NCLAT dismisses suspended director's challenge to resolution plan approved below liquidation value

The NCLAT Chennai dismissed an appeal by a suspended director challenging approval of a resolution plan valued below liquidation value. The tribunal held that Federal Bank's debt transferee Edelweiss had no grievance regarding Committee of Creditors constitution as they failed to file claims despite public announcement. The suspended director lacked locus standi to challenge the approved plan, as promoters/shareholders cannot contest resolution plans post-approval. The tribunal upheld the CoC's commercial wisdom in approving the plan below liquidation value, noting the Code doesn't mandate resolution plans exceed liquidation value. An operational creditor's voluntary acceptance of lower payment negated discrimination claims.

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Issues Involved:
1. Approval of the Resolution Plan by the Adjudicating Authority.
2. Constitution of the Committee of Creditors (CoC).
3. Valuation of the Corporate Debtor's assets.
4. Discrimination among creditors in the Resolution Plan.
5. Locus of the Appellant to challenge the Resolution Plan.

Summary:

Issue 1: Approval of the Resolution Plan by the Adjudicating Authority
The Appellant challenged the Order dated 13.10.2023, which approved the Resolution Plan under Sections 30 & 31 of the Insolvency and Bankruptcy Code, 2016 (the Code), and complied with Regulations 38 & 39 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Issue 2: Constitution of the Committee of Creditors (CoC)
The Appellant contended that the CoC was illegally constituted without including Edelweiss Asset Reconstruction Company (EARCL). However, the Tribunal observed that since Edelweiss did not file a claim, the Appellant could not have any grievance about its exclusion from the CoC. The Tribunal noted that the Appellant had the opportunity to raise objections but failed to do so at the appropriate time.

Issue 3: Valuation of the Corporate Debtor's assets
The Appellant argued that the Corporate Debtor was improperly valued as certain assets were not included in the valuation report. However, the Tribunal found no material irregularity in the valuation process and upheld the commercial wisdom of the CoC.

Issue 4: Discrimination among creditors in the Resolution Plan
The Appellant claimed that the Resolution Plan was discriminatory as it did not provide Operational Creditors with the minimum Liquidation value. The Tribunal noted that the Operational Creditor had voluntarily agreed to accept an amount lower than the Liquidation value, and there was no contravention of Section 30(2) of the Code.

Issue 5: Locus of the Appellant to challenge the Resolution Plan
The Tribunal held that the Appellant, being a suspended Director, had no locus to challenge the Resolution Plan once the affairs of the Corporate Debtor were handed over to the IRP. The Tribunal referred to the judgment in 'Ravi Shankar Vedam vs. Tiffins Barytes Asbestos and Paints Limited and Others,' which clarified that shareholders have a limited role and cannot challenge the Resolution Plan.

Conclusion:
The Tribunal dismissed the Appeal, finding no considerable grounds to entertain it. The commercial wisdom of the CoC was upheld, and the Resolution Plan was deemed compliant with the Code. The issue of the Appellant's locus to challenge the Plan was conclusively settled, affirming that shareholders have no standing to contest the approval of the Resolution Plan.

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