Failure To Submit Final Plan Or Participate In Challenge Process Bars Unsuccessful Bidder From Questioning Approved Plan: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench dismissed an appeal filed by Ganga Construction Consortium, an unsuccessful resolution applicant, challenging the approval of resolution plan submitted by Manglam Multiplex Pvt. Ltd. in the Corporate Insolvency Resolution Process (CIRP) of Varutha Developers Pvt. Ltd. A Bench comprising Justice Ashok Bhushan and Mr. Arun Baroka (Technical Member) held that the Appellant having failed to submit the final resolution plan or participate in the challenge mechanism could not later challenge the resolution plan over irregularities or question the eligibility of the Successful Resolution (SRA). The Tribunal also dismissed the plea that the SRA was ineligible under section 29A of the Insolvency and Bankruptcy Code, 2016 (IBC). Background: Varutha Developers Pvt. Ltd.(Corporate Debtor) had been declared a successful purchaser of a land of 9.26 acres situated in Gurugram financed through Rs. 300 crore from SREI Equipment Finance Ltd. Upon default, a petition was filed under section 7 of the IBC which was admitted by the NCLT. The Resolution Professional published form G inviting Expressions of Interest (EOI). Eight Prospective Resolution Applicants (PRAs) submitted including Ganga Construction Consortium (the appellant) and Manglam Multiplex (Respondent No.6) expressed their interests. The RP introduced a challenge mechanism and directed all PRAs to submit their financial bids of at atleast Rs. 250 crore. Manglam and other PRAs participated but Ganga Constructions failed to submit its financial bids despite multiple opportunities. Subsequently, the CoC approved the resolution plan submitted by Manglam. Ganga Constructions challenged the approval by filing an Interlocutory Application. The Application was dismissed by the NCLT. Aggrieved, the Ganga Construction had filed an appeal before the NCLAT. The Appellant submitted that by the Share Purchase Agreement dated 17.05.2019, M3M obtained control over the Corporate Debtor. It was further submitted that the SRA is ineligible under Section 29A (c), (j) and (h) of the IBC. The SRA being ineligible, the entire process deserved to be set aside. Per contra, the RP submitted that the Appellant had no locus to challenge the resolution plan as it had failed to participate in the challenge mechanism and submit its final resolution plan. Manglam submitted that the Share Purchase Agreement between the M3M group companies and the corporate debtor was not consummated as the ED had attached the land in 2020. It was further submitted that no shares were transferred and no de facto or dejure control ever vested in the M3M group. Findings: The Tribunal observed that the Ganga Construction had no right to challenge the resolution plan having already failed to participate in the final bidding. It held that “the Appellant neither participated in the Challenge Mechanism nor submitted a final resolution plan. Any submission regarding the conduct of the CIRP not being in accordance with the Regulations cannot be entertained.” On allegation of ineligibility under section 29A, the Tribunal observed that no doubt Respondent Nos. 8 and 9 entered into a share purchase agreement with the corporate debtor's shareholders but that agreement could not be materialized due to attachment of assets by the ED. Therefore, no shareholding was ever transferred in favor of the purchasers. It held that “there is no dispute that Respondent Nos. 8 and 9 entered into the Share Purchase Agreement dated 17.05.2019 with shareholders of the Corporate Debtor. However, the assets of the Corporate Debtor were provisionally attached by the Directorate of Enforcement on 04.02.2020, and no shareholding was ever transferred in favour of the purchasers.” The Tribunal further held that since the M3M and its group entities never acquired control of the corporate debtor due to non-execution of the SPA, Section 29A(c), (h), (i), or (j) was inapplicable. The Tribunal also dismissed the argument that M3M's subsidiaries were co-obligors under section 29A(h) of the IBC. It held that “the Share Purchase Agreement in no manner can be read as a guarantee. Respondent Nos. 8 and 9 never gave any guarantee within the meaning of Section 29A(h). Hence, the alleged ineligibility is non-existent.” The Tribunal further observed that another unsuccessful resolution applicant had already unsuccessfully challenged the resolution plan approval order. That is another reason to dismiss the present appeal, it said. Accordingly, the Tribunal dismissed the appeal holding that the Appellant being an unsuccessful resolution applicant having already failed to submit the resolution plan or participate in the challenge mechanism cannot now challenge the approved plan or the eligibility of Manglam Multiplex. Case Title: Ganga Construction (Consortium) v. Anil Kumar Mittal, RP...

Failure To Submit Final Plan Or Participate In Challenge Process Bars Unsuccessful Bidder From Questioning Approved Plan: NCLAT

Mohd Malik Chauhan

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