NCLT Ahmedabad Denies Approval Of Resolution Plan For Being Unimplementable

Background Facts

Anil Mega Food Park Pvt. Ltd. ("Corporate Debtor") was admitted in Corporate Insolvency Resolution Process ("CIRP") by the NCLT Ahmedabad Bench vide an order dated 29.01.2021. Mr. Ramchandra D. Choudhary was appointed as the Interim Resolution Professional and thereafter as the Resolution Professional. The Committee of Creditors (CoC) comprised of only one Financial Creditor i.e., IFCI Ltd. having its 100% voting shares.

The Resolution Professional had invited the Expression of Interest ("EoI")/ Resolution Plan from prospective resolution applicants for the Corporate Debtor. M/s. M2K Developers Pvt. Ltd. ("Successful Resolution Applicant/ SRA") had submitted its resolution plan and the same got approved by the CoC.

Consequently, the Resolution Professional had moved an application under Section 30(6) of the Insolvency and Bankruptcy Code, 2016 ("IBC, 2016") before the Adjudicating Authority for approval of the Resolution Plan submitted by M/s. M2K Developers Pvt. Ltd.

Relevant Law

Section 31 of the IBC

"31. Approval of resolution plan –

(1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan:

PROVIDED that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation.

Decision Of The Adjudicating Authority

The Bench observed that the Proviso to Section 31 of the IBC makes it clear that before approving any Resolution Plan, the Adjudicating Authority has to see "whether Resolution Plan can be effectively implemented?"

The Bench observed that the Resolution Professional had prepared and placed on record a layout of the Corporate Debtor's unit and the lands surrounding it. The dotted lines in Layout gave an impression that a road was providing connectivity between the unit and the main road. However, no such road existed in reality. The Corporate Debtor's unit was landlocked from all sides.

The Bench further observed that the Resolution Professional was aware regarding the landlocked status of the Corporate Debtor's unit but tried to portray in the Information Memorandum that an approach road can be made available to the Prospective Resolution Applicant. Accordingly, the SRA's Resolution Plan was based on the condition that it can only be implemented if an approach road is provided by the Resolution Professional/CoC leading to the unit of the Corporate Debtor.

"If there is no approach road connecting to the main road and unit of the Corporate Debtor, we fail to understand how the Resolution Applicant will be able to run that unit…..It is not in dispute that due to the National Highway in between the main road and unit of the Corporate Debtor, there exists no approach road. It is not possible for the RP, and the CoC to make available such an approach road leading to the unit of the Corporate Debtor which the Resolution Applicant is demanding through the Resolution Plan as approved by the CoC."

The Bench held that the Resolution Plan, if at all approved, cannot be effectively implemented by anyone. The proviso to section 31(1) does not permit us to approve such conditional Resolution Plan.

The Bench denied to approve the Resolution Plan and further directed Resolution Professional to return the Earnest Money Deposit ("EMD"), if any, to the Resolution Applicant.

Case Title: IFCI Ltd. v Anil Mega Food Park Pvt. Ltd., CP(IB) 287 of 2019

Counsel For the Resolution Professional: Sr. Adv. Mr. Navin Pahwa, along with Adv. Mr. Arjun Padhiyar, Adv. Mr. Atul Sharma

Counsel For the Resolution Applicant: Adv. Mr. Pavan S. Godiawala.

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