Mandatory resolution-plan compliance cannot be cured by creditor approval; liquidation may follow where default causes remain unaddressed.
Resolution-plan approval requires the plan to identify the cause of default and set out how it will address that cause; recording losses, lack of turnover and liabilities, or offering an undefined future business proposal, is insufficient. Committee of Creditors approval cannot cure this mandatory compliance failure. A plan valued below liquidation value does not alone prejudice a dissenting financial creditor if its minimum liquidation entitlement is paid in cash and in priority. Investigation by a liquidator, including potential avoidance proceedings, may be warranted by the debtor's circumstances. An assignee's distributable share cannot be capped before that investigation. Rectification or restoration of CIRP before liquidation remains discretionary, not mandatory. Material non-compliance and circumstances requiring investigation can support plan rejection and liquidation.
Issues: (i) Whether the resolution plan complied with the requirement to demonstrate that it addresses the cause of default under Regulation 38(3)(a) and Section 30(2)(f); (ii) Whether plan value below liquidation value breached the dissenting financial creditor protection under Section 30(2)(b); (iii) Whether the direction for an investigation by the liquidator into the corporate debtor's affairs was sustainable; (iv) Whether the direction capping an assignee's distributable share was sustainable; (v) Whether the Adjudicating Authority was required to offer an opportunity to cure the plan or restore CIRP before ordering liquidation under the proviso to Section 31(2) and Section 33(1A).
Issue (i): Whether the resolution plan complied with the requirement to demonstrate that it addresses the cause of default under Regulation 38(3)(a) and Section 30(2)(f).
Analysis: Section 30(2)(f) incorporates mandatory requirements specified by the Board, including Regulation 38(3)(a). The Adjudicating Authority's review of such statutory compliance is distinct from reconsideration of the Committee of Creditors' commercial wisdom. The plan merely recorded the corporate debtor's losses, absence of turnover and excess liabilities, which were consequences rather than the cause of default, and proposed an undefined future business proposition. It neither identified why the default occurred nor provided a reasoned means of curing it. Approval by the Committee of Creditors could not cure the absence of this mandatory content.
Conclusion: The resolution plan violated Regulation 38(3)(a) and consequently Section 30(2)(f); its rejection on this ground was valid, against the appellants.
Issue (ii): Whether plan value below liquidation value breached the dissenting financial creditor protection under Section 30(2)(b).
Analysis: Section 30(2)(b), read with Section 53, protects a dissenting financial creditor's minimum liquidation entitlement; it does not require the aggregate plan value to equal or exceed liquidation value. The plan assured the dissenting creditor payment of the statutory minimum in cash and in priority to assenting creditors. The amount offered and its distribution otherwise fall within the Committee of Creditors' commercial wisdom.
Conclusion: A plan value below liquidation value did not by itself contravene Section 30(2)(b), and the contrary finding was unsustainable, in favour of the appellants.
Issue (iii): Whether the direction for an investigation by the liquidator into the corporate debtor's affairs was sustainable.
Analysis: The corporate debtor was an asset-holding company without operations; substantial debts were assigned during CIRP, following which the assignee obtained overwhelming voting control and approved a plan that failed mandatory requirements. These circumstances justified an independent inquiry. The direction was confined to investigation and, where warranted, avoidance proceedings under Sections 43, 45, 50 and 66, with affected persons retaining an opportunity to be heard in such proceedings.
Conclusion: The direction for investigation by the liquidator was valid, against the appellants.
Issue (iv): Whether the direction capping an assignee's distributable share was sustainable.
Analysis: The assignee's entitlement depended upon the outcome of the ordered investigation and the applicable facts and law. A determination restricting its share before completion of that process was premature.
Conclusion: The cap on the assignee's distributable share was set aside, with all substantive rights and contentions kept open, in favour of the appellants.
Issue (v): Whether the Adjudicating Authority was required to offer an opportunity to cure the plan or restore CIRP before ordering liquidation under the proviso to Section 31(2) and Section 33(1A).
Analysis: The proviso to Section 31(2) and Section 33(1A) are enabling provisions and do not mandate an opportunity to rectify or restoration of CIRP in every case. The deficiencies concerned mandatory plan content and were accompanied by circumstances requiring investigation, rather than minor curable drafting gaps. Although liquidation is a last resort, the CIRP had not produced a plan meeting Section 30(2) requirements.
Conclusion: No mandatory obligation existed to permit rectification or restoration before liquidation, and the liquidation direction was valid, against the appellants.
Final Conclusion: The statutory deficiency in addressing the cause of default and the circumstances warranting investigation sustain the rejection of the plan and liquidation, while the assignee's ultimate entitlement remains to be determined after investigation.
Ratio Decidendi: Committee of Creditors approval and commercial wisdom cannot cure a resolution plan's failure to satisfy a mandatory requirement incorporated by Section 30(2)(f), including the requirement to demonstrate how the cause of default is addressed.