2026 (3) TMI 310 - AT - IBC

Finality of claim verification prevents collateral challenge to Resolution Plan approval; plan upheld with priority for employee dues.

Challenge to approval of a resolution plan focused on whether employee claims were properly considered where the Liquidator partially admitted/rejected ... Estoppel and waiver of claim by acceptance of payment - defects in consideration and quantification of employees' claims - Statutory employee dues (EPF, gratuity, earned leave) and afforded priority and enforceable payment mechanisms as required by law - requirement to substantiate workmen claims under Regulation 19 and Schedule II - limited judicial review of CoC commercial wisdom where plan approved by 100% voting - priority of operational creditors for statutory dues in resolution plan - non-compliance with Section 30(2)(d) & (e) of the I & B Code, 2016. Estoppel and waiver of claim by acceptance of payment - Acceptance of amounts under the approved Resolution Plan by some workmen estops them from belatedly challenging the plan and the prior partial rejection of their claims. - HELD THAT: - Nine appellants had unconditionally accepted the amounts determined to be paid under the approved Resolution Plan; those appellants are estopped from contesting the impugned order. Where claims were partially admitted/rejected by the Liquidator in September 2023 and that determination was not challenged under Section 42 within the process, the partial admission attained finality and cannot be re-opened at the stage of challenge to plan approval. The Court emphasised that a belated challenge to the CoC's and Tribunal's approval of the plan cannot succeed where claimants previously accepted the procedure and amounts, and where the approval represents the CoC's commercial wisdom which is not re-examined de novo by the Appellate Tribunal. [Paras 19, 20, 34, 35, 37] Appellants who accepted payments are estopped; the unchallenged partial rejection of claims precludes reopening the same in this appeal. Requirement to substantiate workmen claims under Regulation 19 and Schedule II - Whether the Appellants had complied with Regulation 19 (IBBI Liquidation Process Regulations) and Schedule II to substantiate their claims. - HELD THAT: - Regulation 19(2) and 19(3) require proof in Form E (or Form F by authorised representative) and supporting material to establish existence and quantum of dues. The Tribunal found nothing on record demonstrating that the Appellants furnished the proof required by Regulation 19 and Schedule II to substantiate their claims. In absence of such proof, the partial rejection by the Liquidator was not shown to be vitiated and the Appellants cannot fault the treatment of their claims in the Resolution Plan. [Paras 15, 16, 17, 18] Appellants failed to satisfy Regulation 19/Schedule II proof requirements; their challenge based on non-consideration of properly substantiated claims fails. Limited judicial review of CoC commercial wisdom where plan approved by 100% voting - priority of operational creditors for statutory dues in resolution plan - Whether the approval of the Resolution Plan suffered from legal or procedural vices warranting judicial interference, including alleged non-compliance with Section 30(2) requirements and absence of monitoring. - HELD THAT: - The Tribunal reiterated that judicial review of a CoC-approved plan is very limited, particularly where the CoC approved the plan with 100% voting; the commercial wisdom of the CoC is not to be re-examined afresh. The impugned order and accompanying Form H and Bank Guarantee demonstrated compliance with eligibility and payment covenants, and the plan provided priority to operational creditors (including EPFO and gratuity) as required by law. Allegations of absence of a monitoring committee or malicious intent by the Successful Resolution Applicant did not establish apparent illegality or procedural infirmity in the approval process that would warrant interference. [Paras 24, 27, 28, 33, 34] No apparent legal or procedural vice found in approval of the plan; limited judicial review precludes re-opening CoC's commercial decision. Priority of operational creditors for statutory dues in resolution plan - enforcement of resolution plan obligations through statutory remedies - Whether statutory dues to employees (EPF, gratuity, earned leave) were provided for and how enforcement of those entitlements is to be pursued. - HELD THAT: - The Tribunal recorded that EPF dues as per the Apex Court's pronouncement have been paid in full. Gratuity and earned leave entitlements were recognised and provided for in the Resolution Plan and will be settled in priority and in accordance with the plan's terms; respondents accepted liability and agreed to disburse amounts settled under the plan and any marginal increases. The appropriate remedies for enforcing payment under the approved plan were noted to include statutory avenues (reference made to invocation of Companies Act remedies), which the Appellants had not pursued. The Resolution Professional was directed to ensure remittance in accordance with the plan, with any excess payments to be adjusted from cash recovery from Secured Financial Creditors as contemplated by the plan. [Paras 31, 32, 33, 35, 36] EPF paid; gratuity and earned leave are accounted for and to be paid in priority under the approved plan; RP to ensure remittance and statutory enforcement remedies remain available. Final Conclusion: The company