In a recent landmark decision, the Supreme Court clarified the procedure for approving modified resolution plans under the Insolvency and Bankruptcy Code, 2016 (IBC). The court held that any modified resolution plan, no matter how minor the modifications, must obtain final approval from the Committee of Creditors (CoC) before being presented to the National Company Law Tribunal (NCLT). This ruling came in response to an appeal filed by M.K. Rajagopalan against the approval of a resolution plan by the NCLT without prior approval from the CoC.
The case originated from a petition filed by the Tourism Finance Corporation of India Limited under Section 7 of the IBC, seeking the initiation of the Corporate Insolvency Resolution Process (CIRP) against Appu Hotels Limited, the corporate debtor. The NCLT admitted the corporate debtor into CIRP on May 5, 2020. Mr. M.K. Rajagopalan, the successful resolution applicant (SRA), submitted a resolution plan for the corporate debtor.
During the ninth meeting of the CoC held on January 22, 2021, the resolution plan submitted by the SRA received conditional approval with 87.39% of the votes. However, the plan was sent back to the creditors for further revision. Consequently, the modified plan allocated a higher amount to unsecured dissenting financial creditors.
The SRA submitted the revised resolution plan to the Resolution Professional on January 25, 2021. However, the Resolution Professional did not place the revised plan before the CoC and directly presented it to the NCLT for approval. The NCLT approved the resolution plan.
The Supreme Court bench, comprising of Justice Dinesh Maheshwari and Justice Vikram Nath, ruled that the failure to place the revised plan before the CoC and directly submitting it to the NCLT is a significant irregularity that cannot be overlooked. The financial details of the plan must be considered by the CoC to ensure a well-informed decision-making process.
The court emphasized that if a modified resolution plan, even with minor modifications, is not finally approved by the CoC, presenting such a plan to the Adjudicating Authority (NCLT) for approval is an incurable material irregularity. The decision of the CoC cannot be assumed or guessed, and it cannot be presumed that the CoC would have approved the plan without further consideration.
The bench further clarified that there is no provision for post facto approval of a revised resolution plan by the CoC. The final form of the resolution plan must be sincerely placed before the CoC in accordance with the CIRP regulations.
The Supreme Court stressed the importance of scrupulously adhering to the CIRP regulations, highlighting that any alteration or modification in the process would undermine the integrity of the insolvency resolution framework. The court ruled that approving the resolution plan without prior approval from the CoC would leave the process open-ended and susceptible to arbitrariness.
Based on these grounds, the Supreme Court held that the NCLT's approval of the resolution plan was invalid. The SRA's failure to present the revised resolution plan to the CoC and the SRA's ineligibility under Section 88 of the Indian Trust Act were additional reasons for invalidating the approval. The court partially allowed the appeal and set aside the NCLAT's order on the remaining issues.
The Supreme Court's ruling provides crucial clarity on the procedural requirements for approving modified resolution plans under the IBC. It underscores the significance of obtaining final approval from the CoC before presenting any modified plan to the NCLT. This decision aims to ensure transparency, fairness, and the prevention of arbitrariness in the corporate insolvency resolution process. Adhering to these requirements strengthens the integrity of the IBC and promotes a more robust and reliable insolvency framework in India.