CoC Cannot Bypass NCLAT Directions On Potential Resolution Applicant Eligibility: NCLT Mumbai

The Mumbai Bench of the National Company Law Tribunal on 13 April held that the Committee of Creditors (CoC) cannot bypass binding directions issued by the NCLAT regarding relaxation of eligibility criteria for potential resolution applicants (PRAs) in the corporate insolvency resolution process (CIRP).

The Bench comprising Judicial Member K.R. Saji Kumar and Technical Member Anil Raj Chellan further clarified that resolution applicants may revise their financial offers upwards, but shall not be permitted to withdraw them. It held:

“Sharing a copy of the resolution plan with other competing resolution applicants would undermine their competitive position in the process. Further, the suspended directors cannot seek a copy of the resolution plans if they have triggered a conflict of interest.”

The application arose from the CoC's decision rejecting the inclusion of the applicants in the list of PRAs. The applicants had also challenged the approval process of the resolution plan and sought access to copies of competing resolution plans.

A consortium led by the former promoters of Colour Roof (India) Ltd. had submitted an Expression of Interest (EoI) but was excluded from the final list of PRAs.

Earlier, the NCLAT had directed the Resolution Professional (RP) to convene a meeting with the CoC to examine the applicants' request for relaxation of eligibility criteria and thereafter proceed with the CIRP. However, during the 11th CoC meeting, the CoC rejected the request, stating that it was belated and that its acceptance would disrupt the CIRP timeline.

The NCLT, upon examining the minutes of the CoC meeting, noted that the CoC had not adequately evaluated either the eligibility of the applicants or the merits of granting relaxation. It held that the rejection was primarily based on procedural grounds such as delay and stage of the CIRP, considerations already accounted for by the NCLAT while issuing its directions.

The Bench further observed that although the commercial wisdom of the CoC is ordinarily insulated from judicial review, such protection does not extend where the CoC fails to comply with binding judicial directions. It also recorded that the respondents failed to demonstrate any material showing compliance with the NCLAT's order before proceeding further in the CIRP.

Accordingly, the NCLT partly allowed the appeal and disposed of the case.