CoC's Commercial Wisdom Cannot Override IBC Mandates In Early Dissolution Plea: NCLT Mumbai

The Mumbai Bench of the National Company Law Tribunal (NCLT) on 2 April, held that the Committee of Creditors' (CoC) commercial wisdom cannot override mandatory requirements under the Insolvency and Bankruptcy Code, 2016, especially when key steps under the CIRP process remain incomplete.

A Bench comprising Judicial Member Sushil Mahadeorao Kochey and Technical Member Sanjiv Dutt emphasised that early dissolution cannot be ordered merely on the CoC's recommendation or on cost considerations, unless the Adjudicating Authority is satisfied that the corporate insolvency process has been properly and fully concluded. It noted:

“While the commercial wisdom of the CoC is ordinarily accorded due deference by this Adjudicating Authority, the same cannot be permitted to override the statutory mandate of ensuring that the CIRP has been conducted in a complete and proper manner. The recommendation of the CoC cannot be treated as determinative where the record indicates that essential steps, particularly in relation to investigation of financial affairs and tracing of assets, have not been duly undertaken.”

The Bench dealt with an application filed by the Resolution Professional under Section 54 of the Insolvency and IBC seeking early dissolution of Jayesh Lifescience India Private Limited. It rejected the plea and refused to act on the CoC's recommendation.

During the Corporate Insolvency Resolution Process (CIRP), the Committee of Creditors comprising Axis Bank Limited and State Bank of India resolved with 100% voting share to proceed with early dissolution. The CoC based its decision on the ground that the corporate debtor had no identifiable assets and that continuation of the CIRP would only increase costs. This resolution followed an unsuccessful resolution process, including issuance of Form G, which failed to attract any compliant resolution applicant.

However, the Tribunal held that dissolution cannot follow merely from the CoC's decision or assumptions about absence of assets. It reiterated that the Adjudicating Authority must independently satisfy itself that the CIRP has been completed in accordance with the statutory framework, including a proper examination of the corporate debtor's affairs.

The Bench further pointed out gaps in statutory compliance. It noted that although the corporate debtor was stated to have no assets, records showed the existence of secured charges over current assets, with no clarity on their identification or realisation. The Resolution Professional also did not place complete audited financial statements on record and instead relied on provisional financial data, raising concerns about the accuracy of the financial position presented.

Significantly, the Tribunal noted that no transaction audit had been conducted to examine potential avoidance transactions. It held that such an audit forms a mandatory part of the CIRP process and cannot be dispensed with merely on the basis of cost considerations or CoC preference.

Accordingly, the NCLT concluded that the CoC's decision was driven primarily by cost concerns rather than full compliance with statutory requirements.