NCLAT upheld the Resolution Plan, affirming that the RP lacked the powers to reverse the pre-CIRP cancellation of allotments.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, reviewed an appeal filed by six homebuyers on Monday. The tribunal observed that the Resolution Professional (RP) lacks adjudicatory powers to reverse pre-CIRP actions, such as the cancellation of allotments. It emphasized that the commercial wisdom of the Committee of Creditors (CoC), which approved the Resolution Plan addressing the appellants' claims, prevails under the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC). Additionally, the appellants' acceptance of partial refunds was deemed an indication of their acquiescence to the cancellations, leading to the dismissal of their claims for equal treatment.
In the present case, six homebuyers (Appellants) challenged the decision of the National Company Law Tribunal (NCLT) which had dismissed their application concerning the rejection of their claims during the Corporate Insolvency Resolution Process (CIRP). The Appellants, who had entered into flat buyer agreements with the Corporate Debtor and paid substantial sums for flats that were not delivered, argued that they were unfairly treated in comparison to other creditors. Despite receiving decrees from the Uttar Pradesh Real Estate Regulatory Authority (UPRERA) in their favour, the Corporate Debtor failed to refund the full amounts, leading the Appellants to file their claims during the CIRP.
The Appellants’ claims were initially admitted by the Resolution Professional (RP), though the amount already refunded was adjusted. During discussions within the Committee of Creditors (CoC), it was pointed out that the allotments had been cancelled before the CIRP commenced, and the Appellants could not be treated as ordinary creditors. The Appellants, however, claimed that they had not been informed about the cancellation of their units and sought a review of the NCLT's decision, which had dismissed their application, relying on case law that they contended was not applicable to their situation.
The NCLAT, upon review, clarified the role of the RP in the CIRP. It held that the RP’s function was limited to collating and verifying claims based on the Corporate Debtor's records and that the RP did not possess adjudicatory powers over claims, particularly in reversing the Corporate Debtor's pre-CIRP actions, such as the cancellation of the allotments. It was noted that the Appellants had received partial refunds before the CIRP began and had not contested the cancellation of their units at that stage. Furthermore, the approved Resolution Plan, which was unanimously supported by the CoC, addressed the treatment of these cancelled units in an equitable manner, aligning with the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC).
The NCLAT emphasized that the commercial wisdom of the CoC, as the decision-making body, should not be second-guessed. The information regarding the cancellation of the units was reflected in the Information Memorandum, and the Appellants had been given ample opportunity to challenge this aspect during the CIRP but failed to do so. Ultimately, the NCLAT upheld the CoC’s decision and dismissed the Appellants’ claims of a violation of natural justice and UPRERA decrees, noting their acceptance of the partial refund as a tacit acknowledgement of the cancellation. The decision reinforced the limited scope of judicial intervention in the CIRP process, particularly in matters of commercial decision-making by the CoC.
Mr. Vivek Kumar, Advocate represented the Appellant.
Mr. Shivanshu Kumar and Mr. Rajesh Ramnani, Advocates appeared for Respondent No.1/RP.
Ms. Anuja Pethia and Mr. Rishabh Govila, Advocates appeared for the SRA.
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