NCLAT Permits Participation Of Erstwhile Promoter In CIRP Despite CoC's Disqualification, Cites Relaxation U/S 29A Of IBC

The National Company Law Appellate Tribunal (NCLAT) presided by Justice Sharad Kumar Sharma, Member (Judicial) and Jatindranath Swain Member (Technical) dismissed an appeal filed by the Meir Commodities Pvt ltd, challenging the participation of promoter of NCS Sugar ltd in the Corporate Insolvency Resolution Process (CIRP).

Background of the Case

A section 7 application was filed by the Punjab National Bank and on the basis of this on 24^th July, 2022, Corporate Insolvency Resolution Process was initiated against the company. The Resolution Professional (RP) appointed to handle the insolvency process, started to call for applications from prospective resolution applicants.

The Respondent also decided to participate in the resolution process of Meir Commodities. But the Committee of Creditors in their meeting decided to disqualify the Respondent from participating in the resolution process, claiming that he defaulted in the payments and was responsible for the demise of the company.

The Appellant challenged the same before the NCLT, Hyderabad. The Telangana High Court before the meeting of the CoC stated that the Appellant should not be considered as a wilful defaulter. Upholding the decision of the High Court, the tribunal stated that the Respondent should not be considered as a defaulter and should be allowed to participate in the Corporate Insolvency Resolution Process (CIRP).

Aggrieved by the order of the tribunal, the Appellant challenged the same before the National Company Law Tribunal (NCLAT), Chennai.

Contention of Both the parties

The Appellant before the court stated that the Respondent was a defaulter and had not paid the dues on the desired time-period. The Respondent was also responsible for the company facing the Resolution Process and that according to Section 29(A) of the IBC, disallows the person who is a defaulter to and has contributed to the downfall of the company to participate in the resolution process.

The Respondent states that the Telangana High court had ruled that it should not be considered as a defaulter and should be allowed to participate in the resolution process.

NCLAT Judgement

The tribunal referred to the judgment of the Principal Bench, NCLAT, New Delhi, in PRIO S.A. v. Mr. Pravin R. Navandar & Ors., Comp. App (AT) (INS) No. 1650/2023] wherein it specifically cited paragraphs 9 and 10 of the judgment to assert that, as a Prospective Resolution Applicant (PRA), the appellant had a legally vested right to appeal against the impugned decision.

The NCLAT upheld the decision of High Court of Telangana and state the respondent should not be termed as “wilful defaulter” and should be allowed to participate in the Resolution process. Also, the Respondent had previously engaged in negotiations with the CoC and the RP and had also revised his plan. Therefore, he had the right to challenge the procedure of application.

As a result, the Application was dismissed by the Tribunal.

Case: Meir Commodities India Pvt. Ltd. v. Narayanam Nageswara Rao & Ors

Tribunal: NCLAT, Chennai

Bench: Justice Sharad Kumar Sharma, Member (Judicial) and Jatindranath Swain Member (Technical)

Advocates for Appellant: Mr. PH. Arvindh Pandian, Senior Advocate for Mr. Ananth Merathia, Advocate

Advocates for Respondents: Mr. Y. Suryanarayana, Advocate for R2

Date of Order: 27.06.2024

Filing Number: Company Appeal (AT) (CH) (INS) No. 206 / 2024 (IA Nos. 563, 564 & 565 / 2024)

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