The National Company Law Appellate Tribunal (NCLAT), New Delhi, has held that shareholders cannot challenge the approval of a Resolution Plan merely because it provides for distribution of a residual amount among them, as such distribution does not confer locus standi to appeal under Section 61 of the Insolvency and Bankruptcy Code (IBC), 2016.
A Bench of Judicial Member Justice Mohd Faiz Alam Khan and Technical Member Naresh Salecha dismissed appeals filed by NKAY Investment and Sunil Madhavdas Ahuja, minority shareholders of Gstaad Hotels Private Limited, against the approval of its Resolution Plan by the National Company Law Tribunal (NCLT), Mumbai. It held:
“The residual interest of equity is purely consequential upon the distribution decided by the Committee of Creditors in its commercial wisdom. Receipt of a residual amount does not enlarge the statutory standing of a shareholder so as to enable him to maintain an appeal under Section 61. The grievance that the residual amount might have been higher is not a ground that may convert a shareholder into a “person aggrieved”.”
The appellants held approximately 10% and 20% equity shares, respectively, in Gstaad Hotels. They challenged the NCLT's order approving a Resolution Plan submitted by Shree Naman Developers Private Limited under Section 31(1) of the IBC.
The approved Resolution Plan extinguished the entire existing equity share capital of Gstaad Hotels and vested 100% of its equity in the Successful Resolution Applicant (SRA) or its implementing entity.
The appellants contended that the resolution amount of Rs. 1,611 crore exceeded the average fair value of Rs. 1,250.58 crore and the average liquidation value of Rs. 1,028.33 crore. They argued that no computation had been undertaken under Section 30(2)(e) read with Section 53(1) of the IBC to establish whether the available value had been exhausted before reaching the equity shareholders.
Further, they contended that the Resolution Plan did not provide for distribution of the surplus in accordance with Section 53(1)(h) of the Code. They also argued that the availability of a surplus after settlement of creditor dues made them interested parties under the Resolution Plan and qualified them as persons aggrieved entitled to challenge its approval.
Opposing the appeals, the respondents argued that shareholders do not have locus standi to challenge an approved Resolution Plan under Section 61 of the IBC. They submitted that the Resolution Plan provided for distribution of residual funds among creditors, including shareholders, after settlement of creditor claims and interest. Such distribution, they argued, could not confer an independent right of appeal upon the appellants.
They also pointed out that an updated Form H and an affidavit filed by the Resolution Professional disclosed a surplus of approximately Rs. 90.12 crore, which had been deposited in a separate account for distribution among shareholders in accordance with Section 53 of the Code.
The Appellate Tribunal noted that a larger Bench in Park Energy Private Limited had settled the issue by holding that shareholders or promoters, merely in that capacity, do not qualify as persons aggrieved under Section 61 of the IBC. The Supreme Court had also dismissed a Special Leave Petition challenging that decision.
It considered the appellants' reliance on Balkishan Shrikisan Baldawa v. Agri-Tech (India) Limited, in which a three-member Bench had discussed the possibility of an exception where insolvency proceedings were initiated through fraud or collusion.
However, the Bench referred to its subsequent decision in Prateek Jain v. Mr. Anurag Nirbhaya, Resolution Professional & Ors., which explained why the larger Bench ruling in Park Energy continued to bind subsequent Benches. The larger Bench had been specially constituted to resolve conflicting views, and its decision had been affirmed by the Supreme Court following dismissal of the Special Leave Petition.
Although the present Bench observed that it might not agree with the manner in which Prateek Jain had interpreted Balkishan, it left the question open for consideration in an appropriate case. It found no element of fraud or malicious initiation of insolvency proceedings in the present matter that warranted consideration of the exception discussed in Balkishan.
It reiterated that the residual interest of equity shareholders is consequential upon the distribution determined by the Committee of Creditors in exercise of its commercial wisdom. Neither the possibility of receiving a residual amount nor a grievance that the amount could have been higher enlarges the statutory standing of shareholders to maintain an appeal.
The Tribunal clarified that the NCLT's scrutiny under Section 31 of the IBC is confined to determining whether a Resolution Plan complies with Section 30(2). An appellant who lacks locus standi under Section 61 cannot seek to reopen that scrutiny.
Accordingly, the NCLAT dismissed the appeals without examining the merits of the Resolution Plan, holding that the appellants were not persons aggrieved under Section 61 of the IBC.
For Appellants: Advocates Shreyas U. Lalit, Himanshu Vats, Aviral Mishra
For Respondents: Senior Advocate Abhijeet Sinha with Advocates Arpit Dwivedi, Sakshi Kapoor, for R-1; Senior Advocates Krishnendu Datta & Gaurav Mitra with Advocates Sagar Bansal, Pratiksha Mishra, Vishnu Shriram, Alina Merin Mathew, Rohitash Tak, Shubham Saini, Vidisha Tanna, Govinda Asana, for R-2; Advocates Abhishek Anand, Palak Kalra, Shruti Srivastava for R-3