NCLAT setting aside the decision of CoC to accept EOI by Resolution Applicant after due date

A Single Judge Bench of the Hon’ble National Company Law Appellate Tribunal, New Delhi (NCLAT) comprising Justice Jarat Kumar Jain (Judicial Member) in the matter of Dwarkadhish Sakhar Karkhana Ltd. v. Pankaj Joshi, RP of KGS Sugar & Infra Corporation Ltd. & Another, REED 2021 NCLAT Del 06587 upheld the order of the National Company Law Tribunal, Mumbai (NCLT) whereby the decision of Committee of Creditors (CoC) accepting the Expression of Interest (EOI) of Dwarkadhish Sakhar Karkhana Ltd. (DSKL) after the due date was set aside and the conduct of Resolution Professional (RP) Mr. Pankaj Joshi was vehemently deprecated.

BACKGROUND

On 10 October 2019, the NCLT admitted an application filed by Canara Bank under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), thereby initiating Corporate Insolvency Resolution Process (CIRP) of the KGS Sugar and Infra Corporation Ltd (Corporate Debtor). The CoC in its first meeting, appointed Mr. Balady S Shetty as Resolution Professional. Mr. Shetty published the invitation of expression wherein the last date for submission of EOI was 10 February 2020 and for submission of Resolution Plan was 5 April 2020.

Pursuant to the EOI, the RP Mr. Shetty received EOIs from 14 Prospective Resolution Applicants, out of which only four including Gangamai Industries and Constructions Ltd. (GIACL) met the eligibility criteria. Subsequently, by email dated 12 March 2020, DSKL submitted its EOI. On the same day, Mr. Shetty informed DSKL that its EOI was received after the last date of submissions and therefore, it could not be considered. The NCLT thereafter on 27 May 2020, at the recommendation of the CoC, replaced Mr. B S Shetty with Mr. Pankaj Joshi (RP).

Aggrieved by the decision of CoC, on 5 June 2020, Advocate of DSKL sent an email enclosed with an application to new RP Mr. Pankaj Joshi. On the same day Mr. Pankaj Joshi sent an email to DSKL requesting to submit EOI within 10 days from the date of receipt of the communication. Later, at the 9thCoC meeting, Mr. Pankaj Joshi placed EOI submitted by DSKL and canvassed before the CoC that for maximization of value of asset of the Corporate Debtor, it is appropriate to permit DSKL to file EOI.

Thus, after deliberation, CoC permitted DSKL to submit EOI. Thereafter, GIACL who had already filed EOI and was in the list of Prospective Resolution Applicant, being aggrieved with the decision of the CoC, which was taken in favour of DSKL, filed an Application (I.A No. 1029 of 2020) against the RP ‘Mr. Pankaj Joshi’ before the NCLT.

The NCLT by the impugned order dated 1 March 2021 allowed the Application of GIACL whereby the decision of CoC accepting the EOI of DSKL after due date, was set aside and the conduct of Resolution Professional (RP) Pankaj Joshi was deprecated. Being aggrieved with this order, DSKL and Mr. Pankaj Joshi have filed these Appeals.

ANALYSIS

To facilitate analysis, this section has been divided into the following parts:

1. Whether the NCLT has the jurisdiction to interfere before the quasi-judicial determination is made under Section 31 of IBC?

The Learned Counsel for Appellant Mr. Pankaj Joshi raised a preliminary objection that before the quasi-judicial determination is made under section 31 of the IBC, the NCLT has no jurisdiction to entertain and decide the Application of GIACL. The Supreme Court in the case of ArcelorMittal India Pvt. Ltd. v. Satish Kumar, REED 2018 SC 10541, has clarified the scope and purpose of section 60(5)of the IBC and held that the NCLT alone has jurisdiction to entertain or dispose of the Applications and proceedings by or against a Corporate Debtor covered by the IBC.

In the present case, the NCLT while deciding the Application I.A No. 1029 of 2020 had exercised the jurisdiction under section 60(5)(c), which empowers to decide “any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the Corporate Debtor or Corporate Person under this Code”.

Thus, the NCLAT concluded that before approval of the Resolution Plan, the NCLT can entertain or dispose of the question of priorities or any question of law or facts, arising out of or in relation to CIRP or Liquidation proceedings. Therefore, the NCLAT rejected the argument of Learned Counsel for Mr. Pankaj Joshi that the Adjudicating Authority has no jurisdiction to entertain and decide the Application I.A. No. 1029 of 2020.

2. Whether GIACL did not have locus standi to challenge the inclusion of DSKL in the CIRP?

The NCLAT observed that the RP had tried to induct DSKL in the CIRP after the due date for submission of EOI which was in violation of the provisions of regulation 36-A(6) of the Regulations 2016 that contains the procedure to deal with EOI. The NCLAT further stated that under Regulation 36-A of Regulations 2016, GIACL did indeed have the locus standi to challenge the inclusion of DSKL in the CIRP and hence, the NCLT has rightly entertained the Application I.A No. 1029 of 2020 and decided the same.

3. Whether DSKL was a necessary party to the Application I.A. No. 1029 of 2020?

The learned Counsel for DSKL argued that the NCLT has not given reasonable opportunity of hearing and thereby violated the principle of natural justice. It is noteworthy that the NCLT in the impugned order has held that as no relief was sought against DSKL and actions of RP and CoC are allegedly in violation of the Code and Regulations, therefore, the Application can be decided in the absence of DSKL.

The NCLAT noted that DSKL has no vested right because the right has already been extinguished when DSKL has failed to submit EOI till last date and subsequently, the request for submitting EOI after due date was also rejected by the CoC in view of Regulation 36-A of Regulations 2016. Hence, DSKL has no right to contest the Application as in the Application the actions of RP& CoC are questioned. Resultantly, the NCLAT upheld the decision of NCLT that DSKL was not a necessary party to the Application I.A. No. 1029 of 2020

4. Whether allowing DSKL to file EOI after the due date is a commercial decision?

As per section 30 of the IBC, when the CoC approves a Resolution Plan by a vote of not less than 66 % of voting share of the Financial Creditors after considering its feasibility and viability, then such decision of CoC is a commercial decision. Thus, NCLAT held that the decision taken by the CoC in the 9th CoC meeting to allow DSKL after the due date to file EOI was not a commercial decision. Further, in the present case, the Resolution Plan of DSKL was yet to be examined in comparison with other Prospective Resolution Applicants. Therefore, at this stage, NCLAT opined that it cannot be said that the decision taken in the favour of DSKL was for maximization of value of assets as argued by the counsel of Mr. Pankaj Joshi.

5. Whether the adverse remarks in Para 54 of the impugned order are baseless and uncalled for?

The NCLT in its impugned order in Paragraph 54 has observed that “the RP has accepted the resolution plan of DSKL after the expiry of the deadline for submission of Resolution plan without following the due process. The Act of RP to accept the resolution plan after opening the other bids, which were all submitted within the deadline cannot be justified by any means and is a blatant misuse, misconduct on the part of RP.”

The NCLAT noted that it is expected from a Resolution Professional that he must act in a fair and balanced manner without getting influenced by the conflicting interests of the parties. However, in the present case, Mr. Pankaj Joshi suppressed material facts and misguided the members of CoC to achieve the desired decision in favour of DSKL. Thus, the NCLAT concluded that the adverse remarks and observations made in the Para 54 of the impugned order were not baseless and uncalled for.

Accordingly, for the foregoing reasons, the appeals filed against the impugned order were dismissed.