CoC’s Commercial Wisdom Subordinate To Statutory Compliance; Early Dissolution Denied Without Complete CIRP: NCLT Mumbai
Introduction
The Mumbai Bench of the National Company Law Tribunal (NCLT) held that the commercial wisdom of the Committee of Creditors (CoC) cannot override the mandatory statutory requirements under the Insolvency and Bankruptcy Code, 2016 (IBC). The Tribunal emphasised that early dissolution of a corporate debtor cannot be granted merely on the CoC’s recommendation, particularly where essential steps in the Corporate Insolvency Resolution Process (CIRP) remain incomplete.
Factual Background
The matter arose from an application filed by the Resolution Professional under Section 54 of the IBC seeking early dissolution of Jayesh Lifescience India Private Limited. During the CIRP, the CoC comprising Axis Bank Limited and State Bank of India resolved with 100% voting share to proceed with early dissolution. The decision was based on the assertion that the corporate debtor had no identifiable assets and that continuation of the CIRP would only escalate costs. The resolution followed an unsuccessful attempt to invite resolution plans, including issuance of Form G, which failed to attract any compliant resolution applicants.
Procedural Background
Following the CoC’s resolution, the Resolution Professional approached the NCLT seeking dissolution. The application was placed before a Bench comprising Judicial Member Sushil Mahadeorao Kochey and Technical Member Sanjiv Dutt. The Tribunal examined whether the CIRP had been duly completed in accordance with the statutory framework before granting dissolution.
Issues
1. Whether the CoC’s commercial wisdom is determinative in approving early dissolution under Section 54 of the IBC
2. Whether early dissolution can be granted despite incomplete compliance with mandatory CIRP requirements
Contentions of the Parties
The Resolution Professional, relying on the CoC’s unanimous decision, contended that the corporate debtor had no assets and that continuation of the CIRP would result in unnecessary costs. It was argued that in such circumstances, early dissolution would be appropriate and in line with the CoC’s commercial wisdom.
The Tribunal, however, examined the record independently and identified deficiencies in compliance, raising concerns regarding the completeness and propriety of the CIRP process.
Reasoning and Analysis
The Tribunal held that while the CoC’s commercial wisdom is ordinarily accorded deference, it cannot override the statutory mandate requiring a complete and proper conduct of the CIRP. It observed that dissolution cannot be granted solely based on the CoC’s recommendation or assumptions regarding the absence of assets.
The Bench identified several gaps in compliance. It noted that although the corporate debtor was stated to have no assets, records reflected the existence of secured charges over current assets, with no clarity on their identification or realisation. The Resolution Professional had also failed to place complete audited financial statements on record and instead relied on provisional financial data, raising concerns about the accuracy of the financial position.
Significantly, the Tribunal emphasised that no transaction audit had been conducted to examine potential avoidance transactions. It held that such an audit is a mandatory component of the CIRP process and cannot be dispensed with merely on the basis of cost considerations or the CoC’s preference.
The Tribunal concluded that the CoC’s decision appeared to be driven primarily by cost concerns rather than strict compliance with statutory requirements. It reiterated that the Adjudicating Authority must independently satisfy itself that the CIRP has been fully and properly conducted before granting dissolution.
Decision
The NCLT rejected the application for early dissolution and refused to act on the CoC’s recommendation, holding that mandatory CIRP requirements had not been fulfilled.
In this case the appellant was represented by Adv. Aniket Sharma.