Introduction
The Insolvency Law Committee of 2018 restated in its report that one of the primary objectives of the Insolvency and Bankruptcy Code of India (IBC/Code) is to respect the ‘commercial wisdom’ of the Committee of Creditors (CoC). The IBC limits the jurisdiction of the National Company Law Tribunal (NCLT/Adjudicating Authority) and the National Company Law Appellate Tribunal (NCLAT) to challenge or intervene in decisions of the financial creditors regarding approval or rejection of any resolution plan. NCLT is obligated under Section 31 of the IBC to approve the resolution plan submitted to it by the Resolution Professional (RP) after being approved by the CoC and may reject it only in case of a non-compliance of Section 30 of the Code. Further, NCLAT’s authority over the matter is circumscribed within the provision of Section 61(3) of the Code. It may allow an appeal against the approval of a resolution plan by the NCLT only on the limited grounds listed therein. Placing reliance on this legislative intent, the tribunals have constantly been discouraged from intervening in matters relating to the approval or rejection of Resolution Plans. However, NCLAT, through its judgement in Kotak Investment Advisors Ltd. v. Krishna Chamadia & Ors., has clarified that deviant activities cannot be categorised as an exercise of commercial wisdom by an RP or CoC. On August 05, 2020, Kotak Investment Advisors Ltd. (Appellant) succeeded in their ongoing attempt to overturn NCLT’s order passed in favour of the consortium of Kalpraj Dharamshi and Rekha Jhunjhunwala (Dharamshi-Jhunjhunwala consortium) for the revival of Ricoh India. The impugned order followed from acceptance of the consortium’s bid against that of the appellant which the latter challenged before the Adjudicating Authority as illegal. NCLAT, at last, confirmed the allegations and reinforced the principles of natural justice in the corporate world.
Overview
Ricoh India is the Indian subsidiary of the Japan-based Ricoh Company, and it went into insolvency in 2018. The Corporate Insolvency Resolution Process (CIRP) began in July 2018 and the Appellant tendered its expression of interest (EOI) and resolution plan. The last date for submission of a resolution plan was January 08, 2019. However, two resolution plans, one from a WeP Peripherals and the other from the Dharamshi-Jhunjhunwala consortium, were accepted by the RP after this deadline. On January 30, 2019, the bid presented by the Dharamshi-Jhunjhunwala consortium was approved by the CoC. Aggrieved by this approval, the appellant made an application before the NCLT, which was rejected in the light of the precedent established in the judgment of K. Sashidhar v. Indian Overseas Bank & Ors. pronounced by the Hon’ble Supreme Court of India. The Adjudicating Authority, in its order of November 2019, reiterated the precedent that decisions of the CoC regarding approval or rejection of bids are non-justiciable, and rejected the application of the Appellant finding that no interference is required from its side. The matter, at last, moved to NCLAT. NCLAT allowed the appeal, acknowledging the material irregularities committed by RP, which is a ground for appeal under Section 61(3) of the Code.
Irregularities and Illegalities
The RP provided a differential treatment to the Dharamshi- Jhunjhunwala consortium throughout the CIRP. The last date for the submission of an EOI was January 08, 2019. However, the resolution plan of the consortium was anyway accepted by the RP. They were allowed access to the data room after the last date, after which it was closed for all other applicants. The CoC had passed no resolution to extend the deadline as required under Section 12 of the Code, which would have allowed the RP to accept the two resolution plans.
Additionally, the RP acted in contravention of Regulation 36A of the CIRP Regulations, 2016. The Regulation 36A was amended by a notification of the Insolvency and Bankruptcy Board of India with effect from July 04, 2018. The notification contains a provision against retrospective application and states that the amendments shall apply only to CIRPs commencing on or after July 04, 2018. Since the CIRP for Ricoh India began in May 2018, the pre-amendment Regulation 36A applies to the present case and it requires publication of a notice for inviting EOIs. This process was followed before receiving all resolution plans other than the contested ones and deadlines were met by all other bidders. However, the resolution plan of the Dharamshi-Jhunjhunwala consortium was accepted by the RP past the deadline without publishing any notice for a fresh invitation of EOIs and the due process was flouted without any explanation. Moreover, the bids obtained from the Appellant and other applicants had already been opened and deliberated upon by the CoC. Thus, the RP acted in clear contravention of the law.
These contraventions were then brought to NCLT’s attention. However, it seemingly turned a blind eye towards the contentions in which these irregularities and illegalities were manifest. Furthermore, another blatant error was committed during the proceedings before NCLT in violation of Rule 150(2) of the NCLT Rules, 2016. The arguments were heard by a single judicial member of the NCLT, but the order was passed by a division bench comprising of the aforementioned judicial member along with a technical member who was not a part of the earlier proceedings. Hence, one of the members of the division bench that ruled against the Appellant had not even heard the arguments of either of the parties.
Judgment & Analysis
It is evident that egregious errors were committed, first by the RP during the CIRP and later by NCLT in its assessment of the matter. NCLAT held RP’s act of accepting bids past the deadline and deviation from due process as arbitrary, illegal and against the principle of natural justice. Further, it was held that the Adjudicating Authority violated the principle of ‘one who hears the matter must decide’ which is covered by the NCLT Rules, 2016. Hence, NCLT was also held to have acted in violation of the principles of natural justice.
NCLT had undoubtedly failed to appreciate the illegalities and irregularities brought to its notice regarding CIRP conducted for the revival of Ricoh India. It is disappointing and questionable that NCLT condoned clear violations of law and allowed it to be defined as commercial wisdom. Through this judgement, NCLAT has defeated attempts to pass off illegal practices under the guise of ‘commercial wisdom,’ and this case is more of an instance of NCLT’s failure than of NCLAT’s fairness. The case, in the first place, would not have reached NCLAT if NCLT had not failed to take into account the contravention of Section 12 of the Code and Regulation 36A of the CIRP Regulations. NCLT failed in its basic duty to ensure compliance of Section 30 of the Code before proceeding to approve the resolution plan of Dharamshi- Jhunjhunwala consortium. Furthermore, one of the members on the bench made a conclusion in the matter without even hearing the parties and the bench dismissed Appellant’s application on an assumption that accepting a resolution plan is based upon unquestionable commercial wisdom of the CoC. However, what the bench failed to understand is that commercial wisdom is not an umbrella term and it does not include overlooking gaps in due process. NCLAT in its judgment only corrected these wrongs that NCLT should have done in the first place.
[Vinisha Jain is a Fourth-Year Student at Institute of Law, Nirma University, Ahmedabad. She can be reached at 17bal119@nirmauni.ac.in.]
NUALS Restructuring and Insolvency Law Journal 