Resolution plan payout split and loan assignment to approving vs dissenting creditors cannot be changed after approval; appeal dismissed

The dominant issue was whether an approved resolution plan's distribution mechanism could be modified post-approval by reallocating an assigned loan from approving financial creditors to dissenting financial creditors under the plan's "other entity" clause. The NCLAT held that the plan expressly contemplated assignment of the specified loan to approving financial creditors and distribution of the balance resolution amount among approving financial creditors, including that loan. Any subsequent attempt by an approving financial creditor to alter this arrangement by seeking a CoC meeting amounted to an impermissible modification of a CoC-approved plan. Relying on s.30(4) IBC and the binding effect of an approved plan, the Tribunal held that commercial wisdom cannot justify post-approval changes. The appeal was dismissed.

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1. ISSUES PRESENTED AND CONSIDERED

1. Whether, after a resolution plan has been approved by the Committee of Creditors and later approved by the Adjudicating Authority, the Committee of Creditors could validly pass a subsequent resolution reallocating/altering the plan's distribution mechanism by reassigning the Reliance Bhutan Loan from the approving financial creditors to the dissenting financial creditors.

2. Whether the earlier directions/orders requiring the Resolution Professional to convene a meeting and place the reallocation agenda before the Committee of Creditors, and the subsequent disposal of that application as infructuous, operated as res judicata so as to bar a later challenge by a dissenting financial creditor to the reallocation resolution.

3. Whether the phrase "in favour of Approving Financial Creditor or such other entity as may be identified by them" in the resolution plan's clause on transfer/assignment of the Reliance Bhutan Loan could be construed to permit assignment of that loan to dissenting financial creditors.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Post-approval reallocation by CoC altering the plan's distribution (reassignment of Reliance Bhutan Loan)

Legal framework (as considered by the Court): The Court treated the resolution plan's distribution provisions (including assignment/transfer of the Reliance Bhutan Loan and the stated distribution sequence) as forming part of the plan approved by the Committee of Creditors and thereafter approved by the Adjudicating Authority; once so approved, the plan and its distribution mechanism were binding and could not be tinkered with by the Committee of Creditors. The Court also relied on the statutory requirement that, at the time of plan approval, the Committee of Creditors considers the distribution proposed; hence the distribution becomes part of what is approved and finalised at that stage.

Interpretation and reasoning: The Court found from the plan clauses that the Reliance Bhutan Loan was expressly contemplated to be assigned/transferred for the benefit of the approving financial creditors as part of their pay-outs, with mandatory payments to dissenting financial creditors having priority. The later Committee of Creditors resolution reallocating the Reliance Bhutan Loan to dissenting financial creditors was viewed as a modification of the plan's financial layout and distribution mechanism after the plan had already been approved by the Committee of Creditors and was pending/then later approved by the Adjudicating Authority. The Court held that such a post-approval alteration was impermissible under the insolvency scheme and contrary to the plan as approved.

Conclusions: The reallocation resolution passed by the Committee of Creditors after plan approval (assigning the Reliance Bhutan Loan to dissenting financial creditors) was held to be contrary to the approved resolution plan and not binding on dissenting financial creditors; the Committee of Creditors could not alter the financial layout/entitlements fixed by the approved plan.

Issue 2: Whether earlier orders directing a CoC meeting/disposing the earlier application as infructuous created res judicata against the later challenge

Legal framework (as considered by the Court): The Court examined whether the earlier orders contained a merits determination capable of barring later proceedings. It focused on the substance of what was decided: whether the Adjudicating Authority had adjudicated the legality of modifying distribution or merely directed placing an agenda before the Committee of Creditors.

Interpretation and reasoning: The Court held that the earlier order only directed the Resolution Professional to convene a Committee of Creditors meeting and place the proposed agenda; it did not decide on merits the Committee's entitlement to modify the distribution mechanism. The later order disposing of the earlier application as infructuous merely recorded that the meeting had been held and noted objections, without deciding any issue on merits. Because there was no merits adjudication, the Court held there was no basis to apply res judicata to bar the dissenting financial creditor's later application challenging the reallocation's validity.

Conclusions: Neither the direction to convene the meeting nor the disposal as infructuous amounted to a merits decision; therefore, res judicata did not apply, and the later challenge to the reallocation was maintainable.

Issue 3: Construction of "such other entity" in the loan transfer clause-whether it includes dissenting financial creditors

Legal framework (as considered by the Court): The Court construed the specific plan clause permitting, on or before the effective date, an alternative mechanism for transfer of the Reliance Bhutan Loan "in favour of Approving Financial Creditor or such other entity as may be identified by them," and read it with the plan's overall distribution scheme distinguishing approving and dissenting financial creditors.

Interpretation and reasoning: The Court held that the clause empowered approving financial creditors (with the resolution applicant) to identify an alternate transferee mechanism/entity for implementing transfer for the approving creditors' benefit, but did not permit substitution of dissenting financial creditors as transferees so as to alter their plan entitlements. The Court accepted that "such other entity" could cover a nominee/vehicle (e.g., an identified entity for implementing the assignment) but not dissenting financial creditors, who form a separate class after voting and were not described as transferees under the plan. The Court also noted that mandatory payments to dissenting financial creditors could not be equated with assignment/transfer of the Reliance Bhutan Loan, particularly where recovery on that loan was uncertain as reflected in the record.

Conclusions: "Such other entity" did not include dissenting financial creditors; the plan contemplated transfer/assignment of the Reliance Bhutan Loan for the approving financial creditors' benefit. Consequently, dissenting financial creditors could not be compelled to accept reassignment or execute the assignment agreement inconsistent with the approved plan.

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