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comes to an end and no proposal for resolution has been submitted or where the resolution plan does
comply with the required conditions

(b) Failure to. comply with the terns of the resolution plan

Where the resolution plan approved by the Adjudicating Authority is contravened by the concerned firm,
then any person other than such firm, whose interest are prejudicially affected by contravention, may
make an application to the Adjudicating Authority for a liquidation order.

(c) As an application for voluntary liquidation

Where a firm has not defaulted on any debt (or where a firm has no debt), it may make an application to
be liquidated voluntarily specified by such manner as may be specified by the Board. (Viswanathan
Committee Report, 2015 para 5.5.2)

For full text of the Viswanathan Committee Report, 2015, see Appendix 53.

Joint Parliamentary Committee Report, 2016

Second proviso to clause 33(5) provides as under:

Provided further that nothing in this section shall apply to any proceeding pending in appeal before the
Supreme Court or a High Court,"

Keeping in view the fact that to appeal before the Supreme Court or a High Court is the right of every
citizen, the Committee find this Clause redundant. The Committee, therefore, decided to omit the second
proviso to clause 33(5). (Joint Parliamentary Committee Report, 2016 para 25)

Therefore. this recommendation of the Joint Parliamentary Committee was not incorporated into the final
text of the Insolvency and Bankruptcy Code, 2016

For full text of the Joint Parliamentary Committee Report, 2016, see Appendix 54.

Report of Insolvency Law Committee, February 2020

Stay on continuation of proceedings,-Section 33(5) of the Code bars the institution of suits or legal
proceedings by or against the corporate debtor without the leave of the Adjudicating Authority during the
liquidation process. However, it does not bar the resumption of any such pending suit or legal proceeding.
It was brought to the Committee that this was causing hindrance to the liquidator's ability to conduct the
liquidation process in an orderly manner. In this regard, the Committee noted that the Notes on clauses for
Section 33(5) state that the legislative intent behind the section was to provide for moratorium on the
initiation or continuation of any suit or legal proceeding by or against the corporate debtor except
proceedings pending in appeal before the Supreme Court or the High Court". Therefore, the omission of
pending suits and legal proceedings Corporate debtor from the scope of the bar provided under Section
33(5) seems to n error, The Committee noted that even under the corresponding provision of the
Companies Act, 2013, both the commencement of new suits and legal proceedings and continuation of
pending suits and legal proceedings by or against a companies prevented once a winding up order is
passed or a provisional liquidator is appointed against it, except with the leave of the Tribunal.

First Recommendation of the Committee

Given this, the Committee agreed that this should be suitably addressed by making requisite amendments
to subsection (5) of Section 33 so that, apart from proceedings under subsection (3) of 52 , the leave of
the Adjudicating Authority is also required for continuing any suit or legal .proceeding by or against a
corporate debtor undergoing liquidation.

(Paras I.I to 1.3 of Chapter 2)

Schemes of arrangement

Section 230 of the Companies Act.2013, as amended by the Eleventh Schedule of the Code allows for a
scheme of arrangement to proposed during the liquidation process

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under the Code. It was brought to the Committee that there were several issues Involved in
implementing schemes during the liquidation of the corporate debtor. It was brought to the notice of the
Committee that, prima facie, Section 230 of the Companies Act, 2013 is not aligned with the processes of
the Code, and concerns have been raised by stakeholders that the two processes may be incompatible. For
instance:

 Section 230 requires meeting of creditors and members and also envisages an elaborate voting
process for approval of a scheme that requires agreement by majority of persons representing
three-fourths in value of the creditors or members, or class of such creditors or members. Such
requirements of creditor and shareholder participation and approval are at odds with the
liquidation process of the Code since the Code does not envisage such an elaborate voting process
for approvals that involves creditors and shareholders of the corporate debtor.
 The approval and implementation of schemes under Section 230 of the Companies Act, 2013
during liquidation process under the Code requires the NCLT to play a dual role - as an
Adjudicating Authority for the liquidation process under the Code, and as a Tribunal for
sanctioning the scheme s per the Companies Act, 2013, However, the role of the NCLT, and the
considerations that have to be taken into account in both cases would be vastly different.
 Schemes are broadly Tribunal-led processes, in which the NCLT has vast powers to pass any
directions, and supervise the implementation of schemes, On the other hand, the liquidation
process under the Code is led by the liquidator under the supervision of the Adjudicating
Authority. Schemes are not time-bound processes, whereas the focus of the Code is to create
time-bound processes. Indeed, even the liquidation process is sought to be completed within a
year, to prevent value destruction and increase recovery for creditors of such companies.
 Section 29A read with the proviso to Section 35(1) of the Code prevents promoters and certain
related parties from acquiring the property of a corporate debtor in liquidation. However, no such
bar is imposed by the language ot Section 230 of the Companies Act. .
  At the same time. the Committee noted that through various judicial innovations and efforts of
the IBBI, there has been a move to align the two regimes. For instance .
1. The Appellate Authority has interpreted that class approvals may not be required for
schemes in liquidation under the Code, but has held that the liquidator must constitute a
creditors committee to assess if, " arrangement of Scheme is viable, feasible and having
appropriate financial matrix" However, such a process is also patently at odds with the
original scheme of the Code, which does no envisage the creation of such creditors
committee in liquidation.
2. As the promoters und ex-management wore presenting schemes in liquidation on the
basis of Section 230 of the Companies Ac, 2013, this resulted in prolonged litigation
under the Code. Only recently did the Appellate Authority express a clear view that that
promoters who are ineligible under Section 29A read with the proviso to Section 35(1)(f)
of the Code are not entitled to file an application for compromise and arrangement under
Sections 23(1) to 23(2) of the Companies Act, 2013. Thereafter, the Liquidation
Regulations were also amended in January 2020, to unequivocally provide that those
ineligible to submit a resolution plan shall in no way be party to any such compromise or
arrangement under the Code.

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3. While the Liquidation Regulations clearly provide a timeline for completion of the
scheme, it is unclear how the schemes process can be completed within this period since
the design of the process for schemes under the Companies Act, 2013 does not envisage
this. Further, it is unclear how the failure of or premature termination of a scheme would
be dealt with in practice.

Thus, despite alignments, difficulties in the implementation of schemes continue to persist. Given this, the
Committee examined the raison d'étre of schemes in liquidation. In this regard, the Committee noted that
schemes are being mandated and used as a option to revive the corporate debtor before proceeding with
sale of the assets of the Corporate debtor. Such schemes, presented as a second chance to resolve the
corporate debtor, may not always be feasible, or economically viable once a decision to liquidate the
corporate debtor has already been made, following the failure of the CIRP Notwithstanding that schemes
may not be well-tailored to resolve insolvency, allowing revival through schemes after the CIRP has
failed, would alter the incentives of creditor and resolution applicants to resolve the insolvency of the
corporate debtor during the CIRP. Further, repeatedly attempting revival, through schemes of
arrangement or otherwise, even where the business is not economically viable is likely to result in value
destructive delays, and was identified as a key reason for the failure of the regime under the SICA, by the
BLRC in its Interim Report. Such use of schemes is also inherently incompatible with the liquidation
process under the Code, which envisages that a liquidation order is passed, will result in dissolution of the
corporate debtor. Indeed, Where the business of the corporate debtor is still viable, the liquidator would
have recourse to a going concern sale of the business to ensure that the liquidation process remains value
maximizing. However. the Committee noted that schemes may have utility in liquidation proceedings. In
the UK, for example, schemes are employed as creditors may find it useful to avoid certain mandatory
requirements of the liquidation process Such as to enable settlement of outstanding. contingent claims, or
where such Compromises may be used to avoid certain mandatory set-offs, or modify rights vis-a-vis
third parties. However, the Committee was of the view that such a process for compromise or settlement
need not be effected only through the schemes mechanism under the Companies Act, 2013, and felt that
the liquidator could be given the power to effect u compromise or settlement with specific creditors with
respect to their claims against the corporate debtor under the Code.

