In a recent ruling, the National Company Law Tribunal (hereinafter referred to as "NCLT") addressed the dissolution of AVB Global Ventures Pvt. Ltd. under the Insolvency and Bankruptcy Code (hereinafter referred to as "IBC"). After insolvency proceedings began in November 2023, the Committee of Creditors (hereinafter referred to as "CoC") resolved for dissolution due to the company's lack of assets, but this was initially rejected by the Adjudicating Authority. The NCLT upheld the decision, stating that dissolution could only occur after liquidation. The Tribunal directed the Resolution Professional to strike off the company's name from the Registrar of Companies, closing the proceedings.
Brief Facts:
AVB Global Ventures Pvt. Ltd. filed a Section 7 application under the Insolvency and Bankruptcy Code ("IBC") for dues of Rs. 2,38,95,357/-, leading to the admission of the case on 09.11.2023 and the appointment of Janak Jagjivan Shah as the Interim Resolution Professional (hereinafter referred to as IRP). The Committee of Creditors' (CoC) was formed with AVB Global Ventures Pvt. Ltd. as the sole member, and the first meeting took place on 08.12.2023. Despite attempts to invite Expressions of Interest (hereinafter referred to as EoI), none were received. On 29.04.2024, the CoC resolved against liquidation and decided to seek dissolution of the Corporate Debtor (hereinafter referred to as "CD"). However, the Adjudicating Authority rejected the application for dissolution on 11.06.2024, ruling that dissolution can only occur after asset liquidation. This appeal challenged that rejection.
Contentions of the Applicant:
The Appellant contended that the Corporate Debtor (CD) has no assets or business, with only Rs. 1,451 in the bank and a liquidation value of Rs. 1,535. The CoC, unwilling to bear liquidation costs, approved dissolution instead. Despite two Form-G publications, no EoIs were received. The Appellant contended the Adjudicating Authority erred in rejecting the dissolution application, as the CoC’s 100% approval for dissolution was justified. Citing the Shyson Thomas case, the Appellant asserted that dissolution was the only option given the lack of assets.
Contentions of the Respondent:
The Counsel for the CoC supported the Appellant's submissions, stating that the CoC decided to file for dissolution instead of liquidation due to the lack of assets and the unavailability of funds to cover liquidation costs.
Observations of the Tribunal:
The Tribunal observed that the valuers appointed by the RP, in accordance with the CoC’s resolution, reported a valuation of Rs.1,535 as the cash and bank balance on the CIRP commencement date. Despite issuing Form-G twice, no Expression of Interest (EoI) was received. The CoC decided that, due to the lack of assets and interest, the CD should be dissolved rather than entering liquidation. The Tribunal noted, “only the Liquidator is empowered to make an application to the Adjudicating Authority for the dissolution of a Corporate Debtor.” Since no liquidation had been initiated, the Tribunal found no grounds for early dissolution under Section 54 of the IBC.
The Tribunal also remarked that the Adjudicating Authority’s direction for a transaction audit was unjustified, especially as the CIRP had ended with no assets, and the liquidation value was already determined as Rs.1,535. In this context, it noted, “the applicant has not filed the copy of Transaction Audit Report,” which further questioned the necessity of the audit. Furthermore, the Tribunal stressed that the dissolution should have been considered in accordance with Section 54, which applies after liquidation has been completed, a step that had not occurred in this case.
The Tribunal referred to the decision-making process of the CoC and the sole Financial Creditor’s unwillingness to proceed with liquidation, noting that "no further steps were required in the CIRP of the Corporate Debtor." Instead of dissolution under Section 54, the RP could have sought to strike off the company’s name from the Register of Companies.
The Decision of the Tribunal:
The Tribunal disposed of the Appeal with the following directions:
The impugned order for a transaction audit was set aside;
The RP was directed to inform the Registrar of Companies to strike off the company’s name;
And since the CIRP had ended without liquidation, no further steps were required, and the proceedings were closed
Case Title: Janak Jagjivan Shah RP Rainbow Infrabuild Pvt. Ltd. v. CoC of Rainbow Infrabuild Pvt. Ltd.
Case No: Company Appeal (AT) (Insolvency) No.1406 of 2024
Coram: Justice Ashok Bhushan (Chairperson), Mr. Barun Mitra Member (Technical), Arun Baroka Member (Technical)
Advocate for Petitioner: Mr. Dheeraj Garg
Advocate for Respondent: Mr. Pratik Thakkar
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