Corporate Debtor Cannot Be Directly Dissolved Under IBC Without Liquidation: NCLT Mumbai

The Mumbai bench of the National Company Law Tribunal (NCLT) has held that a corporate debtor cannot be directly dissolved under the Insolvency and Bankruptcy Code without first undergoing the insolvency and liquidation process.

The bench of Judicial Member K. R. Saji Kumar and Technical Member Anil Raj Chellan observed:

“A plain reading of Section 54 makes it clear that an application for dissolution of the Corporate Debtor is to be filed by the Liquidator and not by the IRP/RP of the Corporate Debtor. Further, the application for dissolution is to be filed after the assets of the Corporate Debtor have been completely liquidated.”

It further observed:

“In other words, an application for dissolution of the Corporate Debtor can only be made after the CIRP and liquidation processes, once the Corporate Debtor's assets have been fully liquidated.”

The ruling came while dismissing Resolution Professional Navin Khandelwal's plea seeking direct dissolution of Nano Minpro Private Limited after the sole committee of creditors member resolved to seek dissolution, citing the absence of realisable assets and the prospect of further insolvency and liquidation costs.

The corporate insolvency resolution process against the company had begun on a plea by operational creditor Pradhvi Multitrade Private Limited. The resolution professional found that the company had no physical assets, had ceased operations for the past three years, and had only ₹11,471.35 in one bank account, while another bank account had a nil balance.

An expression of interest was called for from interested bidders, and one was received, but no resolution plan was submitted. The sole committee of creditors member thereafter resolved to seek dissolution of the company.

The tribunal held that the insolvency framework cannot be used simply to wind up a company.

It observed, “The objective of IBC is insolvency resolution of corporate persons in a time-bound manner. In the event that the resolution of the corporate debtor is not possible, liquidation is ordered as a last resort. This, however, does not imply that the provisions of the Code can be used for the purpose of directly dissolving the Corporate Debtor, without undergoing the due process of liquidation."

The tribunal also held that its inherent powers could not be used to bypass mandatory statutory provisions.

It observed, “In any case, inherent powers under Rule 11 of the National Company Law Rules, 2016 (NCLT Rules) cannot be exercised by the Adjudicating Authority against the mandatory provisions of Chapters II and III of Part II of the IBC.”

Finding that the proceedings had been initiated for a purpose other than resolution and that continuation of the CIRP would serve no purpose, the tribunal terminated the insolvency process, discharged the resolution professional, and closed the company petition to avoid abuse of process.