Peanence Commercial Private Limited and Anr vs Mamta Binani - NCLAT Upholds NCLT's Decision on Malafide Assignment Agreement in CIRP

Introduction

This case revolves around the assignment of claims by a Corporate Debtor to circumvent statutory disqualifications and the subsequent judicial scrutiny of such actions. It highlights the judiciary's commitment to maintaining the integrity of the insolvency resolution process and preventing any abuse of legal provisions. In a landmark ruling, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi upheld a decision of the National Company Law Tribunal (NCLT), Mumbai. The NCLAT held that the Assignment Agreement initiated by Rolta Private Limited (the Corporate Debtor) was a deliberate strategy intended to introduce obstacles and prolong the Corporate Insolvency Resolution Process (CIRP).

Background

Rolta Private Limited, the Corporate Debtor, had a substantial claim of Rs. 634,55,43,228 admitted by the Resolution Professional (RP). However, due to its status as a related party, Rolta Private Limited was denied representation, participation, and voting rights in the Committee of Creditors (CoC). This exclusion aimed to prevent conflicts of interest and ensure impartial decision-making in the insolvency proceedings.

Amidst these proceedings, Rolta Private Limited entered into a Memorandum of Understanding (MoU) with Peanence Commercial Private Limited. The MoU proposed the assignment of Rolta's admitted claim to Peanence for Rs. 50 crores, contingent upon the RP's approval. This assignment would recognize Peanence as a non-related secured financial creditor with full voting rights in the CoC, effectively bypassing the statutory disqualification imposed on related parties under the Insolvency and Bankruptcy Code (IBC).

Issues

The key issues in this case were:

1. Whether the assignment of claims by Rolta Private Limited to Peanence Commercial Private Limited was bona fide or a strategic maneuver to circumvent statutory disqualifications.
2. Whether the RP had the authority to approve the assignment and alter the nature of the debt or confer voting rights as sought by the parties.
3. The implications of allowing such assignments on the integrity and impartiality of the insolvency resolution process.

Findings and Rationale

The RP declined to approve the assignment, arguing that he lacked jurisdiction to alter the nature of the debt or confer voting rights. Subsequently, Rolta and Peanence approached the NCLT, Mumbai, seeking validation of the assignment and challenging the RP's decision.

The NCLT upheld the RP's stance and dismissed the application, stating that the assignment was contingent upon approvals that the RP could not grant under the existing legal framework. Aggrieved by this decision, Rolta and Peanence appealed to the NCLAT.

The NCLAT upheld the RP's decision to deny approval for the assignment, referencing the Supreme Court's decision in "Phoenix ARC Private Limited vs. Spade Financial Services Limited & Ors." This precedent clarified the conditions under which related parties can participate in the CoC and emphasized the importance of preventing conflicts of interest to maintain the impartiality of the decision-making process.

The NCLAT observed that the assignment appeared to be a strategic maneuver by Rolta to circumvent statutory restrictions. Allowing such assignments could potentially distort the balance of creditor rights and unfairly influence the resolution process. The bench noted that the intent behind the assignment was clear from an email sent to the RP, indicating a request to confirm Peanence as a non-related party, thereby gaining a berth in the CoC.

Conclusion

The NCLAT's decision to uphold the NCLT, Mumbai's ruling reinforces the judiciary's commitment to maintaining the integrity of the CIRP. By rejecting the assignment agreement, the NCLAT ensured that statutory provisions are not exploited to circumvent disqualifications and that the insolvency resolution process remains fair and impartial.

This case serves as a critical reminder of the importance of adhering to legal frameworks and preventing any abuse of the insolvency process. It underscores the judiciary's role in safeguarding the interests of all stakeholders and ensuring that the resolution process is conducted in a transparent and equitable manner.