NCLAT upholds resolution plan despite home buyers challenging claim reduction and waterfall ranking under IBC

The NCLAT dismissed an appeal challenging a resolution plan approved by the Committee of Creditors. Home buyers/creditors contested the reduction of their claims and questioned their ranking in the waterfall mechanism. The tribunal held that the Resolution Professional and Authorized Representative properly discharged their duties by providing opportunities for objections. The court ruled that a resolution plan approved by requisite majority cannot be subject to judicial review and modification. Mere reduction in creditor claims does not render a resolution plan illegal, and haircut clauses do not violate IBC provisions. The appeal was dismissed without merit.

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Issues Involved:

1. Admissibility of the Appellants' claims under CIRP.
2. Validity of the Resolution Plan approved by the CoC.
3. Alleged discrimination against the Appellants in the Resolution Plan.
4. Judicial review scope of the Adjudicating Authority over the Resolution Plan.

Summary:

1. Admissibility of the Appellants' claims under CIRP:

The Appellants, 25 allottees of residential flats in the Canary Greens project, filed claims after the Corporate Debtor was admitted into CIRP. The Resolution Professional (RP) initially raised concerns about the calculation of the claims but later admitted them in full, rendering the related IAs infructuous. The claims pertained only to the principal amount yet to be recovered from the Corporate Debtor.

2. Validity of the Resolution Plan approved by the CoC:

The RP invited resolution plans, and the CoC approved one with a 96.93% vote share. The Appellants challenged the resolution plan, claiming it was not in consonance with Section 30(2) of the IBC and Regulation 38 of the CIRP Regulations. They argued that Clause 9.2.2B(iii) of the plan treated the compensation amount received as a refund towards the principal sum, which was discriminatory. The Adjudicating Authority dismissed their IA, stating that a resolution plan providing a lesser amount than admitted does not make it illegal and upheld the commercial wisdom of the CoC.

3. Alleged discrimination against the Appellants in the Resolution Plan:

The Appellants contended that they were treated differently from other homebuyers who continued to hold allotments, thus violating Section 30(2)(e) of the IBC. They also argued that as dissenting financial creditors, they should be paid in priority over those who voted in favor of the plan. The Respondent countered that all homebuyers were treated equally as financial creditors and allowed to file claims in Form-CA. The Adjudicating Authority noted that the Appellants' objections were considered, and the resolution plan made adequate provisions for their claims.

4. Judicial review scope of the Adjudicating Authority over the Resolution Plan:

The Adjudicating Authority emphasized the limited scope of judicial review over the commercial decisions of the CoC, as reaffirmed by the Supreme Court in the Jaypee case. It held that once a resolution plan is approved by the requisite majority of the CoC, individual dissenting homebuyers cannot challenge it. The Authority found no transgression of rules or regulations causing serious miscarriage of justice to the Appellants and dismissed the appeal.

Conclusion:

The appeal was dismissed, upholding the commercial wisdom of the CoC and the resolution plan approved by a significant majority. The Adjudicating Authority found no merit in the Appellants' claims of discrimination or procedural lapses.

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