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TaxTMI 
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2026 (4) TMI 1836
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....thority has allowed the application filed by the Respondent, Phoenix ARC Pvt. Ltd., (Financial Creditor), and directed that the surplus amount of Rs. 1 crore generated during the Corporate Insolvency Resolution Process (CIRP) period from 01.11.2019 to 11.03.2022 be distributed among the financial creditors in accordance with the waterfall mechanism prescribed under Section 53 of the Code. The Adjudicating Authority has further held that the Appellant, M/s Manjeet Cotton Pvt. Ltd., in its capacity as Successful Resolution Applicant, is not entitled to claim the said surplus amount on the ground that it was generated during the CIRP period, prior to the approval and implementation of the Resolution Plan. 2. Aggrieved by the said findings, particularly on the ground that the impugned order effectively alters and overrides the terms of the duly approved Resolution Plan, which had attained finality under Section 31 of the Code and was binding on all stakeholders including the Respondent, Phoenix ARC Pvt. Ltd.; the Appellant has preferred the present Appeal raising substantial questions of law concerning the entitlement over CIRP- generated surplus and the sanctity and binding nature ....
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....ants expressed interest, however, ultimately only three Resolution Plans were submitted for consideration by the Committee of Creditors. (vii) The Committee of Creditors, after detailed deliberations, in its 9th meeting held on 16.11.2019, approved the Resolution Plan submitted by the Appellant, M/s Manjeet Cotton Pvt. Ltd., with a voting share of 67.54%, wherein notably the Respondent/Financial Creditor holding 22.23% voting share also voted in favour of the said Resolution Plan, thereby accepting the terms and treatment proposed therein. (viii) The Resolution Plan, as approved by the CoC, specifically provided for payment to financial creditors to the extent of 31.5% of their admitted claims, crystallized at Rs. 3100 lakhs, and further incorporated a clear stipulation under Clause 4.1(i) that all claims of creditors beyond the treatment provided in the Resolution Plan would stand extinguished upon approval, thereby bringing finality to all past liabilities. (ix) The Resolution Plan was thereafter placed before the Adjudicating Authority by way of I.A. No. 3760 of 2019 under Section 30(6) of the Code, and the same was approved vide order dated 11.03.2022....
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....ement over the same, and accordingly directed that the said amount be distributed amongst the financial creditors in accordance with Section 53 of the Code. (xvi) The Adjudicating Authority observed that the surplus amount constituted part of the CIRP estate and not part of the assets vesting in the Successful Resolution Applicant, thereby rejecting the claim of the Appellant and allowing redistribution to creditors. (xvii) Being aggrieved by the said impugned order, the Appellant has preferred the present Appeal raising substantial questions of law regarding entitlement to CIRP-generated surplus and limits of judicial interference post approval of a Resolution Plan. Submissions of the Appellant 4. Shri Gaurav Mitra, Ld. Counsel for the Appellant submitted that the present Appeal has been preferred by the Appellant, Manjeet Cotton Pvt. Ltd., assailing the Impugned Order dated 03.09.2025 passed by the Adjudicating Authority, whereby, it has been directed that the surplus amount of Rs. 1,42,72,094.93/- generated during the Corporate Insolvency Resolution Process (CIRP) period, i.e., from 26.02.2019 to 11.03.2022, be distributed in accordance with the waterfall....
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....e Corporate Debtor and is liable to be transferred to the Appellant in terms of the Resolution Plan. 10. Ld. Counsel places reliance upon the judgment of the Hon'ble Supreme Court in Ebix Singapore Pvt. Ltd. vs. Committee of Creditors of Educomp Solutions Ltd., (2022) 2 SCC 1 (para 204), to submit that a resolution plan, once approved, is binding and irrevocable as between the Committee of Creditors (CoC) and the Successful Resolution Applicant (SRA). It is submitted that the sanctity and binding nature of the approved Resolution Plan cannot be diluted by subsequent directions of the Adjudicating Authority. 11. It is submitted that the Hon'ble Supreme Court in Committee of Creditors of Essar Steel India Pvt. Ltd. vs. Satish Kumar Gupta & Ors., (2019) 16 SCC 479, has categorically held that profits generated during the CIRP period are not to be distributed towards payment of debts of creditors where the Resolution Plan or RFP provides otherwise. The counsel submits that the ratio of the said judgment squarely applies to the facts of the present case and supports the Appellant's contention that such surplus cannot be subjected to distribution under Section 53. 12. It is furt....
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....vency and Bankruptcy Code, 2016, which is to ensure revival of the Corporate Debtor as a going concern and to safeguard it from further financial uncertainty. The direction to distribute the surplus amount is contrary to the approved Resolution Plan and settled principles of law, and therefore deserves to be set aside. Submissions of the Respondent- Pheonix ARC 17. Ld. Counsel for the Respondent submits that the present Appeal is confined to a narrow and limited controversy, namely, the treatment of surplus cash flow generated during the Corporate Insolvency Resolution Process (CIRP) period between 01.11.2019 and 11.03.2022. It is an admitted and undisputed factual position that the said surplus was generated when the Corporate Debtor was being run as a going concern under the supervision and control of the Resolution Professional. During this entire period, the Appellant neither had control over the operations of the Corporate Debtor, nor made any financial or operational contribution towards the generation of such surplus. The surplus, therefore, is intrinsically linked to the CIRP operations and not to any effort or investment by the Appellant. 18. He submits that the R....
