NCLT Can't Direct CoC To Consider Suspended Management's Settlement Proposal, Without Opportunity To SRA: NCLAT Delhi
Pallavi Mishra
7 March 2024 12:30 PM GMT
The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson), Shri Barun Mitra (Technical Member) and Shri Arun Baroka (Technical Member), has held that the NCLT cannot direct the CoC to consider settlement proposal of Suspended Management of Corporate Debtor, without granting an opportunity to be heard to...
The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson), Shri Barun Mitra (Technical Member) and Shri Arun Baroka (Technical Member), has held that the NCLT cannot direct the CoC to consider settlement proposal of Suspended Management of Corporate Debtor, without granting an opportunity to be heard to the Successful Resolution Applicant (SRA).
During the pendency of plan approval application before NCLT, the Suspended Management filed an application seeking consideration of their settlement proposal by Committee of Creditors (“CoC”). The NCLT did not accord any opportunity to SRA to file its response to the application and directed the CoC to consider the settlement proposal vis-à-vis the resolution plan. The NCLAT has set aside the NCLT order.
Background Facts
In 2019, M/s. Primrose Infratech Pvt. Ltd. (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the NCLT.
The Ex-Director of the Corporate Debtor filed an application seeking withdrawal of CIRP. However, the NCLT rejected the application on 08.04.2019.
Thereafter, the Ex-Director filed a second Application (IA No.1511 of 2019) under Section 12A of IBC proposing settlement, which was directed to be placed before the CoC.
In the meanwhile, One City Infrastructure Pvt. Ltd. (Successful Resolution Applicant/SRA) submitted a resolution plan for the Corporate Debtor and the same was approved by the CoC with 80.84% voting share. Accordingly, the Resolution Professional filed an application for approval of Resolution Plan which is pending adjudication before NCLT.
On 19.02.2020, the CoC rejected the Ex. Director's proposal for withdrawal of CIRP with 80.22% vote share. The Ex-Director filed an application (IA No.188 of 2024) on 11.01.2024 before the NCLT, seeking (i) permission to place his settlement proposal under Section 12A of IBC before the CoC for voting; and (ii) withdrawal of CIRP.
The NCLT decided IA No.188 of 2024 on 23.01.2024 and directed the Ex-Director to deposit Rs. 1 Crore in CIRP Account of Corporate Debtor. Further, the Resolution Professional was directed to convene a CoC meeting to examine the Ex-Directors' proposal vis-à-vis the proposal made by SRA.
The SRA filed an appeal before the NCLAT against the order dated 23.01.2024. The SRA argued that the application filed by the Ex-Director was decided without seeking any response from the SRA, which violates principles of natural justice.
NCLAT Verdict
The Bench noted that the application under Section 12A filed by the Ex-Director was considered and not approved by the CoC. Further, the application for approval of the Resolution Plan filed by the Resolution Professional is pending consideration before the NCLT.
It was observed that the NCLT ought to have granted an opportunity to SRA to submit its response in the application (IA No.188 of 2024) filed by the Ex-Director seeking consideration of its settlement proposal.
“We are further of the view that in the Application, which was filed by the Ex. Director, where a proposal was submitted for settlement, the Adjudicating Authority ought to have given an opportunity to SRA to submit a response to the Application, specifically when Applicant in his Application IA No.188 of 2024 has referred to various affidavits filed by SRA in the proceedings for Plan approval.”
The Bench held that without according an opportunity to the Successful Resolution Applicant, no direction could have been given by the NCLT to CoC to consider the settlement proposal of Ex-Director.
“In the facts of the present case, we are of the view that Adjudicating Authority, ought to have allowed opportunity to SRA to respond to the Application (IA No.188 of 2024 filed by Respondent Nos.1 and 2), whose Resolution Plan has been approved by the CoC and which is pending consideration before the Adjudicating Authority. Without giving an opportunity to the Appellant, direction to the CoC to consider the Plan, cannot be sustained. To obviate any further delay in the matter, we allow two weeks' time to the Appellant to file its objection to IA No.188 of 2024. The Application for approval of Resolution Plan being pending consideration, it shall be open for the Adjudicating Authority to consider IA No.188 of 2024 along with its objection.”
The Bench has granted time to the SRA to file its objections to the application filed by the Ex-Director seeking consideration of its settlement proposal. The NCLT Order dated 23.01.2024 has been set aside and the NCLT has been given liberty to decide IA No.188 of 2024 along with its objections.
The Appeal has been disposed of.
Case title: One City Infrastructure Pvt. Ltd. v Pratham Expofab Private Limited & Ors.
Case No.: Company Appeal (AT) (Insolvency) No.287 of 2024
Counsel for Appellants: Mr. Sunil Fernandes, Sr. Advocate with Mr.Prantik Hazarika, Mr.Nitin Pandey, Ms.Diksha Dadu, Advocates
Counsel for Respondents: Mr. Anupam Lal Das, Sr. Advocate with Mrinal Harsh Vardan, Kailash Ram, Advocates for R-1 and R-2. Mr. Arvind Nayyar, Sr. Advocate with Ms. Anuja Pethia, Mr. Subhashish Kumar, Mr. Akshay Joshi, Advocates for R-3. Mr. P Moryia, Advocate for Homebuyer.
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