NCLAT Reinstates Intervention Application in Insolvency Resolution Process - 2024-02-05

NCLAT Reinstates Intervention Application in Insolvency Resolution Process

Background:

In a recent judgment, the National Company Law Appellate Tribunal (NCLAT) addressed the issue of locus standi in intervention applications filed in corporate insolvency resolution processes (CIRPs). The case involved an appellant, PRI0 S.A., who had submitted three offers to acquire the participating interest of a corporate debtor through a resolution plan. After negotiations with the resolution professional (RP) and the committee of creditors (CoC), the RP filed an application before the adjudicating authority seeking approval of an offer submitted by another party, Respondent No. 2.

Legal Question:

The primary legal question before the NCLAT was whether the appellant had the locus standi to file an intervention application in the proceedings before the adjudicating authority challenging the RP's application for approval of Respondent No. 2's offer.

Arguments Presented:

• Appellant's Arguments:

  • The appellant argued that it had sufficient interest in the proceedings to resist the RP's application for approval of Respondent No. 2's offer.
  • The appellant had submitted three offers after the issuance of the expression of interest (EOI) and revised offer (RFRP) issued by the RP.
  • The appellant had negotiated with the RP and CoC, indicating its serious interest in the resolution process.
  • The appellant's offer was contingent on the exercise of the right of first refusal (ROFR) by Respondent No. 2, and the approval of Respondent No. 2's offer without considering the appellant's objections was contrary to the process under the Insolvency and Bankruptcy Code (IBC) and the regulations.

• RP and CoC's Arguments:

  • The RP and CoC argued that the appellant had no locus standi in the matter and that its rights were not infringed.
  • The appellant's offer was contingent on Respondent No. 2's non-exercise of its ROFR, and the appellant could not object to the proceedings triggered by its own offer.
  • The appellant had participated in the process and could not now turn around and challenge the process adopted by the RP and CoC.

Court's Analysis and Reasoning:

The NCLAT analyzed the arguments presented by both sides and observed that the adjudicating authority had erred in holding that the appellant had no locus standi in the matter. The NCLAT noted that the appellant had participated in the resolution process, submitted multiple offers, and negotiated with the RP and CoC, indicating its serious interest in the matter.

The NCLAT further observed that the adjudicating authority had proceeded to examine the appellant's objections on merits, which indicated that the appellant's objections required consideration. The NCLAT held that the appellant had the locus standi to file the intervention application and that the adjudicating authority should have allowed the appellant to file objections and affidavits in opposition to the RP's application.

Decision:

The NCLAT set aside the adjudicating authority's order rejecting the appellant's intervention application and directed the adjudicating authority to consider the appellant's objections and decide the matter afresh after hearing both parties.

Significance of the Judgment:

The NCLAT's judgment clarifies the issue of locus standi in intervention applications in CIRPs. The judgment emphasizes that parties who have participated in the resolution process and have a genuine interest in the outcome of the proceedings have the right to intervene and challenge the actions of the RP and CoC if they believe that their rights are being infringed or that the process is not being conducted in accordance with the IBC and the regulations.