Ratification By IMC And New Board Cures Authorisation Defect, Restores SEFL’s Insolvency Plea Against Roadwings: NCLAT
Ratification By IMC And New Board Cures Authorisation Defect, Restores SEFL’s Insolvency Plea Against Roadwings: NCLAT
Introduction
The National Company Law Appellate Tribunal (NCLAT) has held that a power of attorney issued by the administrator of Srei Equipment Finance Limited (SEFL) to initiate insolvency proceedings remained valid despite the administrator’s discharge, as it was subsequently ratified by the Implementation and Monitoring Committee (IMC) and later by the reconstituted Board of Directors.
A Bench comprising Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra set aside the order of the National Company Law Tribunal Kolkata Bench, which had dismissed SEFL’s Section 7 application against Roadwings International Pvt. Ltd. on the ground of lack of valid authorisation.
Factual Background
In October 2021, the Reserve Bank of India superseded SEFL’s Board and initiated insolvency proceedings, appointing an administrator. On March 28, 2023, the administrator issued a power of attorney (POA) to Sohan Kumar Jha authorising him to commence, initiate, file and defend legal proceedings, including proceedings under the Insolvency and Bankruptcy Code (IBC). The POA was valid until March 31, 2024, and was neither revoked nor terminated. SEFL filed a Section 7 application against Roadwings International Pvt. Ltd. on November 4, 2023.
Procedural Background
On August 11, 2023, SEFL’s resolution plan was approved, and the administrator stood discharged. An Implementation and Monitoring Committee (IMC) was constituted under the plan.
On August 17, 2023, the IMC ratified and confirmed the POA issued to Jha. Subsequently, on February 26, 2024, upon reconstitution of the Board, the IMC stood dissolved. The newly constituted Board ratified and accepted all acts of the IMC, including the POA, and issued a fresh power of attorney. Despite holding that debt and default were established and that limitation did not bar the petition, the NCLT Kolkata dismissed the Section 7 application solely on the ground that there was no subsisting valid authorisation.
Issues
1. Whether the discharge of the administrator invalidated the power of attorney issued to initiate insolvency proceedings.
2. Whether ratification by the IMC and subsequently by the reconstituted Board validated the authorisation.
3. Whether delegation of authority by the Resolution Professional or administrator is permissible under the IBC framework.
Contentions
The respondent contended that once the administrator stood discharged, the power of attorney ceased to have effect and that the Section 7 application was filed without valid authorisation.
SEFL argued that the POA remained valid as it was neither revoked nor terminated, and was subsequently ratified by the IMC and later by the newly constituted Board. It submitted that ratification relates back and cures any alleged defect.
Tribunal’s Observations and Analysis
The NCLAT held that ratification relates back and retrospectively validates the act.
The Tribunal rejected the contention that the IMC lacked authority. Referring to the approved resolution plan, it noted that the IMC was deemed to have all the powers of a Resolution Professional. It further observed that given the complexity and time-bound nature of insolvency proceedings under the IBC, delegation of tasks is both practical and recognised within the statutory framework. The Bench held that the authorisation survived the discharge of the administrator since it was duly ratified first by the IMC and subsequently by the reconstituted Board. Accordingly, actions taken by the POA holder could not be said to suffer from any irregularity on the ground of lack of valid authorisation.
Decision
The NCLAT set aside the NCLT Kolkata’s order rejecting the Section 7 application. The matter has been remitted to the NCLT with a direction to pass an order of admission within one month.
In this case the appellant was represented by Senior Advocate Arun Kathpalia with Advocates Vivya Nagpal, Adithya Kanodia, Diksha Gupta, Syed Sarfaraz Karim, Osheen Jain and Suparna Sardar. Meanwhile the respondent was represented by Advocates Swati Dalmia, S Rai and Safura Ahmed.
