2021 (3) TMI 579 - Tri - Insolvency and Bankruptcy

Tribunal sets aside RP's decision on PRAs, emphasizes adherence to IBC procedures

The Tribunal allowed the application, setting aside the RP's decision to include DSKL in the list of PRAs. The Tribunal held that the list of PRAs ... Backdoor entry for approval of resolution plan - Seeking intervention and appropriate directions to the Respondent for successful, fair and unbiased completion of Resolution Process of the Corporate Debtor - Proper authority to file application - HELD THAT:- The Managing Director could file the Application. Since no relief is claimed against DSKL, it would not be a necessary party to the Application. The Application can very well be decided in its absence. The Hon’ble NCLAT in the matter of Kotak Investment Advisors Limited Vs. Mr. Krishna Chamadia (Resolution Professional in the matter of Ricoh India Limited) and Ors. [2020 (8) TMI 389 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] has held that It cannot be said that as per Process Memorandum, the Resolution Professional was entitled to accept any Resolution Plan at any point of time, without following the due process under the guise of maximization of value. The alleged act of the Resolution Professional in accepting the Resolution Plan after the expiry of the deadline for submission of Resolution Plan is arbitrary, illegal and against the principle of natural justice and cannot be treated as an act within the commercial wisdom of the CoC. Thus, after the expiry of the deadline for submission of Resolution Plan, the Resolution Professional, with the approval of CoC, was fully authorized to invite fresh invitation for Expression of Interest for submission of Resolution Plan. Thereby fair opportunity would have been available to all other Prospective Applicants to participate in the process thereby creating more healthy competition. Accepting one EoI, Resolution Plan from one party whose EoI had earlier been rejected by CoC after due deliberation is prejudicial and beyond the scope of the Code and the Regulations. When EoI is invited, then public notices are published. The action of the RP and CoC is in violation of the express provisions of the Code and Regulations made thereunder. However, if the CoC wanted to extend the timeline, it should have done so within the procedure prescribed there for. By providing a special treatment, back door entry for accepting the Resolution Plan of the DSKL’s the Resolution Professional and the CoC have deviated from the norms prescribed under the Code and the Regulations framed there under, which vitiates the Corporate Insolvency Resolution Process and caused prejudice to the other PRAs. Such a practice has been strongly deprecated by the Hon’ble NCLAT - application allowed. Issues Involved:1. Authority of the applicant to file the application.2. Non-joinder of Dwarkadhish Sakhar Karkhana Limited (DSKL) as a necessary party.3. Inclusion of DSKL in the final list of Prospective Resolution Applicants (PRAs) after initial rejection.4. Allegations of bias and arbitrariness in the conduct of the Resolution Professional (RP).5. Compliance with the Insolvency and Bankruptcy Code (IBC) and related regulations.Issue-wise Detailed Analysis:1. Authority of the Applicant to File the Application:The Respondent challenged the authority of the applicant to file the application, arguing that no Board Resolution authorizing the filing was presented. The applicant countered that the Managing Director, by virtue of their position, is empowered to file such applications. The Tribunal accepted the applicant's submission, citing Section 2(54) of the Companies Act, 2013, which entrusts substantial powers of management to the Managing Director. The Tribunal also referenced a Karnataka High Court judgment supporting the Managing Director's authority to institute proceedings.2. Non-joinder of DSKL as a Necessary Party:The Respondent argued that DSKL was a necessary party to the proceedings. The applicant contended that no relief was sought against DSKL, and thus, it was not necessary to include them as a party. The Tribunal agreed with the applicant, stating that since no relief was claimed against DSKL, the application could be decided in their absence.3. Inclusion of DSKL in the Final List of PRAs:The applicant objected to the inclusion of DSKL in the final list of PRAs after their initial rejection due to late submission of their Expression of Interest (EoI). The applicant argued that the RP’s actions were arbitrary and biased, and that the inclusion of DSKL without issuing a new Form G was against the regulations. The Tribunal noted that the RP had deviated from the established procedure by accepting DSKL’s EoI after the deadline without issuing a fresh invitation for EoIs, which was prejudicial to other PRAs.4. Allegations of Bias and Arbitrariness in the Conduct of the RP:The applicant alleged that the RP’s conduct was biased and arbitrary, favoring DSKL. The Tribunal found merit in the applicant's arguments, noting that the RP had changed the rules mid-process to favor DSKL. The Tribunal referenced the NCLAT judgment in Kotak Investment Advisors Limited Vs. Mr. Krishna Chamadia, which held that accepting a resolution plan after the deadline without following due process was arbitrary and against the principles of natural justice.5. Compliance with the IBC and Related Regulations:The Tribunal emphasized the importance of adhering to the IBC and related regulations. It noted that the RP’s acceptance of DSKL’s EoI after the deadline without issuing a fresh Form G was a violation of Regulation 36A(6) of the CIRP Regulations. The Tribunal highlighted that any deviation from the established procedure must be done in a manner that ensures fairness and transparency, which was not observed in this case.Conclusion:The Tribunal allowed the application, setting aside the RP’s decision to include DSKL in the list of PRAs. The Tribunal held that the list of PRAs prepared by the former RP on 6th March 2020 was valid and accepted. The Tribunal emphasized that the RP and the Committee of Creditors (CoC) must adhere to the procedures prescribed under the IBC and the CIRP Regulations to ensure a fair and unbiased resolution process.