2025 (10) TMI 458 - AT - IBC

Appellants have locus; remittal nullified prior approval; CoC must reassess SRA changes, RA eligibility under Section 27

Beeram Singh Versus Pramod Kumar Sharma & Anr. And Appu Ghar Gurgaon Shop Buyers Association Versus International Recreation and Amusement Ltd. & Anr.

NCLAT held the appellants have locus and the appeal is maintainable, rejecting that the impugned order was a consent order. The Adjudicating Authority's ... Locus to file an appeal - appellants have locus to challenge an order passed by Adjudicating Authority, remitting an approved resolution plan back to the Committee of Creditors (CoC) or not - Maintainability of the Appeal - it is contended that impugned order was a consent order and the order being a consent order, no Appeal is maintainable - Change in the constitution of the SRA subsequent to the approval of the plan - Replacement of the Resolution Professional. Locus to file an appeal - appellants have locus to challenge an order passed by Adjudicating Authority, remitting an approved resolution plan back to the Committee of Creditors (CoC) or not - HELD THAT:- The effect and consequence of the order impugned is that approval of the CoC of the plan on 09.05.2019 is no more in existence. When Adjudicating Authority itself has remitted the Resolution Plan and directed the CoC to consider afresh, the issue pertaining to approval of the Resolution Plan by homebuyers is no more in issue. The principle which has been laid down by the Hon’ble Supreme Court in Jaypee Kensington Boulevard Apartments Welfare Association [2021 (3) TMI 1143 - SUPREME COURT] are not applicable in the facts of the present case. Since present is not a case where minority homebuyers are challenging approval of the plan by the CoC rather they are aggrieved against the direction of the Adjudicating Authority remitting the Resolution Plan to the CoC. In the Appeal, one of the grounds which has been canvassed by the Appellants is that after approval of the plan due to subsequent events SRA is no more in existence who have submitted the plan which according to the Appellant is a ground which was sufficient for not issuing any direction for reconsideration of the plan by the CoC. Thus, on the issue which has been raised in the Appeal, Appeal cannot be held to be non-maintainable. The preliminary objections raised by the Respondents regarding locus of the Appeal is overruled. Maintainability of the Appeal - it is contended that impugned order was a consent order and the order being a consent order, no Appeal is maintainable - HELD THAT:- Although SRA and Applicants submitted that the Resolution Plan cannot be approved when the order does not indicate that there was any consent recorded on behalf of the Applicants that they are agreeable for passing an order for reconsideration of the Resolution Plan by the CoC. Moreso, Applicants have raised various objections to the plan approved by the CoC which has been noted by the Adjudicating Authority. The order does not indicate that all objections raised by the Applicants were given up. There are no substance in the submission of the Learned Counsel for the SRA that the order impugned is a consent order. Change in the constitution of the SRA subsequent to the approval of the plan - HELD THAT:- Although submission has been advanced by both the parties regarding non- permissibility/ permissibility of the change in the constitution of the SRA but the Adjudicating Authority having not considered the said issue, the issue need not be considered in these Appeals. The Adjudicating Authority has clearly held that any change or requirement of change in resolution plan as also reconstitution of SRA need to be examined by CoC - the Adjudicating Authority has observed that any change or requirement of change in Resolution Plan as also reconstitution of the SRA need to be examined by the CoC. The question of eligibility of SRA to continue in the CIRP process on account of change in the constitution of the SRA which is an admitted fact goes to very root of the matter. The question of eligibility of the Resolution Applicant in change form as per the SRA himself goes to very root of the eligibility of the Resolution Applicant to continue in the CIRP process. Whether the Resolution Applicant after such changes as has been noticed is still eligible to claim as a Resolution Applicant so as to consider its plan is in question which need to be first considered by the CoC before any consideration or voting on the Resolution Plan. Replacement of the Resolution Professional - HELD THAT:- The Authorised Representative may examine as to whether requisite numbers of homebuyers have requested for convening a meeting and on being satisfied, he may send communication to the Resolution Professional as well as to the Financial Creditors regarding convening a meeting with agenda of replacement of Resolution Professional. In event, the request is made by requisite number for convening a meeting, Resolution Professional is obliged to convene a meeting for putting agenda for replacement - There is no dispute that the meeting of the CoC can be convened on requisition received from 33% of allottees and it is for the Authorised Representative of the homebuyers to ascertain as to whether 33% of the allottees are requesting for convening a meeting for replacement and Authorised Representative being satisfied with requisite majority of 33% of allottees are seeking replacement may ask the Resolution Professional to convene a meeting. Authorised Representative of the Financial Creditors in a Class after ascertaining as to whether 33% of allottees have requested for convening a meeting of CoC for considering the replacement of the Resolution Professional, he may request the Resolution Professional to convene a meeting for replacement, on such requisition made, the Resolution Professional is obliged to convene the meeting of CoC for consideration of his replacement - CoC in meeting so convened for considering the agenda of replacement of Resolution Professional may take a decision in accordance with Section 27 of the IBC. Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether appellants (members of a class of financial creditors) have locus to challenge an Adjudicating Authority order remitting an approved resolution plan back to the Committee of Creditors (CoC), where they do not challenge the original CoC approval. 2. Whether a change in the constitution/identity of the successful resolution applicant (SRA) after CoC approval vitiates the approved plan or renders the SRA ineligible, and whether such changes must be examined by the CoC or adjudicated by the Adjudicating Authority at the approval stage. 3. Whether the Adjudicating Authority erred in remitting the resolution plan back to the CoC instead of rejecting the approval application outright because of alleged post-approval reconstitution of the SRA, alleged sale/transfer of the plan, or insufficiency of voting share. 4. Whether the Adjudicating Authority's order was a consent order (and therefore non-challengeable), and whether that affected maintainability of the appeals. 5. Whether the Resolution Professional (RP) should be replaced where regulatory action (suspension by the Board) exists, and what procedure and thresholds govern replacement (including requisition requirements under CIRP Regulations and Section 27 of the Code). 6. What disclosure obligations and documentary production are mandated from the SRA following allegations of change in composition, and what role Regulations 38-39 IBBI (CIRP) Regulations, 2016 play. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Locus to challenge remittance order Legal framework: The Code contemplates class-based representation and majority decision-making by authorised representatives; binding effect of class majority has been judicially recognised. Precedent treatment: The Court referred to the Supreme Court's principle that where a class (financial creditors within a class) approves or rejects a plan by majority, minority members are bound and individual challenges to the CoC approval are generally barred. Interpretation and reasoning: The Court distinguished challenges to the original CoC approval from challenges to an Adjudicating Authority order that remits the matter for fresh consideration. Since the impugned order did not affirm the original CoC approval but instead remitted the plan, appellants were not effectively challenging the CoC approval decision; they were aggrieved by the remittal direction. Thus the precedential bar against individual homebuyers challenging an approved plan did not oust appellants' locus to challenge the remittal. Ratio vs. Obiter: Ratio - a class member cannot challenge an affirmed CoC approval; distinguished here because the impugned order did not affirm approval. Obiter - observations on binding effect of class majority as general principle. Conclusion: Appellants' appeals on the remittal order were maintainable; preliminary locus objections were overruled. Issue 2 - Effect of post-approval change in SRA constitution and who must examine eligibility Legal framework: Eligibility of a resolution applicant is fundamental; CoC scrutiny and exercise of commercial wisdom are central to post-bidding processes; RFRP/LoI/addendum conditions govern transfer/reconstitution restrictions where specified. Precedent treatment: The Tribunal's earlier decision in a sale-of-plan case was referenced where complete transfer of shareholding post-approval (contrary to RFRP) invalidated the arrangement. That decision was relied upon to show that reconstitution affecting the very basis of approval can vitiate the plan. Interpretation and reasoning: The Adjudicating Authority observed that reconstitution of the SRA after approval is 'not permissible' without examination, but did not itself decide eligibility. The Court held that whether the SRA remains eligible after changes goes to the root of the matter and is primarily for the CoC to consider in the first instance. The Adjudicating Authority's remittal directing the CoC to examine reconstitution and eligibility was therefore appropriate: the CoC must assess eligibility and any change-related alterations in the plan before further judicial adjudication. Ratio vs. Obiter: Ratio - post-approval reconstitution raising eligibility concerns must first be considered by CoC; Adjudicating Authority need not decide eligibility if it remits the plan. Obiter - reconstitution 'not permissible' was recorded but left for CoC determination. Conclusion: The CoC must first determine whether changes in SRA composition render it ineligible; only thereafter can further steps on the plan be taken. Issue 3 - Remittal vs outright rejection; significance of vote share Legal framework: Adjudicating Authority's role on approval applications is to examine compliance, fairness and feasibility; CoC's commercial wisdom and majority voting play a decisive role. Where the SRA itself concedes practicability issues, remittal may be appropriate. Precedent treatment: The Court relied