Introduction

The case of Nishaat Saleem v. Skylark Ithaca Buyers Welfare Association & Anr. heard by the National Company Law Appellate Tribunal (NCLAT) in Chennai on September 9, 2022, serves as a significant judicial examination of procedural compliance under the Insolvency and Bankruptcy Code (IBC) of 2016. The dispute revolves around Nishaat Saleem, a shareholder of Skylark Mansions Pvt. Ltd., challenging the actions—or inactions—of the Resolution Professional in communicating a revised Settlement Proposal to the Committee of Creditors (CoC). This case underscores the critical importance of adhering to the statutory framework established by the IBC, particularly concerning the initiation and approval of settlement proposals during Corporate Insolvency Resolution Processes (CIRP).

Summary of the Judgment

In this case, Nishaat Saleem filed an application under Rule 31 of the NCLAT Rules, seeking directions for the Resolution Professional to communicate a revised Settlement Proposal to the Committee of Creditors. The appellant contended that the Settlement Proposal, which had been revised to incorporate inputs from homebuyers, was crucial for resuming construction and resolving ongoing litigation. However, the respondents, including the Skylark Ithaca Buyers Welfare Association and Skylark Mansions Pvt. Ltd., opposed the application.

The Tribunal meticulously examined the procedural aspects outlined under the IBC and found that the appellant's application did not comply with the mandatory requirements, such as the submission of Form FA and obtaining the requisite majority consent from the CoC. Additionally, the Draft Settlement Agreement lacked enforceable obligations and did not secure approval from the significant majority of the CoC members.

Referencing precedent Supreme Court decisions, the Tribunal affirmed that the scope of the NCLAT and its inherent powers must remain within the confines of the IBC's statutory provisions. Consequently, the application was dismissed, highlighting that any settlement proposals must strictly follow the established legal procedures to be considered valid.

Analysis

Precedents Cited

The Tribunal relied heavily on several landmark Supreme Court judgments to frame its decision:

• Vallal RCK v. M/s. Siva Industries and Holdings Limited & Ors. (2022): Emphasized that the CoC’s commercial wisdom holds paramount status without judicial intervention, reinforcing that financial creditors are presumed to be fully informed and act based on thorough evaluations.
• Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors. (2019): Asserted that the IBC is a comprehensive statute, and the adjudicating authorities must operate within its prescribed framework without extending into equity jurisdiction.
• Arun Kumar Jagatramka v. Jindal Steel Power Limited (2021): Highlighted the importance of respecting the legislative intent of the IBC and cautioned against judicial overreach into the statute’s provisions.

Legal Reasoning

The Tribunal's reasoning centered on strict adherence to the IBC's procedural mandates. Key points included:

• Statutory Framework Compliance: The Tribunal underscored that the IBC is a self-contained statute, and any applications or proposals must align with its specific provisions, particularly Section 12A and Regulation 30A.
• Procedural Deficiencies: The appellant failed to submit the mandatory Form FA and did not secure the necessary 90% majority consent from the CoC members, as required for withdrawal applications under Section 12A.
• Authority Limitations: Reinforced that the NCLAT's inherent powers do not extend to overriding the procedural requirements established by the IBC, thereby rejecting the appellant's attempt to bypass these statutory norms.
• Lack of Enforceable Obligations: The Draft Settlement Agreement did not create enforceable rights for the homebuyers or obligations for the promoters, rendering it non-viable as a legitimate settlement proposal.

Impact

This judgment reinforces the sanctity of procedural compliance under the IBC. It serves as a cautionary tale for stakeholders in CIRPs to meticulously adhere to the prescribed legal processes when proposing settlements or seeking approvals. The decision clarifies that tribunals and resolution professionals must operate within the boundaries of the IBC, ensuring that all submissions meet the statutory prerequisites to be considered valid and enforceable.

Furthermore, by upholding the decision against the appellant, the Tribunal emphasizes the judiciary's commitment to prevent delays and uphold the efficiency goals of the IBC, which prioritizes time-bound insolvency resolutions over protracted legal disputes.

Complex Concepts Simplified

Conclusion

The ruling in Nishaat Saleem v. Skylark Ithaca Buyers Welfare Association & Anr. serves as a definitive affirmation of the necessity for strict procedural adherence within the framework of the IBC 2016. By dismissing the appellant's application due to procedural lapses and lack of substantive compliance with statutory requirements, the Tribunal reinforces the principle that the IBC's operational efficacy is paramount. This judgment not only clarifies the limitations of the Tribunal's inherent powers but also underscores the critical role of the Committee of Creditors in safeguarding the interests of all stakeholders involved in the insolvency process.

For future cases, stakeholders must ensure that all procedural prerequisites are meticulously fulfilled when navigating CIRP, particularly when proposing settlements or seeking withdrawal of insolvency proceedings. This judicial decision thus contributes to the evolving jurisprudence surrounding insolvency and bankruptcy in India, promoting a balanced and orderly approach to resolving corporate financial distress.