Authorised Representative of Homebuyers Cannot Be Replaced by Inherent Powers of the Adjudicating Authority—Statutory Mechanism under Regulation 16A(3A) Must Be Followed

NCLAT held that the Authorised Representative of homebuyers cannot be replaced by invoking the inherent powers of the Adjudicating Authority and that the statutory mechanism prescribed under Regulation 16A(3A) of the CIRP Regulations must be strictly followed for such replacement.

The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, while addressing an Appeal along with a connected Interlocutory Application, held that an Authorised Representative (AR) of homebuyers, appointed under Regulation 16A of the CIRP Regulations, can be replaced only through the statutory mechanism requiring support from at least 10% of the creditors in the class, and not by invoking the inherent powers of the Adjudicating Authority; further, the AR’s vote, based on majority instructions, is binding on the entire class under Section 25A of the IBC.

The National Company Law Appellate Tribunal (NCLAT) adjudicated an appeal by a homebuyer of Tower–19 in the Lotus Panache Project against the order of the Adjudicating Authority (NCLT, New Delhi Bench, Court–II) dated 24.07.2024, whereby the application filed under I.A. No. 1158/2024 for replacement of the Authorised Representative (AR) of the homebuyers was rejected. The appellant challenged this decision, and an accompanying application (I.A. No. 7124/2024) was filed for condonation of a one-day delay in filing the appeal. Though the limitation expired on 23.08.2024, the appeal was e-filed on 24.08.2024. The respondent opposed the condonation, raising doubts over the genuineness of the filing and terming it a non-est filing. However, the Tribunal held that the e-filing, supported by an affidavit dated 12.08.2024, met the threshold for condonation. Relying on Innovators Cleantech Pvt. Ltd. v. Pasari Multi Projects Pvt. Ltd., it reiterated that the date of e-filing is treated as the date of filing for computing limitation, and the one-day delay was condoned.

The Tribunal examined the legal framework governing the role and replacement of the AR representing homebuyers. It reiterated that under Section 25A of the Insolvency and Bankruptcy Code, 2016 (IBC), the AR is mandated to act on the basis of instructions from creditors in the class and participate in the meetings of the Committee of Creditors (CoC) accordingly. Regulation 16A of the CIRP Regulations, as amended by the notification dated 03.07.2018 and later by sub-regulation (3A) on 18.09.2023, lays down the process for selection and replacement of the AR. Notably, sub-regulation (3A) allows for replacement of the AR upon a request made by at least 10% of creditors in the class. In this case, the Tribunal found that the appellant had failed to follow the statutory mechanism for replacement and instead approached the Adjudicating Authority through an individual application.

It was further held that the Supreme Court’s decision in Pioneer Urban Land and Infrastructure Limited and Another v. Union of India and Others, REEDLAW 2019 SC 08502, governed the issue squarely by stating that once the AR casts a vote based on instructions from the majority, that decision binds all class members. Here, the CoC had already approved the Resolution Plan with an overwhelming majority (80.13%) on 15.07.2020, and the application for its approval was filed on 13.08.2020. The appellant's move to replace the AR, initiated only on 04.03.2024—more than three and a half years later—was held to be grossly delayed and lacking any exceptional circumstance to justify such relief.

The appellant's argument that the Adjudicating Authority should have exercised its inherent powers to replace the AR, on the analogy of removal of a Resolution Professional, was also rejected. The NCLAT noted that although the Adjudicating Authority may replace a Resolution Professional under specific circumstances, such power had been exercised in the present matter not at the appellant’s instance, but due to the RP’s statutory defaults as recorded in Paragraphs 63 and 64 of the impugned order. There was no similar dereliction on the part of the AR that could warrant judicial intervention outside the statutory process.

In conclusion, the NCLAT found no merit in the appellant's contentions and upheld the Adjudicating Authority's decision rejecting I.A. No. 1158/2024. It emphasized the statutory role of the AR, the binding nature of majority decisions in a class of financial creditors, and the importance of following the procedural mechanism laid down under Regulation 16A(3A) for seeking any replacement. Accordingly, the appeal was dismissed.