Any examination into the questions of equity and fairness is beyond the scope of the NCLT and NCLAT under the IBC, 2016: Justice D.Y.Chandrachud

In the case of Pratap Technocrats (P) Ltd. & Ors. v. Monitoring Committee of Reliance Infratel Limited & Anr. (2021) C.A.No.676/ 2021, the Corporate Insolvency Resolution Process (CIRP) of Reliance Infratel Limited (hereafter referred to as “Corporate Debtor”) was initiated on May 15, 2018, with the appointment of the Interim Resolution Professional (IRP) on May 18. The IRP issued a public announcement on May 21, 2018, wherein it invited claims from any creditors of the Corporate Debtor; however, the admission of the Corporate Debtor within the CIRP by the National Company Law Tribunal (NCLT) was challenged and the said admission was stayed on May 30, 2018, wherein the stay was lifted by the NCLT on April 30, 2019, and the CIRP against the Corporate Debtor was resumed on May 07, 2019. The Committee Of Creditors (CoC) replaced the IRP with a permanent RP on May 30, 2019, named Mr. Anish N. Nanavaty, wherein the said appointment was confirmed by the NCLT on June 21, 2019. The RP invited Expressions of Interest (the EOI indicates a serious interest from a prospective buyer that they would be interested to pay certain consideration to acquire a certain share in the seller’s company) on July 15, 2019, wherein 15 EOIs were received by the RP and he furnished a list to the CoC on August 16, 2019; consequently, a request for a Resolution Plan was requested by the RP on August 21, 2019. Four resolution applicants, namely Bharti Airtel Ltd., Reliance Digital Platform & Project Services Ltd., VFSI Holdings Ltd. and UV Asset Construction Company Ltd. On January 13, 2020, the CoC announced the resolution plan of Reliance Digital Platform & Project Services Ltd. to be the preferred resolution plan based on its feasibility, viability and implementability per the CoC. Owing to its competence under Section 29A of the Insolvency & Bankruptcy Code, 2016, Reliance Digital Platform & Project Services Ltd. was declared to be the successful resolution applicant on March 2, 2020. The RP issued an LOI (Letter Of Intent) on March 4, 2020, with its unconditional acceptance by Reliance Digital Platform & Project Services Ltd. on March 6, 2020. The National Company Law Tribunal, Mumbai Bench upheld the resolution plan by an order on December 3, 2020.

The appellants in the present case (operational creditors) plead the following contentions:

  1. They were unaware of the CIRP.
  2. They were not provided with any details by the RP regarding the disposal of funds towards the appellant’s claims.
  3. Their claims had allegedly received unfair and non-equitable treatment.
  4. The amount of Rs. 800 crores did not form a part of the corpus of payments to the operational creditors while there allegedly being irregularities in the accumulation and disbursal of funds that form the corpus of the Corporate Debtor.
  5. They were made to suffer a reduction of 90% of their total claims with the Corporate Debtor since the resolution plan by Reliance Digital Platform & Project Services Ltd. for operational creditors with verified/ admitted claims of more than Rs. 1 crore was to have the resolution applicant pay 50% of the amount up to Rs. 1 crore of the verified claims while paying 10% of the amount over ad above Rs. 1 crore of the verified claims.

The initial appeal with the aforementioned contentions was rejected by the National Company Law Appellant Tribunal on January 4, 2021, because the NCLAT could not find any substantial evidence of the alleged unfair and inequitable treatment towards them in regard to the distribution of funds. The NCLAT observed that the approved resolution plan ensures the restructuring and revival of the Corporate Debtor. The NCLAT added that the supposed claim of unfair treatment was unreasonable since the operational creditors (the appellants) and the financial creditors stood of different footings and differential recovery strategies were warranted towards the same.

Justice D. Y. Chandrachud took a strict interpretation of the provisions of Insolvency and Bankruptcy Code, 2016 (IBC, 2016); the court added that the scope of examination by the NCLT and NCLAT of a given resolution plan is strictly limited to checking if the said plan adheres to the requirements of the IBC, 2016, wherein any examination into the questions of equity and fairness is beyond boundaries of the NCLT and NCLAT. The court upheld the differential treatment received by different classes of creditors under the IBC, 2016. The court reinstated that the supreme commercial wisdom of the CoC is not justiciable. The court added that a successful resolution plan approved by the CoC is binding and irrevocable between the CoC and the successful resolution applicant, wherein the plan is barred from any modifications or withdrawals at the behest of the successful resolution applicant once the plan is submitted to any Adjudicating Authority (NCLT/ NCLAT).

In a nutshell, Justice D. Y. Chandrachud held that within the IBC, 2016, the scope of examination by the NCLT and NCLAT of a given resolution plan is strictly limited to checking if the said plan adheres to the requirements of the IBC, 2016, wherein any examination into the questions of equity and fairness is beyond the boundaries of the NCLT and NCLAT.

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