In a recent Judgment by the National Company law appellate Tribunal (NCLAT) Delhi Bench highlights the importance of majority rule within a class of creditors when approving a resolution plan under the IBC.
It also underscores that, once approved by the CoC and the majority of creditors in a class, the resolution plan is binding, and objections from a minority within that class cannot override the collective decision.
Brief Facts:
The case involves a group of 25 individuals (the Appellants) who had booked residential flats in a project developed by Today Homes and Infrastructure Pvt. Ltd. (the Corporate Debtor). The Corporate Debtor failed to deliver possession of the flats as promised. In response to this, the Appellants filed complaints with the National Consumer Disputes Redressal Commission (NCDRC), which resulted in an order requiring the Corporate Debtor to refund the payments made by the Appellants, along with interest and compensation.Before these refunds could be made, the Corporate Debtor entered into the Corporate Insolvency Resolution Process (CIRP).
During the CIRP, the Resolution Professional (RP) raised concerns about the claims filed by the Appellants. The Committee of Creditors (CoC) approved a resolution plan with a majority vote.The Appellants objected to the resolution plan, specifically pointing out issues with Clause 9 of the plan, which they found discriminatory. They argued that the plan did not properly address their claims. The Adjudicating Authority dismissed the Appellants' objections, leading to their appeal to the (NCLAT). The central issue in the case is whether the Appellants, as a minority group of Home Buyers, have the legal standing to challenge the resolution plan approved by the majority of Home Buyers as a class, and whether the resolution plan, with its specific clauses, violated the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC).
Observation of the court:
The court emphasized the importance of majority rule within a class of creditors and how it is a fundamental principle in insolvency cases. The court underlined that, in the statutory framework of the Insolvency and Bankruptcy Code (IBC), there is limited scope for judicial review. This means that when a resolution plan is approved by the majority of creditors within a class, it is binding and objections from a minority within that class do not have the power to overturn the collective decision. The court held that individual homebuyers or associations representing them cannot challenge a resolution plan that has been approved by the majority of homebuyers as a class. Such challenges were considered legally inconsequential. The court found that the objections raised by the Appellants regarding the resolution plan's specific clauses, particularly Clause 9, were without merit. It noted that the resolution plan had adequately addressed the concerns of the Appellants. The court highlighted that the resolution plan contained provisions to compensate the Appellants, particularly regarding the amounts ordered by the National Consumer Disputes Redressal Commission (NCDRC), and that any reduction in their claims was not inherently illegal.
Decision of the court:
The court's decision upheld the majority's decision to approve the resolution plan and emphasized the limited scope for judicial review in such matters. It also found that the objections raised by the minority of homebuyers were not legally valid in this context. Therefore, the Appellants' appeal was dismissed, and the Adjudicating Authority's decision to reject their objections to the resolution plan was upheld.
Case No.: "Company Appeal (AT)(Insolvency) No. 1240 of 2023."
Case Title: "Mr. Ankur Narang & Ors. vs. Mr. Nilesh Sharma, Resolution Professional of Today Homes and Infrastructure Pvt. Ltd. & Ors."
Coram: Justice Ashok Bhushan (Chairperson),Barun Mitra, Arun Baroka (Member, Technical)
Advocates For Appellants: Mr. Pawan Shree Agrawal, Ms. Shubhangi Negi
Advocates For Respondents: Mr. Kanishk Khetan
Read Judgement @LatestLaws.com:
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