Holding The Resolution Plan To Be Discriminatory, The NCLAT Sets Aside The Plan For Piyush Shelters India Pvt. Ltd

Facts

The Appellants, who are homebuyers/ allotees, preferred appeals against the judgment passed by the Adjudicating Authority (AA) approving the resolution plan submitted by the Resolution Applicants.

The Corporate Debtor/ Piyush Shelters India Pvt. Ltd. was admitted to CIRP and the Resolution Plan was initially submitted by Maya Buildcon Pvt. Ltd., which was withdrawn due to some defects.

The CoC published an Expression of Interest in Jansatta and Financial Express newspapers.

Maya Buildcon submitted an application before the AA seeking permission to submit a revised resolution plan. While this application was pending, the Resolution Professional allowed Maya Buildcon to submit a resolution plan and place it before the CoC for consideration. This revised plan was subsequently approved by the CoC by e-voting.

While the resolution plan was pending consideration of the Adjudicating Authority, an applicant (homebuyer/allotee) obtained an order from the AA for admission and consideration of his claim, as he could not file his claim in time.

The dispute that arose was that the resolution plan which was approved by the Resolution Professional created two separate categories of financial creditors- one, of claimants who filed their claims on time ("claimants") and second, those who could not file their claims in time ("non claimants").

The two categories were allocated different shares in the approved resolution plan, and so while the "claimants" have received possession of the booked properties, the "non-claimants" have got just 10% of their booked amount after verification of their claims within one month, and thereafter all such claims would stand extinguished.

Issues Raised And Decision

Violation Of Section 25a

Section 25A of the Code lays down the rights and duties of the authorized representatives of financial creditors. Section 25A(3) states that the Authorized Representatives shall always act with the "prior instructions" of the financial creditors he represents.

Sub-section (4) states that the Authorized Representative shall file with the Committee of Creditors any instructions received from Financial Creditors to ensure that appropriate instructions of the financial creditors he represents is correctly recorded by the Resolution Professional.

The Bench observed-

"The use of the word 'prior' implies that financial creditors in class shall have sufficient time to consider collectively the issue/s before them and after voting which is recorded by the Authorized Representative, the result is conveyed to the Committee of Creditors."

The Bench held that Regulations 19 and 16A (9) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (Insolvency Process Regulations) were not followed by the Resolution Professional and the Authorized Representative also failed to comply with Section 25A. Regulation 19 provides that the notice of CoC meeting shall be given five days in advance which was not done in the present case.

Regulation 16A (9) requires the authorized representative to circulate the agenda and give voting instructions to creditors in class he represents at least twenty hours in advance and keep the voting window for creditors in class open for at least twelve hours.

Neither was Section 25A complied with, nor were the Insolvency Process Regulations complied with in the present case.

Simultaneous Voting

The e-voting on the proposed resolution plan by the financial creditors was held simultaneously with e-voting on the resolution plan by the members of the CoC. Thus, e-voting of the financial creditors was not in accordance with the Insolvency Process Regulations.

It did not provide sufficient time to the financial creditors to together discuss and vote upon it.

The Tribunal observed-

"Moreso, when the financial creditors in class (homebuyers/allottees) constitute more than 79% of total voting rights in the CoC, following such a slipshod procedure is nothing short of creating a legal fiction without conforming to the letter and spirit of section 25A of IBC and Insolvency Process Regulations."

Approval Of The Resolution Plan

It was held that since the Resolution Professional decided on his own motion to obtain a resolution plan from a consortium, which did not go through the EOI route in time and was not placed before the COC for consideration, the plan so approved was not in accordance with law. This plan was later approved by the COC by e-voting. The entire process was not carried out according to law and a new round of Expression of Interests has to be carried out according to legal provisions.

Inadequate Publicity

The Appellants contended that wide publicity of the CIRP was not given in newspapers and the newspapers in which public notices were published were in New Delhi whereas the project was situated in Faridabad and the registered office of the Corporate Debtor is in Meerut.

Accepting the Appellant's contentions, the Tribunal held that the homebuyers could not have had access to either registered office of the Corporate Debtor or the principal place of business at Faridabad since both were closed.

Without a meeting, it would be difficult for the homebuyers to convey their views to the Authorized Representatives who would then represent their views in the CoC.
There was an exclusion of 251 allottees, i.e. 53% of the total homebuyers/ allotees would not lead to a fair and just resolution of the Corporate Debtor.

Thus, it is an unfair treatment of the financial creditors.

Discrimination Between 'Claimants' And 'Non-Claimants'

The Adjudicating Authority by its order directed the Resolution Professional to accept the claim of the Applicants who filed them late and consider them on merits subject to proper verification.

The approved resolution plan distinguished the financial creditors on the basis of the time in which their claim was filed- those who filed the claim within prescribed time limit and those who could not file their claims within the prescribed time as 'claimants and non-claimants'.

The Tribunal held that the order of the Adjudicating Authority was not followed by the Resolution Professional, which resulted in discrimination. The non-claimants had been given only 10% of their total amount deposited, that too after due verification.

The Resolution Professional has thus acted against the judgment of the NCLAT in Rajputana Properties Pvt. Ltd versus Ultratech Cements Ltd. and Others, which lays down that there should be no discrimination between the financial creditors belonging to the same class. Hence, once the question of filing claims, even with delay, has been accepted, there cannot be a distinction between the financial creditors.

Hence, since 53% of the homebuyers are left out, the Resolution of the Corporate Debtor has not been done according to the IBC.

Commercial Wisdom Of COC

The Respondent contended that the commercial wisdom of the Committee of Creditors is outside purview of judicial review and placed reliance on Committee of Creditors of Essar Steel India Limited versus Satish Kumar Gupta. It was submitted that the CoC did not await the decision of the Adjudicating Authority in the application filed by Maya Buildcon because the Resolution Professional wanted to obtain a workable resolution plan rather than putting the corporate debtor in liquidation. The RP was working under constraint of time in the extended CIRP.

Dismissing this contention, the Tribunal held that the commercial wisdom of the COC is not what is being adjudicated upon, rather what is in issue is the procedure adopted by the Resolution Professional in organizing the e-voting as well as eliciting the views of the financial creditors in class on the revised resolution plan by the Authorized Representative.

It was held that the procedure adopted has violated Section 25A of the IBC and these two voting procedures could not have taken place simultaneously, as the interests of the financial creditors are not being taken care of in an adequate manner.

The Tribunal also noted that the plan was also liable to be rejected on the ground of violation of Section 30(2)(e) of the Code.

The Tribunal thus set aside the order passed by the Adjudicating Authority and directed that the process be started afresh with claims of the homebuyers being accepted by the Resolution Professional and they be given a realistic time limit to file their claims and that Section 25A of the Code be complied with.

Case Title:Amit Goel v. Piyush Shelters India Pvt. Ltd.

Citation: Company Appeal (AT) (Ins) No. 700 of 2021

Counsel for the Appellant: Mr. Sanchit Garg, Dr. Amit Geroge, Mr. Piyo Harold, Mr. Amol Acharya, Mr. Bharat, Mr. Sahil Garg and Mr. Prateek Vats, Advocates

Counsel for the Respondent: Ms. Babita Jain, Advocate (RP-R1) Mr. Sanjeev Panda, Advocate (R2-4)

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