In its ruling dated April 6, 2022, in the case of CFM Asset Reconstruction Private Limited v. S. S. Natural Resources Private Limited and Others [IA No. 538/KB/2021 in CP (IB) No. 349/KB/2017], the National Company Law Tribunal, Kolkata ("NCLT") held that a corporate debtor could not be placed into liquidation simply because the liquidation value exceeds the value of the resolution plan.
In the instant case titled CFM Asset Reconstruction Private Limited v. S. S. Natural Resources Private Limited and Another the issue raised for clarification before the NCLAT was:
Whether a corporate debtor can be sent into liquidation simply because the liquidation value exceeds the resolution plan's worth?
With regard to this issue, the NCLT noted that the land holding in the name of Vanguard was clearly the focal point of the overall resolution strategy. It went on to say that SRA had asked that the money it had paid for things like workmen's compensation be maintained in an escrow account rather than being released to the creditors since doing so would harm SRA irreparably. The NCLT did not find this an unreasonable request or that SRA had engaged in dishonest behaviour by making it.
The NCLT further noted that the preamble of the IBC places a strong focus on insolvency resolution within the set timelines, as was judicially noted by the SC in the Veer Gurjar Judgment. Liquidation should only be used as a last option after all other options have been exhausted. There is a successful resolution applicant in this instance who is prepared and eager to carry out the approved resolution plan exactly as it is. Although there were some delays in the Corporate Debtor's insolvency resolution procedure because so many appeals ended up being filed all the way to the Supreme Court, SRA has finally parked the entire resolution sum in an account specifically designated for this use.
A mechanical interpretation that once a default is established, liquidation should follow would not serve the objects of the IBC, the NCLT remarked in light of the aforementioned considerations. Therefore, in order to complete the resolution plan, the NCLT ordered that the Corporate Debtor's management be transferred to SRA. As a result, the NCLT rejected the interlocutory applications.
The NCLAT categorically stated that,
"CFM-ARC is admittedly pursuing its application for liquidation because the liquidation value is more than the enterprise value. But that cannot be a ground for sustaining this application, nor is it in line with the objects of the Code. Sending the Corporate Debtor into liquidation just because the liquidation value is more than the enterprise value, would not be in keeping with the objectives
of the Code. The Code is not about maximising value at all costs even if it means corporate death, which will inevitably ensue if the company is sent into liquidation. The challenge in IA (IB) No.538/ KB/2021 to the implementation of the approved Resolution Plan must, therefore, fail on this touchstone.