Supreme Court: 'Liquidation of a Corporate Debtor Should be a Matter of Last Resort' under IBC
The Supreme Court in the case of Kridhan Infrastructure Pvt. Ltd. (Now known as Krish Steel & Trading Pvt. Ltd.) vs. Venkatesan Sankaranarayan & Ors. observed that under the Insolvency and Bankruptcy Code, 2016(IBC) proceedings, liquidation of a corporate debtor should be a matter of last resort.
This observation was made by the three judges bench comprising of Hon'ble Justices DY Chandrachud, Indu Malhotra and Indira Banerjee which came in an appeal filed against the order passed by the National Company Law Appellate Tribunal (NCLAT) by its order dated 8 September 2020 which upheld an order of liquidation against the appellant corporate debtor.
On 7th August 2017, a Corporate Insolvency Resolution process (CIRP) had been set in motion against the appellant (Corporate Debtor). The Resolution Plan submitted by the appellant was approved on 30 April 2018 by the Committee of Creditors (CoC).
The Resolution Plan was approved by the NCLT on 15 May 2019. However, this resolution plan, despite being approved, was not implemented and as such the NCLT was moved with an application under Section 33 of the Insolvency and Bankruptcy Code, 2016 (IBC), seeking liquidation of the Corporate Debtor. In January this year, the NCLT allowed this petition for liquidation.
The appellant filed an appeal before the National Company Law Appellate Tribunal (NCLAT) on 3 February 2020. A revised time line was drawn upon, under which the appellant was supposed to make a payment upfront of Rs 15 crores within seven days of the order of the NCLAT, which was liable to be forfeited if the appellant failed to make the balance upfront payment of Rs 50 crores within three months thereafter.
The NCLAT by its order 29 July, 2020 allowed the appellant to make the first round of payment which was complied with. Then on 18 August 2020, the appellant was asked furnish an undertaking in line with the agreement arrived at, with respect to payments to be made. Despite the same, however, in September, the NCLAT upheld the order of liquidation and dismissed the appeal.
Mr Ashish Makhija, learned counsel appearing on behalf of the liquidator had opposed to the appeal submitted. According to the liquidator the appellant did not take steps following the approval of the Resolution Plan in May 2019 for complying with its obligations.
Against this order of the NCLAT that the Top Court was moved, which noted that recovery of money is not the sole object under the IBC and proceeded to stay with the order of the NCLAT.
The Court observed that the appellant had demonstrated the bona fides, at least prima fides by making the required payments within the fixed time period and is specifically placed on notice if he preludes to a fiasco in whole or in part, the entire amount of Rs 20 crores which has been deposited thus far, shall stand forfeited without any further recourse to the appellant.
Further the court directed the appellant in order to "demonstrate its ability to implement the Resolution Plan" and in compliance with the understanding arrived at on 25 February 2020 deposit an amount of Rs 50 crores, on or before 10 January 2021. No properties of the debtor would be auctioned for the time being, the Court further said. The matter for appeal was further listed on 12 January 2021.