Legality of Liquidation Filing Post-CIRP Expiry: Upholding Committee of Creditors’ Commercial Wisdom and Insolvency Code Compliance
- REEDLAW
- Oct 12
- 4 min read
REEDLAW Legal News Network reports: In a pivotal ruling, the Appellate Tribunal reaffirmed that when the Corporate Insolvency Resolution Process (CIRP) period concludes without the approval of any resolution plan, the Resolution Professional possesses the statutory authority to initiate liquidation, provided the Committee of Creditors (CoC) consents to such a move. The decision underscored that the CoC’s commercial wisdom, including its abstention from voting, is beyond judicial scrutiny and remains a crucial safeguard for ensuring timely realisation and asset maximisation under the Insolvency and Bankruptcy Code, 2016.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Rakesh Kumar Jain (Judicial Member) and Mr. Naresh Salecha (Technical Member), while adjudicating a Company Appeal and connected Interlocutory Application, held that once the CIRP period expired without an approved resolution plan, the Resolution Professional was legally entitled to file for liquidation with the consent of the Committee of Creditors. The Bench observed that the commercial wisdom of the CoC, even when certain members abstain from voting, is immune from judicial interference and must be respected to uphold the sanctity of the insolvency process and the objective of value maximisation enshrined in the Code.
The appeal was filed by the Unsuccessful Resolution Applicant challenging the order of the National Company Law Tribunal (NCLT), Ahmedabad Bench, which allowed the Resolution Professional’s (RP) application under Section 33(2) of the Insolvency and Bankruptcy Code, 2016, for the liquidation of the Corporate Debtor. The Financial Creditor had initiated insolvency proceedings through a Section 7 application, resulting in the constitution of the Committee of Creditors (CoC) consisting solely of a single financial creditor with 100% voting rights. The RP published invitations for expression of interest from prospective resolution applicants (PRAs), including the Appellant, who submitted multiple resolution plans with increasing financial proposals. However, the CoC abstained from voting on all resolution plans, neither approving nor rejecting any, resulting in the RP filing for liquidation.
The RP’s application for liquidation was sanctioned after the Corporate Insolvency Resolution Process (CIRP) period expired without an approved resolution plan. The CoC, exercising commercial wisdom, abstained from voting on the resolution plans. The Appellant contended that abstention did not constitute rejection and that the CoC misused the liquidation mechanism merely as a debt recovery tool, ignoring viable resolution plans for revival. Despite this, the Tribunal found that the sole member of the CoC had validly exercised its commercial wisdom by abstaining, which cannot be questioned by the Appellant.
Further, it was held that the RP was entitled to file an application for liquidation after the expiry of the CIRP period. The CoC had consented to the filing and to the proposed liquidator’s nomination. The e-auction conducted thereafter sold the Corporate Debtor as a going concern at a significantly higher price than the Appellant’s highest proposal. The Court noted that the CoC had maximised the value of the Corporate Debtor within the statutory time frame. Consequently, the appeal was dismissed on the basis that the Appellant was not an aggrieved person under Section 61 of the Code, and no illegality was found in the liquidation order.
The judgment affirmed that once the CIRP expires without an approved resolution plan, the RP is mandated to initiate liquidation under Section 33(1), subject to the CoC’s consent, which here was obtained. The commercial wisdom of the CoC, even if exercised through abstention, stands protected from judicial interference. The order of liquidation and subsequent sale was consistent with the objectives of the Code to ensure timely resolution or liquidation where revival fails, safeguarding stakeholder interests and asset maximisation.
This decision underscores the primacy of the CoC’s commercial wisdom, the procedural correctness of liquidation initiation after CIRP expiry, and the limited scope for challenging CoC decisions on resolution plan approvals or rejections, particularly where no alternative resolution is forthcoming.
Mr. Pradeep Kumar, Ms. Shipra and Mr. Gaurav Garg, Advocates, represented the Appellant.
Mr. Sunil Fernandes, Sr. Advocate, Mr. Chitranshul A. Sinha, Ms. Pallavi, Mr. Shivam Shorewala, Ms. Rakshita Bhargava, Ms. Rajshree Chaudhary, and Ms. Diksha Dadu, Advocates, appeared for the Respondent No. 1.
Mr. Deepayan Mandal, Mr. Naman Varma, Mr. Mridul Bansal, Advocates, appeared for the Respondent No. 2.
Mr. Apar Gupta and Mr. Naman Kumar, Advocates, appeared for the Respondent No. 3.
Mr. Navin Pahwa, Sr. Advocate, Mr. Himanshu Satija and Mr. Harsh Saxena, Advocates, appeared for Respondent No. 4 to 7.
This is premium content available to our subscribers.
To access the full content related to this article — including the complete judgment, detailed legal analysis, ratio decidendi, headnotes, cited case laws, and updates on relevant statutes and notifications — we invite you to subscribe to REEDLAW’s premium research platform.
Click here to Subscribe and unlock exclusive access to structured legal analysis, judicial summaries, and a comprehensive legal research database.
Already a subscriber? Click the link below to access the full document and linked case laws.
REEDLAW Legal Research & Analysis is India’s most trusted legal publishing and research platform, empowering legal professionals with structured judicial insights and authoritative legal intelligence since 1985.
Our comprehensive legal intelligence platform covers Corporate Insolvency, Bankruptcy, SARFAESI, Company Law, Contract, MSMEs, Arbitration, Debt Recovery, and Commercial Laws. Through curated journals — IBC Reporter and Bank CLR — and an advanced digital database, REEDLAW simplifies complex legal research for professionals, institutions, and academia across India.
Comments