NCLAT permitted the dissolution of a corporate debtor without liquidation due to futility and lack of assets.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, reviewed an appeal and held that a Corporate Debtor might be dissolved without undergoing liquidation under Section 54 of the IBC if there are no realizable assets, and liquidation would be impractical and financially burdensome. The tribunal highlighted that when the Committee of Creditors (CoC) unanimously supports dissolution, a pragmatic approach prioritizing stakeholder interests should take precedence over rigid procedural compliance.
This legal note pertains to an appeal filed by the Resolution Professional (RP) of Infrabuild Pvt. Ltd., challenging the order dated 11 June 2024, passed by the National Company Law Tribunal (NCLT), Division Bench-I, Ahmedabad, in IA (Dis) / 14 (AHM) 2024, arising out of CP(IB) /71 (AHM) 2023. The NCLT rejected the RP’s application seeking the dissolution of the Corporate Debtor (CD). Dissatisfied with the decision, the RP appealed before the National Company Law Appellate Tribunal (NCLAT).
The case originated with an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) filed by AVB Global Ventures Pvt. Ltd., claiming dues of ₹2,38,95,357. The NCLT admitted the application on 9 November 2023 and appointed Mr. Janak Jagjivan Shah as the Interim Resolution Professional (IRP). Despite the public announcement, only one claim was submitted by AVB Global Ventures Pvt. Ltd., which was accepted by the IRP. Subsequently, a Committee of Creditors (CoC) was constituted, consisting solely of AVB Global Ventures Pvt. Ltd. with 100% voting power.
Efforts were made to invite Expressions of Interest (EoI) by publishing Form-G twice, but no responses were received. Valuation reports revealed that the CD’s total cash and bank balance was a mere ₹1,535, with no other assets to liquidate. In its fifth meeting held on 29 April 2024, the CoC decided against initiating a liquidation process, given the lack of assets and the associated costs. Instead, the CoC resolved to apply for the dissolution of the CD, reasoning that liquidation would be futile and financially burdensome.
The NCLT rejected the dissolution application, stating that Section 54 of the IBC and Regulation 14 of the IBBI (Liquidation Process) Regulations, 2016, require complete liquidation of the CD’s assets before dissolution. The tribunal emphasized that only a liquidator, not an RP, can file for dissolution. Additionally, the NCLT noted discrepancies regarding cash and cash equivalents, indicating a balance of ₹1,44,880, which was contributed by the CoC for CIRP expenses.
The RP contested the decision, arguing that forcing a liquidation without any realizable assets would unnecessarily burden the CoC. The RP cited the precedent set by NCLAT Chennai in Shyson Thomas v. Madhugiri Venkatarayappa Sudarshan, where dissolution was permitted without liquidation under special circumstances.
Upon review, the NCLAT found merit in the RP’s arguments and acknowledged the exceptional circumstances of the case. It noted the futility of a liquidation process given the absence of assets and emphasized the CoC’s unanimous decision favoring dissolution. The appellate tribunal also criticized the NCLT’s direction for a transaction audit, deeming it unwarranted since the CoC had previously resolved against conducting such an audit due to the company’s long-standing non-operational status.
In conclusion, the NCLAT set aside the NCLT’s order, allowing the RP’s application for the dissolution of Infrabuild Pvt. Ltd. This decision underscored the need for pragmatic resolutions in insolvency proceedings, particularly when liquidation offers no practical benefits and imposes undue burdens on stakeholders.
Mr. Dheeraj Garg, Advocate represented the Appellant.
Mr. Pratik Thakkar, Advocate appeared for the Respondent.
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