The NCLAT held that remanding a resolution plan back to Committee of Creditors (“CoC”) on the grounds of the procedural deviations rose by a dissenting minority in class of creditors, would render the Corporate Insolvency Resolution Process (CIRP) a never-ending process and is against the time bound objective of the Insolvency and Bankruptcy Code.
BRIEF FACTS
The present appeal, filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘IBC’) by the Appellant arises out of order passed by the Adjudicating Authority (NCLT – DELHI) in Company Petition. By the impugned order, the Adjudicating Authority allowed Interlocutory Application and approved the Resolution Plan of the Corporate Debtor submitted before it by the Resolution Professional under Section 31(1) of the IBC while dismissing the application filed by the present Appellants in their capacity as members of Financial Creditors in class of Corporate Debtor challenging the material irregularities committed by the Resolution Professional of the Corporate Debtor and the Authorised Representative of Financial Creditors in class in the Corporate Insolvency Resolution Process (‘CIRP’). Aggrieved by the said impugned order of NCLT, the instant appeal has been preferred by the Appellant.
The brief facts of the case are that one of the Financial Creditors, Oriental Bank of Commerce of the Corporate Debtor had preferred an application under Section 7 of the IBC for initiation of CIRP which was admitted by the Adjudicating Authority. Following initiation of the CIRP process, Respondent No 1 in the present case, was initially appointed as the Interim Resolution Professional (‘IRP’) and later confirmed as the Resolution Professional. The IRP also constituted a CoC of the Corporate Debtor which included Homebuyers as Class of Creditors The 180 day time period for completion of CIRP was expired following which the Resolution Professional filed an application with the Adjudicating Authority for allowing extended period for CIRP completion. The Adjudicating Authority allowed the CIRP period to be extended by another 90 days.
The Adjudicating Authority instead of rejecting the Resolution Plan, after considering the exceptional circumstances since the matter related to Homebuyers, in the interest of justice, directed that the Resolution Plan be remanded to the CoC for fresh reconsideration including the issue of cash infusion by the Resolution Applicant for effective implementation of the Resolution Plan.
As per the voting instructions received by the Authorised Representative of the Homebuyers, out of a total of 26 Homebuyers, 19 Homebuyers voted in the matter with 89.80% voting in favour of the amended Resolution Plan.
As per above voting instructions received from the Homebuyers as Creditors in class, the Authorised Representative, therefore, took cognizance of the fact that majority of the Homebuyers (being more than 50%) having decided in favour of the amended Resolution Plan, he accordingly cast his vote in favour of the amended Resolution Plan on behalf of the Creditors in class, representing 50.93% share of voting rights in the CoC. The amended Resolution Plan, as approved by the CoC was placed before the Adjudicating Authority.Resolution Professional under Section 30(6) of the IBC and was approved by the Adjudicating Authority.
Aggrieved by this impugned order, the Learned Counsel for the Appellants has submitted that the Respondents No 1 and 3 committed material irregularities by not following the due process of law as prescribed under the IBC and regulations framed thereunder while submitting the amended Resolution Plan and that the Adjudicating Authority failed to consider these gross irregularities while approving the Resolution Plan of the Corporate Debtor.
COURT’S OBSERVATION
The appellate authority observed that rather than going in discussion as to whether the CIRP Regulations under purview in the present matter is mandatory or directory. It would, however, suffice to say that we are in agreement with the basic premise that both the Resolution Professional and the Authorized Representative are duty bound to act scrupulously in terms of the statutory scheme of the IBC including the practice rules and regulations framed there-under. If procedural rules are bypassed or circumvented by them in a manner which stifles the basic canons of fairness and justice and prejudicially affects the legal rights and entitlements of party, the said action on grounds of having vitiated the process deserves to be set aside. Be that as it may, while it is important to maintain the sanctity and credibility of CIRP proceedings, it is equally important to ensure that hyper-technicality is not allowed to occupy centre-stage and besiege the proceedings as it would end up frustrating and defeating the very object and purpose of IBC.
It is also an admitted fact that out of 26 Homebuyers, only 19 Homebuyers voted in the matter and that in terms of Section 25-A(3-A) of the IBC, the Authorized Representative taking cognizance of the fact that 89.80% of Homebuyers voted in favour of the amended Resolution Plan, he cast his vote in favour of the amended Resolution Plan on behalf of the Creditors in class. It is also noted that the present Appellants had very much exercised their option of conveying their decision on the Resolution Plan by e-mail and that they did not approvethe said Resolution Plan but in doing so constituted a very thin dissenting minority.
More importantly, the question before the appellate, is whether the CoC decision on the amended Resolution Plan could have been materially any different, had the procedural deviations not taken place. The answer seems to be in the negative for the following reasons. The Adjudicating Authority in the impugned order has clearly held that the amended Resolution Plan has been approved by 98.58% voting share of the CoC members which ismuch above the statutory requirement of 66% vote share and this has not been challenged by the Appellants.
Furthermore, we find that it has neither been disputed by the Appellants that they constitute a minority in the Creditor of class as Homebuyers had voted in favour of the amended Resolution Plan with 89.80% vote share. It may be safely inferred that even if the alleged procedural omissions had not taken place, the Appellants would still have remained minority Homebuyers in the class of Creditors. That being so, no clear nexus between the alleged material irregularities in the procedure followed and resultant prejudice caused to the interest of the minority Homebuyers in the class of creditors has been established. It is well recognised that rules of procedure being handmaid of justice, the object and intent of such procedures should be to advance the cause of justice and not become a tool to manipulate the process.
The CIRP proceedings in the present case have already been aprotracted affair. Remanding the matter back to CoC on the grounds of the procedural deviations raised by a
dissenting minority in class of creditors would render the CIRP a never ending process. This would militate against the core objective of the IBC to ensure insolvency resolution in a time bound manner.
The appellate authority was of the view that there are no convincing reasons to interfere with the order of Adjudicating Authority approving the revised Resolution Plan of the Corporate Debtor under Section 31(1) of the IBC. Thus the appeal is devoid of merit and there is no reasons to entertain it. In the result, the appeal is dismissed.
CASE: Piya Puri & Ors. v/s Mr. Debhashish Nanda & Ors.
CITATION: Company Appeal (AT)(Insolvency) No. 906 of 2022
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