2021 (12) TMI 910 - AT - Insolvency and Bankruptcy

Tribunal Upholds Jurisdiction in Pre-Packaged Insolvency Process, Emphasizes Natural Justice

The Tribunal held that the Adjudicating Authority has the jurisdiction to allow objectors/interveners to file objections before admitting a pre-packaged ... Jurisdiction - rights of Adjudicating Authority to hear Objectors/ Interveners, before admission of the Application, while considering Application of pre-packaged insolvency under Section 54C of the ‘I&B Code’ - HELD THAT:- Section 54C (1) provides that where a Corporate Debtor meets the requirements of Section 54A, a corporate applicant may file an application with the Adjudicating Authority for initiating pre-packaged insolvency resolution process. The requirements having been provided under Section 54A, a Corporate Debtor has to meet them to enable to initiate the process. One of the relevant provisions in this regard is Section 54C (3) which mandates that the Corporate Debtor shall obtain an approval from its Financial Creditors, not being its related parties, representing not less than sixty-six percent. in value of the financial debt due to such creditors, for the filing of an Application. Regulation 14 under the heading “Initiation of Process” deals with the manner in which approvals by Financial Creditors have to be obtained. The Scheme under Chapter III-A and the Regulations 2021 do not contain any express provision either prohibiting the Adjudicating Authority from hearing any of the objectors or interveners prior to the admission of pre-packaged insolvency resolution process application or providing for giving notice or hearing to the interveners or objectors. The objectors who had filed applications were all Homebuyers who have purchased one or more units in the Real Estate Projects of the Appellant - The legislative intent which is clear by Section 424 (1) is that the Tribunal while disposing of any proceeding before it shall not be bound by procedure laid down by Code of Civil Procedure but shall be guided by the principle of natural justice and subject to the other provisions of this Act or Code 2016 and any of the Rules made thereunder. Further, the Tribunal and the Appellate Tribunal shall have power to regulate their own procedure. The statutory scheme delineated by Chapter III-A of ‘I&B Code’ as well as the Regulations, 2021 as observed above does not indicate any prohibition on the Adjudicating Authority to hear any objector or intervener before admitting an Application of pre-packaged insolvency resolution process. No error has been committed by the Adjudicating Authority in giving opportunity to the objectors to file their objections. The Appellant has also been given opportunity to file his rejoinder and reply to the objections, hence he cannot claim that any prejudice is cause to him only because objectors have been given time to file objection. The objectors who have appeared before the Adjudicating Authority have huge stakes since they are all homebuyers/ allottees and have paid substantial amount to the Appellant running in lakhs and crores. No error has been committed by the Adjudicating Authority in granting time to objectors to file their objections within a week - Appeal dismissed. Issues Involved:1. Jurisdiction of Adjudicating Authority to hear objectors/interveners before admission of pre-packaged insolvency resolution process application.2. Compliance with statutory provisions of the Insolvency and Bankruptcy Code (I&B Code) and related regulations by the Corporate Debtor.3. Validity of the meeting and approval process for the pre-packaged insolvency resolution process.4. Adherence to principles of natural justice and procedural fairness.Issue-Wise Detailed Analysis:1. Jurisdiction of Adjudicating Authority to Hear Objectors/Interveners:The primary issue in this appeal was whether the Adjudicating Authority (National Company Law Tribunal) has the jurisdiction to grant time to objectors/interveners to file a reply before admitting an application for pre-packaged insolvency resolution process under Section 54C of the I&B Code. The appellant argued that the statutory scheme for considering a pre-packaged insolvency resolution process application does not contemplate giving any opportunity to objectors, including Financial Creditors, to oppose the application prior to its admission. However, the Tribunal held that there is no express provision in Chapter III-A of the I&B Code or the Insolvency and Bankruptcy Board of India (Pre-Packaged Insolvency Resolution Process) Regulations, 2021, either prohibiting or mandating the hearing of objectors before admitting such an application. The Tribunal emphasized that the Adjudicating Authority is guided by the principles of natural justice and has the power to regulate its own procedure under Section 424 of the Companies Act, 2013. Therefore, the Tribunal concluded that the Adjudicating Authority did not err in exercising its discretion to grant time to the objectors to file their objections.2. Compliance with Statutory Provisions:The objectors contended that the application for the pre-packaged insolvency resolution process was initiated without complying with the statutory provisions of the I&B Code. Specifically, they argued that the notice for convening the meeting of Financial Creditors was issued on 30.09.2021 at 3.30 A.M., and the meeting was held on the same day at 5.00 P.M., which did not comply with the requirement of at least five days’ notice as mandated by Regulation 14 of the Insolvency and Bankruptcy Board of India (Pre-Packaged Insolvency Resolution Process) Regulations, 2021. The Tribunal noted that the statutory requirements under Section 54A and Section 54C of the I&B Code must be met before a Corporate Debtor can file an application for the pre-packaged insolvency resolution process. The Tribunal found that there was a prima facie breach of the regulation as the notice period was not adhered to, and there was no material to indicate that all Financial Creditors agreed to the shorter notice period.3. Validity of the Meeting and Approval Process:The objectors raised serious allegations regarding the validity of the meeting and the approval process for the pre-packaged insolvency resolution process. They claimed that certain Financial Creditors were fraudulently treated as unrelated and their votes were counted to achieve the requisite majority. Additionally, it was alleged that the votes of several Financial Creditors/Homebuyers were wrongly recorded as ‘YES’ when they had opposed the proposal. The Tribunal refrained from expressing any opinion on the merits of these claims but acknowledged that these objections raised valid concerns about compliance with statutory provisions, which warranted consideration by the Adjudicating Authority.4. Adherence to Principles of Natural Justice and Procedural Fairness:The Tribunal emphasized the importance of adhering to the principles of natural justice, as mandated by Section 424 of the Companies Act, 2013. It held that giving time to the objectors to file their objections was in accordance with these principles and did not violate any regulations, rules, or provisions of the I&B Code. The Tribunal noted that the objectors, who were homebuyers/allottees, had substantial stakes and were entitled to ensure that the pre-packaged insolvency resolution process was conducted in compliance with the law. The Tribunal also highlighted that the appellant was given an opportunity to file a rejoinder and reply to the objections, ensuring procedural fairness.Conclusion:The Tribunal concluded that the Adjudicating Authority did not commit any error in granting time to the objectors to file their objections. The appeal was dismissed, and the Tribunal reiterated that it had not expressed any opinion on the merits of the objectors' claims, leaving it to the Adjudicating Authority to consider and decide on the application for the pre-packaged insolvency resolution process.