Approval Of COC Is Not Mandatory When Seeking Exclusion Of Time Under Regulation 40C. NCLAT

The appeal was filed by the Appellant, who is a member of Committee of Creditors of the Corporate Debtor, challenging the order of the Adjudicating Authority which excluded 87 days from the calculation of 180 days by exercising its powers under Rule 11 of the NCLT Rules, 2016 read with Regulation 40C of the IBBI (CIRP) Regulations, 2016 on an application preferred by the Interim Resolution Professional.

Factual Background-

The application filed under Section 7 against Ambience Private Limited/ Corporate Debtor was admitted and the Corporate Insolvency Resolution Process (CIRP) commenced. The Corporate Debtor challenged this order before the NCLAT.

The NCLAT through its order restrained the Committee of Creditors (CoC) from proceeding further till the next date of hearing. This order was challenged in the Supreme Court in Indiabulls Housing Finance Limited Vs. Raj Singh Gehlot & Ors. The Supreme Court passed an order staying the operation of the NCLAT order.

The issue that arose for consideration in this case was- whether the approval of the CoC under Section 12(2) of the Code is mandatory for seeking 'exclusion of time‟ even if it is sought on grounds of lockdown/time lost during the period of any 'Stay'/Status Quo /or for any other reason.

The Appellant contended that since the percentage of assent was 20.3% and the percentage of dissent was 42.4% of the voting of CoC Members, the CoC had rejected the item seeking exclusion of time. Hence, the IRP could not have gone ahead and filed the Application before the Adjudicating Authority seeking exclusion of time and that this act of the IRP is against the Code. Section 12(2) of the Code provides that the resolution professional shall file an application to the Adjudicating Authority to extend the period of the corporate insolvency resolution process beyond one hundred and eighty days, if instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of sixty-six per cent of the voting shares.

The Respondent, on the other hand, contended that Section 12(2) of the Code provides for extension and not exclusion.

They also placed reliance on Regulation 40C of the IBBI (CIRP) Regulations, 2016 which provides for exclusion of the period of lockdown imposed by the Central Government in the wake of Covid-19 for the purposes of the timeline for any activity that could not be completed due to such lockdown, in relation to CIRP.

Decision Of NCLAT

The NCLAT relied on Quinn Logistics Private Limited Vs. Mack Soft Tech Private Limited wherein the Tribunal has excluded the intervening period following the unforeseen pandemic.

The Tribunal observed that when the NCLAT passed the order granting status quo on the order of the Adjudicating Authority allowing for exclusion of 87 days, the IRP interpreted it to mean that the Status Quo shall be maintained as it existed on the date of order of the NCLAT, i.e., 87 days are to be excluded as per the order of the Adjudicating Authority.

In Bhim Sain Goyal Vs. The American Swan Lifestyle Co. Pvt. Ltd (Under CIRP), it was held that if an extension beyond 180 days is required, the Resolution Professional shall be at liberty to seek the same from the Adjudicating Authority.

It held that Regulation 40C was introduced by the IBBI w.e.f 29.03.2020, i.e., after the pandemic, as opposed to the Supreme Court decision in Arcelormittal India Private Limited v. Satish Kumar Gupta & Ors. which is with respect to 'extension of the timelines' keeping in view the strict timelines to be adhered to under the Code, which was prior to the pandemic.

Dismissing the contentions of the Appellant, the Tribunal held that there is a clear distinction between exclusion and extension and in view of Regulation 40C, the Adjudicating Authority rightly extended the period to keep the company as a 'going concern'.

It noted-

"Taking into consideration that Section 12(2) speaks about 'extension of the time'; Regulation 40C of the Regulations speaks about 'exclusion of time'; the fact that the Adjudicating Authority had exercised its Discretionary Powers under Rule 11 of the NCLT Rules, 2016, that the period sought for excluding the time period lost is based on the reasons mentioned in the table in para 10; the fact that had this period not been excluded, the Company would have gone into Liquidation, which stage of 'Corporate Death' should be the last resort as envisaged by the Hon'ble Supreme Court in a catena of Judgements; that keeping in view the scope, spirit and objective of the Code and reading Section 12 together with Regulation 40C and also the unforeseen pandemic in mind, the Adjudicating Authority has rightly 'excluded' the period of 87 days from the CIRP period. "

The NCLAT thus dismissed the appeal.

Case Title:Indiabulls Housing Finance Limited v. Sandeep Chandna

Counsel for the Appellant: Ms. Avni Sharma, Ms. Anjali Anchayil, Mr. Rudreshwar Singh, Mr. Jaiyesh Bakhshi, Ms. Sonali Jaitley Bakhshi, Mr. Ravi Tyagi, Mr. Kabir Chhilwar, Mr. Mayank Kumar, Ms. Manmilan Sindhu, Ms. Ria Chandra, Mrs. Radhika Malik, Ms. Mayuri Shukla, Mr. Gaurav Yashwardhan and Mr. Manish Sharma, Advocates.

Counsel for Respondents: Dr. U.K. Chaudhary, Sr. Advocate along with Mr. Nikhil Kumar Verma, Mr. Mansumyer Singh and Mr. Rahul Sharma, Advocates (R1) ,Mr. Vijay Nair, Mr. Manoranjan Sharma, Ms. Sakshi Kapoor, Advocates (R2), Mr. Sandeep Chandna, Advocate (For IRP)

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