Operational Creditors Cannot Question Approval Of Resolution Plan That Provides Them With More Than Liquidation Value: NCLAT

Brief Facts:

On 07.12.2022, the Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor was initiated and an Interim Resolution Professional (IRP) was appointed.

On 05.06.2023, the CIRP period of 180 days had expired. The Resolution Professional (“RP” in short) filed an application before the Adjudicating Authority for extension of CIRP period for 90 days which was allowed on 19.06.2023. In the 14th Committee of Creditors (CoC) meeting held on 29.08.2023, the CoC resolved to extend the CIRP period beyond 270 days. This was allowed by the Adjudicating Authority on 06.10.2023.

The 19th CoC meeting held on 01.11.2023 decided to reissue Form-G. Accordingly, the RP republished Form-G on 03.11.2023

On 29.01.2024 the CoC approved the resolution plan submitted by Mercury Terra Firma which was approved with 97.36% voting. The Adjudicating Authority passed the impugned order on 27.11.2024 approving the resolution plan. Aggrieved by the impugned order approving the resolution plan, the present appeal has been preferred by the Appellant- Operational Creditor.

Contentions:

The Appellant submitted that the Adjudicating Authority approved the resolution plan in violation of Section 12 of the Code by allowing repeated extensions of CIRP even beyond 330 days. Extension had been allowed beyond the period of 330 days without adequate justification.

It was also argued that the RP had re-published the Form-G on 03.11.2023 only in the newspapers and not on the website of IBBI or the Corporate Debtor which amounted to noncompliance of Regulation 36-A(2) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations” in short).

It was also submitted that the RP did not circulate the valuation report of the Corporate Debtor either to the Appellant or to other members of the CoC but only furnished bare figures of fair value and liquidation value.

Per contra, the Respondent submitted that the Appellant being an Operational Creditor having no voting rights it was of no consequence whether the detailed valuation report was placed before them or not since it was the members of the CoC who were required to exercise their commercial wisdom on the valuation reports placed before them.

It was also argued that the Appellant had been a regular participant in the CoC meetings but never opposed the extension of CIRP time-lines. Not having raised such objections earlier, the Respondent cannot raise this issue at this belated stage.

Lastly, it was submitted that the resolution plan already stands implemented and therefore cannot be reversed when the Appellant has failed to make out any ground as to how the resolution plan was non-compliant of Section 30(2) of the Code.

Observations:

The Tribunal noted that the Appellant received notices of the CoC meetings and regularly participated in such meetings. The Appellant was also aware of the CIRP proceedings including the CIRP time period extended by the CoC. However, the issue of extension of CIRP time period was not challenged by the Appellant at an appropriate stage and is raising it belatedly.

It further added that the Committee of Creditors of Essar Steel India Vs Satish Kumar Gupta judgment which has been relied upon by the Appellant does not come to their rescue since this judgment does not completely rule out the possibility of CIRP extension beyond 330 days particularly so when a short period is left for completion of CIRP.

The Tribunal observed that whether the valuation reports were shared with the Appellant or not is immaterial since it was the members of the CoC who were required to exercise their commercial wisdom based on the valuation reports placed before them and not the Appellant who was not entitled to vote. Therefore, the submission that the reports were not shared with the Appellant which shows material irregularity, lacks force.

The Tribunal said that as per section 30 of the code the entitlement of an Operational Creditor is to receive the amount as provided under Section 30(2)(b) of the Code which is not less than the amount which the Appellant would have been entitled to receive in the event of a liquidation of the Corporate Debtor under Section 53 of the Code.

It further observed that since the liquidation value in the present case is nil, the Operational Creditors including the Appellant cannot have any grievance against the amount being paid to them since the amount paid under the plan to the Operational Creditors is clearly more than the liquidation value.

The Tribunal concluded that the jurisdiction of the Adjudicating and Appellate Authorities to interfere with approval of the resolution plan is limited. The scope of judicial review is confined to the provisions contained in Section 30(2) of the Code for the Adjudicating Authority and Section 30(2) read with Section 61(3) for the Appellate Authority. There is only limited review which can be exercised by the Adjudicating Authority or the Appellate Authority. There can be no fetters on the commercial wisdom of CoC.

Accordingly, the Appeal was dismissed.

Case Title: J.K. PAPER FIBRE RESOURCES Through its Partner Mr. Jitendra K. Shah Versus Sunit Jagdishchandra Shah

Case Number:Company Appeal (AT) (Insolvency) No. 76 of 2025

Judgment Date: 5/03/2025

For Appellant : Mr. Romy Chako, Sr. Advocate with Mr. Ajay Kumar Tiwari, Advocates.

For Respondent : Ms. Honey Satpal, Mr. Yash Dhyani, Ms. Pooja Singh and Mr. Akash Agarwalla, Advocates.

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