The NCLAT declared Cosmic CRF ineligible as a PRA and questioned the RP and CoC for several procedural lapses and their handling of Cosmic CRF's eligibility.
Breakdown of the NCLAT's reasoning:
1. Ineligibility of Cosmic CRF Limited:
The NCLAT found Cosmic CRF Limited to be ineligible under various clauses of Section 29A(a), (c), (h), and (j) of the IBC.
The Tribunal concluded that there was "sufficient material on record" to indicate Cosmic CRF Limited's ineligibility under Section 29A, and it found no sufficient grounds to disregard the consistent findings of the two expert firms based only on the Senior Advocate's opinion.
2. Procedural Lapses and Questioning of RP and CoC:
The NCLAT criticized the CoC for not applying its independent mind when deciding on Cosmic CRF Limited's eligibility. Specifically, the CoC preferred the Senior Advocate's opinion (which found Cosmic eligible) over the detailed and consistent reports from PSA and other experts (which found Cosmic ineligible), without providing adequate justification.
The CoC's decision on March 6, 2025, declaring Cosmic CRF Limited eligible was deemed "completely arbitrary" and reached "without due application of mind".
The NCLAT emphasized that the RP and CoC have a duty to ensure that any Resolution Applicant satisfies all conditions and is not ineligible under Section 29A. It stated that the RP/CoC "manifestly erred" in declaring Cosmic CRF Limited eligible and "has not complied with the provisions of section 29A".
The Tribunal highlighted that the RP and CoC were obliged to obtain "other independent reports" and to record "valid reasons" for Cosmic CRF Limited's eligibility, which was "apparently lacking" in this case.
Furthermore, the NCLAT took serious note of "grave allegations" contained in the Enforcement Directorate's (ED) provisional attachment order dated March 25, 2025. This report pointed to "significant lapses" on the part of the Resolution Professional (Mr. Deepak Maini) and the inclusion of an Amtek group company (WLD Investments Pvt. Ltd.) as a creditor in the CoC, which thereby "discredited the entire resolution process and possible violation of IBC Act, 2016".
Based on these findings, the NCLAT concluded that the "conduct of the RP also appears to be not in accordance with law and thus the whole process of CIRP appears to have been vitiated".
My observations (I attended the last hearing):
1. The doors for CosmicCRF remain open, but at the last hearing (28th August), the Cosmic advocate team did not provide sufficient reports or evidence to support CosmicCRF’s eligibility under Section 29A.
2. NCLAT is specifically asking for valid reasons and independent reports to prove CosmicCRF’s eligibility, but no such reports have been submitted so far, according to my understanding.
3. The inclusion of WLD Investments as CoC member has also raised questions about the credibility of the Resolution Professional (RP).
4. CosmicCRF management is making serious efforts to complete the process, but the outcome remains uncertain.
Possible Outcomes for CosmicCRF:
- If the verdict is in favour:
It will be a significant achievement for the growth of CosmicCRF and could lead to the next major leap forward for the company.
- If the verdict is against Cosmic:
CosmicCRF’s targets for FY26 are likely to be achieved as per management guidance, but from FY27 onwards, the verdict could impact future growth guidance.
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