The National Company Law Appellate Tribunal (NCLAT), Principal Bench, on October 18, 2022, while adjudicating an appeal filed in Sreedhar Tripathy v Gujarat State Financial Corporation & Ors., held that when the Committee of Creditors (“CoC”) decides to liquidate the Corporate Debtor, the decision of liquidation is open to judicial review by the Adjudicating Authority and the Appellate Authority.

In the instant matter, the Corporate Debtor was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the Adjudicating Authority. Thereafter, the CoC had taken a decision for withdrawal under Section 12A of the IBC, upon the premise that the Corporate Debtor was non-functional and completely shut and its machinery had become scrap, land and building was also in a dilapidated condition. The Corporate Debtor was not a going concern since last 19 years and there was no possibility of revival. Therefore, continuation of CIRP would only involve more expenses and cost without any corresponding advantage. However, the withdrawal by the CoC was not permissible under Section 10 of IBC, since it was application by the Corporate Debtor itself on which IBC proceeding was initiated. Hence, the CoC took decision for liquidation of the Corporate Debtor. The Adjudicating Authority directed for liquidation of the Corporate Debtor. The Appellant filed an appeal before NCLAT against the Order as it was argued that CoC’s decision was arbitrary and cannot be said to have been taken in commercial wisdom.

The Bench observed that CoC is empowered to take decision to liquidate the Corporate Debtor, any time after its constitution and before confirmation of the resolution plan. The power given to the CoC to take decision for liquidation is very wide power which can be exercised immediately after constitution of the CoC. It was observed that since Corporate Debtor has not been functioning and CIRP will involve huge costs, CoC’s decision of liquidation was not arbitrary. CoC is empowered to take decision under the statutory scheme and the decision has been approved by the Adjudicating Authority. Hence, there is no good ground to interfere. But the Bench clarified:

“However, we make it clear that the decision taken by the CoC was in the facts of the present case and it cannot be said that whenever decision is taken for liquidation the same is not open to judicial review by the Adjudicating Authority and this Appellate Tribunal. It depends on the facts of the each case as to whether the decision to liquidate the Corporate Debtor is in accordance with the IBC or not.”