Second Recommendation of the Committee

Given the incompatibility of schemes of Committee arrangement and the liquidation process, the
recommended that recourse to Section 230 of the Companies Act, 2013 effacing for schemes of
liquidation of the arrangement or compromise should not be available during corporate debtor under the
Code. However, the Committee felt that an appropriate process to allow the liquidator to elect a
compromise or settlement with specific creditors should he devised under the Code. (Paras 4.1 to 4.7 of
Chapter 2)

For full text of the Report see Appendix 57.

IBC (Second Amendment) Act, 2018 [w.r.e.f. 6-6-2018]

Section 33(2) was amended by IBC (Amendment) Ordinance dated 6-6-2018. The said ordinance was
replaced by IBC (Second Amendment) Bill 2018 dated 18-7-2018. This became IBC (Second
Amendment) Act. 2018 and received the assent of the President on 7-8-2018 w.r.e.f 6-6-2018. Notes on
Clauses stated in the Bill are as follows

Notes on Clauses,-Clause 25 of the Bill seeks to amend section 33 of the Code to provide a reduced
threshold from seventy-five per cent. to sixty-six per cent. of voting share for obtaining the approval of
the committee of creditors for making an application to the Adjudicating Authority to pass a liquidation
order. [Clause 2]

1207

IBC (Amendment) Act, 2019 (w.e.f, 16-08-2019 wide Notification No. 8.0, 20t30 dated 16-8-
2019)

In the Statement of Objects and Reasons given in the IBC (Amendment) Bill, 2010 dated 19-07-2019 at
Para 3(g) it was stated as follows:

"to amend sub-section (2) of section 33 of the Code to clarify that the committee of the creditor may take decision
to liquidate the corporate debtor, in accordance with the requirements provided in sub section (2) of section 33, any
time after the continuation of the committee of creditors under sub (1) of section 21 until the confirmation of the
resolution plan, Including at any time before the preparation of the information memorandum."

This Bill was passed by both the Houses of Parliament and was assented by President on 05-08-2019.
This became IBC (Amendment ACT), 2019 which was brought into force w.e.f 16-08-2019 vide
Notification No. SO 2953(E), dated 16-8-2019.

For texts of the IBC (Second Amendment) Act, 2018 and IBC (Amendment) Act. 2019 sEe Appendix
62.
Scope of section

Section 33 provides for the liquidation of the corporate debtor in the following four circumstances

(a) where the NCLT/Adjudicating Authority is of the opinion that the resolution plan does not meet the
criteria set out in Section 30(2);

(b) where the Adjudicating Authority does not receive a resolution plan on or before the expiry of the
maximum period permitted for the completion of the insolvency resolution plan;

(c)where, at any time before the confirmation of a resolution plan, the Committee of Creditors resolve by
a 66 per cent. majority of voting shares that the corporate debtor is to be liquidated; or

(d)where the corporate debtor violates the terms of the resolution plan and on an application by a person
(other than the corporate debtor) whose interests are adversely affected by such violation, the
NCLT/Adjudicating Authority determines that the corporate debtor has violated the terms of the
resolution plan. Thus, the Code prescribes clear triggers for initiating the liquidation process.

Where any of the above four circumstances exist, the NCLT/Adjudicating Authority has to

(i) pass an order requiring the corporate debtor to be liquidated in the manner as laid down in this
Chapter,

(ii) issue a public announcement stating that the corporate debtor is in liquidation; and

(iii) require such order to be sent to the authority with which the corporate debtor is registered.

The liquidation process gets initiated under S. 33 if, (1) either no resolution plan is submitted within the
time specified under section 12 or a resolution plan has been rejected by the Adjudicating Authority (2)
where the resolution professional, before the confirmation of the resolution plan, intimates the
Adjudicating Authority of the decision of the committee of creditors to liquidate the corporate debtor; or
(3) where the resolution approved by the Adjudicating Authority is contravened by the concerned
corporate debtor. Any such person other than the corporate debtor whose interests are prejudicially
affected by such contravention may apply to the Adjudicating Authority, who may then pass a liquidation
order on such application. Arcelormittal India Pvt. Limited v Satish Kumar Gupta , 2018 146 CLA 293:
(2018) 211 Comp Cas 369 : (2018) 150 SCL 354 ** AIR (2018) 2 SCC 5646:20192 SCC 1 (SC)

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Once a winding up order has been made or a provisional liquidator appointed no legal action against the
company may be commenced or continued without the leave of the Court. Any attachment , sequestration
, distress or execution put in force against the company after the commencement of t he liquidation is
void. Any transfer of shares or alteration In the status of members after the commencement of the
winding up is also void unless the Court orders otherwise. TOTTY AND MOSS ON INSOLVENCY,
2014, Vol I. P.E 89,

Section 271 of CA, 2013, as amended by the Code, provides that, under Some circumstances, the NCLT
May Compulsory wind up a company. The amendment moved grounds of inability to pay and the failure
to revive sick company from the Companies Act to the Code. Nevertheless, the remaining grounds
continue within the framework of the Companies Act. Same is the case with S. 64 of the Limited Liability
Partnership Act, 2008, which sets out the conditions under which an LLP may be wound up by the
Tribunal. Therefore, in order to facilitate the compulsory winding up of the company under the
Companies Act, the applicant may, as circumstances require, make use of the Act itself, the LLP Act,
2008 or the Code. Since the NCLT is also the adjudicating authority to facilitate the compulsory for the
purposes of the Companies Act, composite applications may be rendered in compliance with the
procedure.

It must be noted that the term winding up' and "liquidation' are often used interchangeably. The
distinction between the terms is more abstract than technical viz. u corporation concludes its business in
order to ultimately dissolve and liquidates its assets/liabilities. S, 2(94A) of the CA, 2013 specifically
shows the inter-changeability of the terms by specifying that "winding up' means winding up under the
Companies Act or liquidation under the Code, as the case may be.so here we will use both the words
interchangeably and discuss liquidation and winding up under the respective acts.

After the affairs of the company have been placed in order and have been fully dissolved, with all the
assets of the company fully liquidated, an order for dissolution would be issued pursuant to S. 54(2) of the
Code. Likewise. S. 302(2) of CA. 20113 empowers the NCLT to issue an order for dissolution when the
business of the company has been wound up. Not all dissolutions, however, are the result of the
liquidation and dissolutions may also take place under certain situations, such as when a merger takes
place. In such a situation, the NCLT may order dissolution without Iiquidation.

