The National Company Law Appellate Tribunal (NCLAT) has set aside hospitality major EIH Ltd‘s petition against an NCLT order approving the sale of Hyderabad-based Golden Jubilee Hotels. The appellate tribunal upheld the earlier decision of the National Company Law Tribunal (NCLT), allowing the bid of a Singapore-based entity and said the business decision by the majority of the CoC (Committee of Creditors) “cannot be questioned or looked into”.
“This recent judgment leaves no doubt about reinforced faith in commercial wisdom of CoC and little scope of any judicial intervention,” said a two-member bench of the NCLAT.
Earlier, the Hyderabad Bench of NCLT had approved the bids of Singapore-based BREP Asia II Indian Holding Co II (NQ) PTE on February 7, 2020, which was challenged before NCLAT by EIH, a flagship company of The Oberoi Group.
EIH, which was managing Golden Jubilee Hotels and has 16 per cent shareholding, contended that it could not be treated as a promoter and become ‘ineligible’ to be part of the resolution plan for the hotel under Section 29A of the Insolvency & Bankruptcy Code (IBC).
During the resolution process, some of the resolution plans proposed for the continuance of EIH as the operator of the hotel on an independent and separate basis. However, indicating it as ‘a conflict of interest’ the resolution professional had suggested that such bids may invite disqualification.
Aggrieved by this, EIH approached NCLT, which also said EIH being a promoter of Golden Jubilee Hotels would be ineligible under Section 29A, any Resolution Plan to include EIH as an integral part of the Resolution Plan would vitiate it.
Section 29A of IBC is a restrictive provision that states that any person on the negative list is not eligible to submit a resolution plan. This includes undischarged insolvent, wilful defaulter or the defaulter under the management or control of the person.
EIH contended that Section 29A is applicable to a bidder and not to a third-party operator like EIH and it was proposed as an operator of the hotel without there being any ownership or management rights. Moreover, the management and operation of hotels is at arm’s length, it added.
However, the NCLAT rejected it and held that EIH was the original promoter of the hotel and the land would not have been allotted unless there was a promoter having experience in running and operating the hotel.
“Hence, the decision of the promoters of the Corporate Debtor to engage the appellant as hotel operator cannot be deemed to be an independent contract at an arm’s length. In view of this, Section 29A of the Code will apply to the appellant being part of the Resolution Plan,” said NCLAT.
Moreover, the appellate tribunal also observed that CoC and NCLT had left it to the discretion of the successful bidder to retain EIH or change the hotel operator and no fault can be found with such reasoning.
The Resolution Plan had envisaged a complete break from all contracts and obligations due towards the existing shareholders and promoters including the appellant EIH Ltd, said NCLAT.
NCLAT also noted that the bidder believed that the hotel was not managed well which was the reason for losses. It had further submitted that if EIH continues as a hotel operator, then Golden Jubilee Hotels will never be able to turn around as it “was the cause of losses due to mismanagement of operations”.
“The SRA (Successful Resolution Applicant) in fact is opposing the Appellant (EIH) to continue with the previous hotel operator (appellant herein),” said NCLAT.
