Homebuyers Or Unsuccessful Resolution Applicant Not Entitled To File Avoidance Application: NCLAT Delhi

Background Facts

E & G Global Estates Ltd. (“Corporate Debtor”) is engaged in the business of real estate development and has developed a project named 'Holiday Homes'.

On 24.06.2020, the Corporate Debtor was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the NCLT.

The Resolution Professional constituted the Committee of Creditors (CoC) with SIDBI having 20.40% vote share and Home Buyers as class of creditors with 79.60% vote share.

On 14.01.2021, the Forensic Auditor so appointed submitted a Forensic Audit Report (“FAR”). On the basis of FAR, the Resolution Professional filed an application (IA 107 of 2021) under Section 66 of IBC, alleging that fraudulent transactions were undertaken by certain allegedly illegitimate home buyers of Holiday Homes Project with suspended directors of Corporate Debtor. The Resolution Professional prayed for cancellation of voting rights of such homebuyers for filing fraudulent claims. Relief was also sought against the suspended directors for returning money back to the Corporate Debtor which had been siphoned off through circular transactions.

G S Constructions and Asha Sanap (“Successful Resolution Applicant/SRA”) submitted resolution plans for the Corporate Debtor. On 20.04.2021, the CoC in its 8^th CoC meeting approved the resolution plan of SRA with 79.60% vote share.

While the IA 107/2021 was pending before NCLT, the Homebuyers (“Appellants”) filed IA No. 1777 of 2021, seeking removal of alleged illegitimate home buyers from CoC and disregard their votes casted in 8th CoC meeting; reconstitution of CoC and other reliefs.

On 17.11.2021, the NCLT in IA 107/2021 directed removal of fraudulent home buyers from CoC and reconstitution of CoC. The order was challenged before NCLAT and the matter was remanded to NCLT for re-consideration. The IA 107/2021 remained pending adjudication thereafter.

G S Constructions, the unsuccessful resolution applicant, filed IA No. 1609 of 2021 praying for removal of alleged illegitimate home owners from the CoC; reconstitute the CoC and call for fresh voting besides rejection of resolution plan by SRA.

The NCLT vide order dated 11.08.2023 approved the plan of SRA and dismissed the IA No. 1777 of 2021, while avoidance application of Resolution Professional was pending adjudication.

The Appellant Homebuyers, who constituted 16.53% vote share, filed an appeal before NCLAT against order dated 11.08.2023.

The Appellants contended that if the votes of illegitimate home buyers are excluded, then the result of the voting on the resolution plan of SRA would have been different. While the question of reconstitution of CoC was still pending in IA 107 of 2021, the approval of the resolution plan of the SRA by NCLT was against IBC.

NCLAT Verdict

The Bench noted that none of the Appellant homebuyers raised any objection regarding constitution of CoC until the 7^th CoC meeting. The IA 1777/2021 was filed only after the plan submitted by the SRA was approved.

The Bench opined that as per Section 25(2)(j) of IBC, the Resolution Professional alone can pursue avoidance applications. The homebuyers or unsuccessful resolution applicant are not entitled to file an application before NCLT seeking avoidance of transactions.

“The statutory construct of IBC clearly puts the onerous responsibility of pursuing avoidance applications on the RP. In terms of Section 25(2)(j) of the IBC, it is the duty of the RP to file appropriate applications for avoidance of transactions which fall under the ambit of preferential, fraudulent, undervalued or extortionate transactions. When the statutory scheme clearly states that it is the duty of Resolution Professional to determine the nature of such transactions and file an appropriate application before the Adjudicating Authority, neither the Appellants-1 being home buyers themselves nor the GSC as unsuccessful resolution applicant are entitled on their own to file applications seeking avoidance of transactions.”

The NCLT in its order dated 11.08.2023 had observed that even if the votes of alleged illegitimate home buyers are excluded, the plan of the SRA would still have fetched requisite percent of votes.

While relying on the Supreme Court judgment in Jaypee Kensington Boulevard Apartments Welfare Association and Ors. Vs. NBCC (India) Ltd. and Ors., (2022)1 SCC 401, the Bench observed that the minority homebuyers would have to accede to the decision of the majority homebuyers.

“The Hon'ble Supreme Court in the Jaypee matter has emphasized that the democratic principles of a determinative role of majority opinion have been enshrined in the statutory construct of the IBC and hence the minority homebuyers have to necessarily sail with the majority within the class. Once the CoC has approved the resolution plan by requisite majority and the same is in consonance with applicable provisions of law, the same cannot be a subject matter of judicial review and modification. We are therefore not convinced with the plea raised by the Appellants that the Adjudicating Authority had committed an error in approving the resolution plan.”

The appeal has been dismissed and the approval of SRA's resolution plan has been upheld.

Case title: Ms. Amita Saurabh Bihani & Ors. v E&G Global Estates Limited & Ors.

Case No.: Company Appeal (AT)(Insolvency) No. 1214 & 1215 of 2023

Counsel For Appellant: Mr. Krishnendu Datta, Sr. Advocate with Mr. Pranjit Bhattacharya, Ms. Raj Sarit Khare, Advocates.

Counsel For Respondent: Mr. Sumesh Dhawan, Mr. Saurya Shyam, Mr. Sagar Thakkar and Mr. Raghav Dembia, Advocates for SRA. Mr. Gaurav Mitra, Mr. Aman Varma, Ms. Riya S. Wasade, Advocates for R-4, 5 & 6.

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