Understanding the Role of Single Operational Creditor in CoC and the Requirement of Reasoning for Liquidation

Introduction

In a recent judgment, the National Company Law Appellate Tribunal (NCLAT) examined the decisions of the Committee of Creditors (CoC) to liquidate under Section 33(2) of the Insolvency and Bankruptcy Code (IBC).

The Judgment

The judgment was delivered by a coram consisting of Mr. Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member). The case in question was “Jaipur Trade Expocentre Pvt Ltd vs Metro Jet Airways Training Pvt Ltd”¹.

Key Findings: NCLAT’s Insights on Committee of Creditors Decision

Observations on CoC’s Decision

The NCLAT observed that the CoC had given reasons for their decision to liquidate, noting that there were no employees, no business, no registered office, no filing of annual account of the MCA since 31.03.2011, no returns, and no transactions since 2017². The scheme of the IBC, as delineated by Section 33(2), empowers the CoC to take a decision to liquidate after the constitution of the CoC.

Requirement of Reasoning for Liquidation 

The Bench held that the decisions of the CoC to liquidate have to be with reasons and cannot be arbitrarily done².

Role of Single Operational Creditor in CoC

In the case of “V. Duraisamy vs. Jeyapriya Fruits and Vegetables Commission Agent & Ors.”³, it was held that the case was one in which no claim was filed, and no Committee of Creditors was constituted . This was not a case where the Committee of Creditors was constituted by a single Operational Creditor. Hence, the submission advanced by the counsel for the respondent that a single Operational Creditor committee cannot be constituted was not an issue, nor any ratio in the said judgment can be read to that effect².

Conclusion: Committee of Creditors in IBC Liquidation

This judgment provides significant insights into the decisions of the CoC to liquidate under the IBC. It clarifies the requirement of reasoning for such decisions and discusses the role of a single Operational Creditor in the constitution of the CoC.

Learn more

• 1.indiankanoon.org
• 2.livelaw.in
• 3.indiankanoon.org
• 4.nclat.nic.in

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