The Kolkata Bench of the National Company Law Tribunal (NCLT) has held that where a resolution plan has been approved by the CoC with the requisite voting share, the Adjudicating Authority’s role is limited to verifying compliance with the mandatory requirements of Section 30(2) of the IBC and the corresponding CIRP Regulations, and the NCLT cannot sit in appeal over the commercial wisdom of the CoC.
The NCLT clarified that the resolution plan must provide for payment of CIRP costs, repayment of operational creditors’ debts, management of the corporate debtor’s affairs, and a mechanism for implementation and supervision, and must not contravene any provision of law. Essentially, the Tribunal cautioned that upon approval under Section 31 of IBC, all claims not forming part of the resolution plan stand extinguished, but the liability of personal guarantors is not ipso facto discharged.
The Coram of Labh Singh (Judicial Member) and Rekha Kantilal Shah (Technical Member) observed that the Resolution Professional had filed the Compliance Certificate in Form-H along with the resolution plan, and on perusal, the same was found to be in order. The Bench noted that the resolution plan provided for payment of CIRP costs under Section 30(2)(a), repayment of debts of operational creditors under Section 30(2)(b), management of affairs of the corporate debtor under Section 30(2)(c), and implementation and supervision by the RP and CoC under Section 30(2)(d) of the Code.
The Adjudicating Authority placed strong reliance on the Supreme Court’s decision in K. Sashidhar v. Indian Overseas Bank [(2019) 12 SCC 150], wherein it was held that once the CoC has approved a resolution plan by the requisite percentage of voting share, it is imperative for the Resolution Professional to submit the same to the NCLT, and the NCLT’s discretion is circumscribed by Section 31 to a scrutiny limited to the requirements specified in Section 30(2). The Bench further referred to the Supreme Court’s decision in Vallal RCK v. Siva Industries and Holdings Limited [Civil Appeal Nos. 1811-1812 of 2022], which reaffirmed that the commercial wisdom of the CoC has been given paramount status and that financial creditors are presumed to be fully informed about the viability of the corporate debtor and the feasibility of the proposed resolution plan.
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The NCLT categorically held that it is not endowed with the powers to analyse or evaluate the commercial decision of the CoC, and since the resolution plan was approved by 100% voting share, the Adjudicating Authority could not interfere in the same. The Bench confirmed compliance with Sections 30(1), 30(2)(a) to 30(2)(e), and various Regulations including 38(1), 38(1A), 38(1B), 38(2), and 38(3) of the CIRP Regulations, and found the plan not in contravention of Section 29A of the Code.
Regarding reliefs, waivers, and concessions, the NCLT clarified that it has the power to grant only those reliefs that fall within the ambit of the I&B Code and the Companies Act, 2013, while reliefs pertaining to other governmental authorities would have to be dealt with by the respective competent authorities, keeping in view the spirit of the Code. On extinguishment of claims, the Bench referred to Ghanshyam Mishra and Sons Pvt Ltd. v. Edelweiss Asset Reconstruction Company Ltd. [(2021) 13 S.C.R. 737], holding that all claims not part of the resolution plan shall stand extinguished on the date of approval, including statutory dues owed to government authorities. On guarantors, the NCLT reiterated that approval of a resolution plan does not per se discharge the liability of personal guarantors, and appropriate action against them may be taken in accordance with law.
Briefly, Tatanagar Financial Services Limited, an operational creditor, initiated the Corporate Insolvency Resolution Process (CIRP) against SIS Mohan Real Estate Private Limited under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC), which was admitted by the NCLT, Kolkata on Aug 31, 2023. The public announcement was made on Sep 02, 2023, and the Committee of Creditors (CoC) was constituted on Sep 30, 2023 with Tatanagar Financial Services Limited as the sole CoC member holding 100% voting share. The total admitted claim stood at Rs. 10.45 crores, entirely from the operational creditor, with no secured or unsecured financial creditors.
Two registered valuers were appointed, and the average fair value of the corporate debtor’s properties was determined at Rs. 3.30 crores and the average liquidation value at Rs. 2.64 crores. After the first Form-G publication yielded no expressions of interest, a second Form-G was published on March 29, 2024, which attracted five prospective resolution applicants. Ultimately, only one resolution plan was received from Secure Infratech Finserv and Securities Limited on May 28, 2024, proposing a total plan amount of Rs. 1.55 crores with an earnest money deposit of Rs. 10 lakhs.
The CoC approved the resolution plan with 100% voting share in its 8th meeting held on June 21, 2024 by raising of hands. The resolution plan entailed a haircut of approximately 87.07% on the admitted claim, with Rs. 20 lakhs allocated towards CIRP costs and Rs. 1.35 crores towards the operational creditor, payable within 60 days of plan approval. The resolution applicant proposed implementation within 60 days from the date of approval.
