CoC Entitled To Liquidate Corporate Debtor If No Approved Resolution Plan Is Placed Before Adjudicating Authority Within Statutory CIRP Period: NCLAT

The NCLAT bench of Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) have observed that the statutory construct of Insolvency and Bankruptcy Code, 2016 (IBC) in terms of Section 33 empowers the Committee of Creditors (CoC) to decide to liquidate the Corporate Debtor any time before the approval of the resolution plan by the Adjudicating Authority. The decision to liquidate is a commercial wisdom of the CoC which is not subject to judicial review except for ensuring that the resolution plan complies with the IBC and related Regulations. The Tribunal further observed that the Explanation to Section 33(2) of IBC makes it clear that the CoC is entitled to take a final call to liquidate the Corporate Debtor before approval of the resolution plan by the CoC. Brief Facts: The Corporate Debtor (Oracle Home Textiles Ltd) was admitted into insolvency on 09.08.2018. Interested resolution applicants were given time to submit their resolution plans to the Resolution Professional (RP) by 22.04.2019. The CIRP period came to an end on 13.05.2019. On 11.02.2020, the CoC decided to proceed with the liquidation of the Corporate Debtor with 99.61% vote share. On 18.02.2020, the Adjudicating Authority allowed the Appellant to submit a resolution plan within two week. The Adjudicating Authority also directed the CoC to consider the resolution plan besides extending CIRP period. The Appellant submitted their resolution plan along with EMD to the CoC. Before their plan could be considered by the CoC, two IAs were filed by other resolution applicants before the Adjudicating Authority seeking permission for submission of plans. On 21.01.2021, the Adjudicating Authority reserved its orders on both IAs. The Appellant submitted their final resolution plan with Addendum on 05.05.2021. The RP informed the SRA by email on 10.05.2021 that the resolution plan was approved by the CoC with a voting majority of 99.90% and was subject to the order reserved by the Adjudicating Authority on 21.01.2021. On 12.05.2021, the RP wrote to the SRA to re-submit the plan after including two clauses which had purportedly been found missing by RP. On 21.05.2021, the SRA urged the RP to issue a Letter of Intent (LoI) as per RFRP terms following which on 23.05.2021, RP issued the LoI with request to SRA to accept the same. On 29.05.2021, the SRA in a letter to the RP stated that the LoI was beyond the scope of approved resolution plan and requested for issue of a fresh and unconditional LoI. RP replied that since LoI was issued in accordance with discussions held in CoC meetings in which SRA was present, he was not in a position to issue unconditional LoI. Meanwhile, the SRA filed IA No. 1205 of 2021 before Adjudicating Authority inter-alia seeking directions to be given to the RP to re-issue an unconditional LoI. On 15.06.2021, the SRA re-submitted the resolution plan of 31.12.2020 with Addendum to include the missing clauses. On 23.06.2021, RP issued a second and fresh LoI after mentioning that the LoI of 23.05.2021 stood revoked. On 23.07.2021 during discussions in the CoC meeting, the SRA wanted to make two changes in the LoI dated 23.06.2021. The first change was with regard to deletion of clause relating to employees' dues and the second change was to add a clause providing for submission of unconditional PBG within seven days. On 26.07.2021, the SRA sent an e-mail to the RP objecting to the LoI issued subsequent to the CoC meeting held on 23.07.2021. On the same date, the CoC revoked the LoI and put to vote a resolution for forfeiture of EMD of Rs 1 Cr. of the SRA. On 28.08.2021, the SRA filed an IA seeking inter alia directions from the Adjudicating Authority to issue unconditional LoI and for refund of EMD on ground of having been wrongly forfeited. On 05.06.2023, the resolution for liquidation of Corporate Debtor was passed by a voting majority of 99.61% by CoC. On 30.04.2024, the Adjudicating Authority dismissed IAs 1205 of 2021 and 2029 of 2021 filed by the Appellant while allowing IA No. 3914 of 2023 filed by the RP for liquidation of the Corporate Debtor. Aggrieved by the three impugned orders, the three appeals were preferred. In the three appeals, the Appellant-SRA sought the following reliefs: Directions to reinstate or refund the forfeited EMD.Issuance of an unconditional Letter of Intent (LOI).Approval of the resolution plan already sanctioned by the CoC with a 99.90% majority.Quashing of the Adjudicating Authority's order dated 30.04.2024.Direction that MSME status of the Corporate Debtor cannot be a ground for forfeiture of the EMD and Performance Bank Guarantee.Directions for the RP to submit the approved resolution plan to the Adjudicating Authority for final approval.Stay on liquidation proceedings pending appeal resolution. Submissions: By the Counsel for the SRA: ...

CoC Entitled To Liquidate Corporate Debtor If No Approved Resolution Plan Is Placed Before Adjudicating Authority Within Statutory CIRP Period: NCLAT

Tazeen Ahmed

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