2025 (2) TMI 687 - AT - IBC

Resolution plans cannot be modified beyond mandatory compliance verification, CoC commercial wisdom remains unchallengeable under Section 53(1)

Pioneer Engineering Industries Versus Anjali Capfin Pvt Ltd & Ors, Pioneer Engineering Industries Versus Primus Pipes & Tubes Ltd & Anr And Anjali Capfin Pvt Ltd Versus Sanyam Goel & Ors

The NCLAT held that NCLT lacks power to modify resolution plans beyond verifying mandatory compliance and cannot examine commercial wisdom of Committee of ... Power of NCLT to modify the resolution plan - HELD THAT:- The powers of the Ld NCLT with respect to the approval of the Resolution Plan does not extend to examine the commercial wisdom of the CoC and once it is found all the mandatory requirements have been duly complied with and taken care of by the Resolution Applicant, the process of judicial review under Section 31 of the Code cannot be stretched to carry out quantitative analysis concerning a particular creditor. Admittedly, the Resolution Plan has been approved by the CoC with 79.10% voting share after taking into account the feasibility and viability of the Resolution Plan. The Ld. NCLT also does not have any jurisdiction to specifically direct and/or impose a condition for the distribution of an amount that may be received and/or recoverable by Corporate Debtor amongst the creditors while approving the Resolution Plan - The modification made to the resolution plan are set aside, and hence these three appeals are thus allowed. Locus of Appellant, being the dissenting financial creditor of the Corporate Debtor to challenge the Resolution Plan - HELD THAT:- The Appellant, being the dissenting financial creditor of the Corporate Debtor, does not have the requisite locus to challenge the Resolution Plan as duly approved by the members of the CoC. In DBS Bank Ltd. v. Ruchi Soya Industries Ltd. [2024 (1) TMI 186 - SUPREME COURT], wherein the Hon’ble Supreme Court categorically held a dissenting financial creditor does not have any say when the Resolution Plan has been approved by a two-third majority of the CoC and a dissenting financial creditor can only object to the distribution of the proceeds under the Resolution Plan, when the proceeds are less than what the dissenting financial creditor would be entitled to in terms of Section 53(1) of the Code. It is not the case of the Appellant that it has been paid less than it is entitled to under Section 53(1) of the Code under the Resolution Plan. As such, the Appellant is precluded from raising objections to the Resolution Plan. The Appellant has failed to raise any cogent ground that may warrant the setting aside of the Resolution Plan. Admittedly the Appellant has duly participated in all the CoC Meetings till the approval of the Resolution Plan and has indulged in extensive deliberations and negotiations with regards to the terms of the Resolution Plan. Therefore, it is clear the Appellant has preferred these Appeals as an afterthought. Thus there is no merit in these two appeals and thus are dismissed. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include:1. Whether the National Company Law Tribunal (NCLT) has the authority to modify an approved resolution plan, particularly concerning the distribution of compensation from potential land acquisition.2. Whether the resolution plan submitted by the Successful Resolution Applicant (SRA) is valid, considering allegations of it being a real estate transaction, its valuation, and compliance with the Request for Resolution Plan (RFRP) and relevant regulations.3. The jurisdiction of the NCLT in interfering with the commercial wisdom of the Committee of Creditors (CoC) in approving the resolution plan.4. The rights of a dissenting financial creditor in challenging an approved resolution plan.ISSUE-WISE DETAILED ANALYSIS1. Authority of NCLT to Modify Resolution Plan- Legal Framework and Precedents: The resolution plan is subject to the commercial wisdom of the CoC, and the NCLT's role is limited to ensuring compliance with Section 30(2) of the Insolvency and Bankruptcy Code (IBC). The NCLT cannot modify the plan but can approve or reject it.- Court's Interpretation and Reasoning: The Tribunal held that the NCLT exceeded its jurisdiction by modifying the resolution plan to include distribution of potential land acquisition compensation among creditors, which was contrary to the plan's provisions.