Recently, the Appellate Authority (NCLAT, Principal Bench,
The Appeal was preferred by the homebuyers in the project SKYWALK RNE (developed by the Corporate Debtor) against the order of NCLT,
The points for adjudication which fell before the NCLAT was:
- Whether the CoC was constituted by the RP in accordance with the provisions of IBC?
- Whether the recommendation for liquidation of Respondent No. 1 was taken by the CoC in contravention of IBC provisions.
On behalf of the Appellants, the contention was raised that the Respondent No. 4 had sanctioned a loan of INR
Respondents No. 1 and 2 contended that the loan disbursed by Respondent No. 4 is on the basis of common loan agreement as the loan was granted to three sister companies and secured by the same properties and the disbursement request was made vide a common letter. Therefore, the repayment should also happen together and the claim due to Respondent No.1 should be based on total loan amount. The Respondents No. 1 & 2 also relied on the
The counsel for Respondent No. 4 contended that the Respondents No. 1, 2 and 3 (companies from the same group) entered into the loan agreement and was provided
NCLAT's observations
As regards opportunity to Appellants to challenge the RP's decision earlier, the NCLAT made the following observations:
"19. Regarding the matter of the Appellant not getting a realistic opportunity to challenge the issues of constitution of CoC and the admission of claim of
On the decision of CoC to liquidate the Corporate Debtor without preparing the correct Information Memorandum ('IM') and the Resolution Professional failing to pursue the application filed under Section 19(2) of the I&B Code, the NCLAT made the following observations:
"20. We find that, while the CoC took a decision for going for liquidation of the Corporate Debtor, the Appellants have challenged the very basis of constitution of CoC and fixing of voting rights by labeling it illegal, done to provide undue and unfair advantage to Respondent No. 4. Moreover, the Appellants have also claimed that the CoC took a decision for liquidation without following the procedure under CIRP stipulated in the IBC. The basic reason for seeking Resolution Plan under CIRP is to ensure that the Corporate Debtor can continue to function as a going concern, while taking care of interests of its creditors. Liquidation is the last resort which implies corporate death of the company. For the Corporate Insolvency Resolution Process to result in successful resolution of the corporate Debtor, preparation of a correct information memorandum is a must, which may result in work able resolution plans. In the present case, we find that information memorandum was not prepared with full and correct details of assets and liabilities of the Corporate Debtor. The RP also did not pursue his application u/s 19(2). As a result the CoC decided to abandon the step of inviting of EOI for Resolution Plan. Thereafter in undue haste, the CoC decided to go for liquidation of the Corporate Debtor. Since the CoC consisted of two members - Capri Global and homebuyers - with Respondent No. 4 being given inflated voting share, the decisions by CoC was completely swayed by the Respondent No. 4 and its selfish interests. The decisions of CoC was a blotted one, since it was taken in the CoC, in which Respondent No. 4 was given voting right much in excess of its real and correct share."
The NCLAT further observed on the duty of a Resolution Professional to prepare an information memorandum after properly obtaining the details of assets and liabilities, latest audited financial statements and other important information of the Corporate Debtor. The observations are reproduced below:
"22. A duty has been cast on the RP under Section 25 of IBC where he has to take immediate custody and control of assets of Corporate Debtor, including the business record of the Corporate Debtor; and furthermore a duty has been passed on the Resolution Professional under section 25(2)(g) to prepare an information memorandum in accordance with the provisions of IBC.. Section 29 of the IBC requires the Resolution Professional to prepare an information memorandum in such form and manner contain such relevant information as may be specified in the Insolvency and Bankruptcy Board of
The NCLAT, therefore, held that the CIRP was not pursued with all fairness and due diligence by the Resolution Professional. The CoC was not constituted in accordance with provisions of IBC. Therefore, its constitution was quashed and it was held that the claims of financial creditors including the homebuyers should be appropriately fixed. NCLAT further observed that the Resolution Professional cannot be absolved of certain actions of omission and commission, which have caused prejudice to homebuyers. It further ordered that the Resolution Professional should be replaced with immediate effect and a suitable Resolution Professional be appointed in the CIRP of Respondent No. 1 by the Adjudicating Authority.
CONCLUSION
The case is an eye-opener insofar it clarifies a very important role of IRPs/RPs in not only putting efforts to prepare the correct information memorandum but also obtain the correct information form the records of a Corporate Debtor. It also reminds about the duty of an IRP/RP to admit only such claims made against the Corporate Debtor without including claims due from the sister concerns of the Corporate Debtor irrespective that the liability arises out of a common loan agreement. The focus, therefore, is on the role of an IRP/RP in conducting the CIRP in a fair and independent manner.
Footnotes
1. Company Appeal (AT) (Ins) No. 112 of 2021
2. SC 1965 2 SCR 661
3. (2021) 3 SCC 475
4. Civil Appeal No.10673 Of 2018
5. Civil Appeal No. 3224 of 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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