that the liquidation process could not be closed without dissolving the Corporate Debtor as mandated by Section 54 of the IBC.

2. Compatibility with the Companies Act:
The Tribunal questioned the compatibility of the Liquidator's arrangement with the Companies Act, noting the lack of explanation on how the arrangement aligns with the Act. The Tribunal stated, "This liquidator has not stated how this arrangement is in sync with the Companies Act."

3. Interpretation of Section 54 of the Insolvency and Bankruptcy Code (IBC):
Section 54 mandates the dissolution of the Corporate Debtor after the liquidation of assets. The Tribunal highlighted, "The mandate u/s 54 is to terminate the life of corporate debtors by dissolving them after liquidation of their assets." The Tribunal concluded that the IBBI could not bypass this statutory mandate by introducing a concept not present in the Code.

4. Powers and Functions of the Insolvency and Bankruptcy Board of India (IBBI):
The Tribunal analyzed the regulatory powers of the IBBI under Sections 196 and 240 of the IBC. It stated, "The purpose and object of the Regulations issued by IBBI is to carry out the provisions of the Code, not for carrying out the purpose of the Code." The Tribunal emphasized that the IBBI's regulations must be consistent with the Code and cannot introduce new concepts not contemplated by the legislation.

5. Validity of Liquidation Regulation 45(3):
The Tribunal found Regulation 45(3) flawed, stating, "These Regulations are flawed for many reasons, the one we immediately mention is, this Authority is not governed by IBBI, and it is governed by the Code." The Tribunal concluded that Regulation 45(3), which allows the closure of the liquidation process without dissolving the Corporate Debtor, is repugnant to Section 54 of the IBC.

6. Tribunal's Competency to Test Subordinate Legislation:
The Tribunal cited the Supreme Court's decision in L. Chandra Kumar v. Union of India, affirming its competency to test the vires of subordinate legislation. It stated, "Tribunals cannot test the vires of the Parent Legislation, because the Tribunal itself is the creature of the said Statute, but they are competent to test the vires of subordinate/delegated legislation." The Tribunal concluded that it is duty-bound to ensure that regulations are consistent with the provisions of the statute.

Conclusion:
The Tribunal dismissed the application for closure of the liquidation process without dissolving the Corporate Debtor, stating, "Accordingly this IA1940/2020 is hereby dismissed as misconceived." The Tribunal emphasized the need to adhere strictly to the statutory mandates of the IBC and the limitations of the IBBI's regulatory powers.

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