IBC Proceedings Cannot Become Evidentiary Trial: NCLT Kochi Refuses To Summon Corporate Debtor's Lessor

The National Company Law Tribunal at Kochi has recently observed that insolvency proceedings cannot be converted into a full-fledged evidentiary trial.

It ruled that powers under Section 424 of the Companies Act, 2013 cannot be used to reopen the commercial evaluation undertaken by the Committee of Creditors.

Dismissing an application filed by an unsuccessful resolution applicant in the insolvency process of Attukal Devi Institute of Medical Sciences Limited, Judicial Member Vinay Goel held that the Tribunal's jurisdiction in matters concerning approval of a resolution plan is limited by the Insolvency and Bankruptcy Code, 2016.

“The scope of judicial review in matters concerning the approval of a Resolution Plan is circumscribed by the statutory framework and does not extend to converting the proceedings into a full-fledged evidentiary trial.”

The unsuccessful resolution applicant had challenged the Committee of Creditors' approval of “Plan B”. He contended that his own resolution plan, referred to as “Plan A”, ranked higher in value and qualitative parameters but was rejected arbitrarily.

He alleged that Plan A provided for relocation in the event of non-renewal of lease. He further alleged that Plan B was dependent on the future willingness of Attukal Bhagavathy Temple Trust, the owner of the hospital premises, to grant a fresh lease. According to him, there was no binding assurance from the Trust.

On this basis, the applicant sought issuance of summons under Section 424(2) of the Companies Act, 2013 read with Rule 52 of the National Company Law Tribunal Rules, 2016. He sought to examine the authorised representative of the Trust on oath and place oral evidence on record.

The Committee of Creditors opposed the plea. It argued that proceedings under the Insolvency and Bankruptcy Code, 2016 are summary in nature and do not permit detailed trials or examination of evidence akin to civil courts. It further contended that assessment of feasibility and viability of a resolution plan lies within the commercial wisdom of the Committee of Creditors.

Accepting this contention, the Tribunal observed that the power under Section 424 is discretionary. It can be exercised only when the evidence sought is essential for the effective and complete adjudication of the issues.

“No doubt, only Court possesses such powers. However, the said power is discretionary and is to be exercised only when the Adjudicating Authority is satisfied that the evidence sought is essential for the effective and complete adjudication of the issues.”

The Tribunal noted that the pleadings, documents, and other material were already on record. It held that these were sufficient for determining the limited questions that arise for consideration before the Adjudicating Authority.

The Tribunal also noted that the resolution plan approved by the Committee of Creditors has not yet been approved by the Adjudicating Authority.

It held that permitting oral examination of a third party at this stage would unnecessarily expand the scope of the proceedings. It would also delay the time-bound process envisaged under the Insolvency and Bankruptcy Code, 2016.

In a further finding, the bench observed:

“This Adjudicating Authority cannot permit an Unsuccessful Resolution Applicant to indirectly reopen the commercial evaluation of the CoC by turning these proceedings into an evidentiary inquiry. The power under Section 424 of the Companies Act, 2013, is procedural in nature and cannot be used to expand the scope of judicial review under the IBC.”

The tribunal also held that the unsuccessful resolution applicant does not have the locus standi to maintain the present application seeking summoning and examination of a third-party witness for the purpose of questioning the feasibility of a Committee of Creditors approved resolution plan.

The application was dismissed with costs of Rs 10 thousand. The amount has been directed to be deposited with the National Defence Fund within three days, with a compliance memo to be filed thereafter.

For Applicant: Advocate Bijoy Pulipra

For Respondents: Advocates Vinod PV, AC Venugopal and Resolution Professional Rajmohan R