2025 (8) TMI 636 - AT - IBC

Appeal dismissed for lack of locus after consortium partner withdrawal; Section 29A requirements partially upheld

Myotic Trading Private Limited Versus Deepak Maini, Resolution Professional of Amzen Transportation Industries Limited, Committee of Creditors of Amzen Transportation Industries Limited, Cosmic CRF Ltd, Prudent ARC Limited, UCO Bank and W.L.D. Investments Private Limited and Fortune Global Solutions Pte Ltd, Singapore

Myotic Trading Private Limited Versus Deepak Maini, Resolution Professional of Amzen Transportation Industries Limited, Committee of Creditors of Amzen ... 1. ISSUES PRESENTED and CONSIDERED 1. Whether the appellant, as a member of a consortium whose other partner withdrew, retains locus standi to maintain applications challenging eligibility of another Prospective Resolution Applicant (PRA) under Section 29A of the Insolvency and Bankruptcy Code (IBC), 2016. 2. Whether the withdrawal of one consortium partner results in cessation of the consortium and consequent ineligibility of the remaining partner to continue as a PRA. 3. Whether the Resolution Professional (RP) and Committee of Creditors (CoC) correctly applied and adjudicated eligibility criteria under Section 29A of the IBC, particularly regarding the respondent PRA. 4. Whether the CoC's decision declaring the respondent PRA eligible under Section 29A, based on a senior advocate's legal opinion contrary to multiple expert reports finding ineligibility, was lawful and justified. 5. Whether the RP's conduct, including nondisclosure of ongoing investigations by enforcement agencies and acceptance of claims of related parties in the CoC, violated the provisions of the IBC and CIRP Regulations. 6. Whether the Adjudicating Authority erred in dismissing applications filed by the appellant on grounds of lack of locus without adjudicating merits. 7. Whether the appellant's application seeking replacement of RP, reconstitution of CoC, and cancellation of RFRP and Information Memorandum (IM) was maintainable and within the jurisdiction of the Adjudicating Authority. 8. Whether the appellant's reliance on subsequent events and documents, including Enforcement Directorate's provisional attachment order under the Prevention of Money Laundering Act (PMLA), was permissible in the appeals. 9. Whether the irrevocability of Power of Attorney (PoA) executed by the consortium partner prevents withdrawal and termination of the consortium. 10. Whether the appellant's attempt to substitute consortium members mid-process was permissible under the RFRP and IBC framework. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Locus and Consortium Withdrawal Impact on Eligibility Legal Framework and Precedents: - Section 5(25) and Section 25(2)(h) of IBC define resolution applicant and eligibility criteria. - CIRP Regulations, including Regulation 36A, prescribe timelines and conditions for challenge to PRA eligibility. - Judgments affirm that consortium is treated as a single entity for CIRP purposes; withdrawal of a partner may dissolve the consortium. - Principle from GVPREL-MEE (J.V.) v. Government of A.P. holds that withdrawal of one JV partner results in cessation of the JV unless otherwise agreed. - Supreme Court judgment clarifies that mere use of 'irrevocable' in PoA does not make it irrevocable unless coupled with interest. Court's Interpretation and Reasoning: - The consortium of appellant and Fortune was the PRA; withdrawal of Fortune by explicit communication and revocation of PoA on 07.03.2025 terminated the consortium. - The appellant alone did not meet the minimum tangible net worth requirement of Rs. 100 crores, having approx. Rs. 43 crores, and thus was ineligible individually. - The RFRP did not provide for replacement or substitution of consortium members mid-process. - The irrevocability of PoA was rejected as no sufficient legal basis or coupling with interest was established. - Internal disputes between consortium partners are not relevant to RP or CoC; consortium existence depends on mutual agreement and participation. - The appellant's unilateral attempt to continue or substitute consortium members was impermissible. - The Adjudicating Authority correctly held appellant lacked locus to maintain applications filed individually post withdrawal of consortium partner. Key Evidence and Findings: - Emails and letters from Fortune withdrawing from consortium and revoking PoA. - Unnotarized affidavit submitted by