In the case of ACRE – 81 Trust Through its trustee Assets Care & Reconstruction Enterprise Limited v. Pawan Kumar Goyal [2024 SCC OnLine NCLAT 90], the National Company Law Appellate Tribunal, Principal Bench, New Delhi ("Hon'ble NCLAT") has affirmed the authority of the committee of creditors ("COC") to opt for liquidation of the Corporate Debtor prior to approval of the resolution plan in accordance with section 33 (2) of the Insolvency and Bankruptcy Code, 2016 ("Code").
Facts:
By an order dated March 5, 2021 Corporate Insolvency Resolution Process ("CIRP") was initiated against SARE Realty Projects Private Limited ("Corporate Debtor"). Subsequently, the IRP made a public announcement on March 9, 2021 to invite claims from the creditors of the Corporate Debtor.
During the 1st meeting of the COC, the IRP informed the COC that the office of the Corporate Debtor was closed for more than one year, all of the directors of the Corporate Debtor had resigned prior to the commencement of CIRP, the last audited financial statements filed by the Corporate Debtor were for the year ending March 31, 2017 and that the secured financial creditors had initiated enforcement proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act,2002 ("SARFESI Act") and taken possession of the project assets. After hearing this, two of the COC members, Indian Real Estate 2021 Trust and ACRE-81 Trust ("Appellants") proposed the liquidation of the Corporate Debtor.
Subsequently, in the other COC meetings, more particularly in the 4th COC meeting, the COC members had a detailed discussion on the issue of liquidation which included the powers of the COC to recommend liquidation of the Corporate Debtor at any time prior to approval of the resolution plan in accordance with Section 33 of the Code. However, the voting on the issue of liquidation was deferred to a later date. Thereafter, the COC with a majority of 88.48 % voted in favour of the liquidation of the Corporate Debtor.
Accordingly, the IRP filed an application for liquidation of the Corporate Debtor before the Hon'ble NCLT ("Adjudicating Authority"). The Adjudicating Authority dismissed the application filed by the IRP by its order dated March 16, 2021 ("Impugned Order") and had inter alia observed the following:
- Until the expression of interest in Form-G was published, the COC could not have been in a position to determine that there were no prospective buyers available for the Corporate Debtor.
- The scheme of the Code gives an opportunity to the Corporate Debtor to stand on its own two feet and therefore every Corporate Debtor must undergo CIRP before facing liquidation proceedings. The COC had acted in contradiction to the scheme laid down by the Code by directly opting for liquidation of the Corporate Debtor.
- The application for liquidation was filed with malicious intent. Therefore, this was a fit case for issuance of a show cause notice under Section 65 of the Code against the assenting members of the COC i.e the Appellants.
Aggrieved by the Impugned Order, the Appellants had preferred this Appeal.
Heavily relying on the case of Sunil.S.Kakkad v. Atrium Infocom Private Limited, [2020 SCC OnLine NCLAT 1160], the Appellants contended that as per section 33 (2) of the Code, the Resolution Professional, at any time during the CIRP but before the confirmation of the resolution plan can intimate the Adjudicating Authority of the decision of the COC ( approved by not less than 66% of the voting share) to liquidate the Corporate Debtor. It was further contended that the COC may take a decision to liquidate the Corporate Debtor any time after its constitution prior to the confirmation of the resolution plan.
Decision by the Hon'ble NCLAT:
Allowing the Appeal, the Hon'ble NCLAT found merit in the contentions of the Appellants that the COC had the power to order liquidation of the Corporate Debtor prior to the confirmation of the Resolution Plan and that the penalty under Section 65 of the Code would not be applicable to the Appellants.
The Hon'ble NCLAT observed that the decision of Sunil.S.Kakkad v. Atrium Infocom Pvt. Ltd which was relied upon by the Appellants was upheld by the Hon'ble Apex Courtin its order dated January 7, 2021.
The Hon'ble NCLAT held that the Adjudicating Authority had not given any reasoning for forming an opinion much less prima facie that it was a case of malicious intent on the part of the IRP for filing the application for liquidation of the Corporate Debtor.
The Tribunal passed an order allowing the Appeal and setting aside the Impugned Order.
Please find attached a copy of the order.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
