NCLT Chandigarh Defers SEL Textiles Liquidation, Orders Fresh Resolution Process Within 120 Days

The Chandigarh Bench of the National Company Law Tribunal (NCLT) on 28 September deferred liquidation of SEL Textiles Ltd., holding that the rejection of earlier resolution plans does not, by itself, establish that the company cannot be revived.

A Bench of Judicial Member Khetrabasi Biswal and Technical Member Kaushalendra Kumar Singh directed the Resolution Professional (RP), Rajeev Sharma, to undertake a fresh, time-bound resolution process to maximise value by inviting plans for the company as an integrated undertaking. It observed:

“In the facts of the present case, therefore, the fact that the earlier resolution plans did not receive approval cannot, by itself, be treated as determinative of the question whether no possibility of revival remains.

However, the direction contemplated herein is not intended to reopen the entire CIRP indefinitely or to disregard the commercial wisdom of the CoC. The object is to provide one final, strictly time-bound opportunity to test the market afresh, particularly in view of the integrated character of the Corporate Debtor and the changed statutory and regulatory landscape”

The RP sought liquidation of SEL Textiles under Section 33 of the Insolvency and Bankruptcy Code, 2016 (IBC), while the suspended management, led by Neeraj Saluja, opposed liquidation and sought consideration of a compromise or arrangement under Section 230 of the Companies Act, 2013.

The Corporate Insolvency Resolution Process (CIRP) began on 10 August 2023 following a petition filed by Central Bank of India under Section 7 of the IBC. SEL Textiles operated four manufacturing units that formed an integrated production chain.

The Committee of Creditors (CoC) invited resolution plans through Form G, including cluster-wise bids. However, it rejected all plans as commercially unviable because their values were below the liquidation value. At its 32nd meeting, the CoC voted by a 92.83% majority to liquidate the company and authorised the RP to seek a liquidation order. It also recommended exploring a compromise or arrangement under Section 230 and a sale of the company as a going concern during liquidation.

The suspended management argued that liquidation was premature because applications seeking an extension or exclusion of time from the CIRP were pending. It contended that the CoC had rejected the plans solely because their values fell below an allegedly understated liquidation value. It also raised concerns over pending attachments under the Prevention of Money Laundering Act (PMLA), potential value erosion and the adverse impact of liquidation on stakeholders.

The RP opposed the challenge, arguing that the suspended director had participated in CoC meetings without voting rights and could not question a decision falling within the CoC's commercial wisdom. He further submitted that no proposal for a compromise or arrangement under Section 230 had been placed on record and that the issue would arise only after liquidation.

The Court noted that the four manufacturing units were commercially interdependent and that their separate disposal could undermine value maximisation. It observed:

“Such a course may result in fragmentation of an integrated manufacturing enterprise and may not necessarily capture the value which can be realised from the units when operated together. The concern regarding value erosion upon liquidation and separate disposal of the units is therefore not merely theoretical, particularly where the material on record indicates that the units are commercially interdependent.”

The Bench also considered the changes to the Liquidation Regulations that removed provisions for sale as a going concern, observing that liquidation could make revival more difficult. It noted that Section 33(1A), introduced by the 2026 IBC Amendment, permits restoration of the CIRP before liquidation, reflecting the legislative intent to provide a final opportunity for revival.

Further, it noted that additional applicants had approached the process even after the earlier deadlines, indicating that the possibility of revival had not been exhausted merely because the CoC rejected the earlier plans. It held that a fresh, focused market exercise would better serve the objective of maximising value.

Accordingly, the NCLT dismissed the liquidation application at this stage, and directed the RP to issue a fresh Form G inviting resolution plans for SEL Textiles as an integrated undertaking and complete the process within 120 days, followed by a status report.