Resolution Applicant Cannot Challenge RFRP Clauses Once Expression of Interest Submitted: NCLAT [Read Order]

In a recent ruling, the National Company Law Appellate Tribunal ( NCLAT ) ruled that a resolution applicant cannot challenge the clauses of the Request for Resolution Plan (RFRP) after submitting its Expression of Interest (EoI).

The fact was that Goldendreams, one of four prospective resolution applicants (PRAs), submitted and revised its plan five times during the CIRP. Despite repeated engagement, the CoC rejected all plans, citing financial non-viability and values below the liquidation threshold.

The appellant Goldendreams stated that, being an unsuccessful Resolution Applicant, it has no locus to challenge the decision taken by the CoC in the exercise of its commercial wisdom, which is paramount.

They relied on the Supreme Court judgment Arcelor Mittal India Pvt. Ltd. Vs Satish Kumar Chandra (2019). It was contended that it is well settled that an unsuccessful Resolution Applicant has no vested right that its resolution plan must be considered by the CoC.

They also contended that the rejection violated procedural safeguards under the Insolvency and Bankruptcy Code (IBC) and the Request for Resolution Plan (RFRP), including failure to conduct the mandated challenge mechanism and lack of transparency in voting results.

On the other hand, revenue stated that there was no violation of the IBC framework or the RFRP in the conduct of the resolution process. It was emphatically asserted that the CoC was effectively engaged in discussions with the PRAs in respect of their resolution plans and had been given ample opportunity to revise their respective plans.

They argued that Goldendreams had no standing to contest the rejection, the CoC acted within its rights, and the process was legally compliant.

After hearing the submission, the tribunal observed that once a resolution applicant submits an Expression of Interest (EoI), it is deemed to have accepted the terms of the RFRP and noted that that once a resolution applicant submits an Expression of Interest (EoI), it is deemed to have accepted the terms of the Request for Resolution Plan (RFRP), including Clause 12 which empowers the CoC to annul the bid process at any stage.

It found no procedural irregularity in bypassing the challenge mechanism, noting that Goldendreams had actively participated in multiple CoC meetings and revised its plan five times.

The bench of Justice Ashok Bhushan and Barun Mitra observed: “Clause 12 of the RFRP categorically provides a general right to the RP/CoC to accept, reject or annul the bid process… without assigning any reasons.”

The Tribunal stated that the commercial wisdom of the CoC is paramount and not subject to judicial review unless statutory violations are evident. It noted that Goldendreams had actively participated in negotiations and was aware its plan would be put to a vote.

Accordingly, NCLAT did not find any infirmity in the impugned order and dismissed the appeal with no cost

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