Appeals dismissed as creditors approve liquidation under Section 33 after failed recovery and non-cooperation

NCLAT dismissed appeals challenging liquidation approval under Section 33 of IBC. CoC unanimously voted for liquidation after Corporate Debtor remained non-functional for three years prior to CIRP initiation. Bank failed to recover assets despite SARFAESI proceedings, and suspended management refused to cooperate in asset handover. Resolution Professional lacked adequate information for proper information memorandum, making viable resolution plans unlikely. NCLAT held CoC has authority to approve liquidation before inviting resolution plans based on commercial wisdom. Adjudicating Authority's limited judicial review powers prevented interference with CoC's business decision. No material irregularity or fraud established under Section 61(4) of IBC.

---

---

Issues Involved:
1. Scope for the Committee of Creditors (CoC) to consider liquidation before inviting resolution plans.
2. Validity of CoC's decision to initiate liquidation based on commercial wisdom.
3. Grounds for the Adjudicating Authority to reject CoC's recommendation for liquidation.

Summary:

Issue 1: Scope for CoC to Consider Liquidation Before Inviting Resolution Plans
The Tribunal examined whether statutory provisions of the Insolvency and Bankruptcy Code (IBC) allow the CoC to approve liquidation before inviting resolution plans. Section 33(2) of the IBC, along with its Explanation clause, empowers the CoC to decide on liquidation "any time" after its constitution and before the confirmation of the resolution plan, including before the preparation of the Information Memorandum (IM). The Tribunal affirmed that the CoC's decision on liquidation taken before considering any resolution plan is within the statutory framework and cannot be invalidated on these grounds.

Issue 2: Validity of CoC's Decision to Initiate Liquidation Based on Commercial Wisdom
The Tribunal assessed whether there were valid reasons for the CoC to initiate liquidation. The CoC minutes revealed that the Corporate Debtor had ceased operations for three years before the commencement of the Corporate Insolvency Resolution Process (CIRP) and that the assets were not in possession of the Resolution Professional (RP) or the State Bank of India (SBI). The CoC concluded that pursuing CIRP would increase costs without any corresponding advantage, given the lack of discernible assets and the non-cooperation of the suspended management. The Tribunal found that the CoC's decision to liquidate was justified based on these facts and the commercial wisdom of the CoC.

Issue 3: Grounds for the Adjudicating Authority to Reject CoC's Recommendation for Liquidation
The Tribunal noted that the Adjudicating Authority had correctly acknowledged the CoC's wide powers under Section 33(2) of the IBC to decide on liquidation. The Tribunal found no material irregularity or fraud in the CoC's decision-making process. The CoC's decision to liquidate, approved by a 100% vote share, conformed to the statutory requirements. The Tribunal emphasized that the Adjudicating Authority's role is limited to ensuring compliance with the IBC and cannot adjudicate the merits of the CoC's business decisions made in their commercial wisdom.

Conclusion:
The Tribunal dismissed the appeals, finding no merit in the objections raised by the appellants. The decision of the CoC to liquidate the Corporate Debtor, approved by the Adjudicating Authority, was upheld, and no grounds for judicial review were established under Section 61(4) of the IBC.

---