NCLAT censures Resolution Professional for making motivated order

NCLAT censures Resolution Professional for making motivated order

Tribunal said that the Resolution Professional must act in a fair and balanced manner without getting influenced by the conflicting interest of the parties

The National Company Law Appellate Tribunal (NCLAT) dismissed an appeal against the order of the Special Bench at National Company Law Tribunal (NCLT), Mumbai, whereby the decision of the Committee of Creditors (CoC) accepting the Expression of Interest (EOI) of Dwarkadhish Sakhar Karkhana Ltd (DSKL) after the due date, was set aside and deprecated the conduct of Resolution Professional (RP).

The matter titled Dwarkadhish Sakhar Karkhana Ltd v Pankaj Joshi, RP of KGS Sugar & Infra Corporation Ltd And Anr, was placed before the Division Bench of the National Company Law Appellate Tribunal at New Delhi comprising of Justice Jarat Kumar Jain and Kanthi Narahari.

The factual scenario of this case is that the Corporate Resolution Insolvency Process (CIRP) was initiated for the Corporate Debtor – KGS Sugar and Infra Corporation Ltd and moratorium in terms of Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) was declared. Invitation for Expression of Interest (EOI) was published but the submission of the Appellant – Dwarkadhish Sakhar Karkhana Ltd was received after the last date of submissions, therefore, it was not considered. The Committee of Creditors (CoC) passed the Resolution unanimously and thereby rejected the request of the Appellant for submitting EOI.

The NCLT, on 27 May 2020, at the recommendation of the CoC, replaced the previous RP to Respondent – Pankaj Joshi who is the present Respondent – Resolution Professional. The Respondent – Resolution Professional accepted the submission of the Appellant's EOI by convincing CoC. The Gangamai Industries & Construction Ltd which had already filed EOI and was on the list of Prospective Resolution Applicant, being aggrieved with the decision of the CoC, which was taken in favour of Appellant, filed an Application against the RP before NCLT. The said application was allowed and the decision of the CoC in accepting the EOI of Appellant after the due date and including it in the list of Prospective Resolution Applicants, was set aside and NCLT strongly deprecated the conduct of RP.

The Respondent raised the issue that the Adjudicating Authority does not have jurisdiction to interfere before the quasi-judicial determination is made, under Section 31 of IBC. The bench observed that Adjudicating Authority can entertain or dispose of the question of priorities or any question of law or facts, arising out of or in relation to CIRP or liquidation proceedings before approval of the Resolution Plan.

The locus standi of Gangamai Industries & Construction Ltd was questioned in this Appeal but the bench concluded that NCLT has rightly entertained its application and decided the same in view of Regulation 36-A (11) of Regulations 2016 which provides that Gangamai Industries & Construction Ltd has a vested right to object inclusion of Appellant.

On the other hand, the bench went on to observe that Appellant has no vested right because, the right has already been extinguished when it failed to submit EOI till the last date and subsequently, the request for submitting EOI after the due date was also rejected by the CoC in view of Regulation 36-A of Regulations 2016.

The Division Bench further observed that as per sub-section 30 of the IBC, when the CoC approved a Resolution Plan by a vote of not less than 66 per cent of the voting share of the Financial Creditors after considering its feasibility and viability, such decision of CoC is a commercial decision. Thus, the decision taken by the CoC in the 9th CoC meeting to allow Appellant after the due date to file EOI is, however, not a commercial decision.

The bench concluded that in the present case in the 7th CoC meeting with the consultation of RP, the request for submitting EOI after the due date was rejected. After two months, when Pankaj Joshi was appointed as RP, he in contravention of Regulation 36A in his own accord overturned the decision of 7th CoC and permitted Appellant to submit EOI. The Resolution Professional by suppressing material facts and misguiding the CoC procured the desired decision and inducted Appellant in the list of prospective Resolution Applicants.

"The CoC, while reviewing its earlier decision, has not assigned any good reason for revisiting their earlier decision. It seems that the CoC has taken the decision in the influence and misguidance of Pankaj Joshi," the bench observed.

It was stated by the bench that the RP suppressed the fact that he himself had overturned the decision of the 7th CoC meeting and permitted Appellant to submit its EOI. He also misguided the CoC that 'he is not required to take express permission from the CoC to issue a request for Resolution Plan to an eligible Prospective Resolution Applicant'

The Division Bench found that the decision taken in the 9th Meeting of the CoC was not transparent, fair and was under the influence of Pankaj Joshi and that he has failed to explain that his actions are bonafide.

"It is expected from a Resolution Professional that he must act in a fair and balanced manner without getting influenced by the conflicting interest of the parties," the bench further remarked.

The Appeal was, therefore, dismissed by the NCLAT under these circumstances.