In a recent ruling, NCLAT principal bench held that the Adjudicating Authority under Insolvency and Bankruptcy Code (NCLT having territorial jurisdiction over the place where the registered office of the corporate person is located serves as the Adjudicating Authority) has power to either accept the Resolution Plan or to reject it but there is no power to order modification or alternation in any of the conditions in the Resolution Plan. [Mathuraprasad C Pandey & Ors. vs. Partiv Parikh (Resolution Professional of M.V. Omni Projects (India) Ltd) & Anr., Company Appeal (AT) (Ins.) No. 201 of 2021, NCLAT Principal Bench, Delhi]
On an application filed by an operational creditor under Section 9 of the IBC, the company M.V. Omni Projects (India) Ltd. (Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”). The promoters of Corporate Debtor submitted a Resolution Plan which was approved by the committee of creditors with 97.79% vote.
The NCLT approved the Resolution Plan vide an order dated 28.01.2021. However, while approving the Resolution Plan the NCLT modified the Resolution Plan to the extent that “if any member of Resolution applicants has entered into or stand as guarantor in the individual capacity, in that event, he shall not be covered with any immunity given under the Resolution Plan.” Aggrieved by the order of the NCLT, the promoters (the successful resolution applicants in this case) filed an appeal before the NCLAT.
Whether the Adjudicating Authority has the power to modify/alter the conditions mentioned in the Resolution Plan approved by the Committee of Creditors.
Section 31 of the Insolvency and Bankruptcy Code is the relevant provision. The same has been reproduced below -
"31. Approval of Resolution Plan. (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan.
Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation.
(2) Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan.
(3) After the order of approval under sub-section (1),—
(a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and
(b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database.
(4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later;
Provided that where the resolution plan contains a provisions for combination, as referred to in section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors."
The NCLAT held that the condition in para 15 of the NCLT’s order shall not be considered as part of the Resolution Plan.
The Appellate Tribunal made a reference to Section 31 of the Insolvency and Bankruptcy Code and observed that if a resolution plan is submitted before the NCLT which is in compliance with sub-section (1) of Section 31 as well as in consonance with the provisions of Section 30 of the Code, such resolution plan has to be approved by the NCLT since in Section 31 word “shall” has been incorporated with proviso that the NCLT must be satisfied that the resolution plan has provisions for its effective implementation. Sub-section (2) of Section 31 of the IBC further empowers the NCLT to reject the resolution plan, if it is satisfied that resolution plan is not in conformity with the requirements as referred to in sub-section (1) of Section 31 of the IBC.
The NCLAT noted that it is clear that mandate of legislation is either to approve the resolution plan or to reject. However, there is no provision for making alteration or modification in the resolution plan. The NCLAT therefore concluded that NCLT has exceeded its jurisdiction in modifying/altering the conditions in the resolution plan.
In view of Section 31 of the Insolvency Bankruptcy Code, the NCLT can either accept or reject the Resolution Plan approved by the Committee of Creditors. However, it does not have the power to alter or modify the terms and conditions of the Resolution Plan.
The order of NCLAT appears to be well supported by legislative provisions. There have been judicial precedents as well to support the order of NCLAT.
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