NCLAT emphasized that granting extensions for payment did not constitute a modification of the Resolution Plan.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench of Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical member) were hearing an appeal and held that the Adjudicating Authority's decision to liquidate the Corporate Debtor was wrong because the extension of payment timelines by the Financial Creditors did not alter the Resolution Plan. Failure to meet these extended timelines did not justify liquidation. Additionally, the Respondent's failure to involve key parties and disclose relevant events contributed to the dismissal of the liquidation order.
The National Company Law Appellate Tribunal (NCLAT) heard two appeals against the order of the National Company Law Tribunal, Mumbai Bench, dated February 13, 2023, allowing the liquidation of S.K. Wheels Private Limited, pursuant to an application filed by Edelweiss Asset Reconstruction Company Limited (Respondent No.1).
The Appeals (Company Appeal (AT) (Insolvency) No.499 and No.519 of 2023) were filed by Cosmos Cooperative Bank Limited, a Financial Creditor with a 48.42% vote share in the Committee of Creditors (CoC), and the Successful Resolution Applicant respectively. The Appeals challenged the liquidation order.
The background revealed that the Corporate Insolvency Resolution Process (CIRP) against S.K. Wheels Private Limited commenced on March 29, 2019, with Mr. Vishal Ghishulal Jain appointed as the Resolution Professional (RP). The Resolution Plan submitted by the Promoter/Director of the Corporate Debtor was approved by the CoC on January 23, 2020, with 75.78% vote share. However, subsequent events led to the RP filing for liquidation under Section 33(3) of the Insolvency and Bankruptcy Code, 2016 (the "Code").
The Appellants argued that the Adjudicating Authority erred in considering an extension of payment timeline as a modification of the Resolution Plan, thereby allowing liquidation. They contended that such an extension was not a modification. Additionally, they highlighted that the majority decision of the CoC against liquidation and the subsequent resolution granting further time for payment were ignored.
Respondent No.1 countered, asserting that the failure of the Successful Resolution Applicant to comply with payment obligations justified the liquidation application. They argued that the Applicant's failure to make payments within the specified timeline demonstrated a contravention of the Resolution Plan.
The NCLAT examined the proceedings and noted that the CoC's decision against liquidation, along with the subsequent resolution granting further time for payment, were relevant. The Tribunal found fault with the Adjudicating Authority's conclusion that not liquidating the Corporate Debtor would amount to modifying the Resolution Plan, which was impermissible under the Code.
Referring to precedent cases, the NCLAT emphasized that granting extensions for payment did not constitute a modification of the Resolution Plan. Moreover, it noted that Respondent No.1's failure to implead relevant parties and disclose subsequent events undermined their case. Ultimately, the NCLAT set aside the liquidation order, emphasizing the importance of adhering to procedural fairness and the CoC's decisions in insolvency proceedings.
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