The National Company Law Appellate Tribunal has held that the legislative fiat of Section 33(2) of the Insolvency and Bankruptcy Code, 2016, read with the explanation clause, empowers the Committee of Creditors to decide to initiate liquidation even before inviting resolution plans i.e., the power given to the CoC to take decisions for liquidation is of a wide amplitude which can be exercised immediately after constitution of the CoC.
The Appellate Tribunal observed that Section 33(2) of the IBC unambiguously shows that it is not incumbent upon the CoC to complete the steps for resolution of the Corporate Debtor before exercise of its jurisdiction to pass an order of liquidation of the Corporate Debtor.
Such a decision can be taken “any time” during the CIRP as long as it precedes confirmation of the resolution plan. Significantly, the phrase “any time” has been used again in the Explanation clause under Section 33(2) which was inserted later by an amendment vide Act No. 26 of 2019.
The bench of Chairperson Justice Ashok Bhushan observed that this use of the phrase “any time” twice clearly reinforces the legislative intent to empower the CoC to decide to liquidate the Corporate Debtor any time after its constitution even before the preparation of the Information Memorandum but before confirmation of the resolution plan.
The issue before the Appellate Tribunal was related to whether the CoC with a 100% vote share could have directly proceeded with the liquidation of the Corporate Debtor without taking any steps for the resolution of the Corporate Debtor.
The Appellate Tribunal highlighted that the CoC’s decision to liquidate cannot be looked upon as abrupt and hasty or arbitrary.
The Appellant contended that the decision of the CoC to liquidate the Corporate Debtor was arbitrary and therefore lacked merit.
The only grounds on which a liquidation order passed under Section 33 can be challenged are on grounds of material irregularity or fraud as provided under Section 61(4) of the IBC.
The judgment was pronounced by the bench of Justice Ashok Bhushan (Chairperson), Barun Mitra, and Arun Baroka (Technical Member).>
