The Supreme Court on Wednesday said that principal object of the Insolvency and Bankruptcy Code (IBC) is revival of corporate debtor and to make it a going concern and every attempt should be made to revive it with liquidation being the last resort.

The top court dismissed an appeal filed by an ex-employee of a hotel in Chennai who was aggrieved by the resolution passed by the Committee of Creditors (CoC) for withdrawal of corporate insolvency resolution proceedings (CIRP) and challenged the order of NCLT permitting withdrawal of such CIRP in respect of the corporate debtor (hotel).

On September 13, a two-judge bench of the top court had held that the CoC approved resolution plan submitted to the National Company Law Tribunal (NCLT) cannot be modified or withdrawn as it would create another tier of negotiations, which will be wholly unregulated by the statute.

Also read: IBC — five years young

It had said that a submitted Resolution Plan is binding and irrevocable as between the CoC and the successful Resolution applicant in terms of the provisions of the IBC and the CIRP Regulations.

A bench of Justice LN Rao, BR Gavai and BV Nagarathna, while referring to section 12A of the IBC said that under the provision the Adjudicating Authority (NCLT) is entitled to withdraw the application admitted under Section 7 or Section 9 or Section 10 of the IBC, on an application made by the applicant with the approval of 90 per cent voting share of the CoC.

“It could thus be seen that one of the principal objectives of the IBC is providing for revival of the Corporate Debtor and to make it a going concern. Every attempt has to be first made to revive the concern and make it a going concern, liquidation being the last resort,” the bench said, in its verdict on a batch of pleas against NCLAT order.

The top court said that in the present case it is not in dispute that the resolution of CoC approving withdrawal of CIRP proceedings was supported by the requisite voting majority. “NCLT after considering the resolution passed by CoC in its 8th meeting held on May 25, 2021 has allowed the application filed by KN Rajakumar vide order dated June 4, 2021,” the bench said.

Also read: Centre clears appointments for 18 members to NCLT, 13 members for ITAT

It said that from the order of NCLT dated June 4, 2021, it could be seen that the Corporate Debtor has already settled the issue with the erstwhile financial creditors, who have resolved to withdraw the CIRP proceedings and “by virtue of withdrawal of CIRP proceedings, the Corporate Debtor now is a going concern.”

The top court noted that the ex-employee D Ramjee, in pursuance of the assurance given before NCLAT, an amount of ₹18,50,000 was paid towards arrears of salary by the Corporate Debtor.

“We find that NCLT vide order dated July 6, 2021, passed in the application… filed by D Ramjee, has rightly held that from the date of the order dated June 4, 2021, after the withdrawal of CIRP proceedings, the powers and management of the Corporate Debtor were handed over to the Directors of the Corporate Debtor and from that date Resolution Professional and CoC in relation to the Corporate Debtor had become functus officio,” it said. The top court noted that the Corporate Debtor was incorporated under the provisions of the Companies Act, 1956 on September 9, 1960.

It had started various businesses like sugar, distillery, flour mill, chemical unit, finance company, a four-star hotel etc. in Chennai, but as on date owns only a hotel in Chennai. It said that the hotel business of the Corporate Debtor was shut down for more than 7 years.

Related Topics
comment COMMENT NOW