The Supreme Court on Wednesday said that one of the principal objects of the Insolvency and Bankruptcy Code (IBC) is providing for revival of the corporate debtor, and liquidation should be the last resort.
A bench of Justices L. Nageswara Rao, B.R. Gavai and B.V. Nagarathna said: “It could thus be seen that one of the principal objects 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.”
Referring to Section 12A of the IBC, the bench observed that under the provision, the adjudicating authority, the National Company Law Tribunal, is entitled to withdraw the application admitted under Section 7 or Section 9 or Section 10, on an application made by the applicant with the approval of 90 per cent voting share of the Committee of Creditors (CoC).
The court’s stand came as it dismissed an appeal filed by a Chennai hotel’s ex-employee, aggrieved by the resolution passed by the CoC for withdrawal of corporate insolvency resolution proceedings (CIRP) and challenging the order of the NCLT permitting withdrawal of such CIRP in respect of the corporate debtor (hotel).
In the judgment, the bench said: “It is not in dispute that the resolution of the CoC approving withdrawal of CIRP proceedings was supported by the requisite voting majority. The NCLT, after considering the resolution passed by the CoC in its 8th meeting held on May 25, 2021, has allowed the application filed by K.N. Rajakumar vide order dated June 4, 2021.”
Citing the NCLT’s June 4 order, the bench said 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 bench noted in pursuance of the assurance given before the NCLAT, an amount of Rs 18,50,000 was also paid to the ex-employee D. Ramjee towards arrears of salary by the corporate debtor.
In conclusion, the bench said: “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.”