Approved Resolution Plan Binds Shareholders, Section 59 Companies Act Cannot Reopen It: NCLT Ahmedabad

The Ahmedabad Bench of the National Company Law Tribunal (NCLT) on 6 March held that once a resolution plan under the Insolvency and Bankruptcy Code (IBC) is approved, its consequences are binding on all stakeholders, including shareholders, and cannot be reopened through Section 59 proceedings under the Companies Act.

A Bench comprising Judicial Member Shammi Khan and Technical Member Sanjeev Sharma dismissed an appeal by Titus Babu, a shareholder of Sintex Industries Ltd.

The NCLT observed:

“After approval and implementation of the plan the consequences flowing from the plan are required to be given effect. Therefore, the approved resolution plan which provided for cancellation of shares of the existing shareholders is binding on the members and that include the Appellant.”

Sintex Industries Ltd had been admitted into the Corporate Insolvency Resolution Process (CIRP) under the IBC. The Resolution Plan submitted by the Successful Resolution Applicant was approved by the Tribunal on 10 February 2023.

The plan expressly provided for cancellation and extinguishment of the entire pre‑existing equity share capital of the corporate debtor without payment of consideration, restructuring of capital, and issuance of fresh securities in accordance with the plan.

Consequently, all equity shares of Sintex Industries, including those held by the appellant, were cancelled. The shares were delisted from stock exchanges effective 10 March 2023.

Titus Babu claimed to have purchased 1,35,000 shares between October 2017 and January 2023 and approached the Tribunal under Section 59 of the Companies Act, seeking rectification of the Register of Members and compensation of approximately Rs 82.3 crore. He argued that he purchased shares before delisting and cancellation and therefore held enforceable rights as a member.

He also contended that Section 59 empowers the NCLT to rectify the Register where a person's name has been omitted without sufficient cause and that the extinguishment of his shareholding without compensation was arbitrary.

Sintex Industries countered that the appeal was not maintainable as it sought to reopen a resolution plan already approved. Sintex Industries Ltd submitted that the appellant's shares formed part of the equity share capital extinguished under the Resolution Plan, and he ceased to have any status as a shareholder. It further argued that Section 59 provides a remedy only for rectifying wrongful entries or omissions in the Register of Members.

The NCLT examined Section 59 of the Companies Act, Section 31 of the IBC, and relevant precedents. It noted that the deletion of the appellant's name was not due to clerical error or wrongful omission but was a direct consequence of the approved resolution plan.

The Tribunal emphasised that Section 31 of the IBC makes an approved resolution plan binding on the corporate debtor and all stakeholders, including members. Paragraph 4(viii) of the approval order specifically provided that all claims against the corporate debtor, except those provided in the plan, stood extinguished.

Relying on Supreme Court rulings in Essar Steel and Ghanashyam Mishra, the Tribunal held that once a resolution plan is approved, it cannot be reopened and all prior claims stand extinguished.

It further observed that infusion of funds by the resolution applicant formed part of the restructuring proposal and did not create independent entitlement for shareholders whose shares were extinguished.

Therefore, the Tribunal held that the appellant has no rights in the company, and the appeal under Section 59 is not maintainable. It observed that the reliefs sought, including restoration of shares, issuance of new shares, or compensation, were beyond the jurisdiction of the Tribunal in rectification proceedings.

Accordingly, it dismissed the appeal.

APPELLANTS ADVOCATE/ PROFESSIONAL: Advocate George Mathai

RESPONDENTS ADVOCATE/ PROFESSIONAL: Advocate Raheel Patel