DATE OF JUDGMENT:
- Hon’ble Justice L Nageswara Rao
- Hon’ble Justice BR Gavai
- Hon’ble Justice BV Nagarathna
- Appellant: K. N. Rajakumar
- Respondent: V. Nagarajan & Ors.
This judgment talks about reviving the corporate debtor, making it a going concern rather than liquidation being the principal objective of the Insolvency and Bankruptcy Code. Every attempt has to be made towards this and liquidation is to be considered as the last resort.
- The Corporate Debtor was a company incorporated under the Companies Act, 1956. It had various business divisions such as sugar, distillery, finance company, and hotels. The hotel business of the corporate debtor was shut down for over 7 years. The Committee of Creditors (CoC) had passed a resolution to withdraw the Corporate Insolvency Resolution Process(CIRP).
- The former employee of a hotel, being aggrieved by this resolution, challenged the order of the National Company Law Tribunal (NCLT) which allowed the withdrawal of CIRP proceedings in respect of a Corporate Debtor.
- Section 12A of the Insolvency and Bankruptcy Code- It states that the Adjudicating Authority may allow the withdrawal of application admitted under Section 7,
- 9, 10, on an application made by the applicant with the approval of 90% voting share of the committee of creditors.
- Section 7 of the Insolvency and Bankruptcy Code- It states that a financial creditor, may file an application for initiating Corporate Insolvency Resolution Process against a corporate debtor before the Adjudicating Authority when a default has occurred.
- Section 10 of Insolvency and Bankruptcy Code- It talks about initiation of Corporate Insolvency Resolution Process by corporate applicant, where a corporate debtor has committed a default.
- Does the application filed by the ex-employee have any locus standi in the proceedings initiated by the Corporate Debtor for withdrawal of CIRP proceedings?
- A bench of the Supreme Court held that under Section 12A of the IBC, the Adjudicating Authority, NCLT is entitled to withdraw an application if the applicant has obtained the approval of at least 90 percent of the voting share of the Committee of Creditors.
- The Court dismissed the appeal filed by the ex-employee stating that the resolution passed by the Committee on CIRP's meeting on May 25, 2021, was supported by the requisite majority and only then approved by the NCLT.The court held that the resolution plan approved by the CoC and submitted to NCLT cannot be modified or withdrawn as it would be totally unregulated.
- The corporate debtor has already reached a settlement with its erstwhile financial creditors, which have agreed to withdraw the CIRP proceedings. As a result, the corporate debtor is now a going concern.As per NCLAT's decision, the bench noted that Rs 18.5k is to be paid towards the arrears of salary of D. Ramjee, who worked for a corporate debtor.
The CIRP Resolution Plan is binding and is irrevocable as it is between the CoC and the Resolution Applicant. Every attempt to revive the concern has to be made to make it a going concern. Liquidation of the company should be considered as a last resort.
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Hope you enjoyed reading this judgement. Here are a few questions for you, let us know your answers in the comments sections-
- Which section of the IBC empowers NCLT to allow the withdrawal of application for initiating corporate insolvency resolution process with 90% voting approval of COC?
- Is the main objective of IBC to facilitate revival of corporate debtor or liquidate it?