Authorised Representative Can Be Replaced By Following Procedure Provided Under Regulation 16(3A) Of CIRP Regulations: NCLAT

The NCLAT New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Barun Mita (Technical Member) and Mr. Arun Baroka (Technical Member) has held that the Authorised Representative can be replaced by following the procedure engrafted under Regulation 16(3A) of the CIRP Regulations therefore the application of an individual homebuyer seeking replacement of the Authorised Representative before the Adjudicating Authority cannot be entertained.

Brief Facts

The present appeal has been filed by a Homebuyer against an order passed by the NCLT by which the application to replace the authorised representative of Homebuyers was rejected. The appeal was filed one day after expiry of the limitation period of 30 days and voluminous nature of the documents was cited as a ground for the delay.

The Appellant was allotted residential Apartment No. 2502 on 25th Floor of Tower – 19 in “Lotus Panache Project of M/s. Granite Gate Properties Private Limited”, the Corporate Debtor. A resolution plan submitted by SMV Agencies Pvt. Ltd. was also approved by the Committee of Creditors (CoC).

Thereafter, an application seeking approval of the plan was also filed by the RP. Subsequently, the appellant filed an IA seeking replacement of the Authorised Representative which came to be rejected by the Adjudicating Authority on the ground that procedure provided under Regulation 16(3A) of the CIRP Regulations was not followed.

Contentions:

The appellant submitted that the Adjudicating Authority committed an error in not replacing the authorised representative on the ground that such application on behalf of a single homebuyer is not maintainable.

It was also submitted that the Adjudicating Authority after having considered the submissions and allegations made by the Applicant has decided to remove the RP, the same course ought to have been taken by the Adjudicating Authority for replacing the Authorised Representative also.

Per contra, the respondent submitted that after approval of the Plan, no individual homebuyer can be given right to file any Application for removal of Authorised Representative in the present case after about 4 years from the approval of the Resolution Plan with a CoC Appellant has filed the Application for replacement of the Authorised Representative.

Lastly, it was contended that the statutory scheme as delineated by Regulation 16(3A) of the CIRP Regulations provides a threshold for entertaining any Application for replacement i.e., 10% of the Creditors in class. There being number of Creditors in class being several thousand, entertainment of the Application or at behest of one homebuyer is against the interest of majority of Homebuyers having never been aggrieved by the action of the Authorised Representative has filed any complaint or any Application for replacement.

Observations:

The tribunal decided the objection with respect to maintainability of the appeal as it had been filed beyond the limitation period. However, the submission of the respondent was rejected and the appeal was found to be within the limitation period.

The tribunal for this purpose relied on its own judgment in Innovators Cleantech Pvt. Ltd.' Vs. 'Pasari Multi Projects Pvt. Ltd.(2024) on where it was held that the date of e-fling of an appeal can be considered as the date of filing the appeal for the purpose of computation of the limitation period. The tribunal had also observed that date of refiling the appeal after curing the defects cannot be treated to be date of filing the appeal for purposes of computation of limitation.

It said that “we, thus are of the view that for purposes of computation of limitation, the date of e-filing of the Appeal which is 24.08.2024 has to be treated the date for purposes of computing the limitation. 30 days period after 24.07.2024, having expired on 23.08.2024, there is a delay of only 1 day in filing of the Appeal.” Accordingly, a delay of one day was condoned.

The tribunal, while analysing the case of the parties on merits observed that section 25A of the code provides that it is the duty of the authorised representative of the financial creditors to participate in CoC meetings and cast votes as per instructions of the financial creditors based on their voting shares. It also referred to Regulation 16A of the “CIRP Regulations” and observed that an Authorised Representative is chosen based on the preference of the majority of financial creditors.

It also noted that sub-regulation (3A) was introduced subsequently in 2023 in which a mechanism for replacing an authorised representative was provided and this regulation was in force when the appellant filed its application seeking replacement of the AR.

The tribunal noted that “in 'Pioneer Urban Land and Infrastructure Ltd. & Anr.' Vs. 'Union of India & Ors.' reported in (2019) the Supreme Court held that if a decision is taken by vote of more than 50% of the voting shares of the Financial Creditors who are represented by Authorised Representative, all others have to be bound by the said decision.”

Based on the above, it opined that as per the statutory scheme, all voting which has to be done by the Authorised Representative in the Meeting of the CoC is on the basis of prior instructions received from Financial Creditors.

The tribunal further noted that the AA had issued a clarification in the order that the RP was being replaced not on the basis of the plea of the applicant instead it was being replaced because the RP failed to discharge his duties on critical aspects cast upon him by the code therefore the submission of the appellant that the authorised representative should also be removed on the similar grounds cannot be accepted.

The tribunal concluded that “when a procedure for replacement of the Authorised Representatives have been introduced in the Regulations by 16A(3A) inserted on 18.09.2023, the said statutory provision has to be followed for replacement of Authorised Representatives. Adjudicating Authority did not commit any error in relying on the Regulation 16A(3A) of the CIRP Regulations for not accepting the Application of the Appellant.”

Accordingly, the present appeal was dismissed.

Case Title: Ashmeet Singh Bhatia Versus Rakesh Verma Authorised Representative and Anr.'

Case Number:Company Appeal (AT) (Insolvency) No. 1924 of 2024 & I.A. No. 7124 of 2024

Judgment Date: 16/01/2025

For Appellant : Mr. Ridhima Verma, Mr. Shashwat Tripathi and Ms. Madhu Ayachit, Advocates.

For Respondents : Mr. Sumant Batra, Mr. Sanyam Saxena, Mr. Nubair Alvi, Ms. Nidhi Yadav, Mr. Sarthak Bhandari, Ms. Ayat Khusheed, Mr. Shivam Sharma, Mr. Sahil Sethi, Advocates for RP. Mr. Abhijeet Sinha, Sr. Advocate with Mr. Arijit Mazumdar, Ms. Akanksha Kaushik, Ms. Heena Kochar, Advocates for SRA.

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