Introduction

The case of Dwarkadhish Sakhar Karkhana Limited v. Pankaj Joshi & Anr. was adjudicated by the National Company Law Appellate Tribunal (NCLAT) on June 28, 2021. This litigation revolves around the procedural conduct in the Corporate Insolvency Resolution Process (CIRP) of KGS Sugar & Infra Corporation Ltd., where Dwarkadhish Sakhar Karkhana Ltd. (DSKL), after initially being rejected, sought inclusion in the insolvency resolution process against the wishes of other prospective resolution applicants (PRAs), notably Gangamai Industries & Construction Ltd. (GIACL).

Summary of the Judgment

The NCLAT upheld the decision of the Adjudicating Authority, rejecting the appeals filed by DSKL and the appointed Resolution Professional (RP) Pankaj Joshi. The Tribunal found that the RP had deviated from the prescribed procedures by allowing DSKL to submit an Expression of Interest (EOI) after the stipulated deadline, contrary to Regulation 36-A (6) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Additionally, the Tribunal criticized the RP's conduct, highlighting a lack of transparency and potential bias in reinstating DSKL into the CIRP, thereby causing prejudice to other PRAs.

Analysis

Precedents Cited

The judgment extensively references key precedents to substantiate its reasoning:

• Arecellor Mittal India Pvt. Ltd. vs. Satish Kr. Gupta (2019): Clarified the scope of Section 60(5) of the IBC, emphasizing that the Adjudicating Authority does not possess jurisdiction to interfere before a quasi-judicial determination under Section 31.
• Kalpraj Dharamshi vs. Kotak Investment Advisors (2021): Addressed the limitations of the Adjudicating Authority's jurisdiction concerning procedural irregularities during CIRP.
• Brilliant Alloys Vs. S. Rajagopal (2018): Highlighted the necessity to interpret regulatory provisions in consonance with the overarching objectives of the IBC.
• State of Bihar Vs. Bihar Rajya (2018) and State of Maharashtra vs. Ramdas Srinivas Nayak (1982): Reinforced principles regarding the conclusiveness of recorded facts in judicial proceedings.

Legal Reasoning

The Tribunal meticulously dissected the arguments presented by both appellants. Key points of legal reasoning include:

• Jurisdiction of Adjudicating Authority: The Tribunal affirmed that under Section 60(5)(c) of the IBC, the Adjudicating Authority holds the jurisdiction to entertain applications concerning questions of law and fact related to CIRP, thereby allowing the review of DSKL's inclusion.
• Locus Standi: Contrary to the appellant's contention, the Tribunal determined that GIACL possessed the standing to challenge DSKL's participation based on potential prejudice and procedural breaches.
• Necessity of DSKL as a Party: The Court found that DSKL was not a necessary party to the application filed by GIACL, as no direct relief was sought against DSKL, and DSKL's rights had been extinguished upon rejection of their initial EOI.
• Commercial Decision vs. Procedural Compliance: The Tribunal clarified that while commercial decisions are pivotal, they must align with procedural mandates. The RP's unilateral decision to accept DSKL's late EOI was deemed a deviation from Regulation 36-A (6), negating the argument that it was a commercial decision.
• Adverse Remarks on RP: The Tribunal scrutinized RP Pankaj Joshi's conduct, uncovering inconsistencies and potential biases that undermined the fairness and transparency of the CIRP, leading to the dismissal of the appeals.

Impact

This judgment underscores the imperative of adhering to procedural norms within the CIRP framework. By rejecting the RP's discretionary inclusion of a PRA post-deadline, NCLAT reinforces the sanctity of established timelines and procedural requirements, ensuring that the CIRP remains fair and unbiased for all stakeholders. Future cases will likely reference this judgment to advocate for strict compliance with procedural directives, thereby minimizing arbitrary interventions by RPs during insolvency resolutions.

Complex Concepts Simplified

Expression of Interest (EOI)

An EOI is a formal indication by prospective resolution applicants to participate in the insolvency resolution process of a corporate debtor. Submitting an EOI is a prerequisite to be considered for presenting a resolution plan.

Committee of Creditors (CoC)

CoC is a collective of financial creditors of the corporate debtor, primarily holding the voting power to approve or reject resolution plans. Their decisions significantly influence the trajectory of the CIRP.

Regulation 36-A (6)

This regulation mandates that any EOI received after the specified deadline must be unequivocally rejected, ensuring fairness and equal opportunity for all potential resolution applicants.

Corporate Insolvency Resolution Process (CIRP)

CIRP is a legal process initiated under the Insolvency and Bankruptcy Code (IBC) to resolve the insolvency of a corporate entity. It aims to maximize the value of assets, facilitate transparent resolution plans, and ensure equitable treatment of all creditors.

Conclusion

The NCLAT's judgment in Dwarkadhish Sakhar Karkhana Ltd. v. Pankaj Joshi & Anr. serves as a pivotal reaffirmation of procedural fidelity within the CIRP framework. By invalidating the RP's arbitrary inclusion of a late EOI, the Tribunal emphasized that commercial wisdom cannot supersede established procedural mandates. This landmark decision not only curtails potential biases in insolvency resolutions but also fortifies the legal infrastructure ensuring that CIRP processes remain transparent, fair, and equitable for all parties involved.