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JC - Insights - Decision for liquidation of CD made by COC consisting of related parties is unsustainable - NCLAT


08 Jun 2021

Decision for liquidation of CD made by COC consisting of related parties is unsustainable - NCLAT

An order for liquidation of corporate debtor, passed on the basis of the sole decision of financial creditors was held to be fatal for the existence of the corporate debtor and was unsustainable. It was found that the decision for liquidation was made by the Committee of Creditors (“CoC”), which comprised of creditors that were in fact related parties and had entered the COC through acts of commercial contrivance.

The NCLAT, New Delhi held the above vide its order dated 4th June 2021 in the matter of Jayanta Banerjee v. Shashi Agarwal & Anr. The NCLAT in the matter observed that where the constitution of the COC itself is found to be tainted, then the decisions of that COC cannot be validated on the pretext of exercise of commercial wisdom.

The NCLAT also pertinently held that without verification and admission of a claim, the Interim Resolution Professional/Resolution Professional (“IRP/RP”) cannot assign the voting share to a creditor, and without that, there cannot be a meeting of the COC. The NCLAT in this regard observed that the statutory provisions for the conduct of the corporate insolvency resolution process are interlinked and do not leave any scope to the IRP/RP to skip any of the provisions provided under the statute.

Considering the above, the NCLAT, in its judgment, inter alia, issued the following directions:

(a) Quashed the NCLT’s order initiating liquidation proceedings and restored the application u/s. 9 of the Insolvency Bankruptcy Code, 2016; and

(b) Directed the NCLT to appoint a new IRP/RP to replace the existing Liquidator(who was the erstwhile IRP/RP).

Judgment copy

For any further information, please contact Mr. Shubhabrata Chakraborti (shubhabrata.chakraborti@jclex.com) or Mr. Dhruv Malik (dhruv.malik@jclex.com).