prpri Whether the order of liquidation can be reversed ? Whether the order of liquidation can be reversed ?

As per Insolvency and Bankruptcy code 2016, there are two stages. 1) Resolution 2) Liquidation. The Liquidation order will be pronounced when the resolution of the insolvency is failed. Hence as per the code, the liquidation stage is final one. Liquidation order is once passed it is irreversible. Hence the Tribunals will pass the order of liquidation at final stage. The Tribunals generally will not pass an order of liquidation because once liquidation order is passed, the existence of the company will come to an end.So liquidation is nothing but death of the company. Hence Incorporation of company is the first stage and liquidation is the final stage.

Liquidation order is once passed , the business of the entity will come to an end and jobs of the employees will lost as a result the life of the employee family will be affected. Hence order of liquidation should be sparingly used. The liquidation is differ from winding up process

Winding up process is the beginning of the process of closure of the business and liquidation is the end of the process of closure of business. Hence the process of closure of business commences with the winding up. In case of winding up, liquidator will be appointed. The liquidator will sell the assets and distribute to the creditors first and if balance is available, it will be distributed to the shareholders .After distribution of proceeds of assets to creditors and shareholders, the process of liquidation commences .In case of liquidation process, dissolution of the business of entity will take place and finally order from ROC is to be obtained regarding the dissolution of the entity.

The National Company Law Tribunal will pass an order of liquidation only if

a) Adjudicating authority has not received the resolution plan within the time limit prescribed under section 12 of the code or as per section 56 in case of Fast Track Insolvency resolution

b) Adjudicating authority has rejected the resolution plan as per section 31(2) of the code

c) Corporate debtor has contravened the provisions of resolution plan which is approved by the adjudicating authority, then any person other than the corporate debtor  whose interests are affected by such contravention can apply to the adjudicating authority for liquidation order

d) Resolution Professional has submitted an application supported by a resolution passed for liquidation of the company, which is approved by committee of creditors with 66% voting share

If any of the above circumstances exists, the Adjudicating authority will pass an order for liquidation of company.

Once the liquidation process commences, it is irreversible and no authority can stop this process except Supreme Court.

The Apex court by exercising the power provided under article 142 of the constitution can pass an order for reversal of this order. But Apex court will not use this power usually. Apex court will use this power very sparingly.

Article 142(1) states that “The Supreme Court in the exercise of its jurisdiction may pass such decree or make such order as is necessary for doing complete justice in any cause or matter pending before it, and any decree so passed or order so made shall be enforceable throughout the territory of India in such manner as may be prescribed by or under any law made by Parliament and, until provision in that behalf is so made, in such manner as the President may by order prescribe”.

The Apex court has refused to invoke the powers provided under article 142 of the constitution as it will set a bad precedent in the Insolvency Proceedings under IBC

Article 142 of the Constitution allows the Supreme Court to pass any orders it thinks necessary to serve justice.

In  M/s Kamineni Steel & Power India and also in M/s Innoventive Industries ltd, NCLAT has passed order for liquidation of company and appeal has been filed in front of Apex court,but apex court has refused to use its power provided under article 142 of the Constitution as it will result in issuing directions in the teeth of the provisions as applicable to the cases on hand.

The Apex court has questioned the authority of NCLT in evaluation of commercial decision of the committee of creditors to approve or reject a resolution plan as COC is having complete autonomy in respect of commercial decision or wisdom of the financial creditors

In case of M/s Kamineni Steel & Power India as well as in the case of M/s Innoventive Industries ltd, the resolution plan has been rejected due to lack of requirement of requisite majority of 75% from Committee of creditors; hence Tribunal has passed an order for liquidation of the companies.

The counsel appearing for the resolution applicant pleaded the apex court to exercise powers under Article 142 to relegate the case before the NCLT as the threshold of voting share of financial creditors has been reduced to 66 per cent.

But Supreme court has refused to exercise its powers provided under article 142 and ordered for liquidation of both companies. Upon receipt of the order, NCLT has initiated liquidation process under section 33(1) of the code

As per this ,though Apex court is having powers under article 142, but this power will be used very sparingly.

Disclaimer clause- The information shared above is true and correct to the best of our knowledge. All statements /recommendations are made without guarantee on the part of the author or publisher. The author or publisher will disclaim any liability in connection with the use of this information. The author shall not liable for any direct, indirect ,special or incidental damage resulting from arising out of or in connection with the use of the information  .The article is  for the purpose of education only.

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Qualification: LL.B / Advocate
Company: Andhra bank
Location: KONDAPUR HYDERABAD, Telangana, IN
Member Since: 04 Feb 2019 | Total Posts: 14

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August 2021