NCLAT Clarifies ‘Entity’ Could Include Individuals As Per I&B Ministry Guidelines

NCLAT Clarifies ‘Entity’ Could Include Individuals As Per I&B Ministry Guidelines

The case pertained to Abhijit Realtors & Infraventures & Anr. Appellants v. Rohit Mehra, (RP of Reliance Broadcast Network) & Anr

The National Company Law Tribunal (NCLAT) has examined the procedural aspects of the Corporate Insolvency Resolution Process and upheld the decisions during the Challenge Process conducted by the Resolution Professional (RP).

In the Abhijit Realtors & Infraventures Pvt Ltd & Anr. Appellants v. Rohit Mehra, (RP of Reliance Broadcast Network Ltd.) & Anr case, the Coram of Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) emphasized, "The Challenge Process of 27.10.2023 was conducted in accordance with the CIRP Regulations and the Process Note of 12.10.2023."

The appellants had challenged the bidding process, alleging CIRP violations. They claimed the selected bidder's offer was invalid.

The appellate tribunal upheld the authority of the Committee of Creditors (CoC) to conduct negotiations for value maximization post-Challenge Process. It affirmed that the RP verified the eligibility of the Successful Resolution Applicant (SRA).

The matter pertained to Reliance Broadcast Network Ltd admitted to the CIRP on 24.02.2023 after an application by IDBI Trusteeship Services Ltd.

On 14.04.2023, the RP invited Expressions of Interest (EoIs), with applicants Abhijit Realtors & Infraventure Pvt. Ltd. and Creative Channel Advertising & Marketing Pvt. Ltd.

Six Resolution Plans were received, and the CoC initiated a Challenge Process, setting a base price of Rs.240 crores.

After three rounds of bidding on 27.10.2023, Sapphire Media Ltd. submitted the highest bid of Rs.251 crores.

Negotiations led to revised proposals, with Sapphire offering Rs.261 crores. On 16.11.2023, the CoC approved its Resolution Plan with 88.97 percent of votes, and the RP filed IA No.5391 of 2023 for approval.

The Consortium filed IA No.5572 of 2023 and IA No.614 of 2024 to challenge the CoC’s decision.

Creative Channel filed IA No.290 of 2024, seeking to disqualify Sapphire and restart the process.

On 06.05.2024, the adjudicating authority dismissed the IAs and approved Sapphire’s plan. Subsequently, the Consortium and Creative Channel appealed challenging the approval and rejection of their applications.

The appellants argued that the Challenge Process conducted by the RP violated CIRP norms and the Process Note. The Consortium was wrongfully exited after the second round, despite submitting the highest bid in the first round. They added that the SRA should have been disqualified for not submitting an incremental bid, as the modification and challenge were not allowed under Regulation 39(1A).

They highlighted procedural irregularities, including failure to disclose the highest bid details and allowing non-participants in the challenge process to negotiate. They contended that the SRA, incorporated on 21.10.2022, did not meet the eligibility criteria in the EOI. Thus, including its promoter’s net worth was incorrect.

The appellants added that SRA’s ineligibility under the Ministry of Information and Broadcasting guidelines and its blacklisting by the Indian Oil Corporation invalidated its plan. The CoC’s approval of the SRA was legally flawed, and their documents’ eligibility strengthened their case.

Meanwhile, the RP argued that the appellants did not raise any objections for six months. They did this after the CoC approved the Resolution Plan. The rules were followed in the challenge process and the SRA’s Rs.241 crores bid was the highest in Round 1. The Consortium’s bid was Rs.240 crores and had to exit. In Round 3, the SRA made a bid of Rs.251 crores. The CoC approved SRA’s plan after assessing all bids.

The RP stated as per the CIRP, the objections were not raised in time, The interpretation of ‘entity’ in the EOI, including individuals, was correct and should be upheld. The SRA met the eligibility criteria, and the Consortium could not challenge it.

He added that the appellants' documents including the Goods and Services Tax (GST) and Income tax Returns (ITR), were not required and their objections should be ignored.

The court observed that the Consortium's objection to the SRA's bid not being in increments of Rs.10 crores was contrary to the Process Note.

The bench held, "When the Consortium gave a bid of Rs.240 crores, equal to the base bid, the objection that the bid of the SRA, not in increments of Rs.10 crores, should not be accepted.”

The judges upheld the RP’s decision to exit the Consortium. They emphasized the bid should have followed the prescribed increment rule, as reflected in the statement, "The consortium has given a bid in the 1st round of Rs.240 crores, hence, in the 2nd round they are obliged to give a bid of increment of multiple of Rs.10 crores, which means at least Rs.250 crores."

On the negotiation process, the bench referred to Clause 2.3.11 of the RFRP. It stated the CoC was competent to conduct negotiations for value maximization after the Challenge Process concluded.

The court reiterated, "The Challenge Process dated 27.10.2023 was conducted in accordance with the CIRP Regulations and the Process Note dated 12.10.2023.”

Addressing the eligibility of the SRA to submit a Resolution Plan, challenged by the appellant, the judges said, "The objection on the eligibility of the Resolution Applicant can be considered and examined by the adjudicating authority when the application to approve the Resolution Plan comes for consideration."

Examining the term ‘group’ under Section 25(2)(h) of the Insolvency and Bankruptcy Code (IBC), the court noted that it included any entity directly or indirectly holding 26 percent or more of the share capital of the Prospective Resolution Applicant.

The bench clarified that the term ‘entity’ could be interpreted to include individuals, as reflected in the guidelines by the I&B Ministry.

The court affirmed that the RP properly verified the eligibility of the SRA. It concluded that the SRA met both the net worth and the turnover criteria as required by the Invitation for Expression of Interest (IEOI).

The judges stated, “Even though the requirement as per the IEOI is to meet either the net worth or the turnover criteria at group level, the SRA met both.”

They upheld the validity of the Challenge Process, confirming the authority of the CoC in conducting negotiations.

The court found no tenable ground under Section 61(3)(ii) of the IBC to interfere with the order approving the Resolution Plan. Thus, it dismissed the appeals and upheld the 6.05.2024 order.

Those who appeared for the petitioner were Senior Advocates, Krishnendu Dutta and Abhijeet Sinha, with Advocates, Kunal Kanungo, Anuj Tiwari, Pulkit Sharma, Tanushree Sogani, Niharika Sharma, Atishay Jain, Henna Kochhar, Aroshi Pal, Nishant Chotani and Bandita.

The advocates for the respondent (R-1/RP) were Senior Advocate Neeraj Kishan Kaul with Advocates: Pooja Mahajan, Mahima Singh, Shreya Mahalwan, Raghav Agarwal, Saurabh Bacchawat.

For R-2/CoC - Senior Advocate Sudhir K. Makkar with Advocates Divij Kumar, Varun Tandon and Shivang Mukherjee.

For R-3/SRA - Senior. Advocates Ardhendmauli Kumar Prasad & Anupam Lal Das, with Advocates SP Singh Chawla, Sinha Shrey Nikhilesh, S. Shishir, Parth Davar, Rohit H. Nair, Sarakshi Asarsa, Swastik Verma, Shivali Singh

For RP - Senior Advocate Ramji Srinivasan with Advocates Mahima Singh and Pooja Mahajan.