Resolution plan approval under IBC s.30(6) after settlement boosts creditor payouts and expunges adverse observations; rejection quashed.
The dominant issue was whether the order rejecting a resolution plan placed under s.30(6) IBC (including doubts on s.29A eligibility and adverse observations suggesting impropriety) should stand. The NCLAT accepted a memorandum of settlement enhancing distributions to secured and unsecured financial creditors and providing for payment of CIRP costs up to the date of plan approval; on that basis, stakeholders unanimously sought approval of the plan. Since the auditors' report did not record fraudulent or avoidance transactions, the NCLAT held the impugned adverse observations against the resolution applicant were unduly excessive and directed that they be expunged. Consequently, the appeals were allowed, the impugned orders were quashed, and the resolution plan was approved as per the settlement terms.
1. ISSUES PRESENTED AND CONSIDERED
1) Whether, in view of the parties' settlement and the revised/addendum resolution terms (including replacement of the earlier resolution applicant), the impugned rejection of the resolution plan should be set aside and the matter remitted for reconsideration/approval of the plan subject to stipulated conditions.
2) Whether the settlement-driven replacement of the successful resolution applicant satisfies the eligibility requirement under Section 29A, based on the resolution professional's affidavit and due diligence report, so as to permit remand for plan approval.
3) Whether the adverse observations made against the erstwhile resolution professional in the impugned order should be expunged in the circumstances of the settlement and the material placed before the Appellate Tribunal.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Setting aside rejection of the resolution plan and remand for reconsideration/approval subject to settlement terms
Legal framework (as discussed by the Court): The Court proceeded on the basis that the resolution plan had been placed for approval under Section 30(6), and that the appellate relief sought was against rejection of that plan. The Court also treated compliance with the Code and extant regulations as matters to be addressed by the adjudicating authority upon remand, consistent with the directions it issued.
Interpretation and reasoning: The Court accepted that the parties had arrived at a settlement embodied in affidavits/memoranda and an addendum to the resolution plan, including revised payouts (CIRP costs up to approval; increased payout to the secured financial creditor; increased payout to the unsecured financial creditor) and a commitment that payments would be made within 7 working days from plan approval. The Court noted unanimity/no objection from the affected financial creditors to the revised commercial terms, subject to timely payment. In these circumstances, the Court held that the impugned orders should be quashed and the matter remitted to the adjudicating authority to reconsider the plan in terms of the settlement, while ensuring compliance with Code/regulations at the adjudicating authority stage.
Conclusions: All appeals were allowed; the impugned orders were quashed; the matter was remitted to the adjudicating authority to reconsider and pass consequential orders on the resolution plan subject to the memorandum of settlement, including the condition of payment within 7 days from plan approval and the specified revised payouts. The adjudicating authority was directed to decide plan approval within 30 days, and the approval order was directed not to be given effect for 7 days to enable the assured payments to the concerned creditors.
Issue 2: Acceptance of Section 29A compliance for the replacement resolution applicant
Legal framework (as discussed by the Court): The Court required an affidavit from the resolution professional regarding compliance of the proposed settlement/replacement with Section 29A. It considered the resolution professional's affidavit stating that due diligence was conducted through an expert firm and, based on the report and independent diligence, the replacement resolution applicant was compliant with Section 29A.
Interpretation and reasoning: The Court recorded that the resolution professional filed an affidavit (after correction of a typographical error with leave and parties' consent) confirming Section 29A compliance of the replacement resolution applicant, and that this assertion was not opposed by any party. On that basis, the Court accepted the affidavit regarding Section 29A compliance, while also indicating that necessary consequential orders on Code/regulation compliance could be passed by the adjudicating authority pursuant to the remand.
Conclusions: The Court accepted the resolution professional's affidavit as to Section 29A compliance of the replacement resolution applicant and allowed remand/plan reconsideration to proceed on that basis, subject to further requirements/orders as may be addressed by the adjudicating authority consistent with the remand directions.
Issue 3: Expunging adverse observations against the erstwhile resolution professional
Legal framework (as discussed by the Court): The Court addressed the continued operation of adverse findings/observations in the impugned order concerning the resolution professional's conduct (including alleged facilitation of MSME certification post-CIRP commencement and alleged inaction regarding suspect/fraudulent transactions and Section 66).
Interpretation and reasoning: In light of the settlement and the resulting remand for reconsideration of the plan, the Court held that the impugned observations against the resolution professional were "unduly excessive," noting that auditors' material placed before it did not mention any fraudulent transaction or raise specific allegations regarding avoidance transactions. Given that these observations were part of the foundation for the impugned outcome now being set aside, the Court considered it appropriate that such observations should not stand.
Conclusions: The Court ordered that the observations made against the resolution professional in the impugned order would stand expunged.
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