No concept of “provisional constitution” of CoC under IBC: NCLAT Dismisses Byju's Plea [Read Order]

Byju Raveendran, suspended director and promoter of M/s Think and Learn Pvt. Ltd.filed appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 to assail the validity of the order passed by the NCLT, Bengaluru Bench dated 29.01.2025 by which it had disposed of two applications.

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I.A was filed by Aditya Birla Finance Limited/ Respondent No. 1 on 10.09.2024 under Section 60(5) of the Code with the prayer to set aside the decision made by the Respondent in respect of the Applicant's classification as an Operational Creditor, and to direct Respondent to exclude the Applicant from Annexure S List of Operational Creditors dated 30th August 2024 and to consider the Applicant's claim as a ‘financial debt’ within the meaning of Section 5(8) of the Insolvency and Bankruptcy Code, 2016;

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The application filed by the Board of Control for Cricket in India (BCCI)/Respondent No. 4/Operational Creditor against M/s Think and Learn Pvt. Ltd. (CD) was admitted on 16.07.2024 and Pankaj Srivastava (Respondent No. 2) was appointed as the IRP. The IRP after having been appointed as such, made public announcement on 17.07.2024 to invite claims from the creditors of the CD. Respondent No. 1 submitted its claim of Rs. 47,12,00,000/- in Form C as financial creditor in terms of Regulation 8 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons), Regulations, 2016 (in short ‘Regulations”).

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In the meantime, the order of admission dated 16.07.2024 came to be challenged in appeal before the Appellate Authority. The Respondent No. 2, vide its email dated 02.08.2024, asked Respondent No. 1 to provide the details of the bank guarantee documents, details of security realisation and other relevant agreements and documents in support of their claim whereas on the same date i.e. 02.08.2024 CA (AT) (CH) (Ins) No. 262 of 2024 was allowed by the Appellate Authority on the basis of a settlement arrived at between the parties therein.

The Respondent No. 3 (Glass Trust Company LLC) challenged the order dated 02.08.2024 in appeal before the Supreme Court in which, vide order dated 14.08.2024, operation and effect of the order dated 02.08.2024 was stayed and as a result thereof, the CIRP proceedings were restored. The amount paid by the CD to Respondent No. 4 was further directed to be kept in an escrow account.

It was alleged that the IRP issued a fresh notice of first meeting of the CoC which was scheduled to be held on 03.09.2024 and since Respondent No. 1 was reclassified as an operational creditor on 02.09.2024, he shared certain documents to substantiate his claim as a financial creditor.

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It was alleged that by Respondent No. 3 that they received a letter backdated as 01.09.2024 from Respondent No. 2 informing that their claim has been classified as contingent and hence they are removed from the CoC and that on 03.09.2024 it was submitted on behalf of the Respondent No. 2 before the Tribunal that first meeting of the reconstituted COC was convened and the only action taken in the meeting was that Respondent No. 2 was confirmed as RP of the CD.

This application was also contested by the Respondent No. 2 by filing the reply in which he alleged that Respondent No. 3 had filed an application I.A No. 657 of 2024 on 02.09.2024 before the Tribunal seeking the replacement of the RP and subsequently on 06.09.2024 filed complaint with IBBI against him alleging about his fraudulent act regarding reconstitution of COC.

It was contended that claim of Respondent No. 3 is a contingent claim because the claims submitted are subject to adjudication in multiple proceedings and therefore, Respondent No. 3 was removed from the CoC and was accordingly reconstituted.

In Union Bank of India v. Rajdeep Clothing & Advisory Pvt. Ltd., CA (AT) (Ins) No. 399 of 2021, it was held that there is no provision in the Code or Regulations which permit review of status of a creditor as the provision focuses only on the amount of claim. Thus, IRP/RP, on its own cannot review and reverse his own earlier decision without approval of Adjudicating Authority.

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The argument of the Appellant that if the IRP has been found lacking in discharge of his duties and his act and conduct is deprecated by the Tribunal then the entire exercise undertaken by him qua the constitution and reconstitution has to be set aside cannot be accepted because Respondent No. 2.

On the basis of the collation of the claims submitted by Respondent No. 1 and 3 had duly constituted the CoC on 21.08.2024 and even filed an application in terms of Regulation 17 of the Regulations but later on, for the reason best known to him, reconstituted the CoC with only one member with 0.18% voting share in the originally constituted CoC, by excluding Respondent No. 1 and 3 in a manner that can only be termed mischievous which has been duly commented upon by the Tribunal in para 21 to 23 of the impugned order.

Justice Rakesh Kumar Jain, Member (Judicial) and Jatindranath Swain, Member (Technical) viewed that there is no concept of “provisional constitution” of the CoC under the Code. The CoC once constituted is final and cannot be revised by the IRP/RP without the interference of the Adjudication Authority.

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