Suspended Directors Cannot Pursue 'Proxy Grievances' On Behalf Of Homebuyers: NCLT Chandigarh

The National Company Law Tribunal (NCLT), Chandigarh, on 13 August held that suspended directors cannot challenge a Corporate Insolvency Resolution Process (CIRP) or a Resolution Plan by raising grievances on behalf of a class of creditors to which they do not belong.

A Bench comprising Judicial Member Khetrabasi Biswal and Technical Member Shishir Agarwal rejected a challenge by the promoters, shareholders and suspended directors of Samar Estates Private Limited against the CIRP and the Resolution Plan approved by the Committee of Creditors (CoC). It observed:

"In any event, once the homebuyers as a class have voted in favor of the Resolution Plan with a 100% unanimous class vote, individual homebuyers or third-party promoters are legally estopped from challenging the collective decision."

The applicants alleged that the homebuyers were inadequately represented during the CIRP because no formally appointed Authorised Representative (AR) was in place. They contended that several homebuyers could not participate effectively in the process and that the subsequent proceedings, including voting on the Resolution Plan, were vitiated.

The Tribunal rejected the challenge, noting that the applicants were not members of the homebuyers' class. It also found that no homebuyer had joined the proceedings to allege that their individual voting instructions were disregarded or that the Interim Authorised Representative had acted contrary to the class mandate.

It held that creditors belonging to a class exercise their rights collectively through the statutory voting mechanism, and an outsider cannot question that decision merely because they believe the class should have reached a different conclusion. It held:

"For the reasons stated above, we hold that: (i) the Applicants cannot make proxy grievances on behalf of the homebuyers or seek reconsideration of the commercial assessment of the CoC merely by virtue of being former promoters, suspended directors or shareholders..."

The Bench also rejected the applicants' reliance on their status as shareholders and former promoters to challenge the CoC's commercial decisions. It held that a residual pecuniary interest as shareholders does not give them an independent right to require the CoC to adopt a particular valuation or prefer one Resolution Plan over another.

Accordingly, the Tribunal dismissed the challenge, holding that the applicants could not maintain grievances on behalf of the homebuyers or seek to reopen the CoC's commercial decision merely on the basis of their status as former promoters, suspended directors or shareholders.