NCLAT Upholds Committee of Creditors' Power to Liquidate Without Resolution Steps in CIRP

Introduction

The case of Sunil S. Kakkad v. Atrium Infocomm Pvt Ltd & Anr. adjudicated by the National Company Law Appellate Tribunal (NCLAT) on August 10, 2020, addresses critical aspects of the Insolvency and Bankruptcy Code, 2016 (I&B Code). The appellant sought to overturn the liquidation order of Atrium Infocomm Pvt Ltd, arguing procedural lapses and the failure to pursue resolution avenues. This commentary explores the court’s reasoning, its alignment with existing legal precedents, and the broader implications for corporate insolvency resolution processes.

Summary of the Judgment

The appellant, Sunil S. Kakkad, contested the liquidation of Atrium Infocomm Pvt Ltd initiated by the Committee of Creditors (CoC) with unanimous support. The primary contention was that the Resolution Professional (RP) failed to adequately pursue resolution measures, such as preparing an Information Memorandum or inviting Expressions of Interest (EOI). Despite these arguments, the NCLAT upheld the liquidation order, affirming the CoC's authority to liquidate without exhausting all resolution steps, especially when they collectively decide that revival is unfeasible.

Analysis

Precedents Cited

The judgment extensively references the Supreme Court decision in K. Sashidhar v. Indian Overseas Bank (2019), which underscored the limited scope of NCLAT’s jurisdiction. The court highlighted that the CoC's commercial decisions, such as rejecting resolution plans or opting for liquidation, are generally non-justiciable. This precedent was pivotal in reinforcing the CoC’s autonomy in decision-making processes within CIRP under the I&B Code.

Legal Reasoning

The NCLAT's legal reasoning centered on the interpretation of Section 33(2) of the I&B Code, which empowers the CoC to decide on liquidation at any stage before the confirmation of a resolution plan. The tribunal observed that the CoC, having achieved 100% vote share, was within its rights to conclude that liquidation was the most viable option, especially given the company's non-operational status over five years. The tribunal emphasized that the I&B Code prioritizes resolution but allows liquidation as an exception when deemed necessary by the CoC.

Furthermore, the tribunal dismissed the appellant's claims of procedural violations and non-compliance, maintaining that the CoC's decision was rooted in commercial judgment rather than any administrative oversight. The emphasis was on the legislative intent of the I&B Code to facilitate both resolution and liquidation, based on creditor consensus.

Impact

This judgment reinforces the significant authority vested in the CoC, allowing creditors to steer the insolvency process towards liquidation without being bound to exhaust every resolution avenue. It underscores the principle that commercial decisions, particularly unanimous ones, are shielded from judicial interference unless there is a clear statutory violation. This serves as a crucial precedent for future CIRP cases, delineating the boundaries of creditor autonomy and judicial oversight.

Complex Concepts Simplified

Committee of Creditors (CoC)

The CoC comprises all financial creditors of a corporate debtor. It holds the ultimate decision-making power in the insolvency resolution process, including approving resolution plans or deciding to liquidate the company.

Resolution Professional (RP)

An RP is appointed to manage the debtor's affairs during the CIRP, which includes collecting claims, assessing the company's financial health, and facilitating the resolution process.

Expression of Interest (EOI)

EOI is an invitation issued to potential resolution applicants to submit their proposals for reviving the distressed company. It is a critical step in finding a viable resolution plan.

Liquidation

Liquidation refers to the process of winding up a company's affairs, selling off its assets, and discharging its liabilities when resolution is not feasible.

Conclusion

The NCLAT's decision in Sunil S. Kakkad v. Atrium Infocomm Pvt Ltd & Anr. underscores the robust authority of the Committee of Creditors within the CIRP framework of the I&B Code. By upholding the liquidation order despite procedural objections, the tribunal affirmed that creditor consensus, especially unanimous decisions, are paramount in determining the fate of a corporate debtor. This judgment not only clarifies the extent of CoC's powers but also reinforces the non-justiciable nature of their commercial decisions, thereby shaping the landscape of corporate insolvency resolution in India.