Liquidation under IBC can be ordered in Absence of Pending CIRP: NCLAT [Read Order]

The National Company Law Tribunal (NCLT) New Delhi Bench has held that liquidation under the Insolvency Bankruptcy Code (IBC), 2016 can be ordered in the absence of a Pending Corporate Insolvency Resolution Process (“CIRP”). The liquidation operates once the statutory period under Section 12 has lapsed without receipt of any Resolution Plan.

An Application was filed by M/s Peejay Finance Company Limited (Financial Creditor) to initiate Corporate Insolvency Resolution Process (“CIRP”) against M/s V.S. Matrix Pvt. Ltd. (Corporate Debtor) under Section 7 of the Code before this Adjudicating Authority. This Adjudicating Authority vide order dated 30.08.2019 admitted the Application, declared a moratorium and appointed Mr. Vineet Aggarwal as Interim Resolution Professional (IRP). The erstwhile Resolution Professional, Mr. Vineet Aggarwal was subsequently appointed as the Resolution Professional by the Committee of Creditors (“CoC”) on 07.11.2019.

The erstwhile Resolution Professional convened the 2nd and 3rd CoC meetings on 06.01.2020 and 24.02.2020 respectively. During the 3rd CoC meeting, it was disclosed that the claim of Mr. Rajiv Aggarwal had been admitted by the erstwhile RP as a financial debt, resulting in an allocation of 66% voting share to him, which was objected to by IDBI Bank Limited [Applicant in IA (Liq)-11/2025] and other members of the CoC.

The IDBI Bank Limited filed I.A. No. 985 of 2022 seeking removal and replacement of the Resolution Professional, and another financial creditor filed I.A. No. 2725 of 2021 for the same purpose. That vide order dated 22.04.2022, this Adjudicating Authority directed the applicants in the aforementioned IAs to approach the Insolvency and Bankruptcy Board of India (IBBI) before seeking further directions.

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The IBBI suspended the registration of the erstwhile Resolution Professional for a period of two years. In view of this, IDBI Bank Limited, one of the Financial Creditors, pursued replacement of the erstwhile Resolution Professional. That vide order dated 24.05.2023, this Adjudicating Authority removed Mr. Vineet Aggarwal and appointed Mr. Bimal Kumar Sharma (Registration No. IBBI/IPA-001/IP-P00542/2017-2018/10967) as Resolution Professional, directing him to submit his consent form within one week.

The order was communicated to Mr. Bimal Kumar Sharma, the present Resolution Professional on 08.07.2023. On 13.07.2023, the present Resolution Professional filed I.A. No. 3876 of 2023 placing on record his written consent and developments after his appointment, which was allowed on 27.07.2023. At the time of taking charge, the CIRP period under Section 12 of the Code had already expired. The Resolution Professional proposed convening the 4th CoC meeting on 10.08.2023 to discuss and resolve upon filing an application for exclusion of the period from 30.08.2019 to 13.07.2023 and extension of the CIRP period.

It is an admitted position that the CIRP of the Corporate Debtor commenced on 30.08.2019 pursuant to an order of admission under Section 7 of the Code. Owing to various procedural events including removal of the erstwhile Resolution Professional, disputes on claim admissions, and regulatory actions, substantial periods were excluded by this Authority vide orders dated 19.02.2024 and 07.05.2024, and CIRP was directed to be commenced de novo vide order dated 10.10.2023 after appointment of the present Resolution Professional on 24.05.2023.

The Liquidation Applicant has contended that, despite multiple extensions and exclusions, no resolution plan has been received, the CIRP has become financially burdensome, the sole asset remains out of the Resolution Professional’s possession, and no avoidance or transaction audit applications have been filed, leading to erosion of the insolvency estate. It is further the Liquidation Applicant’s case that the statutory period has expired, and under Section 33(1)(a), Liquidation is a mandatory consequence.

The Resolution Professional, on the other hand, submits that when he was appointed, the CIRP had already expired, yet this Authority permitted its continuation and directed a de novo commencement; that steps have been taken including public announcement, constitution of CoC, issuance of Form G, and filing of I.A. No. 3151 of 2024 for recovery of the sole asset; that the CoC has thrice rejected a proposal for Liquidation; and that I.A. No. 5765 of 2024 for 90 days’ extension is pending adjudication, supported by a CoC resolution. The Resolution Professional contends that exclusion/extension is justified considering the judgments recognising exceptional circumstances such as pending asset recovery, and that Liquidation at this stage would be premature.

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The record shows that, even after de novo commencement on 10.10.2023, the Resolution Professional has had more than a year, inclusive of the last granted extension, to secure a Resolution Plan. The final extended date of CIRP expiry was 14.11.2024. However, no Resolution Plan was received by that date. While I.A. No. 5765 of 2024 seeks an additional 90 days from 14.11.2024, the pendency of such an application does not, in law, permit CIRP to continue beyond the statutory maximum in the absence of a resolution plan.

The two member bench of Dr Sanjeev Ranjan and Bachu Venkat Balaram Das held that section 33(1)(a) of the Code provides that where no resolution plan is received before the expiry of the period permitted under Section 12, this Authority shall order Liquidation of the Corporate Debtor.

The use of “shall” makes the provision mandatory. While the commercial wisdom of the CoC is ordinarily accorded due weight, once the statutory period under Section 12 has lapsed without receipt of any Resolution Plan, the mandate of Section 33(1)(a) operates, and this Adjudicating Authority is duty bound to pass an order for Liquidation.

The submission of the Resolution Professional that an Application seeking further exclusion is pending, or that the CIRP can continue if possession of the Corporate Debtor’s asset is obtained, cannot override the statutory consequence mandated under Section 33(1)(a) upon expiry of the CIRP period without receipt of a resolution plan. However, it is noted that I.A. No. 3151 of 2024, seeking directions for handover of the sole asset of the Corporate Debtor, is pending adjudication.

The Tribunal found no merit in seeking extension of the CIRP period and is of the view that Liquidation of the Corporate Debtor should commence forthwith in terms of Section 33(1)(a) of the Code. The Insolvency and Bankruptcy Board of India (IBBI) vide its circular number Liq-12011/214/2023-IBBI/840 dated 18/07/2023 in the exercise of its powers conferred under Section 34(4)(b) of the Code had recommended that an IP other than the RP/IRP may be appointed as Liquidator in all the cases where Liquidation order is passed henceforth and the Liquidator can be appointed from the panel list of the IBBI.

Mr. Bimal Kumar Sharma, the Resolution Professional of the Corporate Debtor is relieved from the present assignment as the Resolution Professional. The present Resolution Professional is directed to hand over the relevant documents and control of the Corporate Debtor to the newly appointed Liquidator forthwith.

The Liquidator will charge fees for the conduct of the Liquidation proceedings in proportion to the value of the Liquidation estate as specified by the IBBI and the same shall be paid to the Liquidator from the proceeds of the Liquidation estate under Section 53 of the Code.

The Liquidator shall initiate the Liquidation process as envisaged under Chapter-III of the Code and the Insolvency & Bankruptcy Board of India (Liquidation Process) Regulations, 2016.

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