NCLT Hyderabad Recalls Liquidation of Corporate Guarantor After Settlement, Invokes Inherent Powers Under IBC

NCLT Hyderabad Recalls Liquidation of Corporate Guarantor After Settlement, Invokes Inherent Powers Under IBC

Introduction

The National Company Law Tribunal (NCLT) has held that liquidation proceedings can be recalled in appropriate cases by invoking inherent powers, even though the Insolvency and Bankruptcy Code, 2016 (IBC) does not expressly provide for such withdrawal.

A Bench comprising Judicial Member Rajeev Bhardwaj and Technical Member Sanjay Puri exercised inherent jurisdiction to halt the liquidation of Ravi Cranes & Movers Ltd., noting that continuation would defeat the objectives of the Code.

Factual Background

Ravi Cranes & Movers Ltd. was admitted into the corporate insolvency resolution process (CIRP) on September 26, 2022. As no viable resolution plan emerged, the Committee of Creditors (CoC) approved liquidation, and the NCLT passed a liquidation order on September 27, 2024. The corporate debtor had acted as a guarantor for RCM Infrastructure Ltd., the principal borrower.

Procedural Background

Maximus ARC Limited, which became the sole financial creditor after assignment of debt from Union Bank of India and Indian Overseas Bank, filed an application seeking recall of the liquidation proceedings. It was submitted that a comprehensive settlement had been reached with respect to the principal borrower, and CIRP proceedings against RCM Infrastructure Ltd. had already been withdrawn under Section 12A of the IBC.

Issues

1. Whether liquidation proceedings can be recalled despite absence of an express provision under the IBC.

2. Whether settlement of the underlying debt extinguishes the basis for continuation of liquidation.

3. Scope of inherent powers of the NCLT in insolvency proceedings.

Contentions of the Parties

The applicant contended that since the corporate debtor was only a guarantor and the underlying debt had been fully settled, continuation of liquidation proceedings would be unjust and contrary to the objectives of the IBC.

It was also argued that the settlement explicitly contemplated withdrawal of liquidation proceedings against the corporate guarantor.

Reasoning and Analysis

The Tribunal observed that the IBC does not contain a provision similar to Section 12A for withdrawal of liquidation proceedings. However, it held that in exceptional circumstances, the tribunal can invoke its inherent powers to secure the ends of justice.

The Bench noted that once the underlying debt stood fully settled, the very basis for initiation and continuation of CIRP and liquidation proceedings ceased to exist. It further held that continuing liquidation in such circumstances would not advance value maximisation and could lead to inequitable consequences. The Tribunal emphasized that the objectives of the IBC include resolution and value preservation, and not mechanical continuation of proceedings when the underlying cause no longer survives.

Decision

The NCLT allowed the application and recalled the liquidation proceedings against Ravi Cranes & Movers Ltd. It directed that the liquidation process shall not proceed further.

In this case the petitioner was represented by Mr. VVSN Raju, Ld. Counsel.