CoC-Approved Resolution Plan Can Be Rejected If It Violates IBC: NCLT Kochi

The National Company Law Tribunal (NCLT) Kochi Bench has held that even an approved resolution plan cannot be approved if it fails to meet the mandatory requirements under Section 30(2) of the Insolvency and Bankruptcy Code, 2016, sending back plans for two real estate projects of Samson and Sons Builders and Developers Pvt Ltd to the Committee of Creditors for reconsideration.

A coram of Judicial Member Vinay Goel said, “Even where a Resolution Plan has been approved by the Committee of Creditors, this Adjudicating Authority is duty-bound to examine whether the plan conforms to the provisions of the Code and the CIRP Regulations, and in cases of non-compliance, the decision of the Committee of Creditors can be interfered with to ensure adherence to the statutory framework.”

The ruling came on applications filed by resolution professional K Parameswaran Nair seeking approval of project-wise resolution plans submitted by the Nova Castle Apartment Owners Association and the Sanctuary Apartment Owners Association for the corporate debtor.

The corporate insolvency resolution process against the real estate developer was initiated in November 2021. The company, which had multiple projects at different stages of construction, had been non-operational since 2016.

Due to limited response to the initial expression of interest, the Committee of Creditors opted to invite both holistic and project or asset-wise resolution plans. While several plans for other projects were found compliant and approved, the plans for the Nova Castle and Sanctuary projects were found to be non-compliant with the provisions of the Code and CIRP Regulations.

An earlier liquidation order passed during the process, which had also led to dismissal of earlier plan approval applications, was subsequently set aside by the National Company Law Appellate Tribunal, allowing continuation of the resolution process. Revised plans were invited thereafter, but even the revised plans for these two projects continued to suffer from non-compliance.

Despite this, the Committee of Creditors approved the plans with a 71.30 percent voting share, and the resolution professional moved the Tribunal for approval.

On examination, the Tribunal found that the plans did not satisfy the mandatory requirements under Section 30(2). It noted that the plans were conditional and lacked certainty, did not provide for full and upfront payment of CIRP costs, failed to clearly assign responsibility for obtaining statutory approvals, and did not adequately address encumbrances, liabilities, and pending litigation. The Tribunal also flagged conditional payments proposed to creditors as a negative feature.

Relying on judgments of the Supreme Court, including in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, Lamba Exports Pvt. Ltd. v. Dhir Global Industries Pvt. Ltd., and Greater Noida Industrial Development Authority v. Prabhjit