appeal is dismissed. The Appellants who accepted payments are estopped from reopening the matter; those who did not substantiate their claims under Regulation 19 cannot fault the plan's treatment of claims; the CoC's approval by 100% voting and the Tribunal's affirmation do not disclose a ground for interference. The Resolution Professional and Successful Resolution Applicant shall ensure payment of employees' statutory dues (EPF, gratuity, earned leave) in accordance with the approved Resolution Plan and the terms recorded in the judgment. Issues: (i) Whether approval of the Resolution Plan by the Committee of Creditors and the Adjudicating Authority (impugned order dated 02.05.2024) is vitiated by alleged defects in consideration and quantification of employees' claims where those claims were partially admitted/rejected by the Liquidator and not challenged under Section 42; (ii) Whether the Appellants could challenge the approval of the Resolution Plan under Section 32 read with Section 61 of the Insolvency and Bankruptcy Code, 2016, notwithstanding their failure to challenge earlier partial rejection of claims; (iii) Whether the approved Resolution Plan provided for statutory employee dues (EPF, gratuity, earned leave) and afforded priority and enforceable payment mechanisms as required by law.Issue (i): Whether approval of the Resolution Plan is vitiated by defects in consideration and quantification of employees' claims where claims were partially admitted/rejected by the Liquidator and not challenged.Analysis: The Tribunal examined the record of claim verification under the insolvency code and the IBBI liquidation regulations, including requirements of Regulation 19 and Schedule II for proof of claims by workmen/employees, and the Liquidator's partial rejection order of September 2023. The Tribunal noted absence of compliant proof under Regulation 19 by the Appellants, the CoC's considered admission figures, the Form H compliance certificate and performance bank guarantee under Regulation 36B(4A), and that the Appellants did not avail statutory remedy under Section 42 to challenge the Liquidator's partial rejection. The Tribunal applied principles that verification and admission of claims under Sections 38 and 39 followed by non-challenge under Section 42 attain finality and that CoC approval based on those admissions (with 100% voting) is not susceptible to re-examination on merits.Conclusion: Approval of the Resolution Plan is not vitiated; the contention fails and is against the Appellants.Issue (ii): Whether the Appellants could challenge the approval of the Resolution Plan under Section 32 read with Section 61 notwithstanding failure to challenge partial rejection of claims earlier.Analysis: The Tribunal considered the statutory appeal routes and timing under the insolvency code and noted that the Appellants had an available remedy under Section 42 to contest the Liquidator's determination which they did not pursue. Given finality of the Liquidator's partial admissions and the CoC's unanimous approval, the Tribunal held that challenging the plan at the approval stage without having contested the claim determination is estopped by waiver and conduct. The Tribunal further observed that judicial interference with CoC commercial decisions is limited, especially where approval is by 100% voting and requisite compliance (including Form H and performance security) is on record.Conclusion: The Appellants cannot successfully challenge plan approval under Section 32/61 after failing to challenge the Liquidator's partial rejection; the challenge fails and is against the Appellants.Issue (iii): Whether the approved Resolution Plan provided for statutory employee dues and afforded priority and enforceable payment mechanisms.Analysis: The Tribunal reviewed the impugned order and the Resolution Plan extract showing admitted claim amounts and amounts provided in the plan, including priority allocation for EPFO, gratuity and other employee dues, and the fact that EPF amounts had been paid. The Tribunal noted adjustments made from secured financial creditor recovery to meet mandatory payments under Section 53 read with Section 36(4)(a)(iii) and accepted assurances by Respondents to satisfy any marginal shortfall in gratuity/earned leave subject to RP's determination. The Tribunal also observed the availability of remedies (including enforcement under the Companies Act) if payments are not made as per the plan.Conclusion: The Resolution Plan provided for statutory employee dues with priority and enforceable mechanisms; the Appellants' challenge on this ground fails and is against the Appellants.Final Conclusion: The appellate challenge to the impugned order approving the Resolution Plan is dismissed; the CoC approval (by 100% voting) and the Adjudicating Authority's approval stand affirmed, and the Resolution Professional is to ensure payment in accordance with the approved plan and its terms.Ratio Decidendi: Where claims of workmen/employees were verified and partially admitted by the Liquidator in accordance with regulation 19 and related verification provisions and not challenged under the statutory remedy, and where the Committee of Creditors approved the Resolution Plan with full voting and requisite compliance (including performance security and Form H), judicial review is limited and the plan approval will not be set aside for re examining commercial decisions or claim quantification absent demonstrable legal infirmity.