NCLAT Rules: Inclusion of Strategic Investor by ARC Valid; Unsuccessful Applicant Cannot Challenge CoC-Approved Plan
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REEDLAW Legal News Network reports: In a decisive ruling, the National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, upheld the validity of including a strategic investor by a duly eligible Asset Reconstruction Company (ARC) in a resolution plan. The Tribunal clarified that such inclusion does not contravene Regulation 39(1B) of the CIRP Regulations. It further reaffirmed that once the Committee of Creditors (CoC) unanimously approves a resolution plan in the exercise of its commercial wisdom, an unsuccessful resolution applicant who has accepted a refund of its bid bond has no locus standi to challenge the approved plan under the Insolvency and Bankruptcy Code, 2016.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Rakesh Kumar Jain (Judicial Member) and Mr. Indevar Pandey (Technical Member), while adjudicating a Company Appeal, held that the inclusion of a strategic investor by a duly eligible Asset Reconstruction Company did not violate Regulation 39(1B) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The Appellate Tribunal observed that once the resolution plan is duly approved by the Committee of Creditors in the exercise of its commercial wisdom, it cannot be interfered with except on limited grounds. Moreover, an unsuccessful resolution applicant, having accepted the refund of its bid bond amount, loses the locus standi to challenge the approved plan.
The appeals arose from an order of the Adjudicating Authority which had rejected the application filed by the Resolution Professional seeking approval of the resolution plan for the Corporate Debtor under Section 30(6) read with Section 31(1) of the Insolvency and Bankruptcy Code, 2016. The Adjudicating Authority had also partly allowed applications filed by an unsuccessful resolution applicant and the suspended directors. Aggrieved by the rejection of the Committee of Creditors (CoC)-approved plan and the findings regarding procedural irregularities, separate appeals were filed before the Appellate Tribunal by the CoC through the Financial Creditor, by the consortium of Rare Asset Reconstruction Ltd. and Check-Inn Hotels Pvt. Ltd. (the Successful Resolution Applicants), and by the Resolution Professional on behalf of the Corporate Debtor under Section 61(1) of the Code.
The CIRP had originated from a petition filed under Section 7 of the Code, leading to the initiation of the insolvency process and the appointment of the Interim Resolution Professional, who was later confirmed as the Resolution Professional. The CoC was duly constituted with three financial institutions as members. During the CIRP, fourteen CoC meetings were held, a revised Form-G was issued inviting expressions of interest, and a transparent challenge process was conducted among six prospective resolution applicants. Eventually, the consortium of Rare ARC and Check-Inn Hotels Pvt. Ltd. received unanimous approval of its resolution plan with 100% CoC voting share. Despite this, the Adjudicating Authority rejected the plan, citing non-compliance with Section 30(2) of the Code and certain CIRP Regulations, observing procedural irregularities in furnishing the resolution plan to the erstwhile directors.
Before the Appellate Tribunal, the CoC argued that the rejection of a unanimously approved plan was erroneous since the process fully complied with the statutory framework, and that the objections of the unsuccessful resolution applicant lacked locus standi after accepting the refund of its bid bond deposit. The Successful Resolution Applicants contended that the Adjudicating Authority had wrongly applied Section 29A to declare them ineligible and had exceeded its jurisdiction by interfering with the CoC’s commercial wisdom. It was further submitted that the CIRP had been conducted transparently and that all plans had been shared with the suspended directors in compliance with the law. The Resolution Professional supported these submissions and emphasised that the NCLT’s direction to restart the CIRP defeated the time-bound object of the Code and prejudiced creditors.
The Appellate Tribunal noted that the objections raised by the suspended directors and other related parties had been withdrawn, leaving only the unsuccessful resolution applicant’s challenge for adjudication. It observed that the Resolution Professional had complied with Regulation 36A of the CIRP Regulations in preparing the provisional and final lists of prospective applicants and that no objections had been raised regarding inclusion or exclusion. The Tribunal also held that the allegation of irregularity due to the delayed provision of the plan to suspended directors was unfounded, as the plans were shared well before the commencement of e-voting.
Upon examining the compliance with Regulation 39(1B), the Appellate Tribunal found that the inclusion of Check-Inn Hotels Pvt. Ltd. as a strategic investor in a consortium with Rare ARC did not contravene the law. The Tribunal observed that Check-Inn had duly submitted its Section 29A affidavit and that its inclusion as a strategic investor was consistent with Clause 15(xi) of the Request for Resolution Plan (RFRP) and approved by the CoC. It further noted that Rare ARC, being an Asset Reconstruction Company, was permitted under RBI guidelines to induct a strategic investor for equity participation.
The Tribunal concluded that the induction of Check-Inn Hotels Pvt. Ltd. was transparent, duly verified, and lawfully approved by the CoC. It held that the Adjudicating Authority erred in treating the induction and plan approval as simultaneous acts. The Tribunal reaffirmed that once a plan had been duly approved by the CoC after due deliberation, its commercial wisdom could not be interfered with, and an unsuccessful resolution applicant who had accepted a refund of its bid bond deposit had no locus to challenge the plan. Accordingly, the Appellate Tribunal set aside the impugned order of the Adjudicating Authority and restored the proceedings for approval of the resolution plan.
Mr. Sunil Fernandes, Sr. Advocate, Mr. Abhirup Dasgupta, Ms. Ishaan Duggal, and Ms. Ruchi Goyal, Advocates, represented the Appellant.
Mr. Arun Kathpalia, Sr. Advocate, Ms. Shweta Dubey, and Ms. Kanishka Prasad, Advocates, appeared for the Respondent No. 1.
Mr. Kartikey Bhatt and Mr. Akshay Luthra, Advocates, appeared for the Respondent No. 2.
Mr. Rohit Gupta, Ms. Aakashi Lodha and Ms. Nishtha Jindal, Advocates, appeared for Respondent No. 3 to Respondent No. 8.
Mr. Krishnendu Datta, Sr. Advocate, Mr. Chitranshul A. Sinha, Mr. Sagar Bansal, Ms. Ayushi Bansal, Mr. Shivam Shorewala and Ms. Rakshita Bhargava, Advocates, appeared for Respondent No. 9 and Respondent No. 10.
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