IBC | No Modified Resolution Plan Can Be Directly Placed Before NCLT Without Being Finally Approved By The CoC: Supreme Court

The Supreme Court has held that if a modified resolution plan, carrying however minor modification/revision, is not finally approved by Committee of Creditors (CoC), then presentation of such modified plan before the Adjudicating Authority for approval is an incurable material irregularity. No modified resolution plan can be placed directly before the NCLT, without being finally approved by the CoC.

The Bench comprising of Justice Dinesh Maheshwari and Justice Vikram Nath, while adjudicating an appeal filed in M.K. Rajagopalan v Dr. Periasamy Palani Gounder & Anr., has held that “There is no and there cannot be any concept of post facto approval of any resolution plan by CoC which had not been placed before it prior to the filing before the Adjudicating Authority.”

BACKGROUND FACTS

The Tourism Finance Corporation of India Limited filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against Appu Hotels Limited (“Corporate Debtor”). The National Company Law Tribunal (“NCLT”) admitted the Corporate Debtor into CIRP on 05.05.2020. Mr. M.K. Rajagopalan (“Successful Resolution Applicant/SRA”) submitted a resolution plan for the Corporate Debtor.

In the ninth meeting of Committee of Creditors (“CoC”) held on 22.01.2021, the resolution plan submitted by the SRA was conditionally approved with 87.39% votes. However, the SRA was directed to send back the plan to the creditors for further revision. Consequently, the allocation for the unsecured dissenting financial creditors was revised from Rs. 29 crore to Rs. 49.13 crore in the modified plan.

On 25.01.2021, the SRA submitted the revised resolution plan to the Resolution Professional, but the latter never placed the revised plan before CoC. The revised plan was directly placed before the Adjudicating Authority (NCLT) for approval. The NCLT approved the resolution plan.

The approval of Resolution Plan was challenged before the National Company Law Appellate Tribunal (“NCLAT”) on various grounds. On 17.02.2022, the NCLAT rejected the resolution plan so approved by the NCLT, while observing that the plan was approved by the NCLT without being placed before the CoC for final approval. The matter was remanded to CoC, with direction to the Resolution Professional to proceed with CIRP from the stage of publication of Form ‘G’, while inviting Expression of Interest afresh as per the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”). Further, the Successful Resolution Applicant was declared ineligible in terms of Section 88 of the Indian Trusts Act, 1882 and disqualified in terms of Section 164(2)(b) of the Companies Act, 2013.

The Successful Resolution Applicant (“Appellant/SRA”) filed an appeal before the Supreme Court against the NCLAT’s order.

SUPREME COURT VERDICT

The Bench opined that the irregularity of not placing the revised plan after ninth meeting before the CoC and directly placing it before NCLT for approval, cannot be ignored as a mere technicality. The financial layout of the resolution plan has to be considered by the CoC before it could be said to have arrived at a considered decision.

If the modified resolution plan, carrying however minor modification/revision, is not finally approved by CoC, then presentation of such modified plan before the Adjudicating Authority for approval is an incurable material irregularity

The Bench held that the decision the CoC would have taken while considering the modified plan is not a matter of assumption or guess. There can be no assumption that the CoC would have approved the plan in all possibilities and its uncertain that no other aspect would have arisen for consideration by the CoC. The conditional approval granted by CoC in its 9^th meeting cannot be treated as final approval. The Bench held as under:

“This, in our view, is not the true operation of the scheme of the process of corporate insolvency resolution nor could the commercial wisdom of CoC be a matter of assumption. Looking to the nature and form of decision taken by the CoC in its ninth meeting, such a conditional approval could not have been treated as a final approval. Whereafter, whatever be the revision, the plan was only to be presented to CoC and could have been presented to the Adjudicating Authority only after final approval of CoC by the requisite majority. In other words, when the modified resolution plan, even if carrying minor modification/revision was not finally approved by CoC, its presentation to the Adjudicating Authority amounts to a material irregularity and this defect cannot be cured.”

No concept of post facto approval of revised resolution plan by the CoC

On the issue of whether there can be any post facto approval of revised resolution plan by the CoC, the Bench held, “There is no and there cannot be any concept of post facto approval of any resolution plan by CoC which had not been placed before it prior to the filing before the Adjudicating Authority.”

The Bench emphasized that the requirement of placing the final resolution plan before the CoC under the CIRP Regulations has to be sincerely complied with.

“We would hasten to observe that the requirement of CIRP Regulations, particularly of placing the resolution plan in its final form before the CoC, has to be scrupulously complied with. No alteration or modification in the process could be countenanced. We say so for the specific reason concerning law that if the process as adopted in the present matter is approved, the very scheme of the Code and CIRP regulations would be left open-ended and would be capable of inviting arbitrariness at any level.”, the Bench ruled.

Accordingly, the Bench held that the Resolution Plan could not have been approved by the NCLT on twin reasons, (i) the failure of Resolution Applicant to place the revised resolution plan before the CoC prior to seeking approval of the NCLT; and (ii) ineligibility of Successful Resolution Applicant in view of Section 88 of the Indian Trust Act. On the remaining issues, the NCLAT’s order has been set aside by the Bench.

The appeal has been partly allowed.

Case Title: M.K. Rajagopalan v Dr. Periasamy Palani Gounder

Citation: Civil Appeal Nos. 1682-1683 of 2022

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