Like insolvency, liquidation is collective in nature in that each creditor gives up his right to execute the
debt owed without forfeiting his legal rights arising from such debt, is coerced into a class, and, then,
takes part in collective enforcement mechanism envisaged under the Code for distribution of proceeds
from the winding up of the corporate debtor. Western Welsh international System Buildings Ltd, Re
[1985| | BCC 99, 296; Cambridge" Gas Transport Corp v Official Committee of Unsecured Creditors of
Navigator Holdings Plc (2006] ÜKPC 26: |2006] 3 All ER 829 : [2007] 2 BCLC 141 2WN Parmulat
Capital Finance Ld. v. Food Holdings Ltd (in liquidation) [2008] UKPC 23 CC 371 : (2(9) I BCLC 274
(PC). The liquidation procedure envisaged under the code in order to ensure cooperation and an orderly
distribution, is compulsory and binding under the general group of uncensored creditors and, to the
limited extent as provided under section 52 and 53 of the Code, on secured creditors. Although the
process is carried out for benefit of the corporate debtor's creditors, it is a public act in which the public
has an interest as pursuit of meritorious claims is beneficial to the public at large. Whitehouse v Wilson
2006 EWCA Civ 1688: [2007| BCC 596 : [2007] BPIR 230; Faryub v. Smith Property 2001 BPIR 246.
Upon commencement of liquidation, the custody and control of all the property and choices in action of
the company are transferred from those persons who enrolled under the memorandum and articles to
manage its affairs on its behalf, to a liquidator charged with the statutory duty of dealing with the
company's assets in :197512 Statutory scheme. Ayerst v. C°& K (Construction) Ltd. [1970| AC 197512
AII ER 537 (HL).

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The assets of the corporate debtor are managed collectively, and the claims of the Creditors are treated
without taking into consideration the date at which debts were incurred. Long term creditors are thus not
given any special preference over those who became creditors much later and no difference is made
between creditors of the same class. It Is equally clear that neither creditors nor members acquire any
proprietary interest in the property by reason, or in consequence, of winding up. No doubt this follows
logically from though foregoing principles, but, since on winding up though assets cense to be available
for the profit-making purposes of the company and acquire instead the Character of a fund destined for
the payment of debts and for distribution among the members, it might be thought that this would give the
creditors and members some new form of right in the assets in question. Inland Revenue Commissioners
v. Olive Ml Ld.,[ 1963] | WLR 712 at 725 : [1963] 2 Al ER 337. Such a conception appears to underlie a
number of dicta in early cases declaring that the effect of winding up is to impose upon the assets of the
company so winded up to discharge of its liabilities. Albert Life Assurance Co., Delhi Bank's Case, Re,
[1871] 15 Sol Jo 923; Oriental lnland Steam Co., Re, [1874] 9 Ch App 557 at S60, Thus in Oriental
Inland Steam Co., Re, [1874] 9 Ch App 357, a creditor levied execution on the assets in India of a
company undergoing liquidation in England and withdrew only when his debt was paid in full by the
Liquidator, MCPHERSON'S LAW OF COMPANY LIQUIDATION, 4th Edn. 2018, p. 330 para 7.007, It
was held that he was not entitled to retain this payment, since, as JAMES, LJ remarked: "The English Act
of Parliament has enacted that in the case of a winding up, the assets of a company so wound up are to be
collected und applied In discharge of its liabilities, That makes the property clearly trust property. It is
property affected by the Act of Parliament with an obligation to be dealt with by the proper officer in a
particular way. Then it has ceased to be beneficially the property of the company; and, being so, it has
ceased to he liable to be seized by the execution creditors of the company.

Further study.-(1) See RADIN, "The Nature of Bankruptcy" (1940) 89 University of Pennsylvania law
Review l AT 8; (2) T. JACKSON on THE LOGIC AND LIMITS OP BANKRUPTCY LAW, 1st
Edn.1986,. p.17. (3) KEAY, "Insolvency Law :A Matter of Public Interest" |2000] 51 NILQ 509.

Liquidation order In absence of resolution plan [Sub-section(1)a]

In a meeting of Committee of Creditors, a resolution plan to liquidate assets of the corporate debtor was
passed for payment of debts presented by the operational creditor but was not possessed due to lack of
requisite majority. Outcome of two meetings of Committee of Creditors was that there was no chance of
reviving the company as a going concern and therefore no resolution plan was in place. It was therefore
held that the corporate debtor was liable to be liquidated ns per S. 3 a). Jerint Jacob K. v. Orieon Kuries &
loans (P.) Lid., [2018] 90 taxmann.com 214 (NCLT Chennai).

In Umesh Ved v. Jhaveri Trading & Investment (P.) Ld., [2018] 91 taxmunn.com 77 (NCLT- Ahd.), a
petition was admitted for corporate insolvency resolution process. The applicant was appointed as
resolution professional. He found that existing assets of the company consisted of some shares of a listed
company and a refund from Income Tax Department. Neither promoters, nor financial creditors could
submit any resolution plan. The resolution professional filed application seeking an order of liquidation.
Creditors raised no objection, The application seeking liquidation was accordingly allowed.

Where no resolution plan is approved by the Committee of Creditors, the Adjudicating Authority is bound
to order liquidation of the company. Hero Steels Lad. v. Rolex Cycles P. Ld.. [200181 146 SCL 302
(NCLT - Chd.); Jaiprakash Overseas Finance ltd. v. Techno Fan Manifacturing Ltd.. [2018] 4 Comp Cas-
OL 257 (NCLT - Kolkata): RlS Alloys (P. J Ld.. In re. [2019] 155 SCL 61 (NCLT- Chennai)(MAG);
Manoj Kulshrestha v luxury Train (P.) Ld.. [20191 102 tuxmann.com 453 (NCLT - New Delhi; Punjab
National Bunk v. Vandana Energy & Steels (P.) Ld.. |2019) 102 taxmann.com 246

1210

(NCLT Mum): Punjab National Bank . Vasudeb Ispat (P.) Ltd 2019 102 taxmann 205 (NCLT - Kolkata).
See also Pradeep Kuar Walts (RP) V. Gagan DistIleries & Beverages (P.) Ltd, [2020] 162 SCL 364
[2020] 118 taxmann .com 524 ONCLT-New Delhi); Standard Chartered Bank v. JVL Agro Industries
Ld. taxmann.com 92 (NCLT-Al); Rohit Sehgal v. Santosh Overseas Ld., |2020 taxmann.com 471 (NCLT-
New Delhi). 121

The CoC's resolution to go for liquidation after rejecting the solo resolution plan no Doing challenged by
any of the parties before Tribunal and since extended period or process had expired, the Tribunal passed
an order requiring the corporate debtor to liquidated. Union Bank of India v. Ashoka Multiyarn Mills Ltd,
[2018] 100 taxmann.com 25NCL-Jaipur). Sec also Ram Niwas Basia v. ViJender Sharma [2019] 154
SCL 03 NCLAT- New Delhi); R. Venkatakrishnan, Resolution Professional, BKR Hotel and Resorts P.
Ld, In Re, [2019] 7 Comp Cas-OL 81 (NCLT-Chennai) affirmed in D R Balakrishna Raja w Indian Bank,
12019] 215 Comp Cas 144: (201) 154 SCIL 16 (NCLAT- New Delhi); State Bank of India v. Summer
India Textiles Mills (P)ua, 2019) 105 taxmann.com 236 (NCLT- Chennai); HDFC Bank Ltd. v. Kamala
Real Estate Hub Ltd., 2019] 154 SCL 27 (NCLT - Mum); BKR Hotels d Resorts (P.) Ld, n re 2019) 154
SCL 276 (NCLT - Chennai); Macquarie Bank Lid. v. Shilpi Cable Technologies Ltd.. [2019] 107
taxmann.com 45: [2019) 154 SCL 65 (NCLT - Now Delhi); Milind Dixit v. Elecon Engineering Co. Lid.,
(2019] 7 Comp Cas-OL 272 : (2019) Is6 SCL 464 (NCLAT - New Delhi). See also C.A. Rajendra K.
Bhuta v. Best Deal TV (P.) Ld., [2018] 97 taxmann.com 63 (NCLT - Mum); Allahabad Bank v. Supreme
Tex Mart Lid., [2018] 3 Comp Cas-OL 564 (NCLT- Chd).

