Belated Expression of Interest No 'Material Irregularity' in CIRP: NCLAT Sets Aside NCLT Order, Restores CoC-Approved Resolution Plan [Read Order]

In a recent ruling clarifying the threshold for “material irregularity” under the Insolvency and Bankruptcy Code (IBC), the National Company Law Appellate Tribunal (NCLAT) has held that acceptance of a belated Expression of Interest (EoI) by the Resolution Professional (RP) does not, by itself, vitiate the Corporate Insolvency Resolution Process (CIRP) unless it demonstrably affects fairness or integrity of the process.

The CIRP against Imperial Tubes Pvt. Ltd. commenced on 22 August 2022, with Rachna Anchalia appointed as the Resolution Professional (RP).

The RP published Form G, inviting Expressions of Interest (EoIs) from prospective resolution applicants, setting 21 October 2022 as the last date. Among the applicants, Yaana Apparels Pvt. Ltd. and Krishna Wax submitted timely EoIs.

Dorni Vinimoy Pvt. Ltd. expressed interest much later, 47 days beyond the stipulated date. The RP rejected the EoI as time-barred, but, acting on the RP’s suggestion, Dorni approached the NCLT, Kolkata, seeking condonation of delay.

On 20 January 2023, the Adjudicating Authority allowed Dorni’s application, permitting submission of the resolution plan by 22 January 2023, while cautioning that “mere condonation of delay shall not amount to relaxation of any EoI conditions.”

Dorni filed its EoI on 21 January and submitted its resolution plan the next day, depositing the Earnest Money Deposit (EMD) of ₹50 lakh two days later due to intervening bank holidays.

The CoC subsequently approved Dorni’s plan with 99.87% votes, and the RP moved the NCLT for plan approval. However, rival applicants Yaana Apparels and Krishna Wax intervened, alleging collusion between the CoC, RP, and Dorni, and violations of CIRP Regulations, particularly Regulations 36A(6), 36A(10)- (12), and 39(1B)(b).

They contended that Dorni’s inclusion after the final list of Prospective Resolution Applicants (PRAs) was closed was illegal and undermined process integrity.

The NCLT, by a common order dated 20 December 2024, accepted these objections, holding that Dorni’s belated inclusion violated mandatory procedure under Regulation 36A and that the order condoning delay effectively overrode the CIRP framework.

It set aside the CoC’s approval of Dorni’s plan, prompting appeals by both the RP and the SRA before the NCLAT.

Counsel argued that the RP had acted strictly under the NCLT’s order allowing Dorni’s late EoI and could not be accused of collusion. The CoC’s decision was guided by its commercial wisdom and the mandate to maximise asset value.

Dorni submitted its plan within the same deadline as other PRAs, and the CoC had the authority under Regulation 36B(4A) to condone the brief delay in EMD payment.

They stressed that minor procedural lapses did not amount to “material irregularity,” which must be shown to have substantially tainted the fairness or legality of the process.

Dorni contended that the NCLT’s earlier order condoning delay (I.A. 86/2023) remained unchallenged and binding.

The Tribunal below effectively reviewed its own earlier order, which is impermissible under IBC. The objecting PRAs had full opportunity to participate and had even improved their bids during CoC deliberations; hence, claims of concealment or collusion were unfounded.

The opposing counsel argued that the RP’s acceptance of a late EoI breached the mandatory bar under Regulation 36A(6), which requires rejection of EoIs filed after the due date. Dorni’s name was absent from the final list of PRAs, making the CoC’s consideration of its plan unlawful under Regulation 39(1B)(b).

They alleged that Dorni gained an unfair “wild card entry,” and the RP’s failure to notify existing PRAs of Dorni’s application deprived them of a statutory opportunity to object under Regulation 36A(11). They cited Ashdan Properties Pvt. Ltd. v. Mamta Binani (2024 SCC OnLine NCLAT 1653) to assert that no new applicant can be admitted after the closure of Form G without reissuance.

The two-member bench of Justice N. Seshasayee (Judicial Member) and Arun Baroka (Technical Member), allowed the appeals and set aside the NCLT’s order.

The Bench held that while procedural compliance with CIRP Regulations is essential, not every deviation constitutes a “material irregularity.” Only those procedural breaches that compromise the fairness, legality, or integrity of the process can vitiate the outcome.

The Tribunal reasoned that the RP and CoC acted pursuant to a judicial order condoning delay, and their conduct could not be termed collusive or fraudulent. Dorni’s plan was submitted within the same deadline as others, and no undue advantage was conferred. The brief delay in EMD deposit was within the CoC’s discretionary power to condone.

The NCLAT elaborated on the doctrine of material irregularity, quoting its earlier decision in Amit Sangal v. Kairav Trivedi (MANU/NL/0416/2025), noting that “only a significant deviation that affects the fairness, legality, and integrity of the CIRP qualifies as material irregularity.”

It found no such prejudice here. The Tribunal further observed that Regulations 36A and 39 are procedural and directory, designed to aid, not defeat, the object of resolution under the Code.

Upholding the CoC’s commercial wisdom, the Bench concluded that invalidating Dorni’s plan would restart the CIRP, eroding value and defeating the Code’s objective of timely resolution. It directed the NCLT to revive the RP’s pending application for formal approval of the resolution plan under Section 31 of the IBC.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates