Resolution plan feasibility requires complete information, verified creditor claims, and obtained land approvals; commercial wisdom cannot cure material defects.
Resolution plans must satisfy statutory feasibility requirements through a complete and accurate information memorandum, particularly where the corporate debtor's essential land asset depends on regulatory approvals. Creditor claims require reconciliation with final determinations and recoveries, while a corporate guarantor obtains secured financial creditor status through subrogation to the amount paid. A plan cannot assume SEZ de-notification or land-use conversion without the lessor's consent and regulatory completion; omission of those processes impairs informed bidding. Commercial wisdom cannot cure material inaccuracies or replace reasoned consideration of statutory feasibility objections. Fresh expressions of interest must be invited on a corrected information memorandum under a newly appointed resolution professional.
Issues: (i) Whether the financial creditor's admitted claim and the corporate guarantor's creditor status were correctly reflected in the information memorandum; (ii) Whether the statutory land-owning authority had locus to challenge the resolution plan; (iii) Whether termination of the lease during the moratorium rendered the plan infeasible; (iv) Whether the successful resolution applicant's conditional assurance to pay the authority's "legitimate" claim created an obligation to pay its entire demand; (v) Whether approval by a committee whose sole financial creditor was itself in insolvency was vitiated; (vi) Whether a plan based on assumed SEZ de-notification and unapproved change of land use was feasible and viable; and (vii) Whether the bare-reference disposal of the statutory authority's plan objection was adequately reasoned.
Issue (i): Whether the financial creditor's admitted claim and the corporate guarantor's creditor status were correctly reflected in the information memorandum.
Analysis: A final adjudication concerning the same loan transaction had quantified the creditor's claim after disallowing capitalised penal interest. A financial creditor could separately invoke Section 7 of the Insolvency and Bankruptcy Code, 2016 against the principal borrower and the guarantor, but the amount recoverable from the principal borrower required credit for the amount already recovered from the guarantor. The resolution professional's obligation to collate and verify claims required reconciliation with the final judicial determination; it was not an adjudicatory exercise barred by approval of the plan by the committee. Under Section 140 of the Indian Contract Act, 1872, the guarantor's subrogation extended to the amount actually paid to the creditor.
Conclusion: The admission of the financial creditor's claim without reconciliation to the adjudicated amount was improper. Its recoverable claim had to be computed from Rs. 241.27 crore after crediting Rs. 38.87 crore already recovered, and the corporate guarantor was entitled to recognition and ranking as a secured financial creditor to the extent of Rs. 38.87 crore. This issue was decided in favour of the appellants.
Issue (ii): Whether the statutory land-owning authority had locus to challenge the resolution plan.
Analysis: The authority was not merely an operational creditor; it was also the owner and statutory regulator of the land constituting the corporate debtor's essential asset. Its objection concerned the legality and feasibility of using the regulated land without requisite permissions, engaging Section 30(2)(e) and the appellate grounds under Section 61(3) of the Insolvency and Bankruptcy Code, 2016. Regulation 38(3) of the CIRP Regulations required a plan to demonstrate feasibility, viability, and provision for necessary approvals. Such objections were not barred as a challenge to the committee's commercial wisdom.
Conclusion: The statutory land-owning authority had locus to maintain the challenge to the plan and to the dismissal of its objections. This issue was decided in favour of that authority.
Issue (iii): Whether termination of the lease during the moratorium rendered the plan infeasible.
Analysis: The lease termination occurred during the Section 14 moratorium. Section 238 of the Insolvency and Bankruptcy Code, 2016 gave the Code overriding effect, and the termination and consequential eviction proceedings had been quashed in separate proceedings. An infeasibility challenge could not be founded on a termination undertaken contrary to the moratorium and subsequently nullified.
Conclusion: The lease termination did not render the plan infeasible. This issue was decided against the statutory land-owning authority.
Issue (iv): Whether the successful resolution applicant's conditional assurance to pay the authority's "legitimate" claim created an obligation to pay its entire demand.
Analysis: The assurance was made in the specific context of a proposed withdrawal of objections, which did not occur. Its reference to a "legitimate" or "acceptable" claim was conditional and outside the terms of the plan; it could not be converted into an unconditional undertaking to discharge the entire demand.
Conclusion: The assurance did not bind the successful resolution applicant to pay the authority's entire demand. This issue was decided against the statutory land-owning authority.
Issue (v): Whether approval by a committee whose sole financial creditor was itself in insolvency was vitiated.
Analysis: The ground had not been specifically pleaded in the original plan objection. The record showed that the financial creditor's affairs were thereafter administered through an authorised administrator and that the relevant acts had been ratified. No basis established that participation by a sole committee member undergoing insolvency was, by itself, invalid.
Conclusion: Approval of the plan was not independently vitiated because the sole committee member was itself undergoing insolvency. This issue was decided against the statutory land-owning authority.
Issue (vi): Whether a plan based on assumed SEZ de-notification and unapproved change of land use was feasible and viable.
Analysis: The lease permitted conversion of SEZ land to another industrial use only with the prior consent or approval of the lessor and compliance with applicable regulatory requirements. The required consent and the formal regulatory completion of de-notification had not been obtained. Regulation 37(j) of the CIRP Regulations, which permits changes in the portfolio of goods or services, did not authorise a change in the sanctioned use of statutorily regulated land. The plan nevertheless assumed that de-notification stood or would stand approved and proposed non-SEZ development and sub-leasing. Further, the information memorandum omitted the pending and incomplete de-notification process, although the plan reflected granular knowledge of it. That omission deprived prospective applicants of a level informational footing and impaired informed commercial decision-making.
Conclusion: A plan founded on assumed de-notification and unapproved land-use conversion, and invited through an incomplete information memorandum, was not feasible or viable and could not be sustained. This issue was decided in favour of the statutory land-owning authority.
Issue (vii): Whether the bare-reference disposal of the statutory authority's plan objection was adequately reasoned.
Analysis: The objection raised specific questions concerning statutory approvals, the status of regulated land, and plan feasibility. A general reference to the committee's commercial wisdom did not address those legally material objections, particularly after their restoration for fresh consideration. Commercial wisdom limits review of business decisions but does not dispense with the requirement to give reasons on statutory feasibility objections.
Conclusion: The bare-reference dismissal of the plan objection was inadequately reasoned and could not be sustained. This issue was decided in favour of the statutory land-owning authority.
Final Conclusion: The approved plan could not remain operative because the information memorandum materially misstated creditor claims and omitted essential regulatory facts concerning the corporate debtor's sole asset. The insolvency process must proceed from a fresh invitation of expressions of interest on a corrected and complete information memorandum, under a newly appointed resolution professional.
Ratio Decidendi: A resolution plan founded on a materially inaccurate information memorandum or contingent statutory approvals affecting the corporate debtor's essential asset fails the statutory feasibility requirement, and the committee's commercial wisdom cannot cure that defect.