2022 (6) TMI 283 - AT - Insolvency and Bankruptcy

Adjudication process expanded to include Homebuyers as Financial Creditors, Appellants impleaded in rejected claims.

Aashray Social Welfare Society & Ors. Versus Saha Infratech Pvt. Ltd. & Ors.

The Adjudicating Authority's decision to reject the impleadment applications filed by the Appellants was overturned. The Financial Creditors, representing ... CIRP - Rejection of impleadment - allottees of “Amadeus” a real estate project being developed by the Corporate Debtor - Whether the application for impleadment filed by the Appellants before the Adjudicating Authority seeking impleadment in I.A. Nos 2275 of 2021 and 2286 of 2021 deserve rejection on the ground that Authorised Representative of Homebuyers who are creditors in class is not representing the creditors in a class before the Adjudicating Authority? - Whether the Appellants have no right to participate in adjudication of the claim of the Financial Creditors whose claim has been rejected by the IRP? - Whether the Adjudicating Authority committed error in rejecting impleadment application filed by the Appellants? HELD THAT:- The statutory scheme as is reflected from Section 21(6-A) and Section 25-A of the Code indicates that the Authorised Representative is chosen to represent the creditor in a class in the CoC. The Authorised Representative needs to attend the meeting of the CoC and vote on behalf of the Financial Creditor to the extent of voting share of the Financial Creditor. The Adjudicating Authority in its order has referred to Regulation 16A Sub-regulation (5) of the CIRP Regulations, 2016. Regulation 16A deals with the Authorised Representative. Regulation 16A provides for procedure of choosing an Authorised Representative of creditors of the respective class - The mere fact that the Authorised Representative of a creditor in a class have no role in receipt and verification of the claim of the creditors, it cannot be held to mean that creditors in a class have no right with regard to receipt and verification of their claim. The clarification as contained in Regulation 16A(5) has been read by the Adjudicating Authority to an extent which it never meant. The conclusion recorded by the Adjudicating Authority in paragraph 23 on the basis of erroneous interpretation of Regulation 16A(5) resulted in a wrong conclusion that the creditors in a class have no role in receipt or verification of claims of creditors. Right of impleadment of Appellants in Applications filed by Respondent No. 2 and 3 challenging the rejection of their claim as Financial Creditors - HELD THAT:- The Appellants are also Financial Creditors in a class and they represent majority of the Homebuyers in class, as has been pleaded by the Appellants. The Financial Creditors in a class, who at present consist of 99.85% of CoC, have every right to be heard in the Applications filed by Respondent No. 2 and 3 whose claim has been partly and fully rejected, respectively by the IRP - It cannot be said that since the Authorised Representative has not came up before the Adjudicating Authority for filing the impleadment application, the Appellants who themselves are Homebuyers have no right to participate in the adjudication initiated by filing applications by Respondent No. 2 and 3. The Hon’ble Supreme Court held that Phoenix Arc Pvt. Ltd. [2021 (2) TMI 91 - SUPREME COURT] and Yes Bank [2019 (1) TMI 1800 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] being Financial Creditors they were legitimately within the right to seek direction for exclusion of AAA Landmark Pvt. Ltd. and Spade Financial Services Pvt. Ltd. from the CoC. The Adjudicating Authority committed error in rejecting impleadment application filed by the Appellants to implead them as party respondent - Appeal allowed. Issues Involved:1. Whether the application for impleadment filed by the Appellants before the Adjudicating Authority seeking impleadment in I.A. Nos 2275 of 2021 and 2286 of 2021 deserve rejection on the ground that Authorised Representative of Homebuyers who are creditors in class is not representing the creditors in a class before the Adjudicating AuthorityRs.2. Whether the Appellants have no right to participate in adjudication of the claim of the Financial Creditors whose claim has been rejected by the IRPRs.3. Whether the Adjudicating Authority committed error in rejecting impleadment application filed by the AppellantsRs.Detailed Analysis:Issue 1: Role of Authorised Representative in Impleadment ApplicationsThe Adjudicating Authority rejected the impleadment applications filed by the Appellants on the grounds that the Authorised Representative of Homebuyers, who are creditors in a class, is not representing the creditors in a class before the Adjudicating Authority. The statutory scheme under Section 21(6-A) and Section 25-A of the Insolvency and Bankruptcy Code (IBC) indicates that the Authorised Representative is chosen to represent the creditor in a class in the Committee of Creditors (CoC) and has no role in receipt or verification of claims of creditors of the class he represents, as clarified under Regulation 16A(5) of the CIRP Regulations, 2016. However, this does not imply that the creditors in a class themselves have no right with regard to receipt or verification of their claims. The Financial Creditors in a class have every right to submit their claim and participate in the verification process.Issue 2: Right of Appellants to Participate in Adjudication of ClaimsThe Appellants, being Financial Creditors in a class and representing a majority of the Homebuyers, have a right to be heard in the Applications filed by Respondent No. 2 and 3, whose claims were rejected by the Interim Resolution Professional (IRP). The judgment of the Hon'ble Supreme Court in 'Phoenix Arc Private Limited vs. Spade Financial Services Limited & Ors.' supports the contention that Financial Creditors have the right to seek directions for the exclusion of other Financial Creditors from the CoC. The statutory scheme does not require that the Authorised Representative must represent the creditors in a class before the Adjudicating Authority in an adjudication process. Therefore, the Appellants have the right to participate in the adjudication initiated by Respondent No. 2 and 3.Issue 3: Error in Rejecting Impleadment ApplicationThe Adjudicating Authority committed an error in rejecting the impleadment applications filed by the Appellants. The Financial Creditors in a class, who constitute 99.85% of the CoC, have a legitimate interest in opposing the claims of Respondent No. 2 and 3. The previous order by the Adjudicating Authority, which permitted the Appellants to file written submissions in an earlier application filed by Respondent No. 2 and 3, further supports the Appellants' right to be heard. Additionally, allegations of connivance between the Homebuyers Association and the IRP made by Respondent No. 2 and 3 necessitate that the Appellants be given an opportunity to refute such claims.Conclusion:The Adjudicating Authority's order dated 21.10.2021 rejecting the impleadment applications filed by the Appellants is set aside. The Appellants are allowed to be impleaded as party respondents in I.A. No. 2275 of 2021 and I.A. No. 2286 of 2021. The Appeal is allowed, and parties shall bear their own costs.