NCLAT Delhi: COC’s Decision For Liquidation Is Open To Judicial Review By NCLT And NCLAT

The National Company Law Appellate Tribunal (“NCLAT”), in the case Sreedhar Tripathy V Gujarat State Financial Corporation & Ors., the Principal Bench, comprising of Justice Ashok Bhushan (Chairperson), Technical Member, Dr. Alok Srivastava and the Technical Member, Mr. Barun Mitra observed while adjudicating an appeal filed and has held that when the Committee of Creditors (“CoC”) decides to liquidate the Corporate Debtor, the decision of liquidation is open to judicial review by the Adjudicating Authority and the Appellate Authority.
Background Of the Case:
The Adjudicating Authority admitted the Corporate Debtor into Corporate Insolvency Resolution Process (“CIRP”). On 05.04.2021 a decision was taken by the CoC for withdrawal under Section 12A of the IBC. Thereafter, the decision was arrived at upon the premise that the Corporate Debtor was non-functional and completely shut since the year 2002. Thus, its machinery had become scrap and land and building was also in a dilapidated condition and the Corporate Debtor did not concern since last 19 years and there was no possibility of revival. The Continuation of CIRP would only involve more expenses and cost without any corresponding advantage.
It was not permissible the withdrawal by the CoC under Section 10 of IBC, since it was application by the Corporate Debtor itself on which IBC proceeding was initiated. The decision was taken by CoC for liquidation of the Corporate Debtor. In its order dated 23.06.2022., the Adjudicating Authority directed for liquidation of the Corporate Debtor.
An appeal was filled by the Appellant before NCLAT against the Order dated 23.06.2022. Arguing that CoC’s decision was arbitrary and cannot be said to have been taken in commercial wisdom.
NCLAT Decision:
It was observed by the bench that CoC is empowered to take decision to liquidate the Corporate Debtor, any time after its constitution and before confirmation of the resolution plan. Thus, the power given to the CoC to take decision for liquidation is very wide power which can be exercised immediately after constitution of the CoC.
Further, it was observed that since the Corporate Debtor has not been functioning since 19 years and CIRP will involve huge costs, the decision of CoC’s for liquidation was not arbitrary. However, CoC is empowered to take decision under the statutory scheme and the decision has been approved by the Adjudicating Authority and there is no good ground to interfere.
It was made clear by the bench that the decision taken by the CoC was in the facts of the present case and it cannot be said that whenever decision is taken for liquidation the same is not being open to judicial review by the Adjudicating Authority and this Appellate Tribunal. Thus, it depends on the facts of the each case as to whether the decision to liquidate the Corporate Debtor is in accordance with the IBC or not.
Accordingly, the bench dismissed the appeal.

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