Ashmeet Singh Bhatia Vs. Rakesh Verma: NCLAT Upholds Statutory Procedure for Replacing Authorized Representatives Under IBC

Introduction:

This appeal involved a single homebuyer seeking the replacement of the Authorized Representative of homebuyers in the Corporate Insolvency Resolution Process (CIRP) of M/s Granite Gate Properties Pvt. Ltd., the corporate debtor. The appeal arose from an order passed by the National Company Law Tribunal (NCLT), rejecting the appellant's plea. The primary issues were whether the application was maintainable under the procedural framework of the CIRP Regulations and whether the Tribunal could exercise its inherent jurisdiction to remove the AR in the absence of compliance with Regulation 16A(3A).

This judgment provides critical insights into the statutory limitations on challenging an AR’s role and duties within the framework of IBC and CIRP Regulations.

Background:

The appellant, a homebuyer in the "Lotus Panache Project," sought the replacement of the Authorized Representative (AR) of the homebuyers, alleging collusion with the Resolution Professional (RP) and promoters of the corporate debtor. The CIRP for the corporate debtor was initiated on January 10, 2019, and a resolution plan was approved by the Committee of Creditors (CoC) in July 2020, with 80.13% voting shares. The appellant raised objections to the resolution plan and subsequently filed an application in March 2024 seeking the replacement of the AR.

The NCLT dismissed the application, stating that the procedure under Regulation 16A(3A) was not followed. Aggrieved, the appellant filed this appeal, contending that the NCLT failed to exercise its inherent jurisdiction to replace the AR despite allegations of misconduct.

Questions of Law:

1. Can a single homebuyer file an application for the replacement of the Authorized Representative under the IBC?
2. Does the Adjudicating Authority have the inherent jurisdiction to replace an AR without compliance with Regulation 16A(3A)?
3. What is the statutory procedure for replacing an AR under Regulation 16A(3A)?
4. What are the implications of the limited role and duties of an AR in the CIRP?

Findings and Rationale:

1. Adherence to Regulation 16A(3A): Statutory Procedure for Replacement: The NCLAT highlighted the statutory framework under Regulation 16A(3A) of the Corporate Insolvency Resolution Process (CIRP) Regulations, 2016, which specifies the procedure for replacing an Authorized Representative (AR). The provision mandates that at least 10% of the financial creditors in a class must support the replacement request. The Tribunal observed that the appellant’s application failed to meet this threshold, rendering the request procedurally deficient.The Tribunal further noted that Section 25A of the Insolvency and Bankruptcy Code (IBC) vests specific duties upon the AR, which include representing the financial creditors in the CoC meetings and voting based on their instructions. This statutory framework ensures that the AR operates as a neutral representative and not as an independent decision-maker.
2. Limited Role of the Authorized Representative: The Tribunal reiterated the limited scope of duties of an AR as outlined in the IBC. The AR is tasked with: (a) Representing the financial creditors in the CoC meetings. (b) Casting votes based on the prior instructions of creditors. (c) Acting within the boundaries of the instructions received from the financial creditors. In Pioneer Urban Land & Infrastructure Ltd. v. Union of India (2019), the Supreme Court held that decisions of the AR, based on the majority vote of financial creditors, are binding on all creditors in the class, including those who dissent. The NCLAT noted that the appellant’s attempt to challenge the AR’s role was unsupported by evidence and aimed at undermining the collective will of the creditors.
3. Inherent Jurisdiction of the Adjudicating Authority: The appellant argued that the Adjudicating Authority (AA) should have exercised its inherent jurisdiction to replace the AR, citing allegations of misconduct. However, the NCLAT rejected this contention, holding that inherent jurisdiction is limited to situations where statutory procedures are absent or insufficient. Since Regulation 16A(3A) provides a clear mechanism for replacing an AR, there was no basis for invoking the AA’s inherent jurisdiction.
4. Examination of Appellant’s Allegations: The NCLAT noted that the appellant’s allegations of misconduct and collusion by the AR lacked evidentiary support. The Tribunal observed that no other homebuyer or creditor raised concerns about the AR, indicating the absence of a collective grievance. The timing of the appellant’s application—years after the resolution plan’s approval—was also deemed suspicious and indicative of an attempt to delay the CIRP process.
5. Clarification on Replacement of RP vs. AR: The appellant contended that the AA replaced the Resolution Professional (RP) due to non-performance, and the same principle should apply to the AR. However, the Tribunal clarified that the RP’s replacement was based on specific statutory duties that the RP failed to discharge, as outlined in the IBC. The AR’s role, being limited and governed by creditors' instructions, cannot be equated with that of the RP. Therefore, the AR’s replacement must follow the statutory procedure under Regulation 16A(3A).
6. Tribunal’s Final Observations: The NCLAT concluded that the AA was correct in rejecting the appellant’s application for AR replacement, as it failed to meet the procedural requirements. It further noted that the statutory framework ensures that the interests of the majority creditors are protected, and an individual homebuyer’s grievances cannot override the collective will of the creditors.

Conclusion:

The NCLAT upheld the NCLT’s decision, emphasizing the importance of adhering to statutory procedures for replacing an AR. It reiterated that the duties of the AR are limited to voting on behalf of financial creditors and that a single homebuyer cannot seek replacement without meeting the procedural requirements under Regulation 16A(3A). The appeal was dismissed, reaffirming the principle that statutory frameworks must govern the CIRP process to ensure efficiency and fairness.

Disclaimer:

This post is for educational and informational purposes only. It is not intended to defame, discredit, or tarnish the reputation of any individual, entity, or organization. The opinions expressed are based on publicly available judicial decisions and are aimed at fostering a better understanding of legal principles. For specific legal advice, readers are encouraged to consult a professional.