Liquidation of Corporate Debtor cannot be Faulted when Revival is not a Viable Option: NCLAT [Read Order]
The tribunal found that the corporate debtor has no assets, the CIRP Period only implies zero returns with avoidable costs such as liquidator's fee, public notice etc
![Liquidation of Corporate Debtor cannot be Faulted when Revival is not a Viable Option: NCLAT [Read Order]](https://www.taxscan.in/wp-content/uploads/2025/01/Liquidation-of-Corporate-Debtor-Corporate-Debtor-Faulted-Viable-Option-NCLAT-Liquidation-taxscan.jpg "Liquidation of Corporate Debtor cannot be Faulted when Revival is not a Viable Option: NCLAT [Read Order]")
The National Company Law Appellate Tribunal (NCLAT) in New Delhi has ruled that the CoC's decision to liquidate the corporate debtor cannot be criticized once it becomes evident that revival is not a feasible option. The tribunal found that the corporate debtor has no assets, the CIRP Period only implies zero returns with avoidable costs such as liquidator's fee, public notice...
The National Company Law Appellate Tribunal (NCLAT) in New Delhi has ruled that the CoC's decision to liquidate the corporate debtor cannot be criticized once it becomes evident that revival is not a feasible option. The tribunal found that the corporate debtor has no assets, the CIRP Period only implies zero returns with avoidable costs such as liquidator's fee, public notice etc.
SVC Cooperative Bank offered term loans and working capital facilities to the principal borrower, M/s Universal Textile Waterproof Company (India) (UTWC), with corporate debtor Shri Balaji Entertainments Pvt Ltd serving as a co-borrower and offering a corporate guarantee. When the UTWC was unable to pay back the money, an application was submitted under section 7 of the code. After the Court of Appeals decided that revival was not a feasible option, the Adjudicating Authority ordered the corporate debtor to be liquidated.
The appellant, Amrit Rajani, argued that the Interim Resolution Professional had shown egregious carelessness by not attempting to examine or confirm the aforementioned statements in order to determine their reality. Furthermore, it was argued that the Interim Resolution Professional failed to conduct a comprehensive analysis of the Financial Creditors' claims while being fully aware of the dispute brought forth by the Appellant before the Adjudicating Authority at the time of his appointment.
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It was contended that the Interim Resolution Professional should have done the necessary due diligence to check the financial creditors' claims because the simple act of admitting the application under Section 7 of the Code does not automatically validate them.
Additionally, it was argued that IRP had acted to hasten the corporate debtor's liquidation without exercising due diligence and that the Resolution Professional's actions of simply documenting claims and marking them as verified without providing evidence, along with the continuous dispute over the validity of the entire claim, showed a malicious intent to force the corporate debtor into liquidation.
On the other hand, the respondent contended that the Adjudicating Authority must issue a liquidation order in accordance with Section 33(2) of the Code if the resolution professional indicates that at least sixty-six percent of voting shares would like to liquidate. It was further argued that the CIRP must terminate and liquidation must begin in accordance with the fundamental concept of value maximization in the event that the corporate debtor has no assets.
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The bench of Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member) and Mr. Indevar Pandey (Technical Member) noted that the corporate debtor lacked assets and records which demonstrated that the revival of the CD was not a viable option therefore, the CoC with 100 percent voting rights decided to liquidate the corporate debtor.
It further added that section 33(2) of the code leaves no option for the Adjudicating Authority when the CoC has taken a decision with 66 percent voting rights except to order liquidation. In the present case, since the decision to liquidate the corporate debtor was taken unanimously,it cannot be said that any error was committed by the Adjudicating Authority in ordering the liquidation of the corporate debtor.
The tribunal found that the corporate debtor has no assets, the CIRP Period only implies zero returns with avoidable costs such as liquidator's fee, public notice etc. The Tribunal held that there is no error in the CoC decision to the Liquidator of the Corporate Debtor which was accepted by the Adjudicating Authority in the Impugned Order.
To Read the full text of the Order CLICK HERE
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