The corporate debtor was non-operational with neither any workmen nor any employees. The RP was
unable to trace out the books of account and thereby constrained to prepare the Information Memorandum
based on information sourced domain. However, from public upon invitation of RP, no resolution
applicant showed any interest to participate in the CIRP and thereby the CoC after due deliberation and
discussions decided not to extend the period of CIRP beyond 180 days. The felt that there was no other
Adjudicating Authority alternative than to pass an order of Industries liquidation. Small Development
Bank of India (SIDBI) v. Bajrangbali Alloys (P.) Ltd.. taxmann.com 612 (NCLT - [2018) 97 Kolkata).
See also Sri Chandra Moulishvar Spinning Mills (P.) Ltd., In re, [2019] 105 taxmann.com 11 (NCLT
Corporation Ltd. v. - Chennai), Bhadresh Trading taxmann.com 249 (NCLT _Harshavardhan Cotton &
Synthessis (P.) Ld.. [2019) 102 - Chennai), O.S. Abdullah v. Matrix Metal Traders (P.) Ld., (2019] 102
taxmann.com 4 Matrix Metals Traders (NCLT- Chennai) (SB) affirmed in Aishwarya Structurals v. (P.)
Ltd., (2019) 110 taxmann.com 19 (NCLAT See also - New Delhi), S. Rajendran, Resolution Professlonal
In re [2020] 222 Comp Cas 672 Chennai). (NCLT )

A draft revival package for the corporate debtor was submitted by its promoters but was however rejected
by the CoC as,

(1) an overdue amount of Rs. 10 crores was not remitted by the erstwhile directors s Iaid down under S.
29/S. 29A/S. 30 of Code:
(i) the plan of raising a further sum of Rs. 8 crores interest considering free was not feasible the past
performance of the company and

(ii) draft itself was submitted to RP on informal basis and could not be considered to be a serious offer
from the promoters.

After reviewing the financial position of the corporate debtor, CoC resolved to liquidate the corporate
debtor in the absence of any tangible realization from the corporate debtors or erstwhile directors of the
corporate director or feasible resolution plan by promoters. The CoC, upon consideration of the revival
plan for discussion and

1211

informed the RP that feasibility of resolution plan could not be accepted. CoC, thus, reiterated that the
corporate debtor had to no liquidated, Liquidation of the corporate debtor was ordered by the
Adjudicating Authority, Trans Asian Shipping Services (P.) Ltd. v. Jain Granites & Projects India Lid.,
(2018] 100 taxmann.com 254 (NCLT - Chennai).

The RP filed an application under S. 33(2) of the Code. There was no information pertaining to financial
statements of the corporate debtor and assets belonging to it could not be ascertained. It was also
submitted that whereabouts of any of erstwhile directors of Corporate debtor company were not known to
the CoC or RP, and the CoC had unanimously resolved to proceed with liquidation of corporate debtor
company, In the circumstances of the case, the Adjudicating Authority taking into consideration the
provisions of law as well as on facts ordered liquidation of the corporate debtor. Punjab National Bank v.
Guman Furnitare and Services (P.) Ltd.. [2020] I13 taxmann.com 307 (NCLT Jaipur).

The CoC considering market conditions and assets held by the corporate debtor, requested the resolution
applicants to review their offers. The reviewed plans were rejected unanimously by the CoC on the
ground that the total offer was significantly short of expectations and was silent on contingent payment
about which the CoC had categorically indicated to the applicants. Since no resolution plan had been
received by Authority under S. 306) of the Code before expiry of CIRP, corporate debtor was ordered to
be liquidated. Indian Bank v. Infinitas Energy Solutions (P.) Ltd., (2019] 103 taxmann.com_ 195 (NCLT-
Chennai), See also Ramchandra D. Chaudhary v. Radheshyam Flbres P. Ld. IA No. 13 of 2018 in CP
(1B) No. 5i/7/NCLT/ AHM/2017 dated 5-012018 (NCLT-Ahd) (Unreported), Om shivay Real_Estate P.
Ltd Advantage Projects & Consultants P. Lid. CP (IB) No. 112/PB/2017 dated 18-12-2017 (NCLT)
(Unreported); Bank of India v. White & Brown Allay Castings Pvt. Lid.. CP (I3) No. 947 /KB/2018,
dated 26-08-2019 (NCLT.Kolkuta) (Unreported).

Liquidation order on expiry of time [Sub-section (1)1]

Where the time mandated under Section 12 has expired, the Tribunal will make a liquidation order against
the corporate debtor regardless of whether the the management of corporate debtor or the resolution
applicant had adequate opportunity to come up with suitable plan. In re Hind Motors Ld., [2018] 3 Comp
Cas-OL 179 (NCLT - Chand.): Affirmed in Ashish Molhan Gupta v. Hind Motors ltd., [2018] 3 Comp
Cas-OL 185 (2018) 145 CLA 235 : (2018) 148 SCL 37 [NCLAT-New Delhi). See also ln Motors Ld., CA
No. re Hind 138 of 2017 in CP (IB) No. 06/Chd/CIlD/2017, dated 12-09-2017 (NCLT-Chand)
(Unreported) affirmed by NCLAT (supru).
The resolution of corporate insolvency to ensure the survival of the enterprise as a going concern is one of
the key objectives of the lBC. However, this must not come at the cost of efficiency. A timely liquidation
is preferred over endless resolution Where the proceedings. resolution plan had been rejected by the
Committee of Creditors and the time specified under Section 12 has lapsed, the Tribunal held that
timelines under were to be the Code strictly enforced failing which the object of maximizing the value of
the company would be defeated. In re Clutch Auto Ltd.. (2018] 209 Comp assets Cass (2018) 4 Comp LJ
197 : (2018) 147 CLA (Snr) 3 (NCLT- New Delhi).

Liquidation on violation of resolution plan

On failure by the successful resolution applicant to even pay the first installment as per resolution plan, it
was held that there Was a violation of resolution plan and rejected the plan was under S. 33(3) rend with
S. 60(5) of the Code. It was made clear that Was not under S. 30 of the rejection the Code. The corporate
debtor was ordered to be Union Bank of India. Sri Vinayaka Paper & Boards Ltd., 1A No, 496 of 2018
Iiquidated, in CP (I8) No.173/10/HDB/2017, dated 26-11-2018 (NCLT-Hyd) (Unreported)

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The Adjudicating Authority can order liquidation upon the completion of 270 days( now 330 days)
period, If there is no choice, when the information memorandum prepared by the RP was published
owing to absence of any resolution applicant. V. Ramakrishnan v. Veesons Energy System Pvt. Ltd. CA
(AT) (Insolvency) No. 186 of 2018, dated 31-05-20I8 (NCLAT- New Delhi) (Unreported). Where the
resolution plan as not received and approved within the 270 days period, the NCLT had ordered
liquidation of the corporate debtor pursuant to an application filed under S. 33 of the Code. Upholding the
Adjudicating Authority's decision, the NCLAT directed that the liquidation be in accordance with the
decision of the NCLAT in Y. Shivaram Prasad v. S. Dhanapal, (2019) 214 Comp Cas 83 (2019) 153 SCL
294 : (2019) 150 CLA 397 (NCLAT- New Delhi); Lal Mohammad v. SU KAM Power System Ld, CA
(AT) (Insolvency) No, 45| of 2019, dated 29-04-2019 (NCLAT- New Delhi) (Unreported).

