NCLAT overturns resolution plan approval citing lack of two-member bench jurisdiction under Section 419(3) Companies Act

The NCLAT set aside an NCLT order approving a resolution plan with 77.54% CoC approval. The tribunal held that a single judicial member lacked jurisdiction to pass the order as Section 419(3) of the Companies Act, 2013 requires two-member benches unless specifically notified otherwise. No such notification existed. The order violated natural justice principles by being non-speaking and failing to record satisfaction under Section 30(2) of the Code. Additionally, the matter contradicted NCLT's own administrative order during Covid-19 stating resolution plan approvals should not be treated as urgent. The appeal was allowed and matter remanded for fresh consideration.

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Issues Involved:
1. Whether the order has to be passed by two members or a single member as per Section 419(3) of the Companies Act, 2013.
2. Compliance with the administrative orders issued in the wake of COVID-19.
3. Whether the impugned order is non-speaking and violates principles of natural justice.

Summary:

Issue 1: Single Member vs. Two Members as per Section 419(3) of the Companies Act, 2013
The first issue discussed was whether the order should have been passed by a single member or two members as per Section 419(3) of the Companies Act, 2013. The Tribunal noted that the powers of the Tribunal are exercisable by Benches consisting of two Members, one Judicial and one Technical. However, a single Judicial Member can exercise the powers if specified by the President through a general or special order. In this case, no such notification was provided, making the order passed by a single member without jurisdiction.

Issue 2: Compliance with Administrative Orders During COVID-19
The second issue was the compliance with the administrative orders dated 22.03.2020 and 28.03.2020 issued by the NCLT in the wake of COVID-19. These orders specified that matters related to the extension of time, approval of resolution plans, and liquidation should not be treated as urgent. Despite these instructions, the Acting President treated the applications as urgent and approved the resolution plan, which was contradictory to the issued instructions.

Issue 3: Non-Speaking Order and Principles of Natural Justice
The third issue was whether the impugned order was non-speaking and violated principles of natural justice. The Tribunal found that the order was passed without recording satisfaction about the provisions of Section 30(2) of the Insolvency and Bankruptcy Code, 2016, which is essential. The order merely referred to Section 31 of the Code without providing reasons, making it unreasonable and non-speaking.

Conclusion:
The Tribunal concluded that the impugned order was illegal, unreasonable, and non-speaking. It was passed without jurisdiction and did not follow principles of natural justice. Consequently, the appeal was allowed, and the impugned order dated 01.04.2020 was set aside. The matter was remanded back to the Adjudicating Authority to decide the issues afresh by recording findings in accordance with the law. The parties were directed to appear before the Adjudicating Authority on 10th November 2023, and the registry was instructed to assign numbers to the unnumbered applications and send a copy of the order to the concerned Adjudicating Authority.

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