National Company Law Appellate Tribunal (NCLAT), Chennai, sets aside liquidation order, urging exploration of resolution through Section 12A of the IBC.
In a significant development, the National Company Law Appellate Tribunal (NCLAT) Chennai Bench has set aside the liquidation order against Jeppiaar Cements Pvt. Ltd., reinstating the Corporate Insolvency Resolution Process (CIRP) and directing the resolution professional to explore the settlement route under Section 12A of the Insolvency and Bankruptcy Code, 2016 (IBC).
The appeal, filed by Babu Manoharan Jaikumar Christhurajan, challenged the order of liquidation passed by the Adjudicating Authority on 26th August 2022. The core issue revolved around whether the CIRP could be revived after a liquidation order to pursue a potential settlement under Section 12A, even after the expiration of the CIRP timeline.
The NCLAT bench, comprising Justice N. Seshasayee and Mr. Jatindranath Swain, emphasized that liquidation should be a last resort, only after establishing that no viable resolution is possible. The Tribunal recognized that if a solvent company can be preserved as a going concern through settlement or withdrawal under Section 12A, it should be pursued.
The case history revealed that Jeppiaar Cements, as a corporate guarantor, was drawn into insolvency proceedings following defaults by the principal borrower, Jeppiaar Power Corporation Ltd., on loans from Indian Bank. The Committee of Creditors (CoC), consisting primarily of Indian Bank, had not reached a resolution plan, and liquidation was sought. However, the appellant and other guarantors were actively engaged in a One-Time Settlement (OTS) with Indian Bank, which was partially fulfilled.
The Tribunal found that the resolution professional had prematurely moved for liquidation under Section 33(1) due to alleged pressures from the Registry and without exhausting potential resolutions under Section 12A. The NCLAT criticized the decision-making process, which did not adequately consider the possibility of reviving the CIRP for a settlement, especially given the ongoing compliance with the OTS terms by the guarantors.
The judgment highlighted the importance of fairness and pragmatism in insolvency proceedings, asserting that the insolvency resolution process must align with Constitutional values and aim to preserve viable companies. The Tribunal concluded that the liquidation order was not sustainable under the circumstances and mandated the resolution professional to actively pursue Section 12A to potentially resolve the financial distress of Jeppiaar Cements.
This ruling underscores the judiciary's role in interpreting the IBC dynamically to address real-world business challenges and facilitate the rehabilitation of distressed companies, aligning with the Code's ethos to maximize asset value and preserve enterprise continuity.
Bottom Line :
Insolvency and Bankruptcy Code, 2016 Section 33(1) and Section 12A - Liquidation should be the last resort - CIRP (Corporate Insolvency Resolution Process) can be revived if there is a possibility of withdrawal under Section 12A, even after an order of liquidation is passed, provided the circumstances justify such a course of action.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 33(1), 12A, 12(3), 60(5)
