National Company Law Appellate Tribunal terminates insolvency proceedings against Sulojay Realty Pvt. Ltd., spotlighting legislative intent of revival over liquidation.
In a landmark decision, the National Company Law Appellate Tribunal (NCLAT) has terminated the Corporate Insolvency Resolution Process (CIRP) against Sulojay Realty Pvt. Ltd., initiated by its sole creditor, Sanjay Kumar Bhuwalka, citing the proceedings as an abuse of process and contrary to the legislative philosophy of the Insolvency and Bankruptcy Code (IBC), 2016. The judgment, delivered by a bench comprising N. Seshasayee, Arun Baroka, and Indevar Pandey, emphasizes the primary aim of the IBC—revival of financially stressed corporate debtors rather than liquidation.
The case revolved around the refusal of sole creditor Sanjay Kumar Bhuwalka to accept a settlement offer from Achal Kumar Jindal, the suspended director of the corporate debtor, despite the latter depositing the entire amount claimed as defaulted along with interest. The bench observed that the continuation of CIRP under such circumstances constituted an abuse of process, highlighting that the objective of the Code is to prioritize revival and resurrection of the corporate debtor.
The tribunal emphasized the inherent powers under Rule 11 of the NCLAT Rules to terminate the CIRP when the offer of settlement was unjustly rejected by a one-member Committee of Creditors (CoC). The judgment pointed out that the refusal by the sole creditor demonstrated malicious intent, undermining the Code's objective of reviving financially stressed companies.
The decision also referred to several Supreme Court rulings, including the landmark Swiss Ribbons Pvt. Ltd. v. Union of India case, reinforcing the legislative philosophy behind the insolvency resolution process. The tribunal reiterated that insolvency proceedings should not be pursued for purposes other than genuine resolution and rehabilitation of the corporate debtor.
This case sets a significant precedent in ensuring that the insolvency process is not misused by creditors for purposes that contradict the legislative intent of the IBC. It underscores the importance of using CIRP as a mechanism for revival and not as a tool for personal vendetta or liquidation without exhausting all possibilities for resolution.
Bottom line:-
Insolvency and Bankruptcy Code, 2016 - Sole creditor's refusal to settle despite deposit of defaulted amount - CIRP terminated as refusal was deemed an abuse of process and contrary to the legislative intent of the Code.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 7, 12A, 65; Rule 11 of NCLAT Rules.
