NCLT Mumbai Bench Criticizes CoC For Rejecting Resolution Plan Over One-Day Delay Without Evaluating Substantive Efforts

Brief Facts:

Ashdan Properties Privet Limited (Applicant) filed an application seeking reliefs under Section 60(5) of the Insolvency & Bankruptcy Code, 2016. The reliefs sought include: condoning a one-day delay in submitting the Applicant's Resolution Plan, directing the Harshad Despande (Resolution Professional) to accept and present the Applicant's plan to the Committee of Creditors (CoC) for consideration, evaluating the Applicant's plan on par with others, and granting a stay on the consideration or voting of other resolution plans until the Application is disposed of.

A A Estates Private Limited (Corporate Debtor) was admitted to the Corporate Insolvency Resolution Process (CIRP) with Mr. Harshad Deshpande appointed as the Interim Resolution Professional (IRP). Despite multiple calls for Expressions of Interest (EOI), initially on July 28 and again on August 29, 2023, there was no response. Consequently, the CoC decided in their 7th meeting on November 8, 2023 to republish the EOI and opt for asset sales.

The Applicant requested the IRP to share EOI details on November 22, 2023, and submitted the EOI and required documents on December 4, 2023. After verifying the initial submission, the IRP requested additional information from the Applicant which was promptly provided. The provisional list of Prospective Resolution Applicants (PRAs) was published on December 16, 2023 and the final list on December 30, 2023. Information Memorandum, Evaluation Matrix, and Request for Resolution Plan (RFRP) were made available on January 1, 2024 with the submission deadline set for February 5, 2024 later extended to February 14, 2024.

Despite several communications and requests for additional information, the Applicant faced difficulties accessing essential documents. IT requested an extension, but received no response and submitted their Resolution Plan on February 15, 2024, a day after the deadline, along with an Earnest Money Deposit (EMD). While the IRP initially accepted the submission without raising issues, the Applicant was later informed that their plan was not considered by the CoC due to its late submission.

On the other hand, the Respondent (IRP) denied all allegations and claims made by the Applicant. He argued that the Applicant's application should be dismissed for lack of clean hands, suppression of facts, and because the Applicant lacked locus standi. The Respondent contended that the Applicant did not demonstrate any legal infringement or violation warranting the reliefs sought. He argued that the authority to extend deadlines lay with the CoC, not the IRP, and that the decision not to consider the late submission was made by the CoC under their commercial wisdom.

Observations by the NCLT:

The NCLT noted that the core objective of the IBC is to maximize the value of the assets of the Corporate Debtor and to ensure a fair resolution process. The NCLT noted that despite the Applicant's substantial Earnest Money Deposit and active engagement in raising relevant queries for the submission of the Resolution Plan, the Applicant faced difficulties accessing the information provided by the RP on the Virtual Data Room (VDR). This situation suggested that the Applicant was genuinely interested in submitting the Resolution Plan. Therefore, it held that it was unjust to penalize the Applicant by excluding its Plan from consideration solely due to the delay.

The NCLT referred to the Supreme Court's decision in "Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta & Ors" which clarified that timelines under the IBC are directory and not mandatory. The Supreme Court held that strict adherence to these timelines could lead to injustice and defeat the purpose of the IBC.

Further, in "Arcelor Mittal India Private Limited vs. Satish Kumar Gupta & Ors Civil Appeal Nos. 9402-9405 of 2018", the Supreme Court reiterated that the ultimate aim of the IBC is to balance the interests of all stakeholders and to ensure the resolution of the corporate debtor. The Supreme Court endorsed flexibility in procedural requirements to achieve substantive justice.

The NCLT noted that Regulation 36(B)(6) of the IBBI (CIRP) Regulations, 2016 grants discretion to the RP in consultation with the Committee of Creditors (CoC). It noted that the RP and the CoC overlooked this regulation thus failing to exercise the discretion available to them.

The NCLT held that the CoC's decision to reject the Applicant's Plan based solely on a technical delay of one day was inconsistent with the objectives of the CIRP. The NCLT relied on the NCLAT's ruling in “IDBI Bank Ltd. Vs. Jaypee Infratech Ltd.” where it was held that resolution plans should be considered even if submitted after the deadline provided that this does not impact the CIRP timeline. Additionally, in “Binani Industries Limited vs. Bank of Baroda & Anr.”, the NCLAT held that rejecting a resolution plan without evaluating its merits was not permissible.

Given that the Applicant submitted the Resolution Plan just one day late, on February 15, 2024, whereas the CoC was scheduled to consider the plans on February 16, 2024, the bench held that the delay did not affect the CIRP timeline or prejudice any party's interests.

Consequently, the delay was deemed excusable, and NCLT held that the Applicant's Resolution Plan deserved to be considered by the CoC. Therefore, the NCLT directed the CoC and the RP to review the Applicant's Plan before making a final decision on the Resolution Plans.

Case Title: Ashdan Properties Privet Limited vs Mr. Harshad Despande / Resolution Professional & Committee of Creditors of Corporate Debtor

Case Number: I.A. 1143 OF 2024 IN C.P. (IB) No. 783 of 2021

Date of Judgment: 29.07.2024

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