appellant claiming withdrawal of withdrawal was found forged by Fortune. - Consortium agreement and RFRP provisions. - Net worth documents of appellant and Fortune. - CoC meeting minutes discussing consortium status. Application of Law to Facts: - Consortium ceased to exist on withdrawal of Fortune; appellant alone is not eligible PRA. - Appellant's applications were not maintainable individually. - No provision in RFRP or IBC allows substitution of consortium members mid-CIRP. Treatment of Competing Arguments: - Appellant argued irrevocable PoA and internal dispute irrelevant to RP/CoC; rejected. - Respondents relied on consortium law and eligibility criteria; accepted. - Appellant's reliance on subsequent consent letters for new members disregarded as impermissible substitution. Conclusions: - Withdrawal of consortium partner terminated consortium; appellant alone is not eligible PRA and lacks locus to maintain applications. Issue 3 & 4: Eligibility Determination of Respondent PRA (Cosmic CRF Ltd.) under Section 29A Legal Framework and Precedents: - Section 29A of IBC lists disqualifications for resolution applicants. - RP's role is to facilitate and give prima facie opinion; final decision on eligibility lies with CoC. - Supreme Court and Appellate Tribunal judgments emphasize strict compliance with Section 29A and mandatory verification. - CoC's commercial wisdom must be exercised with due application of mind and proper justification. Court's Interpretation and Reasoning: - Multiple expert reports (AHSK & Co., Priyanka Sharma & Associates) found Cosmic CRF ineligible under various clauses of Section 29A. - CoC initially declared Cosmic CRF ineligible and forfeited its EMD. - Cosmic CRF challenged before NCLT; matter remanded to CoC for reconsideration with opportunity to be heard. - CoC obtained a senior advocate's legal opinion contrary to expert reports, declaring Cosmic CRF eligible. - CoC voted unanimously to accept senior advocate's opinion, withdrew appellant's winning status, and resumed challenge mechanism. - Tribunal found CoC's decision arbitrary and lacking due application of mind, as it ignored detailed prior expert reports and did not provide reasoned justification for preferring legal opinion over expert findings. - RP and CoC failed to ensure strict compliance with Section 29A, which is a legal requirement and not subject to commercial discretion. - The adjudicating authority did not examine merits due to locus issue; appellate tribunal examined and found Cosmic CRF ineligible. Key Evidence and Findings: - Reports from AHSK & Co. and Priyanka Sharma & Associates detailing ineligibility grounds. - Senior advocate's legal opinion favoring eligibility. - CoC meeting minutes and voting records. - Correspondence and notices to Cosmic CRF regarding ineligibility. - NCLT order remanding eligibility issue to CoC. Application of Law to Facts: - CoC's reliance solely on senior advocate's opinion without reconciling with detailed expert reports was improper. - Eligibility under Section 29A is mandatory and must be scrupulously verified. - Cosmic CRF's eligibility was not satisfactorily established; therefore, it was ineligible as PRA. Treatment of Competing Arguments: - RP and CoC contended that decision was commercial wisdom and legal opinion was binding; rejected as insufficient. - Appellant challenged legality and process; accepted. - Respondents argued RP's role is facilitative; tribunal acknowledged but emphasized CoC's duty to apply mind properly. Conclusions: - Cosmic CRF Ltd. was ineligible under Section 29A and CoC's decision to declare it eligible was arbitrary and unlawful. Issue 5: RP's Conduct and Non-disclosure of Investigations Legal Framework: - RP and CoC are bound by IBC and CIRP Regulations to conduct process transparently and disclose material facts. - Non-disclosure of ongoing investigations and attachment orders may vitiate CIRP process. Court's Interpretation: - Information Memorandum and RFRP failed to disclose ongoing investigations by CBI, SFIO, and ED despite Supreme Court direction. - ED's provisional attachment order revealed serious irregularities, including inclusion of related parties as creditors and possible frauds. - RP's admission of claims of related parties with less than 20% shareholding was contrary to related party definition under IBC. - Tribunal refrained from commenting on merits of ED investigations but noted material on record raised serious concerns affecting CIRP