CoC's unanimous liquidation decision upheld as commercial wisdom supreme under IBC Section 30(2) and 61(3)

NCLAT upheld the Adjudicating Authority's liquidation order based on CoC's unanimous decision. The tribunal rejected challenges alleging material irregularity and arbitrariness in the CoC's liquidation decision, emphasizing that CoC's commercial wisdom is supreme under IBC. The court found no grounds for judicial scrutiny under Section 30(2) or 61(3) of IBC, noting the CoC exercised clear commercial judgment after discussions with all stakeholders. Arguments regarding interim resolution professional's hesitation and Section 29-A(b) ineligibility were dismissed as irrelevant to the liquidation decision. Appeal dismissed.

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Issues Involved:
a) Whether CoC's decision to liquidate was tainted with material irregularity and arbitrariness.
b) Whether the decision of the Adjudicating Authority is based on the incorrect premise that once the CoC had decided with the requisite majority to liquidate the CD, such a decision would not be amenable to judicial scrutiny.
c) Whether the Applicants' ineligibility under Section 29-A(b) of the IBC does not take effect if the classification of wilful default is dehors the RBI circular.

Summary:

Material Irregularity and Arbitrariness:
The Tribunal examined if the CoC's decision to liquidate was tainted with material irregularity and arbitrariness. The sequence of events and minutes of the first CoC meeting indicated that the CoC unanimously resolved to liquidate the Corporate Debtor (CD) without following the resolution process of inviting expressions of interest (EOI) due to the CD being non-functional since 2016. The CoC believed there were minimal chances of revival or receiving a resolution plan, and the Adjudicating Authority found no grounds to disagree with the CoC's recommendation. The Tribunal concluded that the CoC's decision was based on commercial wisdom and not arbitrary or irregular.

Recommendation of CoC - Liquidation - Amenable to Judicial Scrutiny:
The Tribunal addressed whether the Adjudicating Authority's decision was based on the incorrect premise that the CoC's decision to liquidate is non-justiciable. The Tribunal noted that Section 33(2) of the IBC mandates the Adjudicating Authority to pass a liquidation order if the CoC, with at least 66% voting share, decides to liquidate the CD. The CoC's decision was supported by 100% votes, and the Tribunal found no grounds for judicial scrutiny under Section 30(2) or Section 61(3) of the IBC. The Tribunal also distinguished the present case from other cited judgments, emphasizing that the CoC's commercial decisions are generally non-justiciable unless specific legal grounds are met.

Ineligibility under Section 29-A(b) of the IBC:
The Tribunal considered the claim that the Applicants' ineligibility under Section 29-A(b) of the IBC does not apply if the classification of wilful default is dehors the RBI circular. The Tribunal found that neither the IA nor the impugned order referred to the Appellant's ineligibility as a wilful defaulter. The CoC's decision to liquidate was based on commercial wisdom and did not hinge on the Appellant's classification as a wilful defaulter. The Tribunal noted that the issue of wilful default had been raised in various courts, but it did not impact the CoC's decision in this case.

Conclusion and Orders:
The Tribunal upheld the Adjudicating Authority's decision to liquidate the CD, affirming that the CoC's commercial wisdom was exercised appropriately. The Tribunal dismissed the appeal, finding no material irregularity, arbitrariness, or grounds for judicial scrutiny in the CoC's decision to liquidate the CD.

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