The National Company Law Tribunal (NCLT), New Delhi Bench, in its order dated January 20, 2025, marked a significant decision by approving the liquidation of Go Airlines (India) Limited under Section 33(2) of the Insolvency and Bankruptcy Code, 2016 (IBC). This order concludes a prolonged insolvency process that spanned over 20 months after no feasible resolution plans emerged. The bench, comprising Justice Mahendra Khandelwal (Judicial Member) and Dr. Sanjeev Ranjan (Technical Member), upheld the commercial wisdom of the Committee of Creditors (CoC), which unanimously opted for liquidation with a 100% vote.
The tribunal emphasized that the IBC empowers the CoC to make a decision on liquidation at any point after its constitution and before confirming a resolution plan. It observed that the judiciary should refrain from interfering with the CoC's decisions unless they contravene the provisions of the Code.
Go Airlines (India) Limited initiated Corporate Insolvency Resolution Process (CIRP) on May 10, 2023, under Section 10 of the IBC. Subsequently, an Interim Resolution Professional (IRP) was appointed to manage the insolvency process. Despite multiple efforts and meetings, the CoC could not approve any resolution plan due to their non-compliance with mandatory requirements or lack of commercial viability.
In the 37th CoC meeting held on July 23, 2024, the CoC unanimously resolved to liquidate Go Airlines and appointed Mr. Dinkar T. Venkatasubramanian as the Liquidator. To fund the estimated liquidation costs, including expenses related to pending arbitration at the Singapore International Arbitration Centre (SIAC), the CoC approved third-party funding from Burford Capital under a Capital Provision Agreement.
- Does the CoC possess the authority to initiate liquidation at any time before confirming a resolution plan under the IBC?
- What is the extent of judicial scrutiny permissible over the commercial decisions of the CoC?
- Can third-party funding be utilized to meet liquidation expenses, and what are its implications under the IBC framework?
- The Authority of the CoC to Initiate Liquidation: The tribunal relied on Section 33(2) of the Insolvency and Bankruptcy Code (IBC), 2016, which empowers the Committee of Creditors (CoC) to resolve for liquidation of a corporate debtor after its constitution and before the confirmation of a resolution plan. The bench cited the decision in Sreedhar Tripathy v. Gujarat State Financial Corporation and Ors., where the NCLAT had held that: "The CoC in the legislative scheme has been empowered to take the decision to liquidate the Corporate Debtor at any time after its constitution and before confirmation of the resolution plan. The power given to the CoC to take a decision for liquidation is very wide power…” The tribunal observed that the CoC’s unanimous vote (100%) in favor of liquidation demonstrated the exercise of its commercial wisdom, which courts are generally bound to respect and refrain from interfering with. It stated: "It is well settled that the decision taken by the CoC for liquidation in its commercial wisdom should not be interfered with by the Adjudicating Authority."
- Judicial Non-Interference in Commercial Decisions: The NCLT underscored the principle of judicial restraint in reviewing decisions that fall within the CoC's commercial domain. Referring to precedents, the tribunal emphasized: "The role of the Adjudicating Authority is limited to ensuring compliance with procedural mandates under the IBC. The commercial decisions of the CoC, if taken in accordance with law, are not to be subjected to judicial review." The tribunal observed that the absence of viable resolution plans and the creditors' unanimous decision to liquidate left no grounds for interference: "In view of this commitment by the CoC, it emerges that CoC Members will contribute to the liquidation cost, and their decision is to be respected as part of their commercial wisdom."
- Third-Party Funding and Compliance with Regulations: The tribunal acknowledged the innovative use of third-party funding to address liquidation costs, specifically in relation to arbitration expenses for proceedings in foreign jurisdictions like SIAC. While refusing to delve into the specifics of the funding agreement with Burford Capital, the bench remarked: "The proposed funding from a foreign source, i.e., Burford Capital, pertains to litigation pending in courts of foreign jurisdiction and does not fall within the purview of the IBC or its regulations." Further, the NCLT confirmed that the CoC had complied with Regulation 39B of the CIRP Regulations by estimating the liquidation costs and demonstrating a commitment to funding these costs: "The CoC, in compliance with Rule 39(B) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, expressed their commitment towards the payment of the liquidation cost and to make available necessary funds from their own source, if required."
- Role of the Adjudicating Authority in Liquidation: The tribunal reiterated the limited role of the Adjudicating Authority in reviewing CoC decisions for liquidation: "The Adjudicating Authority is not empowered to substitute its judgment for the commercial wisdom of the CoC. Its role is restricted to ensuring that the decision complies with the provisions of the Code and procedural mandates."The tribunal noted that the CoC had thoroughly deliberated on all alternatives before unanimously resolving to liquidate the corporate debtor. It concluded: "The decision taken by the CoC to liquidate the Corporate Debtor, supported by a 100% vote, is legally sound and does not warrant interference by the Adjudicating Authority."
The NCLT’s findings reaffirm the IBC’s principles, emphasizing the sanctity of the CoC’s commercial judgment and the judiciary's limited scope of review in such matters. By addressing practical challenges like funding liquidation costs through third-party arrangements, the tribunal showcased the adaptability of insolvency jurisprudence in India. This case sets a robust precedent for the primacy of creditor-driven processes and the necessity of judicial restraint in matters involving commercial decisions.
This post is for educational and informational purposes only. It is not intended to defame, discredit, or tarnish the reputation of any individual, entity, or organization. The opinions expressed are based on publicly available judicial decisions and are aimed at fostering a better understanding of legal principles. For specific legal advice, readers are encouraged to consult a professional
