Whether more than one Challenge Mechanism is permissible? and Whether CIRP Regulations 39(1A) and 39(1B) are mandatory or directory? – Torrent Investments Pvt. Ltd. Vs. Y. Nageswara Rao, Administration. – NCLT Mumbai Bench
In this petition, following questions have been considered:
(a) Whether more than one challenge mechanism is permissible?
(b) Whether Regulations 39 (1A) and (1B) are mandatory or directory?
(c) Whether any further negotiations could be allowed by the CoC after conclusion of value maximization under Regulation 39(1A), in exercise of its commercial wisdom, by either relying on general provisions of the RFRP or modifying /re-issuing the RFRP?
NCLT held that CoC cannot device an illegal mechanism to circumvent the scheme of Code to indirectly be able to negotiate further with the resolution applicants post conclusion of the statutory scheme of challenge process under Regulation 39(1A). The settled legal principle of ‘Quando aliquid prohibetur ex directo, prohibetur et per obliquum’ dictates that one cannot do indirectly what one cannot do directly. Applying this principle in the present case, consideration of the revised financial proposal of the IIHL (revised after the conclusion of the challenge mechanism), being in gross violation of the challenge mechanism as well as Regulation 39(1A) & 39(1B) of CIRP Regulations, cannot be done indirectly under the garb of declaring the result of the challenge mechanism as sub-optimal and resetting the clock back to Regulation 36B in derogation of the regulatory intent, especially when the final financial proposal of the Applicant was much above the minimum threshold set in the challenge mechanism. The proposed second round of the challenge mechanism is nothing but an act to indirectly achieve what could not have been achieved by adhering to the challenge mechanism in terms of the challenge process note.
