2024 (2) TMI 508 - AT - Insolvency and Bankruptcy

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 ... Liquidation of Corporate Debtor - CoC’s decision to liquidate was tainted with material irregularity and arbitrariness or not - Whether the decision of the Adjudicating Authority is based on 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? - ineligibility under Section 29-A(b) of the IBC - classification of wilful default is dehors the RBI circular. Whether CoC’s decision to liquidate was tainted with material irregularity and arbitrariness or not? - HELD THAT:- Adjudicating Authority has noted that the CoC had, with 100% voting, recommended that the CD should be liquidated and that there were no reasons on record for the adjudicating authority not to disagree with the recommendations of RP/CoC. Further, as per Section 33(2) of the IBC 2016, where the Adjudicating Authority has been intimated by the Resolution Professional about the decision of the CoC for initiation of liquidation, it has go to along with it. Adjudicating Authority has gone along with the recommendations of the COC and ordered for its liquidation. Therefore, it cannot be faulted for not reviewing the decision of the CoC when no such grounds are available. The Appellants also brings the issue of the hesitation of the interim resolution professional, which is recorded in the first CoC meeting dated 08.11.2021. In the CIRP proceedings under the IBC, the decision of the CoC is supreme and IRP or RP’s subjective views and feelings cannot dictate the outcome or change the direction of the proceedings. The members of the CoC decided to go for liquidation and IRP has to record like that without inserting his feelings - it cannot be said that there has been material irregularity in the decision of the CoC. The arguments relating to material irregularity cannot be accepted and are therefore rejected. Whether the decision of the Adjudicating Authority is based on 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? - HELD THAT:- There are no grounds for the judicial scrutiny of the Resolution plan, as envisaged under Section 30(2) or Section 61(3) of the IBC or any other provisions of the IBC. Therefore, no error can be found in the orders of the Adjudicating Authority. The judgment of NCLAT referred to by the Appellant is with respect to Hero Fincorp Limited Vs. M/s Hema Automotive Private Limited [2023 (1) TMI 305 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI] which is distinguishable. As noted in Sreedhar Tripathi [2022 (10) TMI 1143 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] judicial review of the decision of the CoC is not precluded and it depends on the facts of each case - Facts of the case in hand are distinguishable as the CoC in its very first meeting had decided to go for liquidation basis their commercial wisdom and therefore, this judgement is not helpful for the Appellant. None of the judgements relied upon by the Appellant help them. Therefore, the decision taken by the CoC to liquidate a CD cannot be subjected to judicial review in the facts of this particular case. 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? - HELD THAT:- The decision of the Adjudicating Authority and the recommendations of the CoC don’t refer to the ineligibility basis Section 29- A(b) of the IBC. Even then it is noted from the minutes of the first CoC meeting of 8.10.2021, which is post Oral Order dated 18.04.2019 of Hon’ble High Court of Gujarat, the Appellant was present and resolution of the CD was discussed with him and thereafter basis their commercial wisdom, it was decided to go for liquidation of the CD. CoC had given a clear finding that there were no chances of getting an EoI or possibility of revival of the CD basis the facts of the case. Conclusion:- The CoC has taken a commercial decision, basis their discussion within the lenders and also with the Appellant and they have come to a conclusion for liquidation of the CD. Commercial wisdom of the CoC has been exercised in a clear and forthright manner. The Adjudicating Authority has also relied upon that. There are no irregularity on the part of CoC or Adjudicating Authority, so these averments of the material irregularity and arbitrariness cannot be sustained. The liquidation was ordered by the Committee of Creditors with 100% majority vote. This was very clearly and un-ambiguously established in the very first meeting of CoC. The commercial wisdom of the COC has been converted into a decision of liquidation as per Section 33(2) of the IBC, instead of going for calling for resolution claim. When such a decision has been taken and when no grounds have been made out as per Section 61(4) of the IBC and there is no grounds of material irregularity, there are no justification for review of the orders of the Adjudicating Authority, which are based on commercial wisdom of the CoC. Appeal dismissed. 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.