IBC Cannot Be Used Merely To Wind Up Or Dissolve A Company: NCLT Delhi

The National Company Law Tribunal (NCLT) at Delhi has recently held that Section 10 of the Insolvency and Bankruptcy Code (IBC) cannot be invoked merely to wind up or dissolve a company. The provision is intended to resolve insolvency and revive businesses, the tribunal observed.

A bench of Judicial Member Ashok Kumar Bhardwaj and Technical Member Atul Chaturvedi observed:

“Thus, for the purpose of dissolution of a Company, the process under Section 10 of IBC, 2016, is not an advisable process. The process is meant for resolution of insolvency of CD, rescuing it and putting it back to its feet. The liquidation or dissolution of Corporate Debtor is a development incidental to failure of resolution of insolvency. Thus, if the object and intent of Corporate Applicant is to wind it up or to dissolve it, the process under Section 10 of IBC, 2016, is not the proper process, as the same is burdensome for the creditors.”

UWPCL, an IL&FS Group company, had not carried on significant business operations for 7–8 years, according to its submissions. It stated that it had no revenue stream or cash flows and was not expected to undertake business activities in the future. Its outstanding financial debt exceeded ₹237 crore, comprising inter-group loans and advances.

Alvarez & Marsal India Private Limited, the IL&FS Group's resolution consultant, recommended initiating proceedings under Section 10. UWPCL's Board approved filing the application, while the IL&FS New Board and the company's shareholders approved winding-up proceedings under the provision. Justice (Retd.) D.K. Jain subsequently approved the initiation of CIRP. The NCLT, Mumbai Bench-I, also approved taking necessary steps to wind up the company under Section 10.

Rejecting the application, the tribunal observed that its purpose appeared to be bringing the company's affairs to an end rather than resolving its insolvency. It noted that UWPCL had no ongoing business or meaningful operational assets. Its principal assets were stated to comprise recoverable inter-group loans and debts.

The bench observed that CIRP would burden creditors with expenses without any possibility of maximising the company's assets or reviving its business. It also noted that IL&FS Financial Services Private Limited was UWPCL's sole creditor as well as its 100% holding company. The creditor had already decided that UWPCL should be wound up.

Referring to the Bankruptcy Law Reforms Committee report, the tribunal observed that CIRP gives financial creditors an opportunity to collectively decide whether a company should be revived or liquidated.

The tribunal further pointed out that the Companies Act, 2013 provides statutory mechanisms for closing a company, including removal of its name from the register of companies under Section 248 and winding up under Sections 271 and 272.

It observed, “It is also pertinent to note that the Companies Act, 2013 provides statutory mechanisms for closure of a company, including removal of the name of a company from the register of companies under Section 248 and winding up of a company under Sections 271 and 272, subject to fulfilment of the conditions prescribed therein. The Applicant may, therefore, avail the appropriate remedy available under the Companies Act, 2013, in accordance with law.”

Accordingly, the NCLT rejected the application, leaving UWPCL at liberty to avail remedies available under the Companies Act or any other law, if so advised.