The National Company Law Appellate Tribunal, Principal Bench ("NCLAT") on December 21, 2023, in the case of Jaipur Trade Expocentre Private Limited (“Appellant”) v. Metro Jet Airways Training Private Limited (“Respondents”) [Company Appeal (AT) (Ins.) No. 1224 of 2023, decided on December 21, 2023], decided that the decision of Committee of Creditors (“CoC”) to send the corporate debtor into liquidation has to be reasoned and cannot be done arbitrarily. It further reaffirmed that in a case, where no claim was filed, no CoC can be constituted relying upon its own decision in the matter of V. Duraisamy v. Jeyapriya Fruits and Vegetables Commission Agent, [Comp App (AT) (CH) (Ins) No. 25/2022]. 

Brief Facts of the case:

1. Learned Adjudicating Authority vide order dated August 10, 2022 admitted the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (“IBC”). Pursuant to the public announcement made by the Interim resolution Professional (“IRP”) only one claim was filed that was of Operational Creditor who had filed the application. 

2. Consequently, as per the provisions of the IBC and its attendant applicable Regulations, the CoC was constituted by the IRP since no other claim was received. 

3. As a part of the process, CoC meetings were conducted and in the third meeting of CoC held on September 27, 2022, the resolution was passed by the CoC to liquidate the Corporate Debtor. 

4. In view of the decision of the CoC to liquidate the Corporate Debtor, the IRP filed an application before the Adjudicating Authority. However, the Adjudicating Authority directed the CoC to take steps following the IBC in successfully resolving the insolvency of the Corporate Debtor, including publication of Form-G and an appointment of valuers.

5. Aggrieved by the aforesaid order, the IRP filed an appeal before the Hon’ble NCLAT, challenging the order and submitted that the scheme of the IBC does not contemplate that without issuance of Form-G, decision for liquidation cannot be taken by CoC to liquidate the Corporate Debtor. The IRP also highlighted that the CoC has taken a conscious decision after giving reasons for taking a decision for liquidation.

Issue: 

Whether the decision of the CoC to liquidate the corporate debtor must be a reasoned one? 

Contentions of the Appellant:

The Appellant/IRP contended that after passing of the interim order passed by this Tribunal has published Form-G but no EOI was received, thereafter another application was filed by Resolution Professional for liquidation.

Decision:

The Hon’ble Appellate Tribunal looked into the resolution passed by the CoC in the matter in which the CoC decided to liquidate the Corporate Debtor. The CoC also gave reasons that there are no employees, no business, no registered office, no filing of annual account of the MCA since March 31, 2011, no returns and no transactions since 2017. 

The Hon’ble Appellate Tribunal also noted that the scheme of the IBC as delineated by Section 33 (2) empowers the CoC to take a decision to liquidate the Corporate Debtor after constitution of Committee of Creditors. It further noted that the decision of the CoC to liquidate has to be with reasons and that cannot be arbitrarily done but in the instant case when the resolution of the CoC was looked into, it was clear that there was objective consideration by the CoC prior to taking a decision to liquidate the Corporate Debtor. Hence, in this case, the Corporate Debtor was then ordered to be liquidated and appeal was allowed. 

Author’s View:

The Hon’ble Appellate Tribunal and Hon’ble Supreme Court has time and again upheld the primacy of the commercial decision of the CoC by observing that the Corporate Debtor can be liquidated if the circumstances so warrant. 

In fact, the Hon’ble Appellate Tribunal had an occasion to deal with a case [Anil Kumar v. Jayesh Sanghrajaka RP, Company Appeal (AT)(Insolvency) No. 513 of 2023] where a resolution plan was submitted in violation of the Regulation 36A of the IBBI (Corporate Insolvency Resolution Process) Regulations, 2016 and consequently approved by the CoC under the guise of commercial decision of the CoC. In such a case, it was held by the Hon’ble NCLAT, the resolution plan provided substantially much more than the liquidation value and the same could not be stifled on grounds of a minor procedural deviation that is not of much material bearing. The instant decision seems to be in continuation of the commercial wisdom of the CoC being upheld even if there are such minor procedural deviations.

Please find attached a copy of the order.

This update has been contributed by Somdutta Bhattacharyya (Partner) and Kiran Sharma (Senior Associate).

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