Non-compliance Of Regulation 30A Of CIRP Regulations Not A Ground For Rejection Of Section 12A Application: NCLT Chennai
The National Company Law Tribunal (NCLT), Chennai Bench, comprising of Shri Sanjiv Jain (Judicial Member) and Shri Venkataraman Subramaniam (Technical Member), has held that an application under Section 12A of IBC cannot be rejected merely on hyper-technical ground of non-compliance of Regulation 30A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016...
The National Company Law Tribunal (NCLT), Chennai Bench, comprising of Shri Sanjiv Jain (Judicial Member) and Shri Venkataraman Subramaniam (Technical Member), has held that an application under Section 12A of IBC cannot be rejected merely on hyper-technical ground of non-compliance of Regulation 30A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”). Compliance of Regulation 30A is directory and not mandatory.
“Regulation 30A prescribes the set of procedure for withdrawal of Application under Section 12A of IBC, 2016. This is nothing but a set of procedural rules. All the rules of procedure by themselves are to aid the Tribunal which is exercising its judicial power to render justice. Procedure rules are a hand-maiden to justice and should never be made a tool to deny justice or perpetuate injustice. Procedural defects or irregularities which are curable should not be allowed to defeat the substantive rights or to cause injustice”, the Bench held.
Background Facts
Appu Hotels Limited (“Corporate Debtor”) is a company Promoted by Dr. Palani G Periasamy (“Promoter”). The Corporate Debtor is engaged in the business of hospitality and runs the hotels such as Le Meridian (Coimbatore), Le Royal Meridien (Chennai) and Riverside Resort (Kumbakonam).
On 05.05.2020, the Corporate Debtor was admitted into CIRP by the NCLT. The total claims received by creditors amounted to Rs. 540 Crores, however, the Resolution Professional admitted the claims to the extent of Rs. 438.8 Crores.
The fair value of Corporate Debtor was Rs. 730.8 Crores and the liquidation value was Rs. 569 Crores.
Mr. M.K. Rajagopalan (“Resolution Applicant”) is the owner of MGM Healthcare and had submitted a Resolution Plan for the Corporate Debtor valued at Rs. 423 Crores. Mr. Rajagopalan's plan was approved by the Committee of Creditors (“CoC”) and thereafter by NCLT on 15.07.2021. In an appeal filed by the Promoter of Corporate Debtor, the NCLAT on 30.07.2021 had stayed the implementation of approved resolution plan. Thereafter, on 17.02.2022 the NCLAT set aside the Mr. Rajagopalan's Resolution Plan and directed the CoC to invite Expression of Interest afresh and place the settlement proposal of the Promoter within 15 days.
Mr. Rajagopalan filed an appeal before the Supreme Court against NCLAT order. On 16.03.2022, the Supreme Court directed that CoC may continue but the entire process shall remain subject to final orders to be passed in the appeal.
The Promoter submitted a settlement proposal under Section 12A of IBC, which was rejected by the CoC on 25.03.2022 with 51.81% voting share. Thereafter, fresh Form – G was issued on 26.04.2022 and seven Prospective Resolution Applicants submitted Resolution Plans.
In the meantime, the Promoter submitted a second Settlement Proposal under Section 12A of IBC, which was approved by the CoC on 31.10.2022. The CoC resolved with 100% votes for withdrawal by moving an Application under Section 12A of IBC.
The Supreme Court vide its order dated 03.05.2023 upheld the order of NCLAT setting aside the Resolution Plan of Mr. M.K. Rajagopalan.
The Resolution Professional filed an application under Section 12A of IBC before NCLT, seeking termination of CIRP against the Corporate Debtor. An intervention application was also filed by Mr. Rajagopalan seeking rejection of the Settlement Proposal submitted by the Promoter.
The Prospective Resolution Applicants submitted that Regulation 30A of CIRP Regulations was not complied with since the Resolution Professional never placed the Form – FA before the CoC for its consideration. Form – FA was obtained only after the CoC voted for withdrawal of Application under Section 12A of IBC.
ISSUE
Whether non-compliance of Regulation 30A of CIRP Regulations would amount to illegality or irregularity.
NCLT VERDICT
The Bench noted that Regulation 30A of CIRP Regulations prescribes the following procedure:
- The Application shall be made under Form – FA accompanied by a Bank Guarantee;
- The CoC has to consider the Application (Form – FA) within a period of 7 days;
- The said Application (Form – FA) has to be approved by the CoC with 90% voting share;
- The RP shall submit the Application (Form – FA) along with the approval of the CoC to the NCLT within a period of 3 days; and
- The NCLT may, by order approve the Application (Form – FA).
It was observed that the CoC effectively considered the Settlement proposal of the Promoter and voted unanimously. However, no voting per se has been done in relation to Form FA.
The Bench opined that Regulation 30A prescribes set of rules and procedural rules cannot be made a tool to deny justice or perpetuate injustice.
Relying on the Supreme Court judgments in Vallal RCK v. Siva Industries & Holdings Ltd. (2022) 9 SCC 803, Amit Kaytal v. Meera Ahuja and Others in Civil Appeal No. 3778 of 2020 and Ebix Singapore Pvt. Ltd. v. Committee of Creditors of Educomp Solutions Limited & Anr (2022) 2 SCC 401, the Bench opined that Regulation 30A of CIRP Regulations is time and again held to be directory and not mandatory.
The Bench held that once a settlement proposal of Corporate Debtor's Promoter is accepted, the logical conclusion would be to release the said Corporate Debtor from the rigors of CIRP and not to raise any hyper-technical grounds that the process under Regulation 30A was not followed.
“Thus, from the discussions made supra and also in view of the Judgments of the Hon'ble Supreme Court and Hon'ble NCLAT in relation to Regulation 30A, we are of the view that when the CoC has unanimously approved the settlement proposal of the promoter in the 19th CoC meeting, the Application filed under Section 12A of IBC, 2016 cannot be thrown out on the hypertechnical ground that Regulation 30A was not strictly complied with.”
The NCLT has allowed the application filed under Section 12A of IBC and the Settlement Proposal of Promoter has been approved. Accordingly, the CIRP of Corporate Debtor has been terminated.
Case Title: Tourism Financial Corporation of India Ltd v M/s. Appu Hotels Limited
Case No.: IBA/1459/2019
Counsel For RP: N.L. Rajah, Senior Advocate
Counsel for CoC: E. Om Prakash, Senior Advocate
Counsel for Promoters: P.H. Arvindh Pandian, Senior Advocate.
Counsel for Intervenors: U.K. Chaudhry, Senior Advocate R. Venkatavaradhan, Advocate, P. Chidambaram, Senior Advocate P.R. Raman, Senior Advocate.