Where the CIRP had not concluded in a time bound manner within the maximum time period specified
under the Code and there was no feasible resolution plan as approved by CoC, as a result of which the
NCLAT upheld the order of liquidation passed by the Adjudicating Authority. B.R. Traders V.
Venkararamanarao Nagarajan CA (AT) (Insolvency) No. 189 of 2019 dated 13-11-2019 (NCLAT- New
Delhi) (Unreported). A resolution applicant submitted its plan belatedly and it was not considered by the
CoC, as a results of which the Adjudicating Authority ordered liquidation of the corporate debtor. The
Appellate Tribunal affirmed the order of the Adjudicating Authority. North East Centre for Technology
Application and Reach . Sri Vari Metal Works P. Ltd., [2019] 214 Comp Cas 101 (NCLAT -New Delhi),
See also Y. Shivram Prasad v. S. Dhamapal. 20191 214 Comp Cas 83 (NCLAT - New Delhi) and D. R.
Balakrishna Raa v. lndian Bank, [2019] 215 Comp Cas 144: (2019) 154 SCL 516 (NCLAT - New Delhi).
See also Diamond Polymers (P.) Ld. . Pushkar Impex (P) Ltd., [2018] 97 taxmann.com 374 (NCLT
Kolkata) wherein it was held that the statutory limit of 180 days for submission of the resolution plan
expired and since RP had not succeeded in submitting a resolution plan an order requiring the corporate
debtor to be liquidated was passed.

Liquidation without calling for resolution plan-Section 33(2) of the Code permits the CoC to take the
decision for liquídation of corporate debtor at any stage of the CIRP, but before confirmation of the
resolution plan. The CoC intentionally deferred the matter tor approving EoL for inviting the Expression
of Interest for submission of resolution plan and unanimously decided to liquidate the corporate debtor.
Relying _on the Supreme Court's decision in K. Sashidhar v. Indian Overseas Bank, [2019] 152 SCL 312
[20191| 213 Comp Cas 356: [(2019] 15 SCL 312:[2019] 2 Con1p LJ I: [2019J 12 SCC I50, the NCLAT
held that there was no illegality in the decision of CoC in liquidating the Corporate debtor before taking
any steps for inviting Expression o Interest for submission of resolution plan. Sunil S, Kakkad v. Atrium
lnfoeom (P:) Ltd.. [2020) 121 tuxmann.com 46 (NCLAT-New Delhi).

Failure by CoC to seek extension of time

An unsuccessful applicant cannot take a plea that he was not given the statutory time period of 30 days to
place his resolution plan, especially us he had submitted his resolution Pan well within time as agreed in
the CoC meeting. The contention that CoC abruptly decided not to seek extension of time for ClRP
process from the Adjudicating Authority IN held to be invalid as it is the commercial wisdom of the CoC
whether they want to seek extension of time or not after considering the feasibility and viability of the
submitted resolution plan. Harkirat Singh Bedi v. Oriental Hank of Commerce, Company Appeal (AT)
Insolvency) No. 40 of 2020. dated 12-01-2021 (NCLAT-New Delhi) (Unreported).

Liquidation before confirmation of resolution plan

COC IS empowered to decide to liquidate the corporate debtor al any time before the preparation of the

1213

of the information memorandum. Liquidation order based on the decision of the CoC to recommend
liquidation as both the resolution plans were not feasible and viable, and non compliance of statutory
provisions was not interfered with. Amit Bharana v. Gian Chand Narang, (2021) 13 Comp Cas 388
(NCLAT- New Delhi) (Unreported).

Failure to finalise resolution plan

Where the time limit for the corporate Insolvency resolution process was extended but the only resolution
plan received was rejected by the Committee of Creditors, the Adjudicating Authority ordered liquidation
of the company under S. 33 of the Code. Raman Ispat P. Ltd., ln re, [2018) 146 SCL 583 : (2018) 2 Comp
Cas-OL 115 (NCLT-All).

In Edelweiss Asset Reconstruction Ltd. v. Shree Coke Mfrg. Co. (P) Ld., (2018) 210 Comp Cas 235
(NCLT-Kol), an application was filed under S. 7 of the Code and was admitted and thereby CIRP process
was initiated against the corporate debtor and the assets of the corporate debtor company was taken over
by the RP. During the CIRP process, there was no fair co-operation or support from the side of the
corporate debtor and despite several directions having been issued, the resolution professional was unable
to prepare memorandum of assets for want of required document and support from the corporate debtor.
The contention of the applicant that the assignment deed relied upon by the financial creditor was not
legal and could not be taken as a prior to prove the financial creditor's claim could not be entertained at
the late stage of approval of liquidation process for the reason of failure to have a resolution of the
stressed assets of the corporate debtor, The only recourse available where no resolution plan has been
approved by the CoC within the period of 180 days of initiation of CIRP as well as the extended period of
90 days is to press the liquidation mode as provided under the provisions of S. 33 of Code. Where the
CoC unanimously rejected the only resolution plan available and there being no resolution plan being
placed before it, the Adjudicating Authority held that the CoC effectively approved for the liquidation of
the corporate debtor.

The only recourse available where no resolution plan has been approved by the CoC within the period of
180 days of initiation of CIRP as well as the extended period of 90 days is to press the liquidation mode
as provided under the provisions of S. 33 of Code. Where the CoC unanimously rejected the only
resolution plan available and there being was liquidating the corporate debtor. Anant Overseas (P.) Lid.
v. Global Houseware Ltd., (2019]149 CLA9I at pp.I 16, T17: (2019) 7 Comp Cas-OL 474 (NCLT - New
Delhi) (SB). See also Uhrakalianmman lnfrastructures P. Ltd., In Re [2019] 5 Comp Cas-OL 413 at p.
415 (NCLT- Chennai); Manohar Karamchandani v. Balajtdhum Buildestates P. Lrd., [2019] 8 Comp Cas-
Ol. 190 at p. 196 (NCLT- Jaipur).

Where in spite of 'Information Memorandum' being shared and resolution plans circulated amongst the
CoC members and the same were not taken up for discussion, the CoC refused to take up that agenda for
the reasons not known to the RP and the resolution applicant, the Adjudicating Authority refused to
entertain an application filed by the resolution applicant to direct the RP to place the resolution plan for
consideration before the CoCs and consequently direct the members of the CoCs to consider the
resolution plan submitted by the applicant. K. K. Foods v. Venkataramanarao Nagarajan, (2019] 15T SCL
291 (NCLT- Chennai). Also see note on 'Failure to finalise resolution plan' and 'Liquidation where
insolvency process fails' under S. 33.

Approval of resolution plan post the CIRP period

Where the financial creditors in a joint lenders forum approved the resolution plan after the period of
CIRP and after the filing of an application filed under S. 33 of the Code by the Resolution Professional.
the said approval will in n way save the Corporate Debtor from falling within the course of liquidiation
unless the said lenders officially file an

1214

application to accept the resolution plan Aqua Designs India (P.) Ltd., In re, [2020] 158 SCL 799
(NCLT-Chennai) .

