NCLAT Dismisses Appeal by Non-Serious PRA, Imposes ₹15 Lakh Cost for Derailing Insolvency Process

New Delhi: In a stern judgment reinforcing the sanctity and timeline of insolvency proceedings, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, has ruled that a Prospective Resolution Applicant (PRA) who fails to submit a resolution plan loses its right, or locus standi , to challenge the approval of a rival's plan.

The bench, comprising Justice N. Seshasayee and Justice Arun Baroka, dismissed an appeal by Astral Agro Ventures, criticizing its conduct as "pretentious" and an attempt to "derail the resolution process." The Tribunal imposed a hefty cost of ₹15 lakhs on the appellant for unnecessarily interfering with and halting the Corporate Insolvency Resolution Process (CIRP) of Megi Agro Chem Ltd.

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Case Background

The appeal arose from a CIRP initiated against Megi Agro Chem Ltd. The appellant, Astral Agro Ventures, had expressed interest in all three rounds of the resolution process but repeatedly failed to submit a concrete resolution plan.

In the final round, after being shortlisted, Astral sought a 15-day extension to submit its plan. The Committee of Creditors (CoC) granted a shorter extension until September 13, 2023. Astral failed to meet this deadline as well. Subsequently, the CoC considered and approved the only plan before it, submitted by the third respondent (the Successful Resolution Applicant or SRA).

Astral then filed an application before the NCLT seeking rejection of the SRA's plan, which was dismissed. This led to the present appeal before the NCLAT.

Arguments of the Parties

Appellant's Contentions (Astral Agro Ventures):

* No Locus Standi: Argued that the SRA was ineligible under Section 29A of the Insolvency and Bankruptcy Code (IBC) as its directors were related to a declared "wilful defaulter."

* Procedural Irregularities: Claimed the Resolution Professional (RP) failed in his due diligence and that the CoC meetings approving the plan were convened with less than the mandatory 24-hour notice.

* Lack of Commercial Wisdom: Alleged that the minutes of the CoC meetings did not reflect adequate deliberation, implying a failure to apply commercial wisdom.

Respondents' Contentions (RP and SRA):

* Appellant's Lack of Standing: The primary argument was that Astral had no locus standi to challenge the process. Having failed to submit a plan despite multiple opportunities, it was "out of the race."

* Derailing Tactics: Accused the appellant of dragging its feet and engaging in non-serious participation to delay and obstruct the CIRP.

* Merits: Contended that the SRA met all eligibility criteria, including the "effective net worth" requirement, and that the Section 29A objection was invalid as the relationship in question was personal, not commercial, a distinction upheld by the Supreme Court in Swiss Ribbons Pvt. Ltd. v. UOI .

Tribunal's Analysis and Decision

The NCLAT centered its decision on the crucial issue of locus standi . The Tribunal held that while a CIRP is a proceeding in rem (against the world), participation is governed by procedural relevance.

> "Merely because CIRP proceeding is a proceeding in rem, it still does not accommodate those who by their conduct or otherwise have been rendered irrelevant in procedure," the bench observed.

The NCLAT found that Astral, by its repeated failure to submit a plan, had rendered itself "procedurally irrelevant" and thus forfeited its right to challenge the process. The Tribunal came down heavily on the appellant's behaviour:

> "It is very evident that the appellant is almost habituated to abandon its participation... midway through the game. Or, is it a mock participation motivated to defeat and delay the very resolution process? ... We believe that we are not watching any Tom & Jerry show of hide, seek and chase, nor we tolerate appellant’s attempt to reduce the ongoing CIRP to an entertainment show."

The Tribunal clarified that a PRA or an unsuccessful applicant may have a limited procedural right to highlight "material irregularity," but only if they actively participated in the stage where the alleged irregularity occurred.

While declining to give an opinion on the SRA's eligibility under Section 29A, the NCLAT left the matter for the Adjudicating Authority (NCLT) to decide during the final approval stage under Section 31 of the IBC. However, it explicitly stated that the appellant would have no right of hearing in that proceeding.

Final Order and Recommendations

Dismissing the appeal, the NCLAT imposed a cost of ₹15 lakhs on Astral Agro Ventures, to be distributed equally among the operational creditors of the corporate debtor.

In a significant recommendation, the Tribunal urged the Insolvency and Bankruptcy Board of India (IBBI) to consider creating regulations to "black list" PRAs like the appellant from participating in future insolvency proceedings to prevent such misuse of the legal process.