2024 (2) TMI 1187 - AT - Insolvency and Bankruptcy

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

Mayank Goyal Versus G. Madhusudhan Rao, State Bank of India And Suresh More Versus Mr. Gonugunta Madhusudhan Rao, State Bank of India

NCLAT dismissed appeals challenging liquidation approval under Section 33 of IBC. CoC unanimously voted for liquidation after Corporate Debtor remained ... Liquidation of the Corporate Debtor under Section 33 of the IBC - whether the statutory provisions of IBC provides scope for the CoC to consider approval of liquidation of the Corporate Debtor before inviting resolution plans? - HELD THAT:- The statutory provisions of IBC allow the CoC to consider approval of liquidation of the Corporate Debtor before inviting resolution plans. However, it depends on the facts of each case as to whether the decision to liquidate is in conformity with the provisions of the IBC and to that extent open to judicial review by the Adjudicating Authority and this Appellate Tribunal. SBI had failed to gain possession of the Assets of the Corporate Debtor inspite of filing SARFAESI proceedings. It was also pointed out that though the IRP had sent several mails to the suspended management to be present and assist in the handover of the assets of the Corporate Debtor no such assistance was given in handing over the assets of the Corporate Debtor. Therefore, the CoC in the exercise of its powers endowed upon it by Section 33(2) of the IBC was entitled to liquidate the Corporate Debtor. Whether in the present facts of the case there were good reasons for the CoC to initiate liquidation of the Corporate Debtor in the exercise of its commercial wisdom? - whether there existed any cogent ground for the Adjudicating Authority to reject the recommendation made by the CoC to initiate liquidation of the present Corporate Debtor? - HELD THAT:- From the CoC minutes it is also clear that the RP had noticed that Corporate Debtor is not a going concern for 3 years prior to CIRP. This fact has not been contested by the Appellants either. In the present case, when the Corporate Debtor has not been functioning for three years prior to admission into CIRP, the objection raised by the Appellant to the decision of the CoC to liquidate the Corporate Debtor as arbitrary therefore lacks merit. Moreover, the IRP did not have requisite and certain information to draw up proper information memorandum. The CoC had also noted that the IRP had not provided requisite documents like Information Memorandum, Evaluation Matrix, RFRP to the PRAs to facilitate submission of plans. Hence the CoC rightly felt that in the given circumstances it was unlikely that a viable and feasible resolution plan would come around. Continuation of CIRP would only have enhanced the CIRP cost without corresponding advantage. In the present case, the CoC took a decision for liquidation of the Corporate Debtor after holding 5 meetings. This decision was taken by 100% vote share. Thus, this decision of the CoC conforms to the requirements laid down in terms of Section 33(2) of the IBC - The Adjudicating Authority has therefore not committed any error in approving the recommendation of the CoC to liquidate the Corporate Debtor in such circumstances. Furthermore, the decision of the CoC to liquidate could not have been interfered with by the Adjudicating Authority because of the limited powers of judicial review. It is a well settled proposition of law that the Adjudicating Authority has been bestowed with limited jurisdiction as specified in the IBC while dealing with matters relating to liquidation of the Corporate Debtor and cannot enter upon adjudicating into the merits of a business decision taken by the CoC with requisite majority in its commercial wisdom to liquidate a corporate debtor. In the present case too, the Adjudicating Authority has abided by the discipline of the statutory provisions of the IBC. This decision of the CoC to liquidate having been approved by the Adjudicating Authority, the same is not open to judicial review when no grounds have been made out as provided under Section 61(4) of the IBC of material irregularity or fraud committed in relation to such an order. As both these grounds do not arise in the facts in this case, hence the objections of the Appellants to set aside the resolution passed by the CoC to initiate liquidation has no merit. No infirmity is found in the order of the Adjudicating Authority approving the decision of the CoC to liquidate the Corporate Debtor. There are no good ground to interfere with the impugned order passed by the Adjudicating Authority. There is no merit in both the appeals - appeal dismissed. 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 PlansThe 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 WisdomThe 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 LiquidationThe 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.