Strategic Investor Induction upheld where disclosure, eligibility verification and unanimous CoC approval satisfy regulatory vetting requirements.

The note addresses whether induction of a strategic investor into a resolution plan breached regulatory vetting requirements and whether procedural non-furnishing to erstwhile directors amounted to material irregularity. It records that the investor's identity, eligibility checks and due diligence were disclosed and verified by the resolution professional, the revised plan and consortium change were placed before and deliberated by the Committee of Creditors, and the plan received unanimous CoC approval following circulation and e voting. The piece concludes that regulatory objectives were satisfied, no material irregularity was shown, and the CoC's commercial judgment on feasibility and implementability need not be displaced.

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Issues: (i) Whether the induction of Check-Inn Hotels Pvt. Ltd. as a strategic investor into the resolution plan of Rare Asset Reconstruction Ltd. violated Regulation 36A and Regulation 39 of the CIRP Regulations and rendered the resolution plan non-compliant with Section 30(2) of the Insolvency and Bankruptcy Code, 2016; (ii) Whether the Adjudicating Authority correctly found material irregularity in non-furnishing of the resolution plan to the erstwhile directors and whether the challenge by the unsuccessful resolution applicant (Sankalp) was maintainable.

Issue (i): Whether induction of a strategic investor not named in the final list of PRAs violated Regulation 36A/39 and Section 30(2).

Analysis: The Tribunal examined the EOI process, provisional and final lists, the timing and content of the revised resolution plan (filed by Rare ARC on 17.02.2023), the consortium agreement, the RP's due diligence and Section 29A eligibility checks for the entities involved, the placement of the revised plan in the 14th CoC meeting on 24.02.2023, circulation to stakeholders on 27.02.2023, and the e-voting window from 01.03.2023 to 10.03.2023. It considered Clause 15(1)(xi) of the RFRP permitting change in consortium composition with CoC approval, the practical requirement that an ARC identify a strategic investor for equity under RBI guidelines, precedents on consortiums and related entities, and the presence of eligibility verification on record. The Tribunal found that the induction was disclosed, verified, deliberated upon by the CoC, and approved by unanimous voting; and that Regulation 39(1B)'s objective of ensuring vetted participants was thereby satisfied rather than defeated.

Conclusion: Issue (i) decided in favour of the Appellant. The induction of Check-Inn as strategic investor did not render the plan non-compliant with Regulation 36A, Regulation 39 or Section 30(2) where identity, due diligence and CoC approval were disclosed and recorded.

Issue (ii): Whether there was material irregularity in non-furnishing the resolution plan to erstwhile directors and whether Sankalp's challenge was maintainable.

Analysis: The Tribunal reviewed meeting minutes, attendance and presentations at the 14th CoC meeting (24.02.2023), the circulation of revised plans on 27.02.2023, the e-voting window (01.03.2023-10.03.2023), the evaluation matrix scores where Rare-Check-Inn scored highest, the challenge-process rules limiting modifications, communications regarding bid-bond refund by Sankalp, and the RP's compliance with Regulation 36A procedures. The Tribunal found that the erstwhile directors had been present for presentations, revised plans were circulated with sufficient time before voting, and no material concealment or procedural lapse establishing a material irregularity was shown. It also held that Sankalp's belated modifications were not in accordance with the challenge-process rules and that acceptance of bid-bond refund evidenced acquiescence; further, choice of the plan involved CoC's commercial judgment (feasibility, viability and implementability) reflected in the evaluation matrix and unanimous vote.

Conclusion: Issue (ii) decided in favour of the Appellant. No material irregularity was established and Sankalp's challenge was not a valid ground to sustain the NCLT findings.

Final Conclusion: The Tribunal set aside the Impugned Order dated 10.07.2024, allowed the appeals, restored the proceedings in CP (IB) 1171/MB/2021 to their original position and directed parties to appear before the Adjudicating Authority for approval of the resolution plan on the listed date. The Tribunal held that the CoC's unanimous approval of the Rare-Check-Inn plan was lawful and not vitiated by the alleged irregularities.

Ratio Decidendi: Where the identity of a strategic investor is disclosed, eligibility under section 29A is verified by the RP, the revised plan and consortium formation are placed before and deliberated by the CoC, and the CoC with requisite mandate approves the plan, Regulation 36A and Regulation 39 do not prohibit such induction and the Adjudicating Authority must not substitute its judgment for the CoC's commercial wisdom absent a demonstrated specific contravention of Section 30(2) or a proven material irregularity.

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