CoC's unanimous liquidation decision upheld despite no resolution attempt under Section 33(2) IBC

NCLAT dismissed appeal challenging liquidation order approved by Adjudicating Authority. CoC with 100% vote share validly decided to liquidate corporate debtor without attempting resolution, exercising commercial wisdom given debtor's poor financial health and suspended management's non-cooperation in providing essential documents. Court held CoC's liquidation power under Section 33(2) IBC has wide amplitude and can be exercised immediately after constitution, even before inviting resolution plans. Decision was not arbitrary as suspended director was under arrest, making information gathering difficult for preparing information memorandum. Adjudicating Authority's limited jurisdiction prevents interference with CoC's commercial decisions unless material irregularity or fraud proven under Section 61(4).

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Issues Involved:

1. Whether the Committee of Creditors (CoC) could directly proceed for liquidation of the Corporate Debtor without taking steps for its resolution.
2. Whether the Adjudicating Authority failed to apply its mind in approving the CoC's decision for liquidation.
3. Whether the CoC's decision to liquidate was arbitrary and subject to judicial review.

Detailed Analysis:

1. Direct Liquidation by CoC without Resolution Steps:

The core issue was whether the CoC, with 100% vote share, could directly proceed for liquidation without attempting to resolve the Corporate Debtor. The judgment examined Section 33(2) of the Insolvency and Bankruptcy Code (IBC), which allows the CoC to decide on liquidation "any time" during the Corporate Insolvency Resolution Process (CIRP) before the confirmation of a resolution plan. The tribunal highlighted that the legislative intent, as reinforced by the phrase "any time," empowers the CoC to initiate liquidation even before inviting resolution plans. Thus, the CoC's decision to liquidate without completing resolution steps was within its jurisdiction and not contrary to the IBC's statutory framework.

2. Application of Mind by Adjudicating Authority:

The tribunal considered whether the Adjudicating Authority had failed to apply its mind in approving the CoC's decision. The judgment noted that the CoC's decision was based on the Corporate Debtor not being a going concern for 5-7 years, lack of employees, and absence of necessary financial data. The CoC also observed that the Corporate Debtor's assets were under attachment by the Enforcement Directorate, and no resolution plans were received for its sister companies. The tribunal found that the Adjudicating Authority had duly considered these deliberations and confirmed that the CoC's decision conformed to Section 33(2) of the IBC. Therefore, the Adjudicating Authority did not err in approving the liquidation.

3. Arbitrariness and Judicial Review of CoC's Decision:

The appellant contended that the CoC's decision was arbitrary and should be subject to judicial review. The tribunal referred to precedents, including Swiss Ribbons Pvt. Ltd. v. UoI, which emphasized that the IBC's primary objective is the revival of the Corporate Debtor, with liquidation as a last resort. However, the tribunal found that the CoC's decision was not arbitrary, as it was based on a thorough evaluation of the Corporate Debtor's financial health and operational status. The tribunal reiterated that the CoC's decision, taken with 100% vote share, reflected its commercial wisdom and was not subject to judicial review unless there was evidence of material irregularity or fraud, as outlined in Section 61(4) of the IBC.

Conclusion:

The tribunal concluded that the CoC's decision to liquidate the Corporate Debtor was neither abrupt nor arbitrary, and the Adjudicating Authority had not committed any error in approving this decision. The appeal was dismissed, affirming the primacy of the CoC's commercial wisdom in deciding the fate of the Corporate Debtor. The judgment underscored that while the IBC aims to revive companies, the CoC's business decisions, taken with requisite majority, should be respected unless there are compelling grounds for judicial intervention.

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