Decision To Liquidate Corporate Debtor Cannot Be Faulted When Revival Is Not A Viable Option: NCLAT

The NCLAT New Delhi bench of Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member) and Mr. Indevar Pandey (Technical Member) has held that when it becomes clear that revival is not a viable option, a decision taken by the CoC to liquidate the corporate debtor cannot be faulted. Brief Facts: Principal Borrower M/s Universal Textile Waterproof Company (India) (UTWC) was granted term loans and working capital facilities by SVC Cooperative Bank in which Shri Balaji Entertainments Pvt Ltd (corporate debtor) acted as a co-borrower and provided a corporate guarantee. An application under section 7 of the code was filed when the UTWC failed to repay the amount. Thereafter, the Adjudicating Authority ordered the liquidation of the corporate debtor after a decision was taken by the CoC that the revival is not a viable option therefore the corporate debtor should be liquidated. Contentions: The appellant contended that the Interim Resolution Professional has demonstrated gross negligence by failing to make any effort to verify or scrutinize the said claims to assess their veracity. It was further submitted that the Interim Resolution Professional, upon receiving the order of his appointment, was fully aware of the contest raised by the Appellant before the Adjudicating Authority and yet neglected to undertake a thorough examination of the claims of the Financial Creditors. It was argued that mere admission of the application under Section 7 of the Code does not automatically verify the claims of all the financial creditors and necessary exercise of due diligence in the process of verifying the same should have been undertaken by the Interim Resolution Professional. It was further submitted that IRP has taken steps towards expediting the liquidation of the corporate debtor without due diligence and further alleged that the conduct of the Resolution Professional in merely recording claims and notifying them as verified, without any supporting proof, coupled with the ongoing challenge to the veracity of the entire claim, demonstrates a mala fide intention to push the Corporate Debtor into liquidation. Per contra, the respondent argued that as per Section 33(2) of the Code, if the resolution professional intimates a decision by not less than sixty-six percent of voting shares to liquidate, the Adjudicating Authority must pass a liquidation order. It was further submitted that in case where the corporate debtor has no assets, the CIRP must end and liquidation must start keeping in view the cardinal principle of value maximization. Observations: The tribunal noted that the corporate debtor lacked assets and records which demonstrated that the revival of the CD was not a viable option therefore the CoC with 100 percent voting rights decided to liquidate the corporate debtor. It further added that section 33(2) of the code leaves no option for the Adjudicating Authority when the CoC has taken a decision with 66 percent voting rights except to order liquidation. In the present case, since the decision to liquidate the corporate debtor was taken unanimously,it cannot be said that any error was committed by the Adjudicating Authority in ordering the liquidation of the corporate debtor. The tribunal concluded that “we find that the corporate debtor has no assets, the CIRP Period only implies zero returns with avoidable costs such as liquidator's fee, public notice etc. Thus, we do not find any error in the CoC decision to the Liquidator of the Corporate Debtor which was accepted by the Adjudicating Authority in the Impugned Order.” Case Title: Amrit Rajani Versus Pegasus Assets Reconstruction Private Limited and Anr. Case Number: Comp. Appeal (AT) (Insolvency) No. 375 of 2023 and I.A. No. 1261, 1262 of 2023 Judgment Date: 23/01/2025 For Appellants: Mr. Umang Mehta & Mr. Harsh Jain, Advocates. For Respondents: Mr. Dinkar Singh & Mr. Rohit Singh, Advocates. Click Here To Read/Download The Order

Decision To Liquidate Corporate Debtor Cannot Be Faulted When Revival Is Not A Viable Option: NCLAT

Mohd Malik Chauhan

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