NCLAT Delhi: Scope Of Enquiry By The Adjudicating Authority Under Section 31 Is Confined To Section 30(4) Compliance

The Bench further pointed out that when the Appellant did not challenge the Corporate Insolvency Resolution Process (“CIRP”) and the admission and constitution of the Committee of Creditors (“CoC “) at the right point of time, it cannot ask for rejection of the duly approved resolution plan.

Background Facts

An Agreement was executed between Haryana Telecom (“Corporate Debtor”) and Parivartan Investment and Finance Company (“Financial Creditor”), whereby the Corporate Debtor agreed to redeem the Debentures of the value of Rs. 5 Crores.

The Corporate Debtor re-issued the Non-Convertible Debentures (“NCD”) and an agreement was executed between the Financial Creditor and the Corporate Debtor to extend the date of redemption to 31.12.2010. As per the redemption agreements, the Corporate Debtor was to pay 12% interest for the extended period, but the Financial Creditor waived the interest from time to time. The Financial Creditor, however, issued notice to the Corporate Debtor demanding interest payment by 30.04.2019.

The Corporate Debtor agreed to the payment of interest for the period 01.04.2018 to 31.03.2019 @ 12% by 30.04.2019 and to be paid quarterly thereafter however defaulted in making such payments. On 07.02.2020, a CIRP proceeding was initiated against the Corporate Debtor.

On 31.10.2020, the resolution plan submitted by Mr Abhimanyu Singh Mehlawat was approved by the CoC with a 100% voting share. NCLT approved the Resolution Plan on 12.04.2023.

Sita Chaudhary, the suspended director of the Corporate Debtor (“Appellant”) filed a suit before the Delhi High Court for cancellation of the gift deed of the Appellant to Sunaina Singh, the granddaughter of the Appellant.

The Court on 29.07.2022 passed an interim order and granted an injunction in favour of the Appellant. Based on the interim relief granted by the Delhi High Court, the Appellant filed an application before NCLT for rejection of the resolution plan and constituting a fresh CoC.

NCLT dismissed the application. Aggrieved by the order of NCLT, the Appellant filed this appeal.

Contentions of Appellant

The Appellant argued that NCLT has dismissed the application without considering undue influence, coercion, and fraud on the part of Sunaina Singh and her associates over the Appellant. The Appellant pointed out that she was unaware of the CIRP proceedings as she was not in control of her own faculties and was subjected to undue control of Sunaina Singh.

The Appellant argued that the initiation of CIRP proceedings was vitiated by fraud, and Sunaina Singh in furtherance of her conspiracy orchestrated a debt and default by exercising undue influence upon the Appellant.

The Appellant further pointed out that the commercial wisdom of the CoC was compromised as Sunaina Singh was a director of Corporate Deporter and now is the sole financial creditor who had a vested interest in getting the Resolution Plan of the SRA as he was a business partner of her husband.

Contentions of Respondents

The Respondents opposed the submissions of the Appellant and argued that the CoC as well as the SRA have opposed the submissions of the Appellant. The Respondent further pointed out that reliance placed by the Appellant on the Delhi Court order dated 29.07.2022 is highly misplaced as the said order was passed in a totally different set of facts and circumstances.

The Respondent further argued that Sunaina Singh cannot be said to be a related party to the Corporate Debtor as she had resigned from the Board of Corporate Debtor on 25.03.2019 whereas application under Section 7 was filed six months thereafter and admitted on 07.02.2020. Thus, Sunaina Singh is not a related party and there is no error in the constitution of the CoC with Financial Creditor as the only member of the CoC.

NCLAT Verdict

NCLAT dismissed the appeal and held that the scope of enquiry of the Adjudicating Authority as per Section 31 of IBC is confined to scrutinising whether Section 30(4) IBC has been complied with.

The Bench stated that when the Appellant did not challenge CIRP and the admission and constitution of the CoC at the right point of time.

“In terms of Section 31 of IBC, the scope of enquiry by the Adjudicating Authority is confined to scrutinizing whether Section 30(4) has been complied with or not. In the present case, the CoC after considering the viability and feasibility of the resolution plan has approved the same with 100% vote share thereby fairly and squarely meeting the conditionalities laid down in Section 30(4) of the IBC. In the present case, the Resolution Professional after approval of the plan by the CoC filed an application before the Adjudicating Authority seeking approval of the Resolution Plan under Section 31 of the IBC. After detailed deliberations on feasibility and viability of Resolution Plan, the Adjudicating Authority has clearly recorded in the first impugned order that on examination of the resolution plan it has found that no provision of law appears to have been contravened and that there is compliance to Regulations 38 and 39 of CIRP Regulations, 2016.

Case Title: Sita Chaudhary Vs Haryana Telecom Limited

Case No.: Company Appeal (AT)(Insolvency) No. 727-728 of 2023

Counsel For Appellant: Mr Aadil Singh Boparai, Mr Sumer Singh Boparai, Mr Sidhant Saraswat, Advocates

Counsel For Respondents: Mr Abhishek Anand, Mr Karan Kohli, Advocates for RP with Sanyam Goel, RP in person Mr Abhijeet Sinha, Mr Saikat Sarkar, Mr Naman Joshi, Ms Ritika Vohra, Advocates for CoC Mr Sumesh Dhawan, Advocate

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