Settlement offer after failure of CIRP

No resolution plan was received during the time limit provided under section 12 of the Code, the
necessary consequence of liquidation order could not be avoided After the application was moved
seeking an order for liquidation, the promoter claimed that there was a settlement and paid some
amount. But that settlement failed. The NCLAT observed that once the CoC had been formed, procedure
under S. 12A of the Code was to be followed. Since It was not, it refused to interfere with the liquidation
order. K. Bapaih Asset Reconstruction Co. (India) Ltd. Company Appeal Delhi (Unreported). o 2020 &
1.A. No. 2460 of 2020, dated 02-11-2020 [NCLAT-New Delhi) (Unreported).

Resolution plan pending liquidation application

An application seeking liquidation of the corporate debtor was pending before an Adjudicating Authority.
A resolution applicant filed an application seeking permission to Submit a fresh resolution plan before
the CoC, which was allowed by the Authority. new resolution plan was, however, rejected by the CoC by
91% voting share. The resolution applicant filed another resolution plan before the CoC which again was
rejected. Despite several chances, the resolution applicant failed to submit a viable plan, leading the COL
to pass a resolution for liquidation of the corporate debtor. The resolution applicant then sought to
intervene in the CoC liquidation application filed by the RP with the approval . Considering the multiple
efforts made by the CoC, the Adjudicating Authority ordered the corporate debtor to be liquidated. It also
noted that the approval of a resolution plan or a recommendation to liquidate the corporate debtor was
purely within the ambit of the CoC which has the right to apply s in the commercial wisdom to the plan
submitted. Anil Mahindroo v. Earth lconic Infrastructures Pvt. Ld., CP TB No. 16 of 2017 dated 10-01-
2020 (NCLT - New Delhi) (Unreported). See also K. Sashidhar v. Indian Overseas Bank. [2019] 12 SCC
150; Committee of Creditors of Essar Steel Lid. v. Sarish Kumar Gupta, (2019) 153 CLA 275: (2020) 1
Comp LJ 1 : 97 (SC). (2020) 219 Comp Cas

Settlement after liquidation order

No order of settlement can be passed by the Appellate Tribunal, even though appellant the promoter
agreed to pay all the dues, Directions were issued liquidator to proceeds according to the directions given
in Y. Shivram Prasad v. S. Dhanapal, [20191 214 Comp Cas 83 (NCLAT-New Delhi). Hemanth Meka
Rao (India) Lsd., [2019] 108 v. Asset Reconstruction Co. taxmann.com 210 (NCLAT-New Delhi).

Liquidation where insolvency process falls

Where the CoC of the corporate debtor unanimously observed that no purpose would be served to
continue the insolvency resolution process because there was no resolution plan to the satisfaction of the
committee it was therefore decided that the Tribunal pass appropriate orders under Ss. 33(1(a) and 34(1)
for initiation of liquidation against the corporate debtor. Super Agri Seeds (P.) Ltd. v. Stale Bank of lndia,
(2018) 147 SCL 414 (NCLT Hyd.).

Where the RP and the CoC made all efforts to revive the operations of the corporate debtor but it was
found to be in vain and where the Adjudicating Authority had also granted sufficient time in order to
exhaust all possibility of getting solution to the issues, the Adjudicating Authority had no other alternative
except to initiate the liquidation proceedings, as per extent provisions of the Code, in respect of the
corporate debtor. Edelweiss Asset Reconstruction Co. Ltd. v. Falcon Tyres Ltd, [2020] 220 Comp Cas
346 (NCLT-Beng).

1215

In Punjab National Bank v Ajmer Singh Bhullar, [2018] 150 SCL 345 (SC). by an interim order, in a writ
petition challenging the constitutional validity of some of the provisions of the Code, the Punjab and
Haryana High Court had ordered that the NCLT Chandigarh, may continue with the CIRP proceedings
initiated against a corporate debtor but should not pass a final order thereon. Thereafter, several
proceedings had taken place and ultimately adjournments had been taken from time to time and the period
of 270 days, mentioned under the Code, came to an end. Further, as many as six resolution plans were
considered and rejected. In view of this fact, the Supreme Court on an appeal vacated the interim order
and ordered for the winding up of the corporate debtor.

The RP cannot pursue the liquidation of the corporate debtor without inviting application for resolution
plan. Where the RP failed to invite application for resolution plan from the prospective resolutíon
applicants and decided to go for liquidation and the Coc failed to take efforts for exploring the chances of
revival of the company, the Adjudicating Authority directed the RP to act in terms of S. 25 of the Code
and give an opportunity to the resolution applicants to submit their application for resolution plan and
present the same before the CoC as per mandate of the Code. Sunrise Polyfilms (P.) Ltd. v. Punjab
National Bank, [2018] 147 CLA (Snr.) 4 (NCLT).

Where there was no possibility of revival of the company, with its losses and liabilities much higher than
its assets, an order of liquidation was passed instead of order for initiating CIRP, GNB Technologies
(lndia) P. Ld., In re, [2020) T15 taxmann.com 188 (NCLT-Beng).

Alternative resolution by CoC approving liquidation

When a resolution plan is rejected by the CoC and an alternative resolution approving the liquidation of
the corporate debtor is passed, the Adjudicating Authority has to order the liquidation of the corporate
debtor. Punjab National Bank v. Rama Krishna Kniters (P.) Ltd. [2020] 158 SCL 793 (NCLT- Chd).

Principles and Procedure of liquidation under other legislations

It is well-settled that a procedure, cither in its terms or in the administration discretionary of the
jurisdiction thereby conferred, cannot fill the for which specific place of proceedings for which specific
provision [1970] 3 NSWR 202 is made elsewhere in the relevant Act. Re Tilers Pty Ltd. (AUS); Re Brian
Cassidy Electrical Industries Pty Ld. ACLR 140 at 142 [1984) (AUS). Liquidation of a company
undergoing CIRP, principle, must be achieved only as a matter 0r through and in accordance with the
Code and CA. provisions of the 2013 and not through any other means, See Re Swallow Foutwear Lld
The Times, 23-10-1956; [1956] 222L.T Jo 229,

, The status of a company is fundamentally dependent on the provisions of statute. Its status not only
affects the the relevant company's members and creditors, but; others also may be affected for instance,
the legislative general public may be affected by a change of status. The Legislative intention was to
permit liquidation of a company to circumstances described in the Code and CA, 2013 and in no other
circumstances. It follows that, for the purpose of liquidation, no other procedure may be used. See
Windsor Mutual Life Association of Australasia v Mutual Life Association of Australasia Lid., [1992]
106 ACLR 844 at 847 (AUS). In Midland London Jo 103) Bank v. Herbert Dickinson lad.. [1922] WN
13, the Court, referring to section 213 of Companies (Consolidation) Act, 1908 (UK), which provided
that "Any conveyance or assignment by a company of all property to trustees for the benefits of all of its
creditors shall be void to all intents". held that the act of charging the whole of a distressed undertaking in
favour of a trustee to secure a sum to be applied for the benefit of company's creditors was a clandestine
winding up. It held that such an act was in violation of the Scheme of the provision which required the
winding up of companies to be under the relevant statute and no other means.
 1232

In the said case, this Appellate Tribunal passed certain orders, which were noticed by this Appellate
Tribunal In "Y. Shivram Prasad v. S. Dhanapal, Company Appeal (AT) Insolvency) No.224 of 2018"
disposed of on 27th February. 2019 (NCLAT-New Delhi (Unreported).

