CoC’s Commercial Wisdom Shields Liquidation from Judicial Review under IBC Section 33(2)
- REEDLAW
- Sep 19
- 3 min read
REEDLAW Legal News Network reports: In a pivotal ruling, the National Company Law Appellate Tribunal (NCLAT), Chennai Bench, affirmed that the commercial wisdom of the Committee of Creditors (CoC) to liquidate a corporate debtor under Section 33(2) of the Insolvency and Bankruptcy Code (IBC) is binding and insulated from judicial review. The Tribunal observed that once liquidation has been completed and third-party rights have accrued, the adjudicating authority cannot interfere with the CoC’s decision to liquidate.
The National Company Law Appellate Tribunal (NCLAT), Chennai Bench, comprising Justice Sharad Kumar Sharma (Judicial Member) and Mr. Jatindranath Swain (Technical Member), while adjudicating a Company Appeal and a connected Interlocutory Application, held that the CoC’s decision under Section 33(2) of the IBC to liquidate the corporate debtor is final and not open to judicial scrutiny once liquidation proceedings have concluded and third-party interests have arisen.
The Appellant challenged the order dated 27 January 2021, by which the Adjudicating Authority allowed an application under Section 33(2) of the Insolvency and Bankruptcy Code, 2016 and ordered liquidation of the Corporate Debtor while appointing the Resolution Professional as liquidator. The Appellant contended that the Corporate Debtor had mortgaged high-value properties to secure loans but defaulted due to financial constraints. After the account was classified as non-performing, the Financial Creditor initiated proceedings under the SARFAESI Act and subsequently auctioned the secured property at a fraction of its market value. Although an initial challenge before the Debts Recovery Tribunal succeeded, the Debts Recovery Appellate Tribunal later confirmed the auction sale. Parallel writ proceedings before the High Court resulted in interim relief, and the matter was remanded, but the auction was again upheld, leaving the dispute sub judice during the Corporate Insolvency Resolution Process.
The Appellant argued that the Committee of Creditors acted with mala fide intent in recommending liquidation, despite the pending writ petitions and the potential for resolution if the auction were set aside. It was alleged that the Resolution Professional failed to protect the Corporate Debtor’s valuable assets and sought liquidation merely to remove the moratorium and enable the Financial Creditor to complete the sale of the mortgaged properties. Applications filed by the Appellant to stay the liquidation and for the removal of the Resolution Professional were dismissed by the Adjudicating Authority.
The Respondents maintained that the order of liquidation was fully consistent with Section 33(2) of the Code, which mandates that once the Committee of Creditors resolves to liquidate, the Adjudicating Authority must pass an order accordingly. It was submitted that the commercial wisdom of the Committee of Creditors is not subject to judicial review absent perversity. The liquidator reported that the liquidation process had been completed, the secured assets sold, and possession handed over to the successful auction purchaser. An application for dissolution of the Corporate Debtor was also filed.
The Appellate Tribunal observed that the liquidation process had already concluded, the sale of assets had been confirmed, and third-party rights had intervened. It noted that the Adjudicating Authority had merely acted on the resolution of the Committee of Creditors and the consent of the Resolution Professional to act as liquidator, which was in conformity with the statutory framework. Given the completion of liquidation and absence of any demonstrated illegality in the order, the appeal was held to be devoid of merit and was accordingly dismissed.
Mr. B. Deepak Narayanan, Advocate, represented the Appellant.
Mr. T. Ravichandran, Advocate, appeared for the Respondent No. 1.
Mr. M.L. Ganesh, Advocate, appeared for the Respondent No. 2.
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