2025 (4) TMI 513 - AT - IBC

NCLAT dismisses appeal against liquidation order under Section 33(2) after assets sold to purchasers

The NCLAT Chennai dismissed an appeal challenging a liquidation order under Section 33(2) of the I&B Code. The liquidation process was complete with ... Liquidation of the Corporate Debtor - Section 33(2) of I & B Code - HELD THAT:- The fact of completion of the process of liquidation is not a fact which has been disputed by the Learned Counsel for the Appellant in his notes of submission - in the instant case, the process of liquidation is complete, the sale of assets have been confirmed and the assets have been handed over. Apart from it, if the impugned order dated 27.01.2021, as rendered by the Learned Adjudicating Authority is taken into consideration, it has been a logical outcome of the resolution which was passed in the 9th CoC meeting which recommended liquidation of the Corporate Debtor and based on such resolution of CoC and the written of consent of the Resolution Professional dated 18.06.2020 to function as liquidator, Learned Adjudicating Authority had ordered the Corporate Debtor to be put to liquidation, which is not established or argued to be in contravention to any of the provisions of law, as contemplated under the I & B Code. Since now much water has been flown after passing of the order of the appointment of the liquidator, the appeal deserves to be dismissed, as now third-party interest has been created subject to the confirmation of the sale made by the liquidator. The consequential effect would be that the so-called claim of the right of indemnification comes to an end, as over the assets as detailed above, with the Auction Purchaser already been placed in possession. Conclusion - The liquidation order is valid and in accordance with Section 33(2) of the I & B Code. Appeal dismissed. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include:1. Whether the liquidation order passed under Section 33(2) of the Insolvency and Bankruptcy Code (I & B Code) was valid and justified.2. Whether the actions of the Committee of Creditors (CoC) and the Resolution Professional (RP) were in compliance with the I & B Code, particularly concerning the maximization of the value of the Corporate Debtor's assets.3. Whether the auction sale conducted under the SARFAESI Act was valid, and its impact on the Corporate Insolvency Resolution Process (CIRP).4. Whether the appeal against the liquidation order has any merit given the completion of the liquidation process and the subsequent sale of assets.ISSUE-WISE DETAILED ANALYSIS1. Validity of the Liquidation Order under Section 33(2) of the I & B CodeThe relevant legal framework is Section 33(2) of the I & B Code, which mandates that once the CoC decides to liquidate the Corporate Debtor, the Adjudicating Authority shall pass an order for liquidation. The Court interpreted this provision as granting significant discretion to the CoC, reflecting their commercial wisdom, which is generally not subject to judicial scrutiny unless there is evident perversity.The key evidence included the resolution passed in the 9th CoC meeting recommending liquidation and the written consent of the RP to act as the liquidator. The Court found that the liquidation order was a logical outcome of the CoC's resolution and not in contravention of the I & B Code.2. Actions of the CoC and RP in Maximizing Asset ValueThe Appellant argued that the RP failed to maximize asset value by not taking control of the auctioned properties, which were subject to ongoing legal proceedings. The Court noted that the RP's duty is to maximize value, but the CoC's decision to liquidate was based on the Corporate Debtor not being a going concern since 2015, due to the symbolic possession taken under the SARFAESI Act.The Court reasoned that the CoC's commercial decision to liquidate, given the circumstances, was not perverse. The Appellant's contention that the RP should have waited for the outcome of the writ proceedings was dismissed as the liquidation process had already been completed.3. Validity of the Auction Sale under the SARFAESI ActThe auction sale conducted under the SARFAESI Act was challenged by the Appellant, who claimed the property was sold at a significantly undervalued price. The Court noted that the auction sale was initially set aside by the DRT but later confirmed by the DRAT. The High Court of Madras subsequently set aside the DRAT order, remanding the matter for reconsideration.The Court observed that the liquidation process was completed, and the auction sale had been confirmed, with the assets handed over to the successful purchaser. Thus, the issue of the auction sale's validity had little practical effect on the appeal.4. Merit of the Appeal Post-Liquidation CompletionThe Appellant contended that the liquidation order should be set aside to preserve the Corporate Debtor's assets and potentially achieve a successful resolution. However, the Court highlighted that the liquidation process was complete, and third-party interests had been created with the sale confirmation.The Court concluded that the appeal lacked merit due to the completion of the liquidation process and the subsequent creation of third-party interests, which rendered any further adjudication moot.SIGNIFICANT HOLDINGSThe Court held that the liquidation order was valid and in accordance with Section 33(2) of the I & B Code. It emphasized the CoC's commercial wisdom in deciding to liquidate, which was not subject to judicial interference unless there was clear perversity.The Court preserved the principle that the CoC's decision to liquidate, based on commercial considerations, is paramount and generally beyond judicial scrutiny. Additionally, the Court acknowledged the completion of the liquidation process and the creation of third-party interests as factors precluding further legal challenges.The final determination was that the Company Appeal was dismissed, as the liquidation process was complete and the assets had been sold, with no remaining issues to be addressed on merits.