NCLAT reiterates barring on Submission of New Settlement Proposals after CoC Approves Resolution Plan

National Company Law Appellate Tribunal (NCLAT), New Delhi division bench comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) in the case of Sanjeev Mahajan vs Indian Bank and Others[1] reiterated that once a Resolution Plan is approved by the Committee of Creditors (CoC) and the Corporate Insolvency Resolution Process (CIRP) is concluded, no new settlement proposals shall be entertained. This judgment reinforces the finality of the CoC’s decisions in the insolvency process unless such decisions are arbitrary in nature

The case in question pertained to Nimitaya Hotel & Resorts Private Limited (“Nimitaya”), which had availed various financial facilities from Indian Bank (formerly Allahabad Bank). Subsequently, Indian Bank filed a Section 7 application under the Insolvency and Bankruptcy Code (IBC), leading to the initiation of the CIRP by the adjudicating authority on 24th December 2021. Mr. Sanjeev Mahajan, a shareholder and promoter of Nimitaya being dissatisfied with this outcome filed a company appeal challenging the order. On 4th July 2022, the National Company Law Tribunal (NCLT), New Delhi, disposed of the appeal, allowing Mr. Sanjeev to submit a fresh application under Section 12-A of the IBC to the Interim Resolution Professional (IRP) or Resolution Professional (RP) for the CoC’s consideration. He submitted a settlement offer exceeding Rs. 81 crore which was rejected by the CoC.

Thereafter, Mr. Sanjeev filed a contempt application, which was dismissed on 21st November 2022. However, the NCLT allowed him to participate in further negotiations with the CoC, permitting the CoC to request revisions to his settlement proposal. Mr. Sanjeev submitted a revised proposal on 25th November 2022, offering Rs. 100 crore. This revised offer was considered alongside the Resolution Plan submitted by Nehru Place Hotels and Real Estates Private Limited, the successful resolution applicant (SRA). An e-voting process took place, and on 8th January 2023, the CoC unanimously approved the SRA’s plan, valued at Rs. 120.01 crore, while rejecting Mr. Sanjeev’s revised proposal.

Mr. Sanjeev submitted yet another proposal on 21st March 2023, offering Rs. 118.25 crore, which the RP forwarded to the CoC. He also approached the NCLT, citing difficulties in meeting with the Chairman-cum-Managing Director of the bank. The NCLT, on 3rd February 2023, allowed him to present his grievances but did not pass any further orders. Mr. Sanjeev subsequently appealed to the Supreme Court, which, on 20th March 2023, upheld the NCLT’s decision, allowing him to approach the NCLT for redress.

Despite the CoC’s approval of the SRA’s Resolution Plan, Mr. Sanjeev’s new proposal was again declined by Indian Bank on 5th May 2023. Following this, Mr. Sanjeev sought directions from the adjudicating authority to reconsider his settlement proposal under Section 12-A. However, the RP and the SRA opposed this application. On 1st December 2023, the adjudicating authority granted him a final opportunity to negotiate an acceptable settlement, a decision that was challenged by the SRA in a company appeal. The NCLT then removed the provision allowing further negotiations and instructed the adjudicating authority to proceed with the approval of the Resolution Plan. Aggrieved by this outcome, Mr. Sanjeev filed an appeal before the NCLAT.

The NCLAT, in its observations, noted that Mr. Sanjeev’s challenge to the rejection of his settlement proposal, which had an enhanced plan value of Rs. 118.26 crore, was unsustainable. Mr. Sanjeev argued that the adjudicating authority had overlooked his submissions regarding the CoC’s rejection of his proposal. He cited the Supreme Court’s judgment in Swiss Ribbons Private Limited v. Union of India[2], asserting that an arbitrary rejection by the CoC could be challenged. While the NCLAT acknowledged the relevance of this judgment, it found that it did not apply to Mr. Sanjeev’s case, as the CoC’s decision was not arbitrary.

The NCLAT also considered Mr. Sanjeev’s revised settlement proposal, which included a condition that, upon approval, the liabilities of the Corporate Debtor (CD), its Promoters, and Guarantors would be extinguished. This proposal was discussed during the 13th and 14th CoC meetings, but the CoC ultimately rejected it, as it required the bank to release personal guarantees, a condition conflicting with the SRA’s Resolution Plan.

In its conclusion, the NCLAT affirmed that the CoC’s decision, made with a 100% vote share on 8th January 2023, was well-considered and could not be deemed arbitrary. The Tribunal emphasized that after the approval of the Resolution Plan and the rejection of Mr. Sanjeev’s proposal, no further proposals could be submitted or considered. The CIRP had already concluded on 28th January 2023, and any attempt to file new proposals post-CIRP was impermissible.

The NCLAT dismissed Mr. Sanjeev’s appeal ruling it devoid of merit. This judgment serves as a crucial precedent in affirming the finality of CoC decisions in the insolvency resolution process, reinforcing the importance of timely resolution and adherence to established legal procedures in corporate insolvency cases.

[1] Company Appeal (AT) (Insolvency) No. 1440 of 2024

[2] (2019) 4 SCC 17