Tribunal Upholds Decision on Shareholder Representation in SCC, Emphasizes Compliance with Regulation

The Tribunal upheld the Adjudicating Authority's decision, dismissing the appeal and directing the Liquidator to accept the nomination of Mr. Vivek Shukla as the representative of the Shareholders in the Stakeholders Consultation Committee (SCC). The Tribunal found the Liquidator's rejection of the majority nomination incorrect, emphasizing that Regulation 31A(3) does not require unanimous nomination. The Adjudicating Authority's order was deemed lawful, with no illegality or infirmity noted. The Tribunal instructed compliance with the law and highlighted ongoing arbitration proceedings and potential conflicts of interest involving the Appellant.

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Issues Involved:

1. Challenge to the Impugned Order regarding reconstitution of the Stakeholders Consultation Committee (SCC).
2. Validity of the Liquidator's decision to include the Appellant in the SCC.
3. Interpretation and applicability of Regulation 31A(3) and 31A(4) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.
4. Impact of the amendment to Regulation 31A(4) effective from 30.09.2021.

Detailed Analysis:

1. Challenge to the Impugned Order regarding reconstitution of the Stakeholders Consultation Committee (SCC):

The appeal challenges the order dated 20.07.2021 by the National Company Law Tribunal (NCLT), New Delhi, Bench-II, which directed the Liquidator to reconstitute the SCC by including Mr. Vivek Shukla, Ex-Director and Shareholder of the Corporate Debtor, as the representative of the Shareholders.

2. Validity of the Liquidator's decision to include the Appellant in the SCC:

The Liquidator included the Appellant in the SCC as the representative of the Shareholders, despite three out of five Shareholders (holding a combined 24.99% share) nominating Mr. Vivek Shukla. The Liquidator's decision was based on the interpretation that the nomination should be unanimous or based on the highest shareholding in the absence of unanimous nomination.

3. Interpretation and applicability of Regulation 31A(3) and 31A(4) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016:

- Regulation 31A(3): The regulation states, "The liquidator may facilitate the stakeholders of each class to nominate their representatives for inclusion in the consultation committee." The Adjudicating Authority observed that the regulation is silent on the criteria and process of nomination but emphasizes the Liquidator's duty to facilitate the nomination.

- Regulation 31A(4): Prior to the amendment effective from 30.09.2021, it stated, "If the stakeholders of any class fail to nominate their representatives, the required number of stakeholders with the highest claim amount in that class shall be included in the consultation committee." Post-amendment, it reads, "If the stakeholders of any class fail to nominate their representatives, under sub-regulation (3), such representatives shall be selected by a majority of voting share of the class, present and voting."

The Adjudicating Authority held that the nomination of Mr. Vivek Shukla by the majority (three out of five Shareholders) was valid under Regulation 31A(3), and the applicability of Regulation 31A(4) did not arise as the stakeholders had already nominated their representative.

4. Impact of the amendment to Regulation 31A(4) effective from 30.09.2021:

The Appellant argued that the amendment to Regulation 31A(4) should not apply retrospectively and that the previous version of the regulation should be considered. However, the Adjudicating Authority found that the amendment clarified the process and did not affect the validity of the majority nomination already made.

Assessment and Conclusion:

The Tribunal concluded that the Liquidator's rejection of the majority nomination was incorrect. It emphasized that Regulation 31A(3) does not require unanimous nomination and that the majority nomination (three out of five Shareholders) was sufficient. The Tribunal also noted the ongoing arbitration proceedings and potential conflicts of interest involving the Appellant.

The Tribunal upheld the Adjudicating Authority's decision, dismissing the appeal and directing the Liquidator to accept the nomination of Mr. Vivek Shukla as the representative of the Shareholders in the SCC. The Tribunal found no illegality or infirmity in the Adjudicating Authority's order and instructed the Adjudicating Authority to proceed in accordance with the law.

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