The National Company Law Appellate Tribunal ( NCLAT ) held that as per section 33 of the Insolvency and Bankruptcy Code, 2016 ( IBC ) empowers the Committee of Creditors ( CoC ) to decide to liquidate the Corporate Debtor any time before the approval of the resolution plan by the Adjudicating Authority.
The Corporate Debtor , Oracle Home Textiles Ltd was admitted into insolvency. Interested resolution applicants were given time to submit their resolution plans to the Resolution Professional ( RP ) by 22.04.2019. The CIRP period came to an end on 13.05.2019. On 11.02.2020, the CoC decided to proceed with the liquidation of the Corporate Debtor with 99.61% vote share. The Adjudicating Authority allowed the Appellant to submit a resolution plan within two week. The Adjudicating Authority also directed the CoC to consider the resolution plan besides extending CIRP period. The Appellant submitted their resolution plan along with EMD to the CoC.
The Appellant submitted their final resolution plan with Addendum on 05.05.2021. The RP informed the SRA by email on 10.05.2021 that the resolution plan was approved by the CoC with a voting majority of 99.90% and was subject to the order reserved by the Adjudicating Authority on 21.01.2021.The RP directed to the SRA to re-submit the plan after including two clauses which had purportedly been found missing by RP.
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The SRA filed IA No. 1205 of 2021 before Adjudicating Authority inter-alia seeking directions to be given to the RP to re-issue an unconditional LoI and re-submitted the resolution plan of 31.12.2020 with Addendum to include the missing clauses.
On 23.06.2021, RP issued a second and fresh LoI after mentioning that the LoI of 23.05.2021 stood revoked. On 23.07.2021 during discussions in the CoC meeting, the SRA wanted to make two changes in the LoI dated 23.06.2021. The first change was with regard to deletion of clause relating to employees’ dues and the second change was to add a clause providing for submission of unconditional PBG within seven days.
It was submitted by the SRA that once the resolution plan was approved by the CoC, the CoC could not have passed a resolution for liquidation of the Corporate Debtor. Reliance was placed upon Ebix Singapore Pvt. Ltd. vs. CoC of Educomp Solutions Ltd. and Anr. which held that the resolution plan even prior to the approval of the Adjudicating Authority is binding inter se the CoC and the SRA. In terms of the Ebix judgment it was not open for CoC to withdraw its approval to a resolution plan.
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It was held that Adjudicating Authority has relied on the correct interpretation of the judgment of Supreme Court in Ebix which held that resolution applicant cannot be permitted to withdraw or modify the resolution plan after approval by the CoC.
The bench of Justice Ashok Bhushan ( Chairperson ) and Barun Mitra ( Technical Member ) observed that the statutory construct of IBC in terms of Section 33 empowers the CoC to decide to liquidate the Corporate Debtor any time before the confirmation of the resolution plan by the Adjudicating Authority. Therefore, the decision to liquidate was based on commercial wisdom and is not subject to judicial review, with the exception of making sure the resolution plan complies with the IBC and associated regulations.
The Tribunal viewed that the Explanation to Section 33(2) of the IBC clearly states that the CoC has the authority to make a final decision to liquidate the Corporate Debtor before the CoC has approved the resolution plan. It held that the decision of the CoC is a business decision taken in the exercise of their commercial wisdom which is not amenable to judicial review. Further directed the liquidator to progress the liquidation proceeding in terms of the e-auction notice.
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