sanctity. Conclusions: - RP's conduct and nondisclosure were contrary to IBC principles, vitiating CIRP process. Issue 6 & 7: Dismissal of Applications on Locus Grounds without Merits Legal Framework: - Section 60 of IBC confers broad jurisdiction on Adjudicating Authority to entertain any application relating to CIRP. - Applications challenging eligibility and seeking RP replacement and CoC reconstitution are maintainable if properly pleaded. - Locus is a preliminary issue but merits must be examined if locus is established. Court's Reasoning: - Adjudicating Authority dismissed IA 1240 and IA 2548 solely on locus without considering merits. - Tribunal found dismissal of IA 2548 (seeking RP replacement and CoC reconstitution) without hearing merits was erroneous. - IA 2548 pertained to an earlier stage and was not premised on appellant's rights as PRA but on process integrity. - Tribunal remanded IA 2548 for fresh consideration on merits. - IA 1240 dismissal on locus was upheld as appellant lacked locus post consortium dissolution. Conclusions: - Dismissal of IA 2548 without merits was improper; matter remanded. - Dismissal of IA 1240 on locus was correct. Issue 8: Reliance on Subsequent Events and Documents (ED Order) Legal Framework: - Appellate Tribunal generally does not consider facts or documents not part of record before Adjudicating Authority unless leave granted. - ED investigations under PMLA are separate proceedings; Adjudicating Authority under IBC cannot adjudicate on PMLA findings. Court's Reasoning: - Appellant relied on ED provisional attachment order and related documents not before NCLT. - Tribunal noted such reliance without leave is impermissible and could amount to misleading the Court. - Tribunal refrained from commenting on merits of ED findings, as they fall under PMLA jurisdiction. - ED findings, though serious, cannot be grounds for IBC adjudication but indicate CIRP process concerns. Conclusions: - Reliance on subsequent ED order without leave disallowed; no adjudication on PMLA findings by IBC forum. Issue 9: Irrevocability of Power of Attorney (PoA) Legal Framework and Precedents: - A PoA is irrevocable only if coupled with interest. - Mere use of term 'irrevocable' does not make PoA irrevocable. - Courts construe PoA by reading entire document and surrounding circumstances. Court's Reasoning: - No evidence that PoA was coupled with interest. - Withdrawal of PoA by Fortune was clear and unequivocal. - Appellant's claim of irrevocability rejected based on legal principle and factual matrix. Conclusions: - PoA was revocable; withdrawal by Fortune effective and binding. Issue 10: Substitution of Consortium Members Mid-Process Legal Framework: - RFRP and CIRP Regulations do not provide for substitution of consortium members after submission of EOI and shortlisting. - Eligibility is assessed at threshold stage; changes mid-process impermissible. - Such substitution would violate principles of fairness and transparency. Court's Reasoning: - Appellant's attempt to substitute consortium members with new entities was contrary to RFRP. - No provision permits such substitution; process timelines and eligibility criteria fixed. - CoC and RP not obliged to accept new members or allow substitution. Conclusions: - Substitution of consortium members mid-CIRP is impermissible; consortium ceased on withdrawal of partner. 3. OVERALL CONCLUSIONS AND ORDERS a) The appellant was correctly held ineligible as PRA after withdrawal of consortium partner; appellant lacked locus to challenge eligibility of other PRA individually. The impugned order dismissing IA 1240 on locus grounds is confirmed. b) The respondent PRA, Cosmic CRF Ltd., was held ineligible under Section 29A of the IBC based on multiple expert reports and material on record; CoC's decision declaring it eligible was arbitrary and unlawful. The impugned order is set aside to this extent. c) The CIRP process is vitiated due to RP's non-disclosure of ongoing investigations and acceptance of claims of related parties; process cannot continue on current record. d) The appeal challenging dismissal of IA 2548 (seeking RP replacement and CoC reconstitution) is partly allowed; matter remanded to Adjudicating Authority for fresh adjudication on merits after hearing parties. e) The CIRP proceedings shall recommence from the stage of issuance of fresh Form G in compliance with law and regulations. f) No order as to costs; pending applications disposed accordingly.