Ms. Amita Saurabh Bihani vs E&G Global Estates Limited
Company Appeal 1214 of 2023
Facts:
1.Financial Creditor filed a Section 7 application under IBC to initiate CIRP against the Corporate Debtor, namely, E & G Global Estates Ltd. in CP(IB) No. 2995 of 2019 which was admitted on 24.06.2020.
2.RP in the 2nd CoC meeting held on 01.09.2020. The same meeting also appointed a Forensic Auditor to undertake forensic audit of the books of account of the Corporate Debtor. RP constituted the CoC with SIDBI having 20.40% vote share and Home Buyers as class of creditors with 79.60% vote share. Appellants -1 filed an IA No. 1430 of 2020 in respect of fraudulent transactions entered between certain set of suspect/fraudulent home buyers and suspended Director of the Corporate Debtor seeking the quashing of the CoC and reconstitution thereof. The Adjudicating Authority disposed of the said IA on 16.09.2020 stating that the outcome of the forensic audit which had been sought by the CoC would provide the way forward.
3.RP filed IA 107 of 2021 under Section 66 of the IBC on the fraudulent and circuitous transactions by certain home buyers with the suspended directors of the Corporate Debtor. The RP had sought cancellation of their voting rights as they were not Financial Creditors and for having filed fraudulent claims. AA directed the removal of these home owners from the CoC and reconstitution of the CoC by the RP on 17.11.2021. This order of the Adjudicating Authority was however challenged before this Tribunal in CA(AT)(Ins)No 26 of 2022 by the homebuyers who had been removed from the CoC which was remanded back to the NCLT.
4.RP also filed IA No. 149 of 2021 under Sections 43 to 45 of the IBC for preferential transactions to bring back the amount siphoned through fraudulent/circuitous transactions in which adjudication remains pending. RP filed IA No. 1150 of 2021 seeking approval of the resolution plan of Asha Sanap which was approved by the Adjudicating Authority vide second impugned order on 11.08.2023.
5.While the IA 107/2021 was still pending before the Adjudicating Authority, the Appellants-1 filed IA No. 1777 of 2021 praying for removal of alleged illegitimate home owners from the CoC and to disregard the votes cast by them during 8th CoC meeting; reconstitute the CoC with genuine home buyers; conduct forensic audit of the accounts of related parties of the Corporate Debtor and to approve the resolution plan submitted by M/s. G.S. Constructions.
6.IA No. 1777 of 2021 was dismissed by the Adjudicating Authority vide first impugned order on 11.08.2023 which order has been assailed by the Appellants-1 in the present appeal. Appellant-2 filed IA No. 1609 of 2021 praying for removal of alleged illegitimate home owners from the CoC; reconstitute the CoC and call for fresh voting besides rejection of resolution plan by SRA. This IA 1609 of 2021 was rejected by the Adjudicating Authority vide third impugned order on 11.08.2023 which order has been assailed by Appellant-2.
Issue: Whether the order passed is correct in law?
Arguments:
Appellant:
1.Counsel submitted that the RP admitted the claims of these illegitimate home owners who had committed irregularities by way of fraudulent transactions and gave them access to the CoC at a time when in IA 107 of 2021, the RP had himself prayed for reconstitution of the CoC. Further the RP not only allowed their entry into the CoC but also allowed these illegitimate home buyers to discuss and approve the resolution plan.
2.It was further submitted that had the votes of the illegitimate home owners been excluded, the results of the voting on the resolution plan of SRA would have been different. It has, therefore, been contended that when the composition of the CoC itself is under cloud and the question of reconstitution of CoC was still pending in IA 107 of 2021, the approval of the resolution plan of the SRA by the Adjudicating Authority was against the fundamental tenets of IBC.
Respondents:
1.Counsel submitted that IA 1777 of 2021 was filed by the Appellants-1 challenging the constitution of CoC only after the rejection of the resolution plan of GSC as an after-thought. Prior to the approval of the resolution plan of the SRA, the Appellants never raised any objections to the constitution of the CoC and had in fact participated in the voting process without any protest or demur.
2.It was also contended that the grounds of non-joinder of necessary parties cited by the Adjudicating Authority in rejecting IA 1777 of 2021 was also right as the alleged suspect/fraudulent homebuyers whose removal from the CoC was sought had not been impleaded by the Appellants-1. It was also contended that in terms of Section 25(2)(j) of the IBC, it is the duty of the RP to file applications for avoidance of transactions. The Appellants-1 being homebuyers of the Corporate Debtor and Appellant-2 being an unsuccessful resolution applicant are not entitled to file such avoidance applications. Hence on this count itself the IA 1777 was not maintainable
Decision: NCLAT dismissed the appeal.
Rationale:
1.NCLAT held that it is an undisputed fact that the Appellants-1 had only impleaded the suspended directors of the Corporate Debtor as parties in IA 1777/2021 and not included the suspect home buyers or even the RP. We therefore find sound logic in the dismissal of IA 1777/2021 by the Adjudicating Authority on the ground that the alleged illegitimate home buyers had not been impleaded in the said IA at a time when their ouster from the CoC was being agitated.
2.It also noted that Appellants never raised any objections to the appointment of the Authorised Representative or in the latter’s participation in the voting process in CoC. It was only after the resolution plan of the SRA was approved that the Appellants approached the Adjudicating Authority by way of filing an IA 1777/2021 and challenging the constitution of the CoC.
3.The statutory construct of IBC clearly puts the onerous responsibility of pursuing avoidance applications on the RP. In terms of Section 25(2)(j) of the IBC, it is the duty of the RP to file appropriate applications for avoidance of transactions which fall under the ambit of preferential, fraudulent, undervalued or extortionate transactions. It held that it is the duty of Resolution Professional to determine the nature of such transactions and file an appropriate application before the Adjudicating Authority, neither the Appellants-1 being home buyers themselves nor the GSC as unsuccessful resolution applicant are entitled on their own to file applications seeking avoidance of transactions.
4.It held that IBC stipulates the conclusion of CIRP in 330 days. Within this prescribed timeline, often the RP is unable to identify avoidable transactions and apply to the Adjudicating Authority to reverse them. It also notice that the avoidance applications are not statutorily bound by time as is the resolution process. Section 26 of IBC further provides that application for avoidance of transactions is not to affect CIRP proceedings and therefore such applications can continue even after completion of the CIRP. Section 26 of the IBC clearly stipulates that the pendency of any avoidance application shall not come in the way of the approval of the resolution plan.
Order copy:
