The NCLAT Delhi held that Regulation 26(2) of the CIRP Regulations, 2016 being a directory cannot override the power of the CoC which can take the final decision accepting or rejecting the resolution plan.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Branch comprising of Justice Rakesh Kumar Jain, Judicial Member and Kanthi Narahari, Technical Member were hearing on Monday an Appeal and held that the Regulation 26(2) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 being a directory cannot override the power of the CoC which can take the final decision accepting or rejecting the resolution plan.
Facts:
An application under Section 9 of the Code was filed by an Operational Creditor against the Corporate Debtor which was admitted on 01.05.2019 and Rajendra Kumar Khandelwal was appointed as an Interim Resolution Professional (IRP). However, in the 3rd CoC meeting held on 16.07.2019, Alkesh Rawka was appointed as Resolution Professional (RP) and his appointment was approved by the Adjudicating Authority on 19.08.2019.
After the advertisement was published inviting expression of interest (EOI) in Form-G, the RP received four EOI from (a). Nashik Merchant Cooperative Bank Ltd. (CoC Member) (b). Galactico Cooperative Services Ltd. (c). Mr. Prakash Adke (d). Mr. Amar Patil (Suspended Director). Out of the four, only two submitted the resolution plan i.e. M/s Galactico Cooperative Services Ltd. and Prakash Adke. The Prospective Resolution Applicants did not satisfy the eligibility criteria and both were rejected by the CoC, having two members, namely, City Co-Operative Credit And Capital Limited, having 18.55% voting share and Nashik Merchant Cooperative Bank Ltd., having 81.45% voting share. In the 10th CoC meeting held on 21.01.2020, finding no chance of revival of the Corporate Debtor, the resolution was passed to the effect that “resolved that, pursuant to Section 33 of the Insolvency and Bankruptcy Code, 2016 the approval of members of the committee of creditors be and is hereby accorded for liquidation of Corporate Debtor”
Pursuant to the aforesaid resolution, having been passed in the 10th CoC meeting held on 21.01.2020, the RP filed an application under Section 33 of the Code for seeking the following two reliefs (a) to pass an order under Section 33 of the Code commencing the liquidation process of the Corporate Debtor, (b) to appoint Mr. Harshad Deshpande as a liquidator of Corporate Debtor. The Adjudicating Authority, after considering the application of the RP, found it to be a fit case to pass the order of liquidation under Section 33 of the Code and after obtaining the consent of Harshad Deshpande, appointed him as a liquidator and passed the formal directions.
Appellants' Submission:
Counsel for the Appellant in CA (AT) (Ins.) No 1123 of 2020 has submitted that since there was a dissenting view of the CoC in the 10th Meeting and Nashik Merchant Cooperative Bank Ltd. was having a major voting share, therefore, the resolution was passed to appoint a liquidator to proceed with the liquidation but after the 10th Meeting of CoC held on 21.01.2020 and passing of the impugned order on 16.12.2020, the Appellant (City Co-Operative Credit And Capital Limited) has purchased the share of Nashik Merchant Cooperative Bank Ltd. by way of an assignment deed dated 05.04.2020 and has thus 100% voting share.
It was submitted that with the change of circumstances, the Appellant is now interested in approving the plan submitted by P.L Adke. It is also submitted that liquidation is the corporate death of the corporate debtor and all the steps should be taken to avoid it. It is also submitted that liquidation is the last resort to be adopted after genuine attempts are made for the revival of the Corporate Debtor. In nutshell, it is argued that this Tribunal still can pass an order of turning the clock back even after the CoC has become funcutous officio after the 10th meeting of CoC passing the resolution of liquidation and the application under Section 33 of the Code has been allowed by the Adjudicating Authority, appointing the liquidator to the asset of the Corporate Debtor.
Respondent's Submission:
On the other hand, Counsel for the Respondent has argued that the Code has not provided any express power to this Tribunal to set aside the order of liquidation and that the judgments relied upon by the Appellant in the case of Sharad Sangi (Supra) and State of Maharashtra (Supra) are not applicable.
NCLAT Analysis:
In the present case, the Appellate Tribunal noted that It is the matter which can be decided by the CoC which may extend the period and allow for fresh voting and that Regulation 26(2) being a directory cannot override the power of the CoC which can take the final decision accepting or rejecting the resolution plan.
The Appellate Authority observed that the ratio in the case of Sharad Sangi (CA (AT) (Ins.) No. 461 of 2018) was not applicable to the facts and circumstances of the present case because there was a change in the voting share in the present case that takes place after the order of liquidation.
"Similarly, the decision in the case of the State of Maharashtra, 2022 SCC Online NCLAT 6, was also not applicable to the facts and circumstances of the present case. Moreover, the said decision was under challenge before the Hon’ble Apex Court", the Appellate Tribunal noted.
"It is also pertinent to mention that it has been time and again held by the Hon’ble Apex Court that the Code is complete in itself and since there is no provision to deal with such a situation as we have one in hand, we do not find it to be a fit case to apply Rule 11 of the NCLAT Rules 2016 which operate in the altogether different sphere", the Appellate Authority further noted.
Thus, the Appeals were dismissed.