The Mumbai Bench of the National Company Law Tribunal (NCLT) has held that Section 54 of the Insolvency and Bankruptcy Code, 2016 does not permit direct dissolution of a corporate debtor at the CIRP stage merely because the corporate debtor has no assets. The dissolution under Section 54 can be sought only after the assets of the corporate debtor have been completely liquidated, and the application for such dissolution must be made by the liquidator, not by the resolution professional.
Further, the NCLT’s inherent powers under Rule 11 of the NCLT Rules cannot be invoked to bypass or override the mandatory statutory sequence under the IBC requiring CIRP followed, where applicable, by liquidation before dissolution, added the Tribunal.
The Division Bench comprising K. R. Saji Kumar (Judicial Member) and Anil Raj Chellan (Technical Member) noted that the CIRP had been initiated at the instance of an operational creditor, and that at the admission stage there was no proof of receipt of goods by the corporate debtor and no acknowledgment of liability arising from such supply. It also recorded that although there was an open charge on book debts in favour of Punjab National Bank, no claim had been filed by the bank. The Tribunal observed that eight CoC meetings had been convened, but instead of taking steps to explore possible resolution, the CoC passed a resolution for dissolution without undergoing the liquidation process under the IBC.
On construction of Section 54, the Tribunal held that dissolution can be sought only where the assets of the corporate debtor have been completely liquidated, and that the application must be filed by the liquidator, not by the IRP or RP. It therefore held that an application for dissolution can be made only after completion of CIRP and liquidation, once the assets stand fully liquidated. Since the present application had been filed by the RP directly on the basis that the corporate debtor had no assets, the Tribunal found it contrary to the statutory scheme.
The Tribunal further observed that the objective of the IBC is insolvency resolution in a time-bound manner, with liquidation as a last resort where resolution is not possible. It expressly held that the Code cannot be used for direct dissolution of a corporate debtor without following the due process of liquidation, and that if the intent is not resolution but dissolution of a corporate entity, alternative legal modes governing winding up exist. It also held that inherent powers under Rule 11 of the NCLT Rules cannot be exercised against the mandatory provisions of Chapters II and III of Part II of the IBC, and that the applicant had not made out a case for invoking inherent powers to meet the ends of justice.
Accordingly, the Tribunal dismissed the Section 54 application as devoid of merit. At the same time, it recorded satisfaction that the proceedings had been initiated for a purpose other than resolution of the corporate debtor and that continuation of the proceedings would serve no purpose. On that basis, it ordered termination of the CIRP, discharged the applicant from his responsibilities as RP, dismissed and closed the company petition to avoid abuse of process, and directed the Registrar to forward an electronic copy of the order to the Insolvency and Bankruptcy Board of India.
Briefly, an application was filed by Navin Khandelwal, the Resolution Professional of Nano Minpro Private Limited, under Section 54(1) of the Insolvency and Bankruptcy Code, 2016, seeking direct dissolution of the corporate debtor. The CIRP had earlier been initiated on a Section 9 application filed by Pradhvi Multitrade Private Limited, and the applicant was first appointed as IRP and later confirmed as RP. After public announcement and collation of claims, the Committee of Creditors consisted only of Pradhvi Multitrade Private Limited as the sole member.
The RP stated that the business operations of the corporate debtor had remained shut for the previous three years, that it had no physical assets, and that its only identified balances were Rs. 11,471.35 in one Axis Bank account and nil balance in another Axis Bank account. Form G was published on 23.06.2023, and although Nakshatra Corporate Advisors Limited submitted an expression of interest, no resolution plan was received within time and no extension was sought. In the 7th CoC meeting, the RP informed the CoC that, according to draft valuation reports of both registered valuers, the fair value and liquidation value of the corporate debtor’s assets were Rs. 11,471, consisting only of cash and bank balance, and the sole CoC member advised against reissuing Form G because there were no realisable assets.
In that 7th CoC meeting, the sole CoC member holding 100% voting share resolved to approve or recommend dissolution of the corporate debtor under Section 54 on the footing that there were no assets in the corporate debtor, and authorised the RP to move the Adjudicating Authority. An earlier application for dissolution was, however, dismissed because contradictory CoC resolutions had been passed on 07.12.2023, one for dissolution and another for liquidation. Thereafter, in the 8th CoC meeting held on 13.03.2024, the sole CoC member clarified that the liquidation resolution had been passed only as a fallback if dissolution was not possible, and that its clear intention was to proceed with dissolution of the corporate debtor.
