Arbitrarily Rejection Of Resolution Plan Is Void , NCLT Allahabad Declares The COC's Action As Void

The National Company Law Tribunal ("NCLT"), Allahabad Bench, comprising of Shri Rajasekhar V.K. (Judicial Member) and Shri Virendra Kumar Gupta (Technical Member), while adjudicating an application filed in Exim Scrips Dealers Pvt. Ltd v Rathi Graphic Technologies Limited, has held that principles of natural justice are applicable to proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC). The Committee of Creditors (CoC) had declined to consider the revised resolution plan submitted by the resolution applicant for being submitted three days after the deadline and had rather given approval to another plan which had a lower value and was conditional in nature. The NCLT declared the action of CoC as void and directed to re-conduct the process of submission of resolution plan. Background Facts The Corporate Insolvency Resolution Process ("CIRP") was initiated against Rathi Graphic Technologies Limited ("Corporate Debtor") vide an order of the NCLT Allahabad ("Adjudicating Authority") dated 03.02.2020. The Resolution Plans submitted by Giriraj Coated Fab Pvt. Ltd. ("Applicant") and Successful Resolution Applicant ("SRA") were finalized for consideration by the Committee of Creditors ("CoC"). On 12.11.2020 the CoC had opined that the Resolution Plans so submitted were far below the liquidation value and had granted the resolution applicants an opportunity to submit their revised resolution plans by 07:00 PM on the same date i.e., 12.11.2020. The Successful Resolution Applicant (SRA) submitted its revised plan before the said deadline. However, the Applicant submitted its revised resolution plan on 15.11.2020 and the same was not considered by the Resolution Professional/CoC due to late submission, stating that timelines for completion of CIRP were to be strictly adhered to. The Resolution Professional filed an application before the Adjudicating Authority for approval of the Resolution Plan of the SRA and simultaneously the Applicant filed another application seeking direction to the Resolution Professional to place the Applicant's revised resolution plan (submitted on 15.11.2020) before the CoC and reschedule the e-voting thereafter. Contentions Of The Applicant The Applicant argued that the Resolution Professional and CoC were working in tandem to oust the Applicant from the process. The revised plan of the Applicant was arbitrarily and unreasonably denied to be considered despite the fact that the Applicant's Plan had a value higher than that of SRA' revised plan, resulting into less realization of value of assets of the Corporate Debtor and defeating the objective of IBC i.e. maximization of value of assets. It was further submitted that the principles of natural justice were applicable to IBC proceedings and any arbitrariness or biased approach would make decisions void, particularly when grave prejudice was caused to the Applicant. Contentions Of The Committee Of Creditors The CoC submitted that the essence of IBC is completing a process in time and thus it cannot be argued that the Resolution Professional and CoC were in a hurry for completing CIRP in time. Further, the allegation of collusiveness had not been proved. It was contended that IBC was a creditor driven process and principles of natural justice were inapplicable to its proceedings, the "principle of equity" in particular was alien to IBC. Issues Whether principles of natural justice are applicable to the processes/proceedings under IBC, 2016 read with CIRP Regulations, 2016 made thereunder? (ii) Whether principles of natural justice can be considered as a law for the time being in force within the meaning of Section 30(2)(e) of IBC, 2016? Decision Of The Adjudicating Authority Applicability of principles of natural justice to IBC proceedings The Adjudicating Authority observed that CoC, IRP, RP, Liquidator, IBBI, Insolvency Professional agencies and Information utilities are instrumentality of the State, hence, they are bound to follow the rule of law, which embodies within itself principles of natural justice subject to specific exclusions of these principles in a statute. It was further observed that compliance to principles of natural justice is implied when any statute is silent as to its application. The consequence of violation of principles of natural justice is that the action taken in violation thereof may be declared void or may become voidable at the instance of aggrieved party, hence, the opportunity to remedy its grievance must be provided. "It can be safely concluded that all actors/ institutions associated with the conduct of CIRP are bound to follow the principles of natural justice which are enshrined in the Constitution of India as a public policy and have also been accepted by judicial forums as fundamental policy of Indian law, whether codified or not. These are to be applied necessarily in...

Arbitrarily Rejection Of Resolution Plan Is Void , NCLT Allahabad Declares The COC's Action As Void

Pallavi Mishra

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