In Y Shivram Prasad (supra) having noticed the decision In S.C. Sekaran (supra), the Appellate Tribunal
observed and hold as follows

"During those liquidation stage, "Liquidator' required to take steps to ensure that the company remains going
concern and Instead of liquidation and for revival of the "Corporate Debtor by taking certain measures. The
aforesaid issue fell for consideration before the Appellate Tribunal In "S.C. Sekaran v. Amis Gupta Company
Appeal (AT) (Insolvency) Nos, 493 496 of 2018 wherein this Appellate Tribunal' having noticed the decision of the
Hon'ble Supreme Court In "Swiss Ribbon P Ltd.. v Union of India (Supra) and "Meghal Homes P. Ltd" observed
and held: The Hon'ble Supreme Court in 'Swis Ribbon P. Ltd. v. Union of India Writ Petition (Civil) No. 99 of
2018' by its judgment dated 25th January, 2019, observed as follows: "What la interesting to note that the Preamble
does no, In any manner, refer to liquidation, which is only availed of as a last report if there is either no resolution
plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can call the business
of the corporate debtor as a going concern. [See Areclor Mittal (supra) at paragraph 83, footnote 3). (Emphasis
added). It can thus be seen that the primary focus of the legislation to ensure revival and continuation of the
corporate debtor by protecting the corporate debtor from its own management and from a corporate death by
liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its foot, not being a
mere recovery legislation for creditors. The Interest of the corporate debtor have, therefore, been bifurcated and
separated from that of is promoters those who are In management. Thus, the resolution process la not advesarial to
the corporate debtor but, in fact. protective of lts Interests. The moratorium imposed by Section 14 le in the Interest
of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process.
The timelines within which the resolution process le to take place again protects the corporate debtor's assets from
further dilution, and also protects all the creditors und workers by seeing that the resolution process goes through as
fast as possible of that another management can. through entrepreneurial skills, resusticiate the corporate debtors to
achieve all these ends In "Arcelormittal lndia Pvt. Ltd. v. Satish Kumar Gupta at paragraph 83, footnote 3 Is
mentioned. The Hon'ble Supreme Court noticed that: "Regulation 32 of the Insolvency and Bankruptcy Board of
India (Liquidation Process) Regulations, 2016, states that the liquidator may also sell the corporate debtor As a
going concern."

In Meghal Homes Pvt. Ltd. v. Shree Niwas Girni K.K. Samiti, (2007) 7 SCC 753" the Hon'ble Supreme
Court observed and held as follows:

The argument that Section 391 would not apply to a company which has already been ordered to be wound up,
cannot be accepted in view to the language or Section 391(1) of the Act, which speaks of company which Is being
wound up. If we substitute the definition in Section 390(a) of the Act, this would mean a company liable lo ho
wound up and which is being wound up. It also does not appear to be necessary to restrict the scope of that provision
considering the purpose for which it is enacted, namely, the revival of a company Including a company that is
liable to wound up or is being wound up and normally, the attempt must be to ensure that rather than dissolving a
company it is allowed to revive Moreover. Section 391(1)(b) gives a right lo the liquidator in the case of a company
which is being wound up., to purpose a compromise or arrangement with creditors and members indicating thal the
provision would apply even in a case where an order of winding up has been made and a liquidator had been
appointed. Equally, it does not appear to be necessary to go elaborately into the question whether in the case of a
company in liquidation, only the Official Liquidator could propose a compromise arrangement with the creditors
and members as contemplated by Section 391 of the Act as any of the contributories and creditors alo can come
forward with such an application." Section 19I of the Companies Act, 1956 mentioned above is now Section 2M) of
the Companies Act, 2013.

Compromises, Arrangements and Amalgamation during liquidation

Section 20 of the Companies Act, 2013 empowers the NCLT to sanction schemes Conipronises,
Arrangements and Amalgamations on an application made to it by any the parties members creditors,
company or in the case of a company that is being

1233

a proposed scheme is filed with the Tribunal under S. 230 of the Companies Act, 2013, the Tribunal
calls for meetings of the of creditors or a class of creditors, members or class of members, the case may
be, for the purposes of compromise or arrangement. For a scheme to pass, it would require the approval
of all these classes: a simple majority in number, and a three-fourth majority in value for each class. The
Companies Act also permits objections to be raised to a scheme, which are heard by the NCLT before the
scheme is sanctioned. After the scheme is approved by the requisite majority, the Tribunal will pass
appropriate order Incorporating many matters that are approved by lt. The Tribunal will sanction a
scheme only if a certificate from the auditor is filed with stating that the accounting treatment specified
in the scheme follows the applicable accounting standards. The Tribunal may also dispense with the
holding of creditor's meeting in case the creditors holding more 90% affirm the scheme through an
affidavit. After looking at all aspects, the Tribunal will pass orders that will be binding on all the parties.
This order needs to be filed with the Registrar within 30 days from the date of receipt of the order. S
RAMANUIAM, Mergers ET ÁL, 4th Edn., 2019 at pp. 39-40.

A Scheme of Arrangement under S. 230 of the Companies Act, 2013 as mentioned above may be used as
an effective tool of debt restructuring and revival even after the CIRP has failed under the Code
particularly in a case where the CoC did not approve a resolution plan and the company was to be
liquidated under the Code. The Tribunal noted that the primary purpose of the Code is to ensure revival of
the company, only failing which it should be liquidated. Keeping the same in mind, the court directed the
Liquidator to proceed under S. 230 of the Companies Act. 2013; i.e., before undertaking any steps to sell
the assets of the corporate debtor, he would make an attempt to formulate a scheme of arrangement for
the company. The process under S. 230 was to be completed within 90 days so as to prevent inordinate
delays. (S. C. Sekaran v. Amit Gupta, Company Appeal (AT) (Insolvency) No. 495 & 496 of 2018
(NCLAT-New Delhi] (Unreported); see also Ajay Aggarwal v. Ashok Magnetic Ld., Company Appeal
(AT) (Insolvency) No. 792 of 2018 (NCLAT-New Delhi] (Unreported); Rajesh Balasubramanian v.
Everon Castings Pvt. Ltd, Company Appeal (AT) (Insolvency) No. 182 of 2019 [NCLAT-New Delhi
(Unreported) and Y. Shivram Prasad v. S. Dhanapal. (Company Appeal (AT) 2 Company Appeal (AT)
(lnsolvency) No. 340 of 2019 [NCLAT] (Insolvency) No. 224 of 2018 [NCLAT-New Delhi (Unreported).
Therefore, even after a company goes into liquidation under S. 33 of the Code, such schemes if adopted
give another chance to resolve its debt under the Companies Act, 2013. Similar provisions exist under the
law of UK and Singapore as well, where they are used extensively for debt resturcturing.
 In a case dealing with winding up under the Companies Act, 1956 the Official Liquidator had already
taken charge when the scheme of arrangement was proposed under S. 391 (S. 230 of CA 2013). It was
held in that case that nothing stands in the way of the Company Court, before the ultimate step is taken or
before the assets are disposed of, to accept a scheme or proposal for revival of the company. Meghal
Homes Pvt. ltd. v. Shree Niwas Girni K.K. Samithi, (2007) 139 Comp Cas 418 (SC). Therefore, even
under the winding up regime, a scheme of arrangement is preferred over the liquidation of a company.
Further, Regulation 28 of the IBBI (Liquidation Process) Regulations, 2016 provides ninety days from the
date of liquidation order for completion of a compromise or arrangement proposed under S. 230 of CA.
2013. This time will not be included in the liquidation period. Any cost incurred by the liquidator In
relation to the compromise or arrangement shall be borne by the corporate debtor, where such
compromise or arrangement s sanctioned by the Tribunal. However, where the compromise or
arrangement is not sanctioned by the Tribunal, such cost shall be borne by the parties who proposed
compromise or arrangement. Also, according to Reg. 2(1)Ken) the cost, if any incurred by the liquidator
in relation to the compromise or arrangement under S. 20 of the Companies Act. 2013 shall not form part
of the liquidation cost.

