The National Company Law Tribunal (NCLT) has declared the resolution plan submitted by the promoters of Wadhwa Buildcon LLP as invalid citing the conduct of the Resolution Professional (RP) as a key factor given that the promoters were already declared as a wilful defaulter.
The matter, brought by the company’s financial creditor Bank of India, highlighted various irregularities in the approval process of the resolution plan, ultimately leading to its rejection.
The bankruptcy court’s Mumbai bench found substance in the arguments of the lender, particularly regarding the conduct of the resolution professional. It was revealed that the voting percentage of the financial creditor decreased from 100% to 31.08% over the course of several meetings, while the voting rights of homebuyers increased substantially to 66.42%.
“Homebuyers being the most vulnerable section as their only concern is to ensure that they are able to get their respective flats. Thus, in the present case, it is not the ‘Commercial Wisdom’ of a financial creditor which has prevailed upon the decision making but the most vulnerable section of COC i.e. home buyers who were the most gullible constituents of COC,” said the NCLT bench presided by judicial member Reeta Kohli and a technical member Madhu Sinha.
The resolution professional’s actions, including the delay in presenting the resolution plan and the addition of homebuyers to the committee, were seen as detrimental to the interests of the lender.
Furthermore, it was discovered that promoter of the company, Ankit Wadhwa, was declared a wilful defaulter prior to the submission of their revised resolution plan. Despite this, the resolution professional failed to disclose this crucial information to the Committee of Creditors (COC).
The court deemed this omission as a dereliction of duty on the part of the resolution professional, noting that the COC was deprived of the opportunity to make an informed decision.
The court emphasized the importance of Section 29A of the Insolvency and Bankruptcy Code (IBC), which aims to prevent defaulting promoters from participating in the resolution process. It ruled that no resolution plan from a wilful defaulter can be accepted or approved, in line with the objectives of the IBC.
Additionally, concerns were raised about the composition of the COC, which appeared to be dominated by homebuyers. The court observed that the COC lacked both commercial wisdom and legal acumen, allowing the resolution plan to be approved despite non-compliance and the extinguishment of personal guarantees.
In the backdrop of these findings, the court has set aside the resolution plan submitted by the promoters of the company and granted an extension of 180 days for the Corporate Insolvency Resolution Process (CIRP) to invite fresh expressions of interest.
The ruling underscores the importance of transparency and fairness in the insolvency resolution process, highlighting the need for resolution professionals to uphold their duties impartially and ensure compliance with the law.
