Shareholder Is Not An “Aggrieved Person” To Challenge Resolution Plan Approval Under IBC: NCLAT Cites Park Energy

The National Company Law Appellate Tribunal (NCLAT) at Delhi has held that a shareholder, merely in that capacity, cannot maintain an appeal against an order approving a resolution plan under Section 61 of the Insolvency and Bankruptcy Code (IBC).

The court relied on its earlier larger Bench ruling in Park Energy Pvt. Ltd. v. State Bank of India and another. It held that the ruling continues to bind the tribunal because it was delivered by a specially constituted Bench and was later affirmed by the Supreme Court.

A coram of Judicial Member Justice Sharad Kumar Sharma, and Technical Member Indevar Pandey, Member observed that Balkishan Shrikisan Baldawa v. Agri-Tech (India) Ltd. was also decided by a three-member Bench. However, it was a regular Bench constituted according to the roster and was not specially constituted to answer a referred legal question.

The tribunal therefore held that Balkishan could not override Park Energy.

“Entertaining of such appeal during the subsistence of the ratio laid down by the larger Bench in the matters of Park Energy (supra) would not be maintainable,” the Bench ruled.

It added that since the appellant admitted that he was a shareholder, he could not be treated as an “aggrieved person” entitled to maintain an appeal against approval of the resolution plan.

The appeal was filed by Prateek Jain, a shareholder, against the June 11, 2024 order of the National Company Law Tribunal (NCLT), New Delhi Bench. The order approved the resolution plan submitted by Red Apple Buyers Welfare Association.

The plan had received 100% approval from the Committee of Creditors (CoC) at its 18th meeting held on May 23, 2022.

Jain challenged subsequent changes to the plan, including those introduced through a November 8, 2023 memorandum of understanding with Windsor Paradise Heights Pvt. Ltd. He alleged that the changes involved transfer of equity and construction-related responsibilities.

According to Jain, these changes amounted to a material irregularity under Section 61(3)(ii) of the IBC. This provision permits a challenge to approval of a resolution plan where there has been a material irregularity in the exercise of the resolution professional's powers during the insolvency process.

He also relied on the Supreme Court's judgment in M.K. Rajagopalan v. Periasamy Palani Gounder. Jain argued that changes made after approval which were contrary to the resolution plan required CoC approval.

Jain also relied on Balkishan Shrikisan Baldawa. He contended that the decision recognised an exception where fraud or collusion between parties was involved in the initiation of insolvency proceedings.

He alleged active collusion between the successful resolution applicant, the resolution professional and Windsor Paradise Heights. He also alleged that material facts had been concealed from the CoC and the NCLT.

The tribunal did not accept the contention.

It noted that Park Energy had been decided by a specially constituted larger Bench after a reference arising from conflicting views of coordinate Benches. The Supreme Court subsequently affirmed the ruling by dismissing the special leave petition filed against it.

The NCLAT therefore held that Park Energy had precedence over the later Balkishan decision. It noted that Balkishan was delivered by a regular three-member Bench constituted under the roster, rather than a specially constituted larger Bench.

The tribunal also rejected the attempt to rely on the fraud allegation to maintain the appeal.

The tribunal also found that the alleged fraud was not supported by specific documents. It noted that the NCLT had already considered the successful resolution applicant's financial viability and funding before approving the plan.

The homebuyers could not use Jain's appeal to indirectly challenge the plan, particularly when their own challenge could have been time-barred.

Relying on Park Energy, the NCLAT held that Jain, as an individual shareholder, was not an “aggrieved person” under Section 61. It accordingly dismissed the appeal as not maintainable.