1234

While the additional option for revival however, due to lack of synchronization between the provisions of
the Companies Act, 2013 and the Code, two major issues arise for consideration. First, the structure of the
Code suggests that once an application for initiation of CIRP is admitted under Pan I of the Code relating
to insolvency resolution and liquidation for corporate persons, then, it ia mandatory to follow the CIRP
and Liquidation Process. The only exception is S. 12A. which provides that the Adjudicating Authority
may allow withdrawal of application admitted under ss. 7, 9 and 10, on an application made by the
applicant with the approval of ninety percent voting share of the CoC. Section 12A Is only applicable to
the CIRP as the CoC stands dissolved after the passing of the liquidation order. The Code does not
contemplate a mechanism to abrogate the Liquidation Process prior to the dissolution of corporate debtor
under S. 54 of the Code.

Best arrangement must be chosen-Upon failure of CIRP, the Liquidator was directed to take steps in
terms of S. 230 of CA, 2013. The Liquidator filed an application to pass appropriate orders dispensing
with holding of any meetings of unsecured creditors and meeting of shareholders for the approval of the
scheme and to approve cither scheme A or scheme B in the interest of justice. The Adjudicating Authority
held that both the scheme proponents while re-submitting their respective schemes with the modifications
to the respective schemes as represented before the CoC, the Liquidator and before the Tribunal would be
entitled to upwardly revise the compromise amount offered to the creditors and In case such upward
revisions were made, the amount would be distributed to each of the creditors in proportion to their
already promised distribution ratio. It, inter alia. directed that both schemes were to be put to the vote and
be approved based on the voting. S. Dhanapal v. Indian Overseas Bank, [2020] 12 Comp Cas-OL 244
(NCLT. Chennai).

Outright sale if revival not possible

During the liquidation process, steps are required to be taken for its revival and continuance of the
corporate debtor by protecting it from its management and from death by liquidation. Thus, the steps
which are required to be taken are as follows :
(i) By compromise or arrangement with the creditors, or class of creditors or members or class of
members in terms of S. 230 of CA. 2013. (ii) On failure, the Liquidator is required to take steps to sell the
business of the corporate debtor as going concern in its totality along with the employees. The last stage
will be liquidation of corporate debtor, which should be avoided. During proceeding under S. 230 of CA.
2013, if any, objection is raised, t would be open to the Adjudicating Authority (NCLT) which has power
to under S. 230 of CA. 2013 pass order to overrule the objections, if the arrangement and beneficial for
revival of the scheme is corporate debtor (company). While passing such order, the Adjudicating
Authority has to play dual role, one as the Adjudicating Authority in matter of the of liquidation and
other as a Tribunal for passing order under S. 230 of the CA. 2013 As the liquidation so taken up the
arrangement of scheme should be in consonance with the statement und object of the Code. Meaning
thereby the scheme must ensure maximization of the assets of the corporate debtor and balance the
stakeholders such as, the financial creditors, operational creditors, secured creditors' and unsecured
creditors without any discrimination Before approval of un arrangement or Scheme, Adjudicating
Authority should follow the same principle and should allow the Liquidator o constitute a CoC for its
opinion to find out whether the Arrangement of scheme viable, feasible and having Tappropriate financial
matrix adjudicating Authority .

NOTES

IA. 1986 (UK): Secs. 129 and 130 Sch. B1 para 13(1)(e)

Sch B1 para 13(1) (E)

CA 1956: Secs 243 ,453

CA, 1956: Secs, 243, 433 CA, 2013: Secs. 271,272

Date of enforcement.-This provision has been enforced with effect from 15-12-2016 vide Notification
No. S.O. 3687(E), dated 09-12-2016.

Insolvency and Bankruptcy Code, 2016

Notes on Clauses.-Clause 33 provides for the liquidation of the corporate debtor in four scenarios (a)
where the adjudicating authority is of the opinion that the resolution plan does not meet the criteria set out
in Clause 30(2); (b) where the adjudicating authority does not receive a resolution plan on or before the
expiry of the maximum period permitted for the completion of the insolvency resolution plan; (c) where,
at any time before the confirmation of a resolution plan, the committee of creditors resolve by a 75 per
cent. majority of voting shares that the corporate debtor is to be liquidated; or (d) where the corporate
debtor violates the terms of the resolution plan and on an application by a person (other than the corporate
debtor) whose interests are adversely affected by such violation, the adjudicating authority determines
that the corporate debtor has violated the terms of the resolution plan. Thus, the Code prescribes clear
triggers for initiating the liquidation process..

The liquidation order shall result in a moratorium on the initiation or continuation of any suit or legal
proceeding by or against the corporate debtor except proceedings pending in appeal before the Supreme
Court or the High Court. However, a liquidator may initiate a suit or legal proceeding on behalf of the
corporate debtor with the prior permission of the adjudicating authority. However, this moratorium shall
not prevent a secured creditor from realising its security in accordance with Clause 52.

The liquidation order shall also be deemed to be a notice of discharge to the officers employees and
workmen of the corporate debtor except when the business of the corporate debtor is continued.

Further, on the appointment of a liquidator, the powers of the board of directors, key managerial
personnel or partners of the corporate debtor will be vested in the liquidator The personnel of the
corporate debtor are also required to provide all cooperation and assistance to the liquidator in managing
the affairs of the corporate debtor. [Clause 33].

Recommendations of Viswanathan Committee Report, 2015

The Code describes four ways in which liquidation can be triggered:

(a) By rejection of resolution plan by the adjudicator if it fails to meet the necessary

conditions.

(b) By failure to reach an agreement in the committee of creditors during the stipulated period.

(c) By a decision of the committee of creditors during the IRP. (d) By the failure of adherence to terms of
a resolution plan. (Viswanathan Committee Report, 2015 para 5.5.1)
Rules to accept the Trigger to Liquidation

(a) As an outcome of an on-going IRP

Liquidation triggered as an outcome of the IRP is automatic; the RP will apply to the Adjudicator to
create an order either when the creditors sign off on liquidation or the Adjudicating Authority will order
a liquidation when the period of the IRP

2018, Vol. 1, p 925. See Re Steane's (Bournemouth) Ltd., [1950] 1 All ER 21; Denney v John Hudson &
Co. Ltd., [1992] BCLC 901.

Applicability of Compromise, Arrangement and Amalgamation in Liquidation

In Jindal Steel and Power Ltd v. Arun Kumar Jagatramka Gujarat NRE Coke Ltd. (2019) 217 Comp Cas
169 (NCLAT-New Delhi), the question as to whether in a Liquidation proceeding under the Code, an
application under Sections 230 to 232 of the Companies Act, 2013 can be entertained by the Tribunal or
not, also fell for consideration before this Appellate Tribunal in "S.C. Sekaran v. Amit Gupta, Company
Appeal (AT) (Insolvency) Nos.495 & 496 of 2019" (NCLAT-New Delhi) (Unreported).

9. For text of the section or