2022 (9) TMI 1070 - AT - Insolvency and Bankruptcy

Constitution of Stakeholders Consultation Committee ( SCC ) - Nominations of members - entity hostile to the interest of the Corporate Debtor - Regulation 31A(3) of the Liquidation Regulations - HELD THAT - It is the case of the Respondent that the SCC has to be constituted based on the list of Stakeholders which in turn is prepared on the basis of the claims received and accepted by the Stakeholders. The list of Stakeholders present in the case does not contain the name of the Appellant and therefore the Liquidator has erred in adding the Appellant as a representative of the Shareholder. A perusal of the material on record shows that as none of the Shareholders have filed their claims before the Liquidator, in terms of Regulation 20 of the Liquidation Regulations, their names do not appear in the list of Stakeholders prepared in terms of Regulation 31 of the Liquidation Regulations. The Liquidator constituted SCC in terms of the Regulation 31A based on the Shareholding pattern of the Corporate Debtor as per the available records. As provided for under Regulation 31A(3) of the Liquidation Regulations, the Liquidator, to facilitate the class of Shareholders to nominate the representatives sent emails to all the five Shareholders on 06.02.2021. Admittedly, the first Respondent has been nominated as a representative by three of the five Shareholders, including himself having a combined shareholding of 24.99%. The other two Shareholders having 75.01% combined shareholding have not nominated the Appellant as their nominated representative and in fact did not nominate anyone. Therefore, the Liquidator rejected the nomination of the first Respondent on the ground that the nomination was not made unanimously by all the Shareholders. The Adjudicating Authority has rightly held that the nomination of the first Respondent as the representative of the Shareholders cannot be rejected by the Liquidator simply on the ground that the said nomination was not made unanimously by all the Shareholders and has further held that as the first Respondent was nominated by or i.e., the 3 out of 5 Shareholders, the question of applicability of the provisions under Regulation 31A(4) does not arise. This Appeal fails and is accordingly dismissed.

Summary

Issues Involved:

1. Challenge to the Impugned Order regarding reconstitution of the Stakeholders Consultation Committee (SCC).
2. Validity of the Liquidator's decision to include the Appellant in the SCC.
3. Interpretation and applicability of Regulation 31A(3) and 31A(4) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.
4. Impact of the amendment to Regulation 31A(4) effective from 30.09.2021.

Detailed Analysis:

1. Challenge to the Impugned Order regarding reconstitution of the Stakeholders Consultation Committee (SCC):

The appeal challenges the order dated 20.07.2021 by the National Company Law Tribunal (NCLT), New Delhi, Bench-II, which directed the Liquidator to reconstitute the SCC by including Mr. Vivek Shukla, Ex-Director and Shareholder of the Corporate Debtor, as the representative of the Shareholders.

2. Validity of the Liquidator's decision to include the Appellant in the SCC:

The Liquidator included the Appellant in the SCC as the representative of the Shareholders, despite three out of five Shareholders (holding a combined 24.99% share) nominating Mr. Vivek Shukla. The Liquidator's decision was based on the interpretation that the nomination should be unanimous or based on the highest shareholding in the absence of unanimous nomination.

3. Interpretation and applicability of Regulation 31A(3) and 31A(4) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016:

- Regulation 31A(3): The regulation states, "The liquidator may facilitate the stakeholders of each class to nominate their representatives for inclusion in the consultation committee." The Adjudicating Authority observed that the regulation is silent on the criteria and process of nomination but emphasizes the Liquidator's duty to facilitate the nomination.

- Regulation 31A(4): Prior to the amendment effective from 30.09.2021, it stated, "If the stakeholders of any class fail to nominate their representatives, the required number of stakeholders with the highest claim amount in that class shall be included in the consultation committee." Post-amendment, it reads, "If the stakeholders of any class fail to nominate their representatives, under sub-regulation (3), such representatives shall be selected by a majority of voting share of the class, present and voting."

The Adjudicating Authority held that the nomination of Mr. Vivek Shukla by the majority (three out of five Shareholders) was valid under Regulation 31A(3), and the applicability of Regulation 31A(4) did not arise as the stakeholders had already nominated their representative.

4. Impact of the amendment to Regulation 31A(4) effective from 30.09.2021:

The Appellant argued that the amendment to Regulation 31A(4) should not apply retrospectively and that the previous version of the regulation should be considered. However, the Adjudicating Authority found that the amendment clarified the process and did not affect the validity of the majority nomination already made.

Assessment and Conclusion:

The Tribunal concluded that the Liquidator's rejection of the majority nomination was incorrect. It emphasized that Regulation 31A(3) does not require unanimous nomination and that the majority nomination (three out of five Shareholders) was sufficient. The Tribunal also noted the ongoing arbitration proceedings and potential conflicts of interest involving the Appellant.

The Tribunal upheld the Adjudicating Authority's decision, dismissing the appeal and directing the Liquidator to accept the nomination of Mr. Vivek Shukla as the representative of the Shareholders in the SCC. The Tribunal found no illegality or infirmity in the Adjudicating Authority's order and instructed the Adjudicating Authority to proceed in accordance with the law.