NCLAT affirmed the CoC’s decision to liquidate, emphasizing that judicial review was limited in the absence of procedural irregularities.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench ed by Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka reviewed an appeal and observed that the Committee of Creditors (CoC) holds discretionary authority under Section 33(2) of the IBC to decide on liquidation at any point after its formation, prioritizing its commercial judgment over the revival of the corporate debtor, and this decision is beyond judicial scrutiny if no procedural irregularity is shown. The NCLAT Bench affirmed that the CoC’s commercial wisdom to liquidate must be respected unless arbitrary or unreasonable, thus dismissing the appeal.
In the case at hand, the appellant, a former shareholder and ex-director of Sujyot Infrastructure Private Limited, challenged the NCLT’s order approving the corporate debtor’s liquidation under Section 61 of the Insolvency and Bankruptcy Code (IBC). The appellant argued that the Committee of Creditors (CoC) and the Resolution Professional (RP) favoured liquidation without exploring revival options for the debtor, a construction entity that entered the Corporate Insolvency Resolution Process (CIRP) on December 22, 2021. The CoC, comprising the State Bank of India and Bank of Baroda, took a swift stance on liquidation from its first meeting on January 28, 2022, choosing not to issue Form-G to invite resolution proposals. This decision was reiterated in a subsequent CoC meeting on May 9, 2022, where the CoC unanimously voted for liquidation, prompting the RP to file for liquidation under Section 33 of the IBC, which the NCLT subsequently approved.
The appellant cited Swiss Ribbons Private Limited and Another v. Union of India and Others, REEDLAW 2019 SC 01504 to argue that the CoC’s prompt choice of liquidation contradicted the IBC's intent to prioritize the revival of debtors over liquidation. The appellant contended that the CoC had disregarded potential investor interest and asserted that the NCLT had merely “rubber-stamped” the CoC’s recommendation without substantial assessment. In response, the NCLAT emphasized the discretion vested in the CoC by Section 33(2) of the IBC, allowing it to initiate liquidation "at any time" if deemed appropriate and held that completion of CIRP procedures was not a precondition for liquidation. The tribunal clarified that commercial decisions by the CoC are safeguarded from judicial intervention, highlighting the IBC’s deference to the CoC’s commercial wisdom.
The NCLAT reviewed the CoC’s rationale and observed that the corporate debtor was inactive, without employees, financial records, or viable assets exceeding liabilities, making revival improbable. Moreover, the CoC highlighted that the suspended management had not cooperated in providing essential information, further justifying the liquidation decision as it allowed asset consolidation with affiliated entities under regulatory attachment. The tribunal endorsed the CoC’s liquidation decision as a valid exercise of its commercial judgment, noting no irregularity in the Adjudicating Authority’s findings. Accordingly, the NCLAT dismissed the appeal, upholding the primacy of the CoC’s commercial discretion under the IBC and affirming the limited judicial review over such business decisions. The appeal was dismissed as meritless, with no order on costs.
Mr. Yash Singh Deora, Senior Advocate with Mr. Keith Varghese, Mr. Mohit Gupta, Mr. Sonal K. Chopra, Advocates represented the Appellant.
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