NCLAT Fines Prospective Resolution Applicant Rs 15 Lakh For Obstructing Insolvency Process, Turning It Into A “Tom & Jerry Show"

The National Company Law Appellate Tribunal (NCLAT) at New Delhi on Tuesday imposed a cost of Rs. 15 lakh on Astral Agro Ventures, a Prospective Resolution Applicant (PRA), for obstructing the Corporate Insolvency Resolution Process (CIRP) of Megi Agro Chem Ltd.

The tribunal observed that the insolvency resolution process “cannot be reduced to a Tom & Jerry show” where a PRA, who doesn't have any right to challenge continuously seeks extensions only to derail the resolution.

The tribunal described the appellant's conduct as “pretentious” and “loaded with well-concealed chicanery.” 

A bench of Judicial Member Justice N Seshasayee and Technical Member Arun Baroka  noted,

“When on facts locus standi of the appellant is reduced to procedural irrelevance due to its failure to submit a resolution plan within the time stipulated, it does create considerable uneasiness in accommodating it to object to CoC's approval of the resolution plan. Its voice does not merit consideration.”

The CIRP of Megi Agro Chem Ltd has been ongoing since 2022. The PRA filed Expressions of Interest but never submitted a resolution plan despite a special extension granted by the CoC. The only plan received, from Arainfra Projects Pvt. Ltd, was approved by the CoC. The PRA later challenged the plan's approval, claiming that the SRA was disqualified under the Code. The NCLT dismissed its application, prompting the appeal to NCLAT.

The PRA argued that the resolution applicant failed to meet net worth criteria and had directors related to a wilful defaulter. It also claimed CoC meetings were held without 24-hour notice. However, the Resolution Professional countered that the PRA had no locus, never submitted a plan, repeatedly sought extensions, and had no commercial connection to invoke disqualification. 

The tribunal held that a PRA who failed to submit any resolution planhas become procedurally irrelevant and therefore cannot challenge the CoC decision,

“A PRA enters the scene only from the time it submits its Expression of Intent to participate in the resolution process, and it moves to the next stage only if its name is shortlisted for submitting a resolution plan. And once it submits its resolution plan its role stops, for it does not have a vested right to have its plan approved.”

It further observed, “Merely because CIRP proceeding is a proceeding in rem, it still does not accommodate those who by their conduct or otherwise have been rendered irrelevant in procedure. And any procedural interest so created does not extend beyond seeking certain procedural fairness vis-à-vis its participation in the resolution process. Therefore, the mere fact that a PRA or an unsuccessful RA establishes a relationship with the CIRP procedurally, still may not grant them the license to gate crash into a CIRP proceeding.”

The tribunal also strongly condemned the PRA's conduct: “Is it busy playing a serious hide and seek game with IBC when the IBC is busy engaged in the resolution process of the CD? We believe that we are not watching any Tom & Jerry show of hide, seek and chase, nor do we tolerate appellant's attempt to reduce the ongoing CIRP to an entertainment show.”

Subsequently, it dismissed the PRA's plea and also clarified that CoC timelines and detailed minutes are immaterial if commercial considerations were properly evaluated.

The appellate tribunal dismissed the appeal and suggested that the IBBI consider regulations to blacklist PRAs who derail resolution processes. It further recommended that all PRAs disclose their previous participation in CIRPs in their Expression of Interest.