NCLAT upheld the CoC’s commercial wisdom and dismissed the appeal, holding that the ex-director lacked the locus to challenge the Resolution Plan.
The National Company Law Appellate Tribunal (NCLAT), Chennai Bench comprising Justice Sharad Kumar Sharma (Judicial Member) and Technical Member Mr. Jatindranath Swain reviewed an appeal and held that the Appellant, as an ex-director, lacked locus standi to challenge the Resolution Plan, and the appeal was barred by res judicata as the issues had been previously adjudicated. It further ruled that the approval of the Resolution Plan was in compliance with the provisions of the IBC, 2016, with no material irregularities, reaffirming the commercial wisdom of the CoC.
The present appeal was filed against the order dated 07.12.2023, passed by the NCLT, Hyderabad, in IA No.192/2023 in CP(IB) 206/7/HDB/2021, whereby the Adjudicating Authority approved the Resolution Plan submitted by Respondent No.3, the Successful Resolution Applicant. The Corporate Debtor, YKM Entertainment and Hotels Pvt. Ltd. had undertaken the construction of a 5-star hotel in Tirupati, Andhra Pradesh, and had entered into an O&M Agreement with the Intercontinental Group under the Holiday Inn brand on 30.12.2012. The project cost was estimated at Rs. 130.25 crore. A Term Loan Agreement was executed on 30.08.2011 for Rs. 113.7 crores, later enhanced to Rs. 138.7 crores by an agreement dated 27.10.2015. The Corporate Debtor's accounts were classified as NPA on 29.11.2016, and the Financial Creditor, State Bank of India, sought to enforce its securities by conducting a public auction on 08.12.2021, with a reserve price of Rs. 150 crore. On 05.01.2022, the Corporate Debtor was admitted into CIRP, and Respondent No. 2 was appointed as the Interim Resolution Professional. The CoC was constituted, and multiple meetings took place between 10.03.2022 and 01.02.2023. The eligibility criteria for the Expression of Interest (EoI) were fixed at Rs. 60 crore turnover and Rs. 30 crores net worth. Initially, in the 4th CoC meeting, Respondent No. 3 was found ineligible under Section 29A of the IBC, 2016. However, after the failure to secure a satisfactory Resolution Plan, fresh plans were invited under Regulation 36B(7) of the IBBI Regulations, and in the 8th CoC meeting, Respondent No. 3 was deemed eligible. Ultimately, in the 12th CoC meeting on 01.02.2023, the Resolution Plan of Respondent No. 3 was approved, and IA No. 192/2023 was filed before the NCLT for its approval, which was granted on 07.12.2023.
The Appellant, an ex-director and promoter of the Corporate Debtor, contended that he was an aggrieved person under Section 61(1) of the IBC, 2016, and challenged the Resolution Plan on the grounds that his One-Time Settlement (OTS) proposal was more viable but was rejected by the CoC. He alleged that the Adjudicating Authority erroneously accepted the Resolution Professional’s submission regarding compliance with Section 29A without proper verification. He further argued that the inclusion of Respondent No. 3 in the list of PRAs violated Regulation 36A(5) of the IBBI Regulations, as it did not meet the eligibility criteria. Additionally, he contested the valuation of the Corporate Debtor’s assets, claiming that the Liquidation Value was improperly reduced from Rs. 120 crore to Rs. 80 crore, thereby failing to apply Commercial Wisdom.
Respondents No. 1, 2, and 3 opposed the appeal, asserting that the Appellant lacked locus standi, as he was a suspended director and Section 29A barred him from submitting a Resolution Plan. They relied on precedents such as Ravi Shankar Vedam v. Tiffins Barytes Asbestos and Paints Limited and Others, REEDLAW 2023 NCLAT Chn 06602, to support their stance that the appeal was a mere attempt to delay the process. Additionally, they argued that the appeal was barred by res judicata, as the Appellant had previously challenged the Resolution Plan approval in IA No. 315/2023 before the NCLT, which was dismissed on 05.07.2023, and subsequent appeals were rejected by the NCLAT on 30.11.2023 and the Supreme Court on 13.12.2023.
Respondent No. 3 defended its eligibility, asserting that the defects found in the initial EoI submission were rectified before the second round. It clarified that the overdue credit card amount and deactivated DINs of its directors had been resolved, making it compliant with Section 29A of the Code. The valuation process, as per the Respondents, adhered to IBC norms, and the Appellant, having participated in CoC meetings without raising objections, could not challenge the same belatedly.
The issues before the Tribunal were whether the Appellant had locus standi, whether the appeal was barred by res judicata, and whether the approved Resolution Plan contravened legal provisions or suffered from material irregularities. The Tribunal examined the precedents cited and noted that while some judgments excluded shareholders from challenging Resolution Plans, there was no absolute bar on ex-directors if they could establish themselves as aggrieved persons. It referred to Deepak Sakharam Kulkarni & Anr. v. Manoj Kumar, which held that an aggrieved party could challenge the approval of a Resolution Plan. On the issue of res judicata, the Tribunal observed that the relief sought in IA No. 315/2023 was distinct from the present appeal, as the former pertained to the process rather than the substantive merits of the Resolution Plan. However, the Appellant’s failure to raise certain objections during CIRP proceedings weakened his case.
In conclusion, the Tribunal upheld the order of the Adjudicating Authority, finding no procedural lapses or legal contraventions in the approval of the Resolution Plan. It ruled that the Appellant’s challenge lacked merit and dismissed the appeal, reaffirming that the Resolution Plan had been duly evaluated and approved in compliance with the provisions of the IBC, 2016.
Mr. Kumar Anurag Singh and Mr. Shwetank Singh, Advocates represented the Appellant.
Ms. Mummaneni Vazra Laxmi, Advocate appeared for Respondent No. 1.
Mr. Pranava Charan, Advocate appeared for Respondent No. 2.
Mr. Y. Suryanarayana, Advocate appeared for Respondent No. 3.
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