- Key Evidence and Findings: The resolution plan explicitly stated that any compensation from land acquisition would accrue to the Corporate Debtor, not the creditors. The NCLT's modification was thus contrary to the plan's terms.- Application of Law to Facts: The Tribunal applied the principle that the NCLT cannot interfere with the CoC's commercial decisions, emphasizing that the plan's terms regarding compensation were clear and binding.- Treatment of Competing Arguments: The Tribunal dismissed the argument that the NCLT could modify the resolution plan, citing established legal principles and past judgments.- Conclusions: The modification imposed by the NCLT was set aside, reaffirming that the NCLT cannot alter the commercial terms of a resolution plan.2. Validity of the Resolution Plan- Legal Framework and Precedents: The resolution plan must comply with the IBC and relevant regulations, including valuation standards and procedural requirements.- Court's Interpretation and Reasoning: The Tribunal found that the resolution plan was compliant with the IBC, and the valuation was conducted by independent registered valuers. The plan's commercial viability was affirmed by the CoC's approval.- Key Evidence and Findings: The CoC meetings and the resolution plan's terms were scrutinized, showing compliance with the IBC and addressing potential land acquisition contingencies.- Application of Law to Facts: The Tribunal applied the IBC's provisions, emphasizing the CoC's role in assessing commercial viability and the plan's adherence to regulatory requirements.- Treatment of Competing Arguments: The Tribunal dismissed allegations of the plan being a real estate transaction and undervaluation, citing lack of evidence and the CoC's approval.- Conclusions: The resolution plan was upheld as valid, with the Tribunal emphasizing the CoC's commercial wisdom and the plan's adherence to legal requirements.3. Jurisdiction of NCLT and Commercial Wisdom of CoC- Legal Framework and Precedents: The CoC's commercial decisions are paramount, and judicial review is limited to ensuring compliance with the IBC.- Court's Interpretation and Reasoning: The Tribunal reiterated that the NCLT cannot interfere with the CoC's commercial decisions, which are binding unless they violate specific legal provisions.- Key Evidence and Findings: The CoC's approval with a significant majority was a key factor in affirming the plan's validity.- Application of Law to Facts: The Tribunal applied established principles, emphasizing the limited scope of judicial review in resolution plan approvals.- Treatment of Competing Arguments: The Tribunal dismissed arguments for NCLT intervention, citing the CoC's decisive role and past judgments affirming this principle.- Conclusions: The Tribunal upheld the CoC's decision, emphasizing the limited role of the NCLT in resolution plan approvals.4. Rights of Dissenting Financial Creditor- Legal Framework and Precedents: A dissenting financial creditor's rights are limited to challenging distribution under the resolution plan, not the plan's approval.- Court's Interpretation and Reasoning: The Tribunal held that the dissenting creditor lacked the locus to challenge the plan's approval, as it was not contrary to Section 53(1) of the IBC.- Key Evidence and Findings: The CoC's approval and the plan's compliance with distribution requirements were key factors in dismissing the appeal.- Application of Law to Facts: The Tribunal applied the IBC's provisions, emphasizing the limited grounds for a dissenting creditor to challenge a resolution plan.- Treatment of Competing Arguments: The Tribunal dismissed the dissenting creditor's arguments, citing lack of evidence of any violation of Section 53(1).- Conclusions: The dissenting creditor's appeal was dismissed, reaffirming the limited grounds for challenging an approved resolution plan.SIGNIFICANT HOLDINGS- The Tribunal held that the NCLT has no jurisdiction to modify a resolution plan approved by the CoC, reaffirming the principle that judicial review is limited to ensuring compliance with the IBC.- The Tribunal emphasized the paramount status of the CoC's commercial wisdom, which is non-justiciable except on limited grounds specified in the IBC.- The Tribunal dismissed the appeals challenging the resolution plan, upholding the CoC's decision and the plan's compliance with legal requirements.- The Tribunal reiterated that a dissenting financial creditor cannot challenge the approval of a resolution plan unless it violates specific distribution provisions under the IBC.