Liquidation Order u/s 33 of IBC Cannot be Set Aside Once Successful Auction Purchaser Taken Possession of Property of Corporate Debtor: NCLAT [Read Order]

The Chennai bench of the National Company Law Appellate Tribunal (NCLAT) has held that once the Successful Auction Purchaser has acquired the corporate debtor's assets as a result of the liquidator's sale, the order issued under Section 33(2) of the Insolvency and Bankruptcy Code, 2016 (Code) directing the corporate debtor's liquidation cannot be revoked.

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In order to contest a decision issued under section 33(2) of the Code that ordered the liquidation of the corporate debtor and designated Respondent No. 1 as the liquidator, the appellant, P. Navcen Chakravarlhy, filed this appeal.

After borrowing Rs. 10.76 crores from Respondent No. 2 on March 30, 2011, the Corporate Debtor mortgaged the industrial premises at SIPCOT Industrial Complex, Gummudipoondi Taluk, and another property in Ponneri against the loan on March 14, 2014. In response to an application submitted by M/s. Sri Balaha Chemicals Private Limited, the Adjudicating Authority issued an order on July 30, 2019, admitting the Corporate Debtor into the Corporate Insolvency Resolution Process (CIRP) Proceedings.

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Since the corporate debtor's assets were under judgment, the appellant argued, the Committee of Creditors (CoC) held off on issuing an EoI until the sixth meeting in order to await the outcome of the writ proceedings. It was further argued that, despite the fact that the corporate debtor had been non-operational since 2015, the CoC decided to liquidate it with malice at its ninth meeting, disregarding the fact that this was due to symbolic possession under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).

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In contrast, the liquidator argued that the liquidation order was issued in compliance with section 33(2) of the code, which stipulates that the liquidation can only be imposed with the CoC's approval. The instant appeal is no longer valid because the liquidation process is over, the corporate debtor's property has been seized by the Successful Auction Purchaser, and a dissolution application under section 54 of the code is still pending.

It was argued that the Debt Recovery Appellate Tribunal's (DRAT) ruling, which overturned the Debt Recovery Tribunal's (DRT) decision to halt the sale, had been overturned by the High Court. However, the liquidator pushed for the liquidation and retracted the writ petition, therefore his challenge to the DRAT's order and subsequent proceedings at the DRAT failed. Regardless, the liquidation is finished, the assets have been sold, and the possession has been transferred.

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The bench of Justice Rakesh Kumar Jain (Judicial Member) and Mr. Jatindranath Swain (Technical Member) observed  that the appellant did not contest the liquidation's conclusion. The resolution adopted by the CoC at its ninth meeting, which recommended liquidation, was logically followed by the contested decree dated January 27, 2021. The Adjudicating Authority ordered the liquidation based on the CoC's judgment and the Resolution Professional's permission; this decision was made without violating any Code requirements.

While dismisisng the appeal, the Tribunal held that since the liquidator has completed the sale creating third party interest, the appeal deserves to be dismissed and the claim for indemnification ceases as the auction purchaser now holds the possession.

To Read the full text of the Order CLICK HERE

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