Contradictory Remedies Barred - NCLAT Upholds Rejection of Section 65(3) Challenge Post-Resolution Plan Approval
- REEDLAW
- Nov 22, 2024
- 3 min read
NCLAT barred contradictory remedies and upheld the rejection of a Section 65(3) challenge filed after the approval of the Corporate Debtor's Resolution Plan.
The National Company Law Appellate Tribunal (NCLAT), Chennai Bench led by Justice Sharad Kumar Sharma (Judicial Member) and Technical Member Mr. Jatindranath Swain reviewed an appeal on Wednesday and held that an application challenging the CIRP initiation under Section 7 of the IBC was not maintainable when filed after the approval of the Resolution Plan, particularly when the applicant had previously pursued and failed in seeking CIRP proceedings against the same Corporate Debtor. It emphasized that allegations under Section 65(3) of the IBC must be substantiated with credible evidence, and contradictory remedies cannot be pursued simultaneously.
The Appellant had filed a Company Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016, challenging the order dated 28.05.2024, issued by the National Company Law Tribunal (NCLT), Hyderabad. This order dismissed the Appellant's Interlocutory Application (IA) filed under Section 65 of the Code in CP(IB) No. 97/7/HDB/2022. The IA sought to set aside an earlier order dated 30.05.2023, which admitted the 2nd Respondent Company into Corporate Insolvency Resolution Process (CIRP) proceedings under Section 7 of the IBC and approved the Resolution Plan for the Corporate Debtor. The Appellant, a shareholder of the 2nd Respondent Company, contested the admission of the Corporate Debtor into CIRP on grounds of alleged fraudulent initiation and absence of a valid financial debt by the 1st Respondent.
The Appellant argued that the Memorandum of Understanding (MoU) dated 02.04.2018, between the 1st Respondent and the Corporate Debtor for allotment of convertible/ redeemable shares, did not constitute financial debt. However, the NCLT rejected the Appellant's IA, citing that no evidence substantiated the allegations under Section 65(3) of the IBC. The Tribunal observed that the Appellant had earlier filed CP(IB) No. 337/7/HDB/2021 under Section 7 against the Corporate Debtor, which was dismissed on 10.10.2022. The Appellant's subsequent appeal against this dismissal was also rejected by the NCLAT on 09.09.2024. The NCLAT noted that the Appellant, having sought CIRP proceedings against the Corporate Debtor in one instance, could not oppose the same proceedings initiated by another party, thus pursuing contradictory remedies.
Additionally, the Appellant had filed multiple IAs, including IA No. 1419/2023, during the NCLT proceedings, challenging various aspects of the CIRP process. These applications were dismissed, with the Tribunal granting limited liberty to refile certain claims within specified parameters. The NCLAT held that these prior dismissals had attained finality, precluding the Appellant from sustaining the present IA. The Tribunal also emphasized that Section 65(3) is an enabling provision to penalize malicious proceedings but does not automatically invalidate CIRP proceedings without credible evidence of malafide intent.
The NCLAT further found that the Appellant’s allegations lacked substantiation, and the approval of the Resolution Plan, which had already attained finality, could not be reopened on such grounds. The appeal was deemed devoid of merit, and the NCLAT dismissed it, reiterating that the Appellant’s pursuit of contradictory remedies and failure to substantiate claims rendered the challenge unsustainable.
Mr. B.S.V. Prakash Kumar, Advocate represented the Appellant.
Mr. Ujjwal Jain, Advocate appeared for the Respondent.
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