NCLAT allows pre-packaged insolvency application under Section 54C after Authority wrongly rejected complete application

The NCLAT set aside the Adjudicating Authority's rejection of a pre-packaged insolvency application filed under Section 54C of IBC, 2016. The court held that under Section 54C(4), the Adjudicating Authority must admit complete applications or reject incomplete ones within fourteen days. Since the Authority acknowledged all statutory compliances were fulfilled, it erred by rejecting the application based on merits of the Base Resolution Plan. The NCLAT ruled that evaluating the Base Resolution Plan's acceptability is not contemplated under the statutory scheme. The court also confirmed that Base Resolution Plans can be submitted jointly by the Corporate Applicant with other parties, including financial creditors. Appeal allowed.

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Issues Involved:

1. Whether the Application under Section 54C of the Insolvency and Bankruptcy Code, 2016 (IBC) was complete and met all eligibility requirements.
2. Whether the Adjudicating Authority could reject the Application based on the merits of the Base Resolution Plan.
3. Whether the Base Resolution Plan was an attempt to circumvent SEBI Takeover Regulations.

Summary:

Issue 1: Completeness and Eligibility of Application under Section 54C of IBC

The Appellant, a registered MSME, filed an Application for initiation of Pre-Packaged Insolvency Resolution Process (PPIRP) under Section 54C of the IBC. The National Company Law Tribunal (NCLT) Mumbai Bench-1 rejected the Application. The Appellant contended that the Application met all eligibility criteria under Section 54A and was complete in all respects. The Adjudicating Authority had acknowledged the statutory compliance of the Application, including the Corporate Debtor being a registered MSME, approval from Financial Creditors, and submission of necessary declarations and financial statements.

Issue 2: Rejection Based on Merits of the Base Resolution Plan

The Appellant argued that the Adjudicating Authority committed an error by adjudicating the Base Resolution Plan at the stage of admission under Section 54C, which should only consider the completeness of the Application. The Tribunal noted that the statutory scheme under Chapter III-A of IBC does not contemplate the consideration of the Base Resolution Plan at the admission stage. The approval of the Resolution Plan is within the domain of the Committee of Creditors (CoC) under Section 54K, and the Adjudicating Authority's role is limited to admitting or rejecting the Application based on its completeness.

Issue 3: Circumvention of SEBI Takeover Regulations

The Adjudicating Authority had rejected the Application on the grounds that the Base Resolution Plan was devised as a mechanism to transfer control to Mr. Ravindra Subhash Salunkhe, circumventing SEBI Takeover Regulations. The Appellant contended that the SEBI Regulations were amended on 31.05.2018 to exempt acquisitions under a Resolution Plan approved under Section 31 of IBC from the obligation under SEBI Takeover Code. The Tribunal found that the Adjudicating Authority did not consider this amendment and erroneously concluded that the Base Resolution Plan aimed to circumvent SEBI regulations.

Conclusion

The Tribunal concluded that the Adjudicating Authority erred in rejecting the Application under Section 54C by entering into the merits of the Base Resolution Plan, contrary to the statutory scheme of IBC. The Tribunal set aside the order dated 08.11.2023 and directed the Adjudicating Authority to reconsider the Application under Section 54C, sub-section (4) expeditiously, preferably within three months. The Appeal was allowed accordingly.

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