2024 (6) TMI 1529 - AT - Companies Law

Prospective Resolution Applicant Lacks Locus to Appeal u/s 61 IBC When No Resolution Plan Submitted

The NCLAT (Chennai) dismissed the appeal filed by the appellant, holding that a Prospective Resolution Applicant (PRA) lacks locus standi under Section 61 ... Maintainability of appeal - status of appellant only of Prospective Resolution Applicant and - individual rights affected by the impugned Order - no direct prejudice to legal rights or not - HELD THAT:- The Constitution Bench of the Hon’ble Apex Court Padma Sundara Rao v. State of T.N. & Ors. [2002 (3) TMI 44 - SUPREME COURT], in fact, it has considered the said impact, and has held that one cannot place a fact under the given set of Law, but, rather, it will be just a vice-a-versa, that it would always be a similar set of facts which has to be tested first by the Courts, as to whether, a particular set of Law, on which a reliance is placed, would at all fit into under the facts or not, because different facts and circumstances of the case and a unified principle of judicial precedence will not be applicable, as it has been sought to be applied by the Learned Senior Counsel for the Appellant on the basis of the Judgment, that he had relied upon to substantiate his argument, pertaining to the Locus of the present Appellant to challenge the Impugned Order of 08.05.2024, as rendered in IA (IBC)/897/2024. This Tribunal is of the view that as far as the present Appellant is concerned, whose status is not in dispute as to be that of a PRA, there is no material right which is prejudiced by passing of the Impugned Order by the learned Adjudicating Authority, which could give him a cause to challenge the same by invoking Section 61 of the I & B Code, 2016, and that too, in the status of being a Prospective Resolution Applicant, where he has only expressed his interest to submit the Resolution Proposal and has not even reached the stage of submitting Resolution Proposal. The Appellant is not at all an Aggrieved Party - The Appellant does not have any cause of action, as such, as against the Impugned Order, in the status of his being a Prospective Resolution Applicant. Appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether a Prospective Resolution Applicant, whose status is confined to inclusion in the provisional list of Prospective Resolution Applicants and who has not yet submitted a Resolution Plan, is an 'aggrieved person' with locus standi to maintain an appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016, against an order permitting another person to participate as a Resolution Applicant. 1.2 Whether precedents recognizing locus standi of a Resolution Applicant or Prospective Resolution Applicant in other factual situations could be applied to confer a right of appeal in the present case. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Locus standi and maintainability of appeal by a Prospective Resolution Applicant under Section 61 of the Insolvency and Bankruptcy Code, 2016 Interpretation and reasoning 2.1 The Tribunal noted that the Appellant's admitted position was only that of a Prospective Resolution Applicant (PRA), whose name appeared in the provisional list finalized in the 18th meeting of the Committee of Creditors (CoC), and who had merely expressed interest but had not yet submitted any Resolution Plan. 2.2 The Impugned Order of the Adjudicating Authority did not reject or overlook any Resolution Plan of the Appellant, nor did it curtail or affect any vested or statutory right of the Appellant. The order merely set aside CoC's decision disqualifying another person (Respondent No. 1) and directed that such person be permitted to participate as a Resolution Applicant. 2.3 The Tribunal found that, at the time of the Impugned Order, no Resolution Plans by any Prospective Resolution Applicants had actually been submitted. Hence, there was no allegation or material to show that any existing or accrued legal right of the Appellant had been prejudiced, or that any discrimination or financial loss had ensued to the Appellant or to other PRAs. 2.4 The Tribunal emphasized that to invoke Section 61 of the Insolvency and Bankruptcy Code, 2016, a person must be 'aggrieved' in the sense of suffering a direct prejudice to their legal rights. A mere apprehension that the Corporate Insolvency Resolution Process (CIRP) may suffer 'irreparable damage' or that another participant may gain 'leverage' is insufficient to confer locus standi in the absence of identifiable infringement of the Appellant's own rights. 2.5 The Tribunal observed that, in the factual matrix, the Appellant was attempting to challenge the eligibility of another person (Respondent No. 1) under Section 29A of the Code, without demonstrating any personal legal injury resulting from the Impugned Order permitting that person to participate in the Resolution process. Conclusions 2.6 The Appellant, being only a Prospective Resolution Applicant who had not even reached the stage of submitting a Resolution Plan, had no legally enforceable or vested right that was affected by the Impugned Order and, therefore, was not an 'aggrieved person' for the purpose of Section 61 of the Insolvency and Bankruptcy Code, 2016. 2.7 The appeal was held to be not maintainable for want of locus standi, as no material right of the Appellant had been prejudiced by the order of the Adjudicating Authority permitting Respondent No. 1 to participate in the Resolution process. Issue 2: Applicability of precedents on locus standi of Resolution Applicants / Prospective Resolution Applicants Legal framework discussed 2.8 The Tribunal examined and distinguished the precedents relied upon by the Appellant, including: (i) a judgment of the Principal Bench, NCLAT, New Delhi, in which a Resolution Applicant (PRIO S.A. case) had participated fully in the process, submitted offers, revised them, negotiated with the CoC and Resolution Professional (RP), and whose offer was effectively displaced by the process; and (ii) a judgment of this Bench in the matter concerning extension of timelines beyond 330 days (Meenakshi Energy case), where questions of jurisdiction and maintainability under Section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016 arose. 2.9 The Tribunal also referred to the Constitution Bench judgment in Padma Sundara Rao, affirming that precedents must be applied having regard to the specific facts and circumstances, and that a legal principle cannot be mechanically transplanted to dissimilar factual situations. Interpretation and reasoning 2.10 In the PRIO S.A. precedent, the Tribunal noted that the Appellant there had submitted a Resolution Plan, revised its offer, held negotiations with the CoC and RP, and that its offer formed the basis for exercise of a Right of First Refusal by another party. The Adjudicating Authority had also examined its objections on merits. On those facts, it was held that such a participant had locus to challenge the approval of the competing offer. 2.11 The Tribunal held that the present case is materially different because the Appellant here had only expressed interest and was merely a PRA, without having submitted any Resolution Plan, without any negotiations, and without its offer being overlooked in favour of Respondent No. 1. Thus, the ratio of the PRIO S.A. judgment, based on a fully-participating Resolution Applicant whose rights were directly impacted, could not be extended to a PRA whose rights had not crystallised. 2.12 Regarding the Meenakshi Energy judgment, the Tribunal observed that paragraph 6 only recorded submissions of counsel and did not lay down any ratio decidendi on locus standi of a PRA. Paragraph 90 was interpreted as holding that where an application is filed under Section 60(5)(c), the Adjudicating Authority must address questions of locus and maintainability, and absence of findings thereon could render an order perverse. It did not, however, confer an automatic right of appeal on every PRA irrespective of prejudice. 2.13 The Tribunal held that the Appellant had misconstrued these precedents and attempted to apply them without correlating the underlying facts. The Court reiterated that applicability of law depends upon the factual matrix, and a unified principle cannot be applied 'in toto' to dissimilar circumstances. Conclusions 2.14 The precedents cited by the Appellant, including those concerning participation rights of Resolution Applicants/Prospective Resolution Applicants and the scope of Section 60(5)(c), were held to be fact-specific and not applicable to the present case, where the Appellant's rights as a PRA had not yet crystallised nor been adversely affected. 2.15 Consequently, the Tribunal concluded that no support for the Appellant's locus standi or right of appeal could be drawn from the cited judgments, and the appeal was dismissed as lacking merit.