A resolution plan, once approved unanimously by the CoC and offering more than liquidation value, cannot be rejected by the NCLT.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench led by Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka reviewed an appeal and observed that a resolution plan, once approved unanimously by the CoC and offering more than liquidation value, cannot be rejected by the NCLT unless clear non-compliance with the IBC or CIRP Regulations is demonstrated; the tribunal also emphasized that liquidation must remain a last resort.
The National Company Law Appellate Tribunal (NCLAT) heard the appeal filed by the Resolution Applicant, Midpoint Commodeal Pvt. Ltd., challenging the order dated 21.08.2024 passed by the NCLT Ahmedabad Bench. The CIRP against M/s Steelera Engineers Pvt. Ltd. commenced on 16.11.2022 following an application under Section 7 of the IBC by the Bank of Baroda. The appellant, who was also a secured financial creditor, submitted a resolution plan for ₹6.5 crores, which the Committee of Creditors (CoC) approved unanimously with a 100% voting share on 15.05.2023. However, the NCLT rejected the plan, prompting the appeal.
The NCLT rejected the resolution plan on three main grounds. First, it found that the plan did not provide a fixed repayment schedule for the loans or demonstrate the debtor’s ability to service the debt post-resolution. Second, the tribunal observed that the plan was conditional since its validity for approval expired on 19.10.2023, and no formal extension was presented before the tribunal. The NCLT also highlighted that the resolution applicant, holding 99.87% voting rights in the CoC, was the sole decision-maker in the meetings, which raised concerns about impartiality. Finally, the plan was deemed non-compliant with Regulations 38(2) and 38(3) of the CIRP Regulations, as it did not adequately address the cause of default or provide a clear debt-repayment mechanism.
The appellant contended that the reasons provided by the NCLT were unsustainable. It argued that since the appellant was both the secured financial creditor and resolution applicant, the debt of ₹6.28 crores was to be adjusted internally, leaving no further payment obligations. The appellant also extended the validity of the bank guarantee until 31.12.2024, countering the claim that the plan was conditional. Additionally, the plan identified the cause of default as collusion among the debtor’s former employees and directors, which the appellant argued was adequately disclosed in the plan.
The NCLAT found merit in the appellant’s arguments, emphasizing that the plan offered more than both the liquidation and fair value of the corporate debtor. It reiterated that liquidation should be the last resort under the IBC. The tribunal also noted that the plan ensured full payment to the other financial creditor, who had no objection to the plan. Consequently, the NCLAT set aside the NCLT’s order approved the resolution plan and directed the appellant to pay ₹2 lakhs toward liquidation expenses within two weeks.
The NCLAT allowed the appeal and instructed the NCLT to pass consequential orders for the plan’s implementation within one month. Each party was directed to bear its own costs.
Mr. Rishav Banerjee, Advocate represented the Appellant.
Ms. Suranjana Chatterjee, Advocate appeared for Respondent No. 1.
Ms. Prerna Shaha, Advocate represented Respondent No. 2.
Mr. Jigar Bhatt, Liquidator
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