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NCLAT Upholds for NSL Nagapatnam Power, Dismisses Challenge
In a decisive ruling that underscores the procedural rigour of corporate insolvency proceedings, the has dismissed the challenge by suspended director Mandava Prabhakar Rao against the submitted by for . The Tribunal upheld the exclusion of Rao’s representative, Nelluri Bapuji, from a critical meeting, finding that the lack of and a justified the decision. The ruling, delivered by Technical Member Naresh Salecha, aligns with the and brings to a long-drawn dispute over the insolvency resolution process.
at the Core
The case revolves around the of , a company that had been undergoing resolution under the . Three resolution plans—from , , and —were submitted and considered during the 20th meeting of the CoC held on . ’ plan eventually secured approval through , concluding on , with an overwhelming 85.35% .
The suspended director, Rao, sought to challenge the approval, primarily arguing that his representative Bapuji was improperly excluded from the remaining proceedings of that 20th CoC meeting. Rao claimed that Bapuji had attended earlier CoC meetings without any objection, and therefore the exclusion violated his rights under , which permits a suspended director to attend CoC meetings (though without voting rights).
The Critical 20th CoC Meeting
The NCLAT, however, drew a clear distinction between earlier meetings and the 20th meeting. Salecha observed that the earlier meetings did not involve the consideration of competing resolution plans, whereas the 20th meeting was “materially different” because it dealt with three commercially sensitive proposals for the first time. The requirement for a representative to provide and a before attending such meetings, Salecha held, was “not merely an administrative formality.”
“The requirement ensures that participation in such deliberations is confined to persons whose identity and authority to represent a participant are duly established,” Salecha noted, emphasising the need for strict compliance when confidential business information is under review.
The Tribunal further rejected Rao’s argument that Bapuji’s previous attendance constituted a waiver of the requirement. Salecha pointed out that the was eventually furnished on , after which the and connected documents were provided on . The concluded on August 1. Importantly, the record did not show that any or objection made after the documents were supplied was ignored or prevented. Therefore, the process did not contravene the ’s ruling in , which safeguards the right of a suspended director to participate in CoC meetings.
Precedent Distinguished
Rao had heavily relied on the Vijay Kumar Jain judgment, which holds that a suspended director is entitled to attend CoC meetings and receive relevant documents. However, Salecha distinguished the present case on facts: the ’s ruling did not dispense with the procedural requirements of and confidentiality undertakings, especially when competing resolution plans are being evaluated. The Tribunal clarified that the right to participate is not absolute and must be exercised in accordance with the regulations framed under the IBC.
The NCLAT also noted that the had already been approved by the Hyderabad on , and its implementation had been completed. The NCLT took the closure report on record on , after management and control of the had fully vested in . Given this stage, the Tribunal declined to reopen the CIRP or set aside the , stating that “no direction was warranted to reopen the CIRP, set aside the or disturb its implementation.”
Costs Reduced as Disproportionate
The NCLT had originally imposed costs of ₹5 lakh on Rao for the litigation. The NCLAT, agreeing with the Judicial Member of the original , found this amount disproportionate. Salecha reduced the costs to ₹2 lakh, a move that signals a calibrated approach to penalising litigants without unduly burdening them.
The reduction also reflects the Tribunal’s view that while the challenge was devoid of merit, the procedural deficiencies alleged were not so egregious as to warrant the higher penalty. This aspect of the order is likely to be noted by insolvency practitioners and litigants alike, as it underscores the ’s willingness to moderate sanctions where the substantive conduct does not justify severe costs.
Implications for Insolvency Practitioners
This ruling carries significant implications for the conduct of CoC meetings in ongoing CIRPs. It reaffirms that procedural requirements—especially those concerning authorisation and confidentiality—must be strictly adhered to, particularly when competing resolution plans are under consideration. Suspended directors and their representatives cannot assume that past attendance creates a waiver of these requirements. The decision also clarifies the boundaries of the Vijay Kumar Jain precedent, ensuring that the right to participate is exercised in a manner that does not compromise the integrity of the resolution process.
For resolution professionals (RPs) and CoC members, the judgment provides clear guidance: they are entitled to insist on and confidentiality undertakings before allowing any representative to attend meetings where sensitive commercial information is shared. Failure to comply may lead to exclusion, and such exclusion will not be readily overturned by .
Moreover, the ruling discourages belated challenges to approved and implemented resolution plans. The NCLAT’s refusal to reopen the CIRP, given the achieved, reinforces the principle that once a has been implemented and the ’s control transferred, the courts will be reluctant to disturb the process unless there is a clear .
Conclusion
The NCLAT’s decision in the matter is a reaffirmation of the procedural discipline that underpins the IBC. By dismissing the suspended director’s challenge and upholding the exclusion of his representative, the Tribunal has reinforced the importance of compliance with regulatory requirements during CoC meetings. The reduction in costs and the clear distinction drawn from the precedent will be valuable for practitioners navigating the nuances of corporate insolvency. The judgment not only brings closure to a protracted dispute but also serves as a practical guide for future CIRPs, ensuring that the resolution process remains efficient, transparent, and legally sound.
