NCLT Mumbai Holds Resolution Professional Accountable For Biased Conduct, Sets Aside Approved Resolution Plan

Background Facts

CIRP Proceedings were initiated against Wadhwa Buildcon LLP (Corporate Debtor) by the NCLT Mumbai on 28.07.20. Respondent No. 1 was appointed as the RP on 14.08.20. Consequently, the COC was formed, and during the 15th COC meeting, the resolution plan submitted by SRA (Respondent No. 6) was approved by the COC with a majority of 66.42%.

Aggrieved by the approval, the Applicant, a member of the CoC, filed an application before the NCLT seeking the rejection of the Resolution Plan and appropriate legal proceedings against the RP for acting in a Malafide manner.

Contention of the Applicant

The Applicant contended that the approval of SRA's Resolution Plan is illegal and violates Section 29A of the IBC because at the time when the plan was submitted to the COC, SRA had already been declared a Wilful defaulter on 31.10.2022.

Furthermore, the Applicant contended that throughout the CIRP process, the Resolution Professional's conduct was unfair. Resolution Professional acted with prejudice and bias to ensure the approval of SRA's Resolution plan.

NCLAT Verdict

NCLT set aside the Resolution Plan of the SRA and held him ineligible under Section 29A of the IBC to submit the Resolution Plan.

NCLT observed that when the SRA submitted the Resolution plan on 30.10.2022, he was declared as a wilful defaulter by Indiabulls. Thus, under Section 29A of IBC, a person who is the cause of the problem, either by design or by default, cannot be permitted to be part of the solution process.

NCLT referred the relevant part Section 29A of IBC, which is read as under:

Section 29A: Persons not eligible to be resolution applicant.

A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person—

(a) is an undischarged insolvent. (b) is a wilful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949.

The NCLT observed that during the formation of the COC, the Applicant held 100% of the voting percentage, which decreased to 31.08% by the 13th COC meeting, while the homebuyers' voting rights increased to 66.42% by the 15th COC meeting.

Furthermore, the NCLT observed that SRA initially submitted the Plan on 21.01.2021, but it was never presented before the COC for approval due to the Applicant's majority voting share at that time. The RP introduced the Resolution plan for voting in the 15th COC meeting when the homebuyers' voting share reached 66%, and the Applicant's share diminished to a minority.

NCLT held that the role of the RP carries significant responsibility, as they are expected to act impartially and responsibly as officers of the court. However, in this case, the RP directed the COC proceedings throughout in a manner aimed at securing the approval of SRA's Plan.

In conclusion, NCLT Mumbai rejected the resolution plan of SRA, holding him ineligible under Section 29A of the IBC. Furthermore, the NCLT holds the RP accountable for biased conduct during the CIRP proceedings.

Case: Bank of India Vs Wadhwa Buildcon LLP

Citation: I.A. 828 of 2023 IN C.P. (IB) No. 2946 of 2019

Counsel for Applicant: Adv. Prajakta Menezes, Adv. Shavez Mukri a/w Adv. Rakesh Gupta

Counsel for Respondent: : Adv. C. Shadab i/b Adv. Ritesh Wagde (R2), Adv. Tanmay Kelkar i/b Adv. Aniruth Purusothaman (R1), Adv. Nandita Dethe i/b Singhania Legal Services (R5), Adv. Gaurav Joshi (R6), Adv. Ashish Mehta a/w Adv. Sneha Mahawar i/b Eros Legal Alliance (R7)

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