Kalpraj Dharamshi v. Kotak Investment Advisors Ltd. [March 10, 2021]

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INTRODUCTION

This case deals with the Insolvency and Bankruptcy Code, 2016. Further it underscores the importance of adherence to statutory timelines, respect for commercial decisions of creditors, avoidance of judicial overreach, and protection of procedural fairness in insolvency proceedings. These principles collectively aim to maintain the balance between economic efficacy and legal safeguards in the resolution of corporate insolvency cases under the Insolvency and Bankruptcy Code. The judgment clarified the boundaries of NCLAT’s jurisdiction, emphasizing that it should intervene sparingly and only when lower tribunals have erred significantly in law or procedure.

FACTS

1. An application was filed by the Corporate Debtor before NCLT under section 10 of the Insolvency and Bankruptcy Code, 2016 to begin the process of corporate insolvency resolution on 29/01/2018. The NCLT granted the petition, ordered the moratorium to start as specified by Section 14 of the Insolvency and Bankruptcy Code, and ordered the execution of specific legal actions as a result.
2. On 08/01/2019, the last day specified in the last and fifth Form ‘G,’ KIAL, the appellant before NCLAT (respondent No. 1 above) and one Karvy Data Management Systems Limited submitted their Resolution Plans. On January 13, 2019, WeP Solutions Ltd., a different applicant, and Sattva Real Estate Private Limited, also known as “WeP,” jointly presented their Resolution Plan.
3. On 29/01/2019 KAIL sent an email to RP objecting that Kalpraj’s Resolution Plan was permitted to be submitted later than the prescribed period of time. At the CoC meeting where Kalpraj’s resolution plan was presented, a motion was made to order all applicants to submit updated plans. KIAL subsequently filed its updated plan on January 02, 2019. KIAL once again objected to the plan that Kalpraj had sent via email, dated 10/02/2019.
4. KIAL then appealed to NCLAT on 18/02/2020. The appeals were contested by RP and Kalpraj on the grounds that they should not be allowed because they were filed beyond the deadline specified by the Insolvency and Bankruptcy Code.
5. Being aggrieved by the order passed by NCLAT, four appeals have been filed before the Court.

ISSUES RAISED

1. Whether the appeals filed by KIAL before the NCLAT were within limitation?
2. Whether KIAL’s waiver and consent sufficient to prevent it from contesting Kalpraj’s participation?
3. Whether it was legal for NCLAT to intervene and change the CoC’s decision to approve Kalpraj’s resolution plan?

CONTENTIONS

PETITIONER’S CONTENTIONS

1. Shri Mukul Rohatgi, learned Senior Counsel for the petitioner contended that in the CoC meeting on January 30, 2019, all applicants were requested to present their updated resolution plans in order to accomplish the goal maximized. He said that KIAL had submitted its updated plans twice, without hesitation. Therefore, it is argued that KIAL is no longer able to contest the approval of Kalpraj’s plan after having twice presented its updated blueprints.
2. He further argued that it was not possible for a party like KIAL, which has a group of legal professionals at its disposal, to claim that they were unaware of the other option and that they had legitimately filed the writ case with the High Court.
3. According to Shri Rohatgi, the NCLAT erred gravely in concluding that the order it made violated the principles of natural justice because it only heard one member’s plea while two members signed the decision on KIAL’s behalf.
4. He submitted, that in any case, both, the application filed by KIAL as well as the main application filed by RP, were required to be decided together because, the issues were interconnected and therefore, they can be decided by the orders passed on the same day. Thus, Shri Rohatgi argued that the appeals should be granted, the NCLAT’s ruling should be overturned, and the NCLT’s decision was incorrect.

RESPONDENT’S CONTENTIONS

1. The argument made by learned counsel that KIAL is a Kotak Bank subsidiary and that Kotak Bank did not protest when Kalpraj filed its resolution plan—and that this amounted to acquiescence—is also incorrect.
2. The resolution plan does not meet any additional requirements that the Board has stipulated.

JUDGMENT

The court relying on previous landmark judgments observed that the entire legislative process is influenced by consideration of justice and reason. The fundamental legislative goal behind any piece of legislation is one of justice and reason. The Court has decided that there is no reason to think that the harsh or absurd impact accurately reflects the legislative meaning unless there is some other indication that the legislature genuinely intended such an outcome. Furthermore, it should be noted that the provisions found in Sections 5 and 14 of the Limitation Act are intended to provide relief in cases when an individual has made a mistake. In addition, the Court established two well-known exceptions to the theory of the statutory remedies’ exhaustion. It has been unequivocally stated that a party may assert the jurisdiction of the High Court under Article 226 of the Constitution if the actions brought before a statutory institution are outside of its authority or violate fundamental justice principles. The court noted that rather than evaluating the resolution plan using quantitative analysis, the Court should yield to the commercial wisdom of the creditors. The appellate authority should not have interfered with the adjudicating authority’s order by telling the successful resolution applicant to increase their financial inflow up front, the court unequivocally declared. So, it was held by the Hon’ble Court that the decision taken by CoC which is taken in accordance with its ‘commercial wisdom’ and which is duly approved by NCLT, will prevail. Further, NCLAT was not justified in interfering with the stated decision taken by CoC.

ANALYSIS

In this case the court emphasized the principle that decisions made by the CoC based on commercial wisdom should be respected, unless there are clear legal violations or procedural irregularities. The judgment criticized the NCLAT’s intervention, indicating that it should have deferred to the CoC’s decision unless there was clear evidence of procedural unfairness or legal error. This principle safeguards the integrity of the insolvency resolution process and ensures adherence to due process. It highlighted the importance of timely appeals and the concept of waiver, suggesting that repeated submissions of plans may imply acquiescence or waiver of objections. In order to reflect the legislative objective of facilitating an efficient resolution of insolvency while safeguarding the rights of stakeholders, the court interpreted provisions under the Insolvency and Bankruptcy Code with an emphasis on striking a balance between creditor interests and procedural safeguards.

CONCLUSION

In conclusion, the judgment in the case of Kalpraj Dharamshi vs Kotak Investment Advisors Limited underscores several critical principles in the context of insolvency proceedings under the Insolvency and Bankruptcy Code, 2016. The judgment interprets the provisions of the IBC in line with legislative intent, aiming to achieve fairness and justice in insolvency proceedings. It balances the interests of creditors with the need for procedural fairness, ensuring that the insolvency resolution process is conducted transparently and efficiently. Overall, the judgment provides clarity on the roles and responsibilities of stakeholders in insolvency proceedings, emphasizing the need for procedural adherence, respect for commercial decisions of creditors, and judicious exercise of judicial oversight to uphold the integrity of the insolvency resolution framework in India.

REFERENCES

1. https://www.sci.gov.in
2. https://indiankanoon.org › search
3. https://ibbi.gov.in › uploads › order
4. https://www.reedlaw.in › post › nclt-and-nclat-cannot-i…

This Article is written by Manherleen Kaur Bhangoo student of G.H.G. Institute of Law, Sidhwan Khurd, Ludhiana, Punjab; Intern at Legal Vidhiya. 

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