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....of assets forming part of the insolvency estate. Such direction is in complete consonance with the scheme of the Code and ensures equitable distribution among stakeholders. 22. Ld. Counsel submits that the contention of the Appellant that the surplus amount, by virtue of being placed in a fixed deposit, acquires a different legal character or vests in the Resolution Applicant is wholly misconceived and untenable. The mere act of parking funds in a fixed deposit does not alter the source, nature, or character of the funds. The surplus remains a CIRP-period accrual forming part of the insolvency estate. The Appellant cannot derive any legal entitlement over such funds merely on account of the manner in which they are held or invested. 23. He further submitted that the reliance placed by the Appellant on the judgments in Essar Steel and Ghanshyam Mishra is entirely misplaced. These judgments deal with the extinguishment of pre-CIRP claims upon approval of a Resolution Plan and do not address the issue of treatment of surplus generated during the CIRP period. The ratio of these decisions does not support the proposition that such surplus automatically vests in the Resolution Appl....
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....on Plan and has no nexus whatsoever with the surplus generated prior to the takeover of the Corporate Debtor by the Appellant. 28. Ld. Counsel submits that the impugned order passed by the learned Adjudicating Authority is well within its jurisdiction under Section 60(5) of the Code. The order ensures adherence to the statutory framework, promotes equitable distribution among stakeholders, and upholds the fundamental objective of value maximisation under the Code. There is no illegality or infirmity in the said order warranting interference by this Hon'ble Tribunal. 29. In light of the aforesaid facts and submissions, Ld. Counsel for the Respondent submits that the present Appeal is devoid of merit. The Appeal is founded on a clear misinterpretation of the Resolution Plan, the statutory provisions of the Code, and settled legal principles governing CIRP. Accordingly, the present Appeal deserves to be dismissed. Analysis and findings 30. We have heard both the parties in detail, gone through the records of the case and written submissions filed by the parties. 31. The present Appeal raises a limited question, viz. whether the surplus cash flow generated during the Cor....
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.... or ownership of surplus cash flow generated during CIRP. It is submitted that such surplus was generated entirely during the CIRP period under the supervision of the Resolution Professional, and not by the Appellant. Therefore, such surplus forms part of the insolvency estate. The Respondent has pointed out that Clause 3.9.8 of the Resolution Plan merely allows the Resolution Professional to utilize surplus cash flow for foreclosure of outstanding dues and does not confer any ownership rights on the Appellant. It is further argued that in the absence of any specific provision in the Resolution Plan, the statutory mechanism under Section 53 must apply. The Respondent has also emphasized that financial creditors have taken substantial haircuts under the Resolution Plan, and allowing the Appellant to appropriate the surplus would result in unjust enrichment. 35. A Resolution Plan is essentially a commercial arrangement based on the assets, liabilities, and financial position of the Corporate Debtor as known and evaluated at the time of its approval. Only those assets and values which are identified and accounted for in the Plan can be said to vest in the Resolution Applicant. Any ....
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....nt of time in case of any surplus cash flow generated from the business of the Corporate Debtor without any payment of foreclosure fees/prepayment charges." [Emphasis supplied] 37. The reference to Margin Money and fixed deposit in Clause 3.9.5 relate to margin money refers to the amount contributed by CD as its share for taking loan from bank for working capital or term loan and fixed deposits are equivalent to cash in balance sheet. This reference cannot and does not relate to any surplus cash flow generated during the CIRP period. It is also clear from the records that the margin money or existing fixed deposits were not utilised for adjustment of any lenders claim and the same has not been argued also. 38. Similarly, Clause 4.1 (ii), which governs the transfer of control and management of the Corporate Debtor, also has to be read in the context of implementation of the Resolution Plan and the assets forming part thereof. The reference to takeover of the Corporate Debtor "as a going concern" along with its assets, cash balances, and business operations cannot be interpreted to include surplus generated during CIRP prior to such takeover, particularly when such surplus w....
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....ppellant's argument that the financial creditors have already been satisfied under the Resolution Plan is not correct. The Resolution Plan only deals with the assets and values considered at the time of its approval. Any additional surplus generated during CIRP, which was not part of the Plan, cannot be said to have been settled or extinguished. 44. Once we reach this conclusion, the next step is straightforward. The IBC provides a clear mechanism under Section 53 for distribution of assets forming part of the insolvency estate. In the absence of any provision in the Resolution Plan governing the distribution of such surplus, the Adjudicating Authority was correct in directing that it be distributed in accordance with Section 53. 45. The appellant has relied upon several judgments of Hon'ble Supreme Court in support of his contention. These have been examined in the context of present factual matrix. 46. Insofar as the reliance placed on 'Ebix Singapore Pvt. Ltd. vs. CoC of Educomp Solutions Ltd. [(2022) 2 SCC 1]' is concerned, the principle laid down therein is that a Resolution Plan, once approved, becomes binding and irrevocable between the Committee of Creditors and th....
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.... in isolation or in the absence of a similar contractual provision. In fact, the absence of such a clause in the present case strengthens the position that the surplus was not contemplated as part of the Resolution Plan and must, therefore, be dealt with in accordance with the statutory framework of the Code. 49. As regards the reliance on Ghanshyam Mishra & Sons Pvt. Ltd. vs. Edelweiss Asset Reconstruction Co. Ltd. [(2021) 9 SCC 657], the principle laid down therein is that once a Resolution Plan is approved, all claims not forming part of the Plan stand extinguished, and the commercial wisdom of the Committee of Creditors in approving the Plan is paramount and not subject to judicial review. However, the present case does not involve any question of extinguishment of claims or interference with the commercial wisdom of the CoC. The surplus in question was never part of the Resolution Plan and was not placed before the CoC for consideration at the time of approval of the Plan. This judgment deals with extinguishment of pre-CIRP claims and do not address the treatment of CIRP-generated surplus. Thus, the reliance on Ghanshyam Mishra is misplaced in the context of the present con....