on decisions affirming CoC primacy in commercial decisions but also on a prior Tribunal decision where impermissible transfer resulted in rejection of approval. Interpretation and reasoning: The Adjudicating Authority chose remittal because both the SRA and applicants acknowledged that changed circumstances prevented approval in present form; counsel for SRA suggested remittal. The Adjudicating Authority thus did not examine or rule on vote share (58.19% alleged approval), deeming that contention otiose in light of the agreed position that the plan required re-consideration. The Court found remittal appropriate rather than outright rejection because CoC is the competent body to reassess eligibility and any necessary modifications in exercise of commercial wisdom. Ratio vs. Obiter: Ratio - where the SRA and applicants agree that changed circumstances preclude approval, remittal to CoC for fresh consideration is proper; Adjudicating Authority need not resolve voting share in that context. Obiter - specific treatment of a 58.19% vote was not adjudicated. Conclusion: Remittal to CoC was not erroneous; outright rejection was not mandated given the factual posture and the CoC's role. Issue 4 - Whether the impugned order was a consent order Legal framework: Consent orders are recorded when parties explicitly agree to the terms ordered; a recorded observation of parties being 'ad idem' on a point does not necessarily amount to consent to the final relief. Interpretation and reasoning: The Court examined the record and found no clear consent by applicants to remittal; the order recorded that applicants and SRA were ad idem that the plan could not be approved in changed circumstances, but that did not equate to applicants consenting to remittal instead of other remedies. The order also recorded outstanding objections. Therefore the impugned order was not a consent order barring appeal. Ratio vs. Obiter: Ratio - lack of explicit recorded consent precludes labeling the order a consent decree for purposes of non-challengeability. Conclusion: The remittal order was not a consent order; appeals were maintainable. Issue 5 - Replacement of the Resolution Professional: requisition thresholds and process Legal framework: Section 27 of the Code contemplates replacement of RP by CoC with requisite voting; CIRP Regulation 18(2) and related provisions allow convening of meetings on requisition; authorised representative may requisition meetings if a requisite proportion of the class requests (33% of voting rights of class under Regulation 18(2) read with Section 25A/related rules). Interpretation and reasoning: The Court noted that the RP had been suspended by the regulatory Board, but an interim stay by a High Court affected operation of that suspension. Procedurally, replacement is for CoC to decide; however, an authorised representative must first ascertain whether requisition by 33% of the class exists, and if so the RP is obliged to convene a meeting with replacement on the agenda. The Adjudicating Authority's direction that CoC may consider replacement and Authorised Representative should verify requisition thresholds was upheld as consistent with statutory procedure. Ratio vs. Obiter: Ratio - replacement of RP lies with CoC subject to statutory requisition thresholds; Authorised Representative must verify 33% requisition and then seek the RP to convene the meeting. Obiter - commentary on effect of regulatory suspension and interim stay. Conclusion: The Adjudicating Authority properly directed the CoC procedure for replacement; RP is obliged to convene a meeting on valid requisition and CoC may act under Section 27. Issue 6 - Disclosure obligations from SRA and role of Regulations 38-39 Legal framework: IBBI (CIRP) Regulations impose duties on RP and prospective SRAs to disclose material information; Regulations 38-39 require furnishing of information and records to CoC and authorised representative as necessary. Interpretation and reasoning: The Adjudicating Authority allowed the application seeking full disclosure of the SRA's changed composition and directed that SRA furnish all relevant materials to the Authorised Representative and RP. The Court endorsed that direction as consonant with Regulations 38-39 and necessary for CoC to make an informed commercial decision on eligibility and implementability. Ratio vs. Obiter: Ratio - the SRA must produce all relevant information and records concerning changes in composition, finances and implementation capability; CoC may call for such material under Regulations 38-39 before reconsidering the plan. Conclusion: SRA must disclose all material relating to reconstitution and capability; CoC should call for and examine such records before any further steps. FINAL CONCLUSIONS (operative directions reflected in reasoning) 1. The Adjudicating Authority's remittal of the resolution plan to the CoC was upheld subject to directions: Authorised Representative to verify whether 33% of the class has requisitioned a meeting to consider RP replacement; RP must convene such meeting if valid requisition exists; CoC may consider replacement under Section 27. 2. SRA must furnish full information/records regarding change in composition and implementation capability to the Authorised Representative and RP in accordance with Regulations 38-39. 3. CoC must first determine the eligibility of the SRA in light of post-approval changes; only after CoC's determination on eligibility may further steps on the resolution plan proceed. 4. Parties to bear their own costs.