Adverse remarks cannot be passed by Adjudicating Authority against RP for performing his duties Accordance to CoC: NCLAT [Read Order]
The tribunal directed to expunged the adverse remarks passed against the RP and partially modified the impugned order
NCLAT – National Company Law Appellate Tribunal – NCLAT Adverse Remarks Against RP – taxscan
NCLAT – National Company Law Appellate Tribunal – NCLAT Adverse Remarks Against RP – taxscan
In a recent case, the New Delhi bench of National Company Law Appellate Tribunal ( NCLAT ) has held that adverse remarks cannot be passed by the Adjudicating Authority against the RP for performing his duties in accordance with the commercial wisdom of the CoC.
Fintech Restructuring LLP, the appellant challenged an order passed by the Adjudicating Authority by which the CIRP of the corporate debtor was directed to be reinitiated and completed within 90 days from the date of the impugned order. One appeal has been preferred by the financial creditor and another one has been filed by the RP.
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The corporate debtor was admitted into the insolvency and in pursuance of which the CoC comprising of the financial creditor as secured creditor was constituted. Fintech Restructuring LLP was appointed as the RP.
On the instructions of the CoC, draft bidding documents were shared by the RP with the CoC members and Prospective Resolution Applicants (PRAs). Thereafter, e-bidding process for negotiation in the resolution plan was conducted and completed. Later, the resolution plan submitted by the Parth was approved by the CoC with a majority of 84.52% via e-voting platform. Fintech issued the Letter of Intent to Parth.
An IA was filed by the RP before the Adjudicating Authority seeking approval of the Resolution Plan under section 31 of the code. The Adjudicating Authority by the impugned order refused to approve the plan and directed to reinitiate the CIRP of the corporate debtor.
The appellant/ erstwhile RP argued that when the CoC had decided to hold further negotiations and called for revised plans, the RP could not have come in the way of the CoC's exercise of commercial wisdom towards seeking revised plans and hence the RP cannot be faulted on this score for having committed any material irregularity in the conduct of CIRP.
The Financial Creditor submitted that once CoC has approved the resolution plan by requisite majority, there was limited scope of interference by the Adjudicating Authority since commercial wisdom of CoC is not justiciable. When the CoC had approved the resolution plan with majority share, the Adjudicating Authority erred in setting aside the entire CIRP proceedings and re-initiating fresh proceedings merely on the grounds of irregularities purportedly committed by the RP.
The tribunal, at the outset, noted that the RP had followed the procedure as laid down under the IBC and Regulations framed thereunder in conducting the CIRP of the corporate debtor till the stage of inviting resolution plans for resolution of the corporate debtor.
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It was viewed by the Adjudicating Authority that the RP had committed irregularity in revising plans multiple times. However, the tribunal disagreed with this observation of the AA and noted that the RP was merely following the instructions of the CoC as it was the CoC which was directing the RP to revise the plan. The tribunal viewed that the RP was allowed to seek votes of even those CoC members who are not physically present at the meeting by electronic means.
The Justice Ashok Bhushan ( Judicial Member ) and Barun Mitra ( Technical Member ) observed that In the given circumstances, the RP cannot be blamed for having breached the IBC for the CoC to have approved the resolution plan of Parth with requisite majority share which action was taken by the CoC in the exercise of its commercial wisdom. We also find that the erstwhile RP has acted in deference to the wisdom of the CoC which is in line with the well settled legal precept of attaching paramount importance to the commercial wisdom of the CoC.
The tribunal directed to expunged the adverse remarks passed against the RP and partially modified the impugned order.
To Read the full text of the Order CLICK HERE
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