Prospective Resolution Applicant Has No Locus To Question Promoter's Settlement Proposal Under Section 12A: NCLT Chennai

“It is also pertinent to point out here that the Prospective Resolution Applicants also cannot state that non – compliance of Regulation 30A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 has caused prejudice to them. Regulation 30A encompasses only (i) Applicant / Petitioning Creditor, (ii) CoC and (iii) IRP / RP. It does not confer any right upon the Prospective Resolution Applicants to object to the settlement proposal or withdrawal of Application under Section 12A. Even assuming for a moment, if such a right is conferred, the Resolution Applicant is required to convince this Adjudicating Authority that non – compliance has caused serious prejudice to the Applicant.”

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.

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 Prospective Resolution Applicants have any locus to question the settlement proposal of the promoter under Section 12A of IBC.

NCLT Verdict

The Bench opined that IBC nowhere provides locus to the Prospective Resolution Applicant to challenge the decision of CoC. Further, the 'commercial wisdom' of the CoC cannot be questioned by NCLT or by NCLAT. If the Prospective Resolution Applicants are allowed to challenge the decision of CoC, then timely resolution under IBC cannot be achieved.

While pleading locus, the Prospective Resolution Applicants have to show that the CoC's decision has caused prejudice to them. The Bench noted that Prospective Resolution Applicant cannot contend that non-compliance of Regulation 30 of CIRP Regulations has caused prejudice to them.

“It is also pertinent to point out here that the Prospective Resolution Applicants also cannot state that non – compliance of Regulation 30A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 has caused prejudice to them. Regulation 30A encompasses only (i) Applicant / Petitioning Creditor, (ii) CoC and (iii) IRP / RP. It does not confer any right upon the Prospective Resolution Applicants to object to the settlement proposal or withdrawal of Application under Section 12A. Even assuming for a moment, if such a right is conferred, the Resolution Applicant is required to convince this Adjudicating Authority that non – compliance has caused serious prejudice to the Applicant.”

The Bench held that non-compliance of Regulation 30A has not caused prejudice to Prospective Resolution Applicants and hence, they have no locus to object a settlement proposal under Section 12A of IBC.

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.

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