NCLAT sets aside NCLT Allahabad bench's order

NCLAT sets aside NCLT Allahabad bench's order

E-voting on a Resolution Plan by the financial creditors and the Committee of Creditors had taken place simultaneously

The National Company Law Appellate Tribunal (NCLAT) has set aside an order of the National Company Law Tribunal (NCLT) Allahabad Bench. It was done on the ground that e-voting on a Resolution Plan (RP) by the financial creditors and the Committee of Creditors (CoC) took place simultaneously. The NCLT had approved the RP.

A bench of chairman Justice Ashok Bhushan, judicial member Justice Jarat Kumar Jain and technical member Dr. Alok Srivastava held that if the voting procedure followed was not in consonance with the Insolvency and Bankruptcy Code (IBC), 2016, the approval of the RP would have to be overruled.

The appellants had challenged the approval, urging that it discriminated between the homebuyers who filed their claims on time and those who filed the same belatedly.

On the other hand, the respondents claimed that the homebuyers did not have any locus standi to challenge the RP. They claimed the CoC, which included real estate allottees, had approved it. They contended that the appellants had failed to show any material irregularity with regard to the RP. Also, the commercial wisdom of the CoC was not subject to judicial review.

Rejecting the contention that the homebuyers had no right to challenge the approval of the RP, NCLAT ruled that the homebuyers/allottees who were financial creditors, but their claims were not accepted, had a stake in the successful resolution of the corporate debtor. Therefore, they were entitled to appeal.

It was held that a suspended director of the former corporate debtor would have an interest in the successful resolution with which he was connected earlier.

Another finding of the NCLAT was that the voting procedure adopted was in contravention of the provisions of IBC. Furthermore, the Resolution Professional of the vote informed the authorized representatives of the homebuyers barely a day in advance before the voting took place.

The NCLAT held that it was contrary to the regulation of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which stipulated that notice of the CoC meeting would have to be given at least five days in advance.

It said that another regulation required the authorized representatives to circulate the agenda and give voting instructions to the creditors, at least 20 hours in advance. It was also mandatory to keep the voting window for the creditors open for at least 12 hours.

Moreover, it was held that discrimination between homebuyers on the basis of the delay in filing their claim was contrary to IBC, particularly when 53 percent of the homebuyers were not included.