Resolution Professional cannot decide legality or illegality of Resolution Applicant's status as willful defaulter: NCLAT

The National Company Law Appellate Tribunal (NCLAT) has held that a Resolution Professional (RP) under the Insolvency & Bankruptcy Code cannot go into the issue of legality or illegality of a resolution applicant's status as a willful defaulter when the same is already pending before the High Court. (HS Bedi vs Oriental Bank of Commerce).The order was passed by a two-member Bench of Justice Jarat Kumar Jain, Member (Judicial) and Balvinder Singh, Member (Technical) in an appeal under section 61 IBC challenging an order of liquidation passed by National Company Law Tribunal (NCLT), Bengaluru..The appeal was preferred by an erstwhile promoter of the corporate debtor (appellant). .The corporate debtor and the appellant were declared as ‘wilful defaulters’ by SBI, Oriental Bank of Commerce and State Bank of Travancore. Thereafter, Corporate Insolvency Resolution Process (CIRP) was initiated against the corporate debtor by Oriental Bank of Commerce (respondent) under Section 7 of IBC in March 2019. .During the CIRP, the appellant submitted its Expression of Interest (EOI). however, the same was not considered by the Committee of Creditors (COC) and RP in terms of section 29A(b) IBC on account of the appellant being a ‘wilful defaulter’. .Subsequently, the appellant approached the High Court of Karnataka under its writ jurisdiction to challenge his status as a 'wilful defaulter'. .As an interim measure, the High Court permitted the submission of the appellant's resolution plan on the ground that section 29A(b) IBC prima facie appeared to be prospective in nature. .Consequently, the COC deliberated and discussed the appellant's resolution plan but rejected the same again on the ground that the appellant was a willful defaulter. .The NCLT then passed the order allowing the liquidation of the corporate debtor. .Before the NCLAT, the appellant inter alia claimed that he was declared a wilful defaulter without the banks taking steps to declare the accounts of the corporate debtor as non-performing assets..It was also argued that the Adjudicating Authority/NCLT erred in not taking into consideration the High Court order allowing him to submit his resolution plan to RP. .The appellant also contended that he was declared a wilful defaulter without following the guidelines of RBI. .Apart from defending the status of the appellant as a wilful defaulter, the respondent also appointed out that the appellant's proposal could not be termed as a resolution plan as it was not in compliance with IBC. .The NCLAT was also informed that the High Court had not stayed the status of the appellant as a ‘willful defaulter’ and mere pendency of the writ petition could not change the status of the appellant. .In its order, the NCLAT noted that the appellant was declared as a wilful defaulter in terms of RBI and thus, had no locus standi to challenge the order of NCLT. .The NCLAT further noted that the order of the High Court only permitted the appellant to submit its resolution plan to the RP and did not in any way takes away the right of COC to reject the same on the ground that it was in contravention of the various provisions of law..In the present case, the NCLAT recorded, the COC rejected the appellant's resolution plan on the ground that it did not conform to the requirement of Section 29A (b)..Stating that the judicial review available in respect of an approved resolution plan was limited, the NCLAT observed the following:."The grounds under Section 30(2) or 61(3) of the IBC are regarding testing the validity of the approved resolution plan by COC and not for approving the resolution plan which has been disapproved by the COC in exercise of its business decision..the commercial wisdom of COC shall not be challenged and it shall be the COC who shall decide whether the resolution plan is feasible or not. COC may at any time but before the confirmation of the resolution plan, including at any time before the preparation of the information memorandum, may take the decision to liquidate the Corporate Debtor.".The NCLAT further said that since the appellant's writ petition was still pending before the High Court, RP could not go into the correctness or incorrectness of declaration as a willful defaulter and could only rely on the present status of the resolution applicant.."The High Court of Karnataka passed an interim order dated 23rd August, 2019 merely allowing the Appellant to submit his resolution plan but no stay of declaration as ‘willful defaulter’ was granted. Since, the Writ Petition is still pending before the High Court, therefore, the RP cannot go into the correctness or incorrectness of declaration as willful defaulter and can only rely on the present status of the resolution applicant," it said. .The appellant's plea seeking benefits of section 240A IBC was also rejected by NCLAT on the ground that the exemption was only in respect of clause (c) and (h) of Section 29A IBC. .Finding no legal infirmity in the NCLT order, the appeal was dismissed. .Advocate Sudhir K Sharma appeared for the appellant. .Respondents were represented by advocates Vinod Gupta, Sunil Shukla, Aparna Ravi, Khushboo Mittal and Velayudham Jayavel..[Read Order]