Resolution Professional's Failure To Individually Inform Homebuyers About Insolvency Proceedings Goes Against Principles Of IBC: NCLAT

The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench of Justice Rakesh Kumar Jain, Mr. Naresh Salecha (Technical Member) and Mr. Indevar Pandey (Technical Member) has held that the failure of the Resolution Professional to individually inform the homebuyers about the insolvency proceedings as mandated under Regulation 6A of the CIRP Regulations, 2016, so they could file their claims on time, goes against the spirit of the IBC and vitiates the entire proceedings especially during Covid Pandemic. The present appeal has been filed under section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC) against an order passed by the National Company Law Tribunal (NCLT) New Delhi by which it rejected an application seeking recall of an order which permitted the withdrawal of the Corporate Insolvency Resolution Process (CIRP). The Appellant submitted that the withdrawal of CIRP was secured through gross fraud and suppression of material facts, without accounting for their legitimate claims and those of similarly situated homebuyers. The Adjudicating Authority failed to appreciate the existence of substantial evidence on recall of orders obtained by fraud, thereby gravely violating principles of natural justice. The appeal is thus a plea for recall of the withdrawal of CIRP order to protect the interests of innocent homebuyers. It was further argued that in the Union Bank of India (supra) that both this Tribunal and the NCLTs have the inherent power to recall an order, if it has been obtained by fraud. It was clarified that although review powers are not available, recall on valid grounds is well within the Tribunal's inherent jurisdiction under Rule 11 of the NCLAT Rules, 2016. Per contra, the Respondent submitted that none of the Appellants filed claims before the IRP, nor were they part of the original Section 7 proceedings or CoC. Therefore, they have no locus standi to challenge the withdrawal order passed by the NCLT. The mere fact that some homebuyers have claims does not bar the CIRP withdrawal, if the original applicants have settled. The Tribunal noted that both the CIRP initiation and claims invitation coincided with the onset of Covid pandemic. In such circumstances, newspaper notices were not an effective way to inform the creditors to submit their claims. It was unreasonable to expect laypersons homebuyers to trace the public announcements without personally serving each of them. The RP under Regulation 6 of the CIRP Regulations was duty bound to identify and contract all the creditors with due diligence and ensure a fair opportunity to all of them to submit their claims. It further observed that Regulation 6A now mandates the RP to individually notify all the creditors via post or electronic means by using the latest corporate debtor's records. The aim of this provision is to ensure that dispersed retail allottees are informed of the insolvency proceedings and not excluded for failing to submit their formal claims. In the present case exactly the same thing happened which was addressed by this amendment i.e. the homebuyers were not personally informed despite availability of corporate debtor's records, leading to their wrongful exclusion. It held that “This led to a situation where the ex-management of the Corporate Debtor settled dues only with those few homebuyers whose claims were filed— while leaving out others from the same class of creditors. Such selective treatment of creditors within the same class is against the basic principles of the IBC and cannot be accepted.” The Tribunal further observed that in the present case, the CoC was constituted well before the application for withdrawal was filed by the IRP. The IRP in the application falsely claimed that the CoC had not been constituted as minutes of the second meeting of the CoC were filed by the Appellants. The withdrawal application was allowed without the required 90% approval of the CoC under section 12A of the IBC which is central to subsequent recall application filed before the NCLT. It held that “Section 12A is not a mere procedural formality, rather, it embodies a substantive protection against unilateral withdrawal of CIRP once collective rights have crystallized. The mandatory requirement of CoC approval is the only legally sanctioned exit after CIRP commences. Any deviation from this scheme, especially one procured through misrepresentation, is per se fraudulent and liable to be set aside.” It concluded that the impugned order was vitiated by fraud. The Appellants have proved their claims with documentary evidence which the Respondent failed to refute. The failure of the NCLT to recall the order despite the presence of clinching evidence displays a serious error of law and abnegation of judicial duty. Accordingly, the present appeal was allowed. Case Title: Bharti Goyal and Anr. Versus Hector Realty Venture Pvt. Ltd. and ...

Resolution Professional's Failure To Individually Inform Homebuyers About Insolvency Proceedings Goes Against Principles Of IBC: NCLAT

Mohd Malik Chauhan

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