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of <h1>CIRP allowed to continue as scheduled property remains unaffected by plan; no third-party rights until appeals resolved</h1> <h3>KH. Khan & Anr. Versus Art Constructions Private Limited</h3> SC held CIRP may continue because the affidavit confirms the scheduled property has not been dealt with. The scheduled property remains subject to final ... Continuation of CIRP - Scheduled Property is not dealt in any manner - HELD THAT:- In view of the fact that the affidavit specifically states that the Scheduled Property is not dealt in any manner whatsoever, it is opined that the CIRP proceedings can be taken to its logical end. It is made clear that so far as the Scheduled Property is concerned, it will be subject to the final orders passed by us in the civil appeals and the Resolution Plan will have no bearing on the final orders that this Court may pass. Further, no third party rights on the subject property will be created pending disposal of the civil appeal(s). The Adjudicating Authority can proceed with the CIRP proceedings and dispose them of as expeditiously as possible - the application for modification of the order dated 31.01.2025 stands disposed of. ISSUES PRESENTED AND CONSIDERED 1. Whether the Corporate Insolvency Resolution Process (CIRP) may continue and a resolution plan be considered/approved by the Adjudicating Authority when an interim order of the higher court restrains any dealing with a specified 'Scheduled Property'. 2. Whether approval of a resolution plan that contemplates development rights in respect of the Scheduled Property - but expressly provides that the Scheduled Property shall not be dealt with until final adjudication of pending litigation - would contravene the interim restraint order. 3. Whether approval of a resolution plan during the pendency of appellate litigation creates third-party rights in respect of the Scheduled Property that would bind the appellate court's final decision. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Continuation of CIRP despite interim restraint on Scheduled Property Legal framework: The CIRP is governed by the statutory insolvency regime allowing the Adjudicating Authority and Resolution Professional to conduct the insolvency process, consider resolution plans and seek approval from the CoC and the Adjudicating Authority. Higher court interim orders can restrain dealing with specific assets (Scheduled Property) pending final adjudication. Precedent Treatment: No specific precedent was cited or relied upon in the text; the Court proceeded on principles of injunction/interim relief and the statutory scheme for CIRP without distinguishing or over-ruling prior authorities. Interpretation and reasoning: The Court observed that an interim restraint on dealing with the Scheduled Property by a higher court does not ipso facto require a halt to the entire CIRP where the resolution process and plan do not, in substance or effect, deal with or alter rights in the restrained property. The Resolution Professional filed affidavits representing that the Resolution Plan and CoC approval expressly refrain from dealing with the Scheduled Property until final resolution of the pending litigation. Given that explicit undertaking, continuation of CIRP (including consideration and approval of the resolution plan) does not contravene the earlier interim order. Ratio vs. Obiter: Ratio - CIRP may proceed where the resolution process and plan do not deal with a property subject to a higher court's interim restraint; such restraint must be respected, and continuation of the CIRP is permissible so long as the restrained asset is not dealt with. Obiter - procedural expediency observations about expeditious disposal of CIRP and assurances by Resolution Professional. Conclusion: The Adjudicating Authority can continue the CIRP and may consider/decide the pending application for approval of the resolution plan where the plan expressly avoids any dealing with the Scheduled Property in compliance with the interim restraint. Issue 2 - Effect of a resolution plan that contemplates rights but defers dealing until litigation concludes Legal framework: The validity and effect of a resolution plan are subject to statutory requirements and the need to respect binding judicial orders and ongoing litigation affecting assets included in a plan. A plan may include conditional or deferred steps, but implementation must conform to judicial orders. Precedent Treatment: No explicit precedents were discussed; the Court treated the matter by applying principles of compliance with interim orders and the practical distinction between approval and implementation. Interpretation and reasoning: The Court examined the affidavits wherein the Resolution Professional stated that while the Resolution Plan 'deals with the development rights' in relation to the Scheduled Property, it expressly provides that the Scheduled Property 'shall not be dealt with' until final adjudication of the owners' IA and related appeals. The Court read this as an express compliance mechanism with the earlier interim order: approval of such a plan, which contains an express non-dealing clause, would not amount to a substantive contravention because any dealing or implementation in respect of the Scheduled Property is deferred until final judicial determination. Ratio vs. Obiter: Ratio - A resolution plan that contemplates rights but contains an express, enforceable provision deferring any dealing with an asset subject to judicial restraint does not by itself contravene that restraint; approval may be permitted provided implementation would not occur until final adjudication. Obiter - observations that the court's final orders will govern the ultimate fate of the Scheduled Property, regardless of plan approval. Conclusion: The Court held that approval of a resolution plan which expressly refrains from dealing with the Scheduled Property until final adjudication does not contravene the interim order and thus may be proceeded with by the Adjudicating Authority. Issue 3 - Creation of third-party rights in respect of the Scheduled Property pending appellate adjudication Legal framework: Interim judicial restraints can prevent alteration of rights and creation of enforceable third-party interests in restrained assets pending final determination; parties and tribunals must avoid creating rights that would preempt final judicial orders. Precedent Treatment: None cited. The Court applied general principles of interim injunctions and non-creation of rights inconsistent with judicial directions. Interpretation and reasoning: The Court emphasized that, notwithstanding approval of a resolution plan, the Scheduled Property 'will be subject to the final orders' passed by the Court in the civil appeals and that the Resolution Plan 'will have no bearing on the final orders that this Court may pass.' It further directed that 'no third party rights on the subject property will be created pending disposal of the civil appeal(s).' The Court relied on the unequivocal undertakings in the affidavits that the Scheduled Property shall not be dealt with in any manner under the Resolution Plan until final adjudication, thereby safeguarding against creation of enforceable third-party interests inconsistent with the appellate court's eventual ruling. Ratio vs. Obiter: Ratio - Approval of a resolution plan during pending appellate litigation cannot create third-party rights in respect of an asset restrained by the appellate court; any purported rights created in breach of the restraint are not to be permitted and the asset remains subject to the appellate court's final orders. Obiter - Administrative directions encouraging expedition of CIRP consistent with interim restraint. Conclusion: The Court concluded that no third-party rights in respect of the Scheduled Property are to be created pending final disposal of the civil appeals; any future action regarding the Scheduled Property shall be strictly subject to and in accordance with the final orders of the appellate court. Ancillary Conclusions and Directions 1. Given the explicit affidavits from the Resolution Professional and the express non-dealing provision in the Resolution Plan, the Adjudicating Authority is permitted to proceed to hear and decide the application for approval of the Resolution Plan and to take the CIRP to its logical end, subject to the restraints stated above. 2. The Court clarified that the Resolution Plan's approval will not influence or preclude the final adjudication of rights in respect of the Scheduled Property by the appellate court; the Adjudicating Authority must ensure compliance with the interim order and not permit creation of enforceable third-party rights in contravention of it. 3. The application to modify the earlier order dated 31.01.2025 was disposed of in the terms set out: CIRP may proceed (excluding any dealing with the Scheduled Property), and the Adjudicating Authority should dispose of the CIRP expeditiously while preserving the status quo in respect of the Scheduled Property until final adjudication.
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