Submission Of New Settlement Proposals Not Permissible After CoC Approves Resolution Plan Or Concludes CIRP: NCLAT

Brief Facts:

The corporate debtor, Nimitaya Hotel & Resorts Pvt. Ltd. ("Nimitaya"), had secured various financial facilities from Indian Bank (formerly Allahabad Bank). Indian Bank filed a Section 7 application under the Insolvency and Bankruptcy Code (“IBC”), which was admitted by the adjudicating authority on 24.12.2021. Dissatisfied with this decision, Mr. Sanjeev Mahajan, a shareholder and promoter of Nimitaya, filed a company appeal challenging the order. On 04.07.2022, the NCLT, New Delhi, disposed of the appeal and allowed Mr Sanjeev to submit a fresh application under Section 12-A to the Interim Resolution Professional (IRP) or Resolution Professional (RP) for consideration by the Committee of Creditors (CoC), with a settlement offer exceeding Rs. 81 crore.

Subsequently, Mr. Sanjeev submitted a settlement proposal, which the CoC rejected. This led him to file a contempt application. The contempt application was dismissed on 21.11.2022, but the NCLT permitted him to participate in negotiations with the CoC, allowing the CoC to request revisions to the settlement proposal.

Mr. Sanjeev submitted a revised settlement proposal on 25.11.2022, offering Rs. 100 crore. This proposal, along with the Resolution Plan from Nehru Place Hotels and Real Estates Pvt. Ltd. (the successful resolution applicant, or "SRA"), was considered by the CoC. Both proposals were put to e-vote, and on 08.01.2023, the CoC approved the SRA's plan valued at Rs. 120.01 crore with 100% vote share, while rejecting Mr. Sanjeev's proposal.

After the CoC's approval of the Resolution Plan, Mr. Sanjeev submitted another proposal on 21.03.2023, offering Rs. 118.25 crore, which the RP forwarded to the CoC. Mr. Sanjeev also filed an application before the NCLT, citing difficulty in meeting the Chairman-cum-Managing Director of the bank. On 03.02.2023, the NCLT allowed him to raise his grievances before the adjudicating authority, but no further orders were passed. Mr. Sanjeev subsequently approached the Supreme Court, which, on 20.03.2023, upheld the NCLT's decision, allowing him to approach the NCLT.

Mr. Sanjeev's proposal, submitted after the SRA's plan approval, was declined by the Indian Bank on 05.05.2023 via email. He then filed an application before the adjudicating authority, seeking directions for the respondents to deliberate on his settlement proposal under Section 12-A. However, both the RP and SRA opposed the application. On 01.12.2023, the adjudicating authority granted him a final opportunity to negotiate an acceptable settlement. This order was challenged by the SRA through a company appeal. Consequently, the NCLT removed the provision for allowing further negotiations and instructed the adjudicating authority to proceed with making a decision on the approval of the Resolution Plan. Feeling aggrieved, Mr. Sanjeev filed an appeal before the National Company Law Appellate Tribunal (NCLAT).

Observations of the NCLAT:

The NCLAT observed that Mr Sanjeev's challenge to the rejection of his settlement proposal, which had an enhanced plan value of Rs. 118.26 crore, was not sustainable. Mr. Sanjeev argued that the Adjudicating Authority had failed to consider his submissions regarding the CoC's rejection of the proposal. He referred to the Supreme Court's decision in Swiss Ribbons Pvt. Ltd. v. Union of India [(2019) 4 SCC 17], asserting that an arbitrary rejection by the CoC could be challenged. The Supreme Court had noted that if the CoC arbitrarily rejects a fair settlement or withdrawal claim, such a decision could be set aside by the NCLT or NCLAT. While the NCLAT acknowledged the validity of this judgment, it found that it did not support Mr. Sanjeev's case. The CoC's decision in this instance was not arbitrary, rendering Mr. Sanjeev's reliance on the judgment misplaced.

Mr. Sanjeev's revised settlement proposal, which included a condition that "upon approval, the liabilities of the Corporate Debtor (CD), its Promoters, and Guarantors would be extinguished," was considered during the 13th and 14th CoC meetings. The CoC noted that the proposal required the Bank to release the personal guarantees of the Promoters and Guarantors. This condition conflicted with the Resolution Plan submitted by the SRA, under which the personal guarantees would remain with the Bank. The CoC ultimately decided not to accept the settlement proposal, instead approving the Resolution Plan.

The NCLAT concluded that the CoC's decision, taken with a 100% vote share on 08.01.2023, was well considered and deliberated, and could not be deemed arbitrary. The NCLAT also emphasized that after the approval of the Resolution Plan and the rejection of Mr Sanjeev's proposal, it was not possible for Mr Sanjeev to submit a new proposal or increase the settlement value. The CIRP period had ended on 28.01.2023, and Mr Sanjeev's attempt to file fresh proposals post-CIRP was not permissible. The NCLAT referred to an order dated 03.02.2023, which did not grant Mr. Sanjeev any liberty to file new proposals after the CIRP's conclusion.

Conclusively, the NCLAT dismissed the appeal, holding that it was devoid of merit.

Case Title: Sanjeev Mahajan vs Indian Bank and Others

Case No.: Company Appeal (AT) (Insolvency) No. 1440 of 2024

Advocates for the Appellant: Mr Abhijeet Sinha, Sr. Advocate with Mr Nakul Mohta, Mr Kumar Anurag Singh, Mr Vinayak Bhandari, Mr Zain A Khan, Ms Riya Dhingra, Mr Puneet Pathak

Advocates for the Respondent: Mr Rajesh Kumar Gautam, Mr Anant Gautam, Mr Kavitoli, Ms Likiw, Mr R. P. Daida, Mr Dinesh Sharma, Mr Kushagra (Advocates for Indian Bank); Mr Manuj Nagrath, Mr Navneet Gupta (Advocates for the Resolution Professional); Mr Ajay Kumar, Mr Pankaj Sethi, Mr Vaibhav Tiwari, Mr Vijayant Goel, (Advocates for Nehru Palace and Real Estates)

Date of Pronouncement: 20th August 2024