Post-Liquidation CoC Resolution Cannot Cure Missing Recommendation For Compromise With Creditors: NCLT Amravati

The National Company Law Tribunal (NCLT), Amravati Bench, has recently held that a CoC resolution passed after commencement of liquidation cannot retrospectively satisfy the requirement of a prior recommendation under Regulation 39BA for pursuing a compromise or arrangement under Section 230 of the Companies Act.

The bench comprising Judicial Member Kishore Vemulapalli and Technical Member Umesh Kumar Shukla held that a later resolution authorising the liquidator to explore such a compromise could not cure the statutory requirement under Regulation 2B.

“The subsequent resolution passed by the CoC after commencement of liquidation authorising the Liquidator to file the present IA cannot retrospectively convert the earlier deliberation into a recommendation under Regulation 39BA or cure the statutory requirement contemplated under Regulation 2B,” the bench observed.

The ruling came on an application filed by the liquidator of Mangalagiri Textile Mills Pvt. Ltd., seeking permission to explore and consider a compromise or arrangement under Section 230 read with Regulation 2B of the IBBI (Liquidation Process) Regulations, 2016.

The company was admitted into the corporate insolvency resolution process on July 25, 2024. State Bank of India held 100% of the voting share in the Committee of Creditors (CoC), while another financial creditor was a related party and therefore had no voting rights.

During the insolvency process, the resolution plan submitted by suspended director Dr G. Nagasaina Rao was approved by the CoC. He failed to furnish the required performance bank guarantee despite extensions, resulting in the failure of the approved plan. The company was subsequently ordered to be liquidated on July 21, 2026.

After liquidation began, Rao approached the liquidator seeking a compromise or arrangement. He claimed that the company was an MSME and that Section 240A of the IBC made him eligible to offer such a proposal.

Section 230 provides a mechanism for a company to seek approval for a compromise or arrangement with its creditors or members. Regulation 2B governs such proposals during liquidation and requires the liquidator to file one where the CoC has made the recommendation contemplated under Regulation 39BA.

The liquidator relied on the 22nd CoC meeting held on December 15, 2025. While fixing the liquidator's fee, the CoC had provided for a fee for any period used for a compromise or arrangement under Section 230.

The tribunal, however, found that the minutes contained no recommendation under Regulation 39BA to explore a compromise. It held that merely contemplating a period for compromise while fixing the liquidator's fee could not be treated as the substantive recommendation required under the regulation.

The bench also distinguished the NCLAT's ruling in Shahid Ali v. Kuldeep Verma & Ors. In that case, the suspended director's resolution plan was ultimately not approved by the CoC. Here, Rao's plan had already been approved, but he failed to furnish the performance bank guarantee despite several opportunities.

The tribunal further noted that the liquidation order had directed the liquidator to examine the Transaction Audit Report and other material and take appropriate steps under Sections 43, 45, 49, 50 and 66 of the IBC. Compliance with those directions was still pending.

The bench observed that the suspended director appeared to have approached the tribunal through the application with a view to avoiding the consequences of the PUFE transactions referred to in the liquidation order.

The application was accordingly dismissed and disposed of.