Principal Bench of NCLAT directs reconsideration of resolution plan and withdrawal application under IBC, emphasizing preservation of corporate debtor as a going concern over forced liquidation.
In a landmark judgment delivered on September 9, 2026, the Principal Bench of the National Company Law Appellate Tribunal (NCLAT), New Delhi, in the matter of Arun Kumar Singh v. Genius Exports Private Limited, set aside an order of liquidation passed by the Adjudicating Authority (AA) under the Insolvency and Bankruptcy Code (IBC), 2016. The Tribunal clarified that the death of a resolution applicant during the insolvency resolution process does not automatically render the resolution plan unimplementable, and liquidation must remain the last resort under the insolvency framework.
Background:
The case involved the corporate insolvency resolution process (CIRP) of a corporate debtor headed for a successful resolution when the resolution plan submitted by Shri Digvijay Nath Tripathi was approved by the Committee of Creditors (CoC), which consisted solely of the operational creditor. However, before the Adjudicating Authority could approve the plan under Section 31 of the IBC, the resolution applicant passed away on September 3, 2024.
Following the applicant’s demise, the AA rejected the resolution plan, holding that the office and obligations of the resolution applicant were neither transferable nor heritable, rendering the plan incapable of implementation. Consequently, the AA ordered the liquidation of the corporate debtor under Section 33(1) of the IBC and appointed a liquidator. The AA also dismissed an application filed under Section 12A for withdrawal of the CIRP as infructuous.
NCLAT’s Findings:
The NCLAT bench, comprising Justice N. Seshasayee (Judicial Member) and Indevar Pandey (Technical Member), found the AA’s approach to be legally flawed and oversimplified. The Tribunal emphasized several critical points:
1. Nature of the Resolution Applicant’s Role:
The AA’s characterization of the resolution applicant’s role as an "office" with obligations that are non-transferable and non-heritable was incorrect. The resolution applicant acts more as a promisor in a contract-like arrangement rather than occupying an office.
2. Conditions for Liquidation under Section 33(1):
The Code permits liquidation only under two situations—either no resolution plan is received within the CIRP period or the AA rejects a plan approved by the CoC. The death of a resolution applicant does not fall under these categories, making the AA’s order of liquidation under Section 33(1) impermissible.
3. Alternative Pathways Instead of Liquidation:
The Tribunal held that the AA should have explored alternative solutions such as:
- - Referring the resolution plan back to the CoC to reassess its viability and consider the heirs of the deceased resolution applicant as potential implementers, subject to their eligibility and capability.
- - Considering other resolution plans submitted earlier to avoid forced liquidation.
- - Not dismissing the Section 12A withdrawal application, especially when a settlement had been reached between the operational creditor and the suspended director of the corporate debtor.
4. Heritability and Implementation of Resolution Plans:
While the Code does not expressly provide for the transfer of rights or obligations post the death of a resolution applicant, the NCLAT reasoned that such rights do not constitute a heritable property right until the plan is approved by the AA and implemented. Hence, the heirs may be considered to carry forward the plan, provided they meet statutory qualifications and the CoC’s approval.
5. Preserving the Corporate Debtor as a Going Concern:
The judgment underscored the philosophy of the IBC to preserve the corporate debtor as a going concern rather than hastily resorting to liquidation. The Tribunal stressed that liquidation is akin to amputation of corporate assets and must be the final option when all other avenues fail.
Outcome:
Consequently, the NCLAT allowed the appeals filed by the operational creditor and the resolution professional, set aside the AA’s order of liquidation, and directed revival of the CIRP. The AA was further instructed to consider the pending Section 12A application for withdrawal of the insolvency process in accordance with law.
The appeals filed by the resolution professional challenging the appointment of the liquidator were closed as infructuous in light of the revival of the CIRP.
Significance:
This ruling fills a jurisprudential void concerning the death of a resolution applicant during the insolvency process and provides a pragmatic approach to handle such unforeseen events. It reinforces the primacy of resolution over liquidation and aligns with the IBC’s objective of maximizing asset value through corporate revival.
The NCLAT’s decision is expected to guide Adjudicating Authorities and resolution professionals in future cases where resolution applicants may die during the CIRP, ensuring that the insolvency resolution process remains flexible and focused on business continuity.
Bottom Line:
Insolvency and Bankruptcy Code (IBC) - Death of a resolution applicant does not render the resolution plan automatically unimplementable. Adjudicating Authority must explore alternative solutions, such as involving the heirs of the deceased resolution applicant or reconsidering other submitted plans, to prevent liquidation and prioritize the revival of the corporate debtor.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 12A, 29A, 31, 33(1), 33(2)
