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Issues: (i) Whether the Committee of Creditors was constituted in accordance with the Insolvency and Bankruptcy Code, 2016, including the proper allocation of voting share to the financial creditor. (ii) Whether the decision to recommend liquidation of the corporate debtor was taken in contravention of the Insolvency and Bankruptcy Code, 2016.
Issue (i): Whether the Committee of Creditors was constituted in accordance with the Insolvency and Bankruptcy Code, 2016, including the proper allocation of voting share to the financial creditor.
Analysis: The voting share was required to reflect the actual debt relatable to the corporate debtor in the CIRP and not an inflated or wrongly aggregated claim across separate entities. The Resolution Professional was expected to act fairly, fix creditor claims correctly, and prepare the insolvency process on the basis of complete and accurate records. The material placed before the Tribunal showed that the claims and voting rights had not been properly worked out and that the homebuyers had not been given a realistic earlier opportunity to contest the computation.
Conclusion: The constitution of the Committee of Creditors and the allocation of voting share were held to be not in accordance with law and were quashed.
Issue (ii): Whether the decision to recommend liquidation of the corporate debtor was taken in contravention of the Insolvency and Bankruptcy Code, 2016.
Analysis: Liquidation could follow only after the corporate insolvency resolution process was properly pursued, including meaningful preparation of the information memorandum, efforts to obtain records, consideration of exclusion of time where warranted, and a fair process for inviting resolution plans. The proceedings before the Committee of Creditors were found to have been handled in undue haste, with incomplete information and improper voting influence, and the decision to liquidate was therefore treated as prejudiced by the defective process.
Conclusion: The recommendation for liquidation was held to be contrary to the statutory scheme and could not stand.
Final Conclusion: The matter was sent back for fresh action after correcting the creditor claims and voting shares, and the Resolution Professional was directed to be replaced.
Ratio Decidendi: In a corporate insolvency resolution process, the Committee of Creditors must be constituted on a correct and fair determination of claims and voting shares, and a liquidation decision taken on the basis of a defective and hurried process cannot be sustained.
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