COC’s winding-up decision is open to judicial review by NCLT and NCLAT: NCLAT Delhi

The National Company Law Appeals Tribunal (“NCLAT”), main bench, consisting of Judge Ashok Bhushan (President), Dr Alok Srivastava (Technical Member) and Mr. Barun Mitra (technical member), while ruling on an appeal filed in Sreedhar Tripathy v Gujarat State Financial Corporation & Ors., ruled that where the Creditors’ Committee (“CoC”) decides to liquidate the debtor company, the liquidation decision is subject to judicial review by the adjudicative authority and the appeal authority.

Background Facts

The debtor company has been admitted to the corporate insolvency resolution process (“CIRP”) by the contracting authority. Subsequently, on 05.04.2021, the CoC had issued a withdrawal decision under section 12A of the IBC. The decision was made on the premise that the debtor company had been out of service and completely closed since the year 2002. Its machinery had become scrap metal and the land and building were also in a dilapidated state. The debtor company had not been in operation for 19 years and there was no possibility of recovery. Therefore, pursuing CIRP would only involve more expense and cost without any corresponding benefit.

However, the withdrawal by the CoC was not permitted under Article 10 of the IBC, since it was a request from the debtor company itself on which the IBC procedure ruled. been engaged. Therefore, the CoC took the decision to liquidate the debtor company. The contracting authority see its order of 23.06.2022 had ordered the liquidation of the Debtor Company.

The (“Appellant”) filed an appeal with the NCLAT against the Order of 23.06.2022. It has been argued that CoC’s decision was arbitrary and cannot be said to have been made out of commercial wisdom.

NCLAT Decision

The Chamber observed that the CoC is empowered to take the decision to liquidate the Debtor Company at any time after its incorporation and before confirmation of the resolution plan. The power conferred on the CoC to take a decision on liquidation is a very broad power which can be exercised immediately after the constitution of the CoC.

It was observed that since Corporate Debtor has not been in operation for 19 years and CIRP will involve huge costs, the decision to liquidate CoC was not arbitrary. The CoC is empowered to make a decision under the statutory regime and the decision has been approved by the contracting authority. Therefore, there is no good reason to intervene.

“However, we make it clear that the decision made by the CoC was on the facts of the present case and it cannot be said that every time a decision is made for liquidation it is not subject to review. court by the adjudicating authority and this appellate court. It depends on the facts of each case whether or not the decision to liquidate the Debtor Company complies with the IBC.”

The appeal was dismissed.

Case title: Sreedhar Tripathy V Gujarat State Financial Corporation & Ors

Case no: Company Appeal (AT) (Insolvency) No. 1062 of 2022

Counsel for the Appellant: Mr. Rajesh Bohra, lawyer.

Click here to read/download the order