NCLAT clarifies Promissory Estoppel and the Sanctity of Approved Resolution Plans under IBC

In a recent decision, the National Company Law Appellate Tribunal (NCLAT), Delhi Bench, comprising Justice Ashok Bhushan and Technical Members Barun Mitra and Arun Baroka, addressed the issue of whether the doctrine of promissory estoppel can be invoked against an approved Resolution Plan by the Committee of Creditors (CoC) under the Insolvency and Bankruptcy Code, 2016 (IBC). The case involves Sivana Reality Private Limited (“Corporate Debtor”) and originates from an appeal filed by Fervent Synergies Limited (“Appellant”) against the approval of the Resolution Plan by the National Company Law Tribunal (NCLT).

The Corporate Debtor initiated the ‘Samriddhi Garden’ project in Bhandup, Mumbai, and secured a Term Loan Facility of Rs. 130 crores from LIC Housing Finance Limited (LICHFL). The project was mortgaged to LICHFL, requiring prior written consent/No Objection Certificate (NOC) for any sale or third-party rights.

On 09.08.2018, the Appellant and the Corporate Debtor entered into an agreement for the sale of 10 flats in the aforementioned project. However, on 11.08.2020, the Corporate Insolvency Resolution Process (CIRP) was initiated, leading to claims being invited by the Interim Resolution Professional (IRP). The Appellant’s claim was initially admitted but later rejected for lack of NOC from LICHFL.

The Resolution Professional (RP) restored the Appellant’s claim, categorizing homebuyers into affected and unaffected classes based on NOC possession. The Appellant objected to this classification, citing discrimination and invoking the doctrine of promissory estoppel.

The NCLT rejected the Appellant’s objections, emphasizing that the Resolution Plan had been approved by the homebuyers as a class. The Appellant, belonging to this class, couldn’t individually challenge the plan. The Appellant contended that the plan’s classification of homebuyers was illegal, alleging promissory estoppel due to the admitted claim, and asserting fraud as the rightful claim was denied, while citing the Supreme Court judgments in Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P.[1] and Manuelsons Hotels (P) Ltd. v. State of Kerala[2].

The Respondents opposed the Appellant’s claims, asserting the legitimacy of classifying homebuyers as affected and unaffected. They argued that as a member of the creditor class approving the Resolution Plan, the Appellant couldn’t question it now. The Respondents also highlighted the NCLT’s approval of the Resolution Plan, its compliance with IBC provisions, and the absence of any challenge by the Appellant.

The NCLAT dismissed the appeal, stating that the doctrine of promissory estoppel cannot be applied against an approved Resolution Plan by the CoC. The decision emphasized that if a Resolution Plan adheres to the IBC’s Section 30 and CIRP Regulations, it cannot be faulted on grounds of promissory estoppel.

This case sets a precedent, underscoring the sanctity of an approved Resolution Plan and its immunity from the doctrine of promissory estoppel. The NCLAT’s verdict aligns with the legal framework established by the IBC and reinforces the importance of complying with statutory provisions in insolvency proceedings. As the insolvency landscape continues to evolve, such decisions contribute to the clarity and stability of the resolution process, fostering confidence among stakeholders in the effective implementation of the IBC.

[1] (1979) 2 SCC 409

[2] (2016) 6 SCC 766