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

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

The Adjudicating Authority's decision to reject the impleadment applications filed by the Appellants was overturned. The Financial Creditors, representing ... Authorised Representative - receipt or verification of claims - rights of financial creditors in a class - impleadment in proceedings challenging claim rejection - representation and voting in the Committee of CreditorsAuthorised Representative - receipt or verification of claims - The clarification that an Authorised Representative has no role in receipt or verification of claims does not deprive the creditors in that class of their independent right to submit and defend their claims. - HELD THAT: - The Court examined Section 21(6A), Section 25-A and Regulation 16A(5) and held that the statutory scheme assigns the Authorised Representative a limited role - attending CoC meetings and voting on behalf of creditors in the class - and that the clarification in Regulation 16A(5) that the authorised representative shall have no role in receipt or verification of claims cannot be read to mean that individual creditors in the class have no right to participate in receipt or verification of their claims. The Adjudicating Authority erred by construing the clarification to extinguish the rights of creditors in a class to be heard on matters concerning admission or rejection of claims. [Paras 10, 11, 12, 13, 14]Clarification in Regulation 16A(5) is limited and does not extinguish the independent rights of creditors in a class with regard to receipt or verification of claims.Rights of financial creditors in a class - impleadment in proceedings challenging claim rejection - Appellants who are financial creditors in a class have the right to seek impleadment and be heard in applications filed by other creditors challenging rejection of their claims. - HELD THAT: - Applying the statutory scheme and precedent, the Court held that financial creditors in a class - particularly where the appellants represent a large proportion of the class - have a legitimate interest in adjudications that determine whether another claimant is to be treated as a financial creditor and thereby participate in the CoC. The Court noted that the appellants had been heard in earlier proceedings and that express allegations of connivance had been made against them in the pending applications, reinforcing their entitlement to be heard. Reliance on Phoenix Arc Pvt. Ltd. was held to support the position that one financial creditor may legitimately seek exclusion or challenge inclusion of another financial creditor in the CoC. [Paras 15, 16, 19, 20, 21]The Appellants, as financial creditors in a class, are entitled to impleadment and to be heard in the adjudication of applications filed by Respondent No. 2 and 3 challenging rejection of their claims.Impleadment in proceedings challenging claim rejection - representation and voting in the Committee of Creditors - The Adjudicating Authority erred in rejecting the applications for impleadment; those applications are to be allowed and the Appellants impleaded as party respondents. - HELD THAT: - The Court concluded that the NCLT's reasoning in paras 23-24 of the impugned order misinterpreted the regulatory clarification and unjustifiably denied the appellants an opportunity to participate, despite their status as financial creditors in the class and earlier opportunity to be heard. Given the appellants' pleaded majority representation of homebuyers in the CoC and the allegations made against them in the pending applications, the Court found it necessary to permit impleadment. Consequently, the impugned order rejecting I.A. Nos. 2365 of 2021 and 2366 of 2021 was set aside and those applications were allowed. [Paras 23, 24]Order dated 21.10.2021 rejecting the impleadment applications is set aside; I.A. Nos. 2365 of 2021 and 2366 of 2021 are allowed and the Appellants shall be impleaded.Final Conclusion: Appeal allowed. The impugned order rejecting the impleadment applications is set aside; the Appellants are to be impleaded as party respondents in I.A. No. 2275 of 2021 and I.A. No. 2286 of 2021. Parties to bear their own costs. 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.