NCLAT stresses procedural integrity, the validity of claims, transparency, and conflict of interest.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) was hearing a bunch of appeals and observed the importance of procedural integrity, the validity assessment of claims, transparency, and conflict resolution. The Appellate Tribunal affirmed the Adjudicating Authority's jurisdiction, rectified unjustified observations, and stressed the need for reasoned decisions in transactional disputes, all aimed at ensuring fairness and efficiency in the Corporate Insolvency Resolution Process.
In a recent NCLAT judgment, a series of appeals regarding the Corporate Insolvency Resolution Process (CIRP) of National Plywood Industries Ltd. were consolidated and adjudicated upon. These appeals, brought forth by various parties including the Financial Creditor Stressed Assets Stabilization Fund (SASF), Resolution Professional (RP) Sandeep Khaitan, erstwhile RP Sandeep Khaitan, and Resolution Applicant PLBB Products Pvt. Ltd., contested several orders issued by the Adjudicating Authority.
The underlying disputes primarily revolved around the validity and calculation of claims against the Corporate Debtor, particularly related to loans and guarantees extended by IDBI Bank. One significant contention was the admission of an allegedly inflated claim by the Financial Creditor, challenged by the Promoter/Director of the Corporate Debtor. The NCLAT examined the sequence of events leading to the appeals, including the invocation of guarantees, negotiation settlements, and the admission of claims by the RP.
The NCLAT's judgment addressed various legal and procedural intricacies, focusing on the core dispute of the admitted claims against the Corporate Debtor. It concluded that the wrong admission of the claim had disastrous consequences for the CIRP, emphasizing the importance of procedural integrity.
Moreover, the case highlighted the Financial Creditor's initiation of proceedings against the Corporate Debtor after 18 years, despite its recovery post-BIFR and profitability since 2017. The judgment noted unwarranted decisions during the CIRP, leading to the collapse of a 48-year-old MSME unit.
Challenges to the order were raised by the Financial Creditor, erstwhile RP, and PLBB Products Pvt. Ltd., primarily focusing on alleged collusion, flawed CIRP process, and replacement of the RP. Ultimately, the NCLAT dismissed the appeals, affirming the decision to terminate the CIRP from the second EOI stage and replace the RP due to lack of transparency and conflicts of interest.
Furthermore, the NCLAT addressed concerns about lack of transparency, conflict of interest, and non-compliance with provisions of the Insolvency and Bankruptcy Code (IBC), upholding the decision to replace the RP. It clarified certain observations made in the impugned order against specific individuals and ordered their deletion.
The NCLAT's decision rested on several key principles:
Procedural Integrity: Emphasis was placed on maintaining procedural integrity within the CIRP, ensuring meticulous review of claims and adherence to legal standards.
Validity of Claims: The judgment highlighted the importance of scrutinizing the validity and calculation of claims against the Corporate Debtor, particularly regarding inflated claims that could significantly impact the resolution process.
Transparency and Conflict of Interest: Concerns regarding lack of transparency and potential conflicts of interest were addressed, with the NCLAT affirming the authority's decision to replace the RP to uphold fairness and transparency in the proceedings.
Jurisdiction of the Adjudicating Authority: The NCLAT clarified the Adjudicating Authority's jurisdiction to make decisions regarding the replacement of the RP, citing previous tribunal rulings supporting its authority in such matters.
Observations and Deletions: Certain observations made against specific individuals were deemed unjustified and ordered for deletion, emphasizing the importance of avoiding unwarranted aspersions on the integrity of involved parties.
Transactional Disputes: The NCLAT allowed an appeal related to transactional disputes, stressing the necessity of providing adequate reasoning in decisions related to such matters and ensuring expedited reconsideration by the Adjudicating Authority.
In conclusion, the NCLAT upheld the termination of the CIRP and replacement of the RP, dismissed one appeal, and allowed another appeal related to transactional disputes for expedited reconsideration by the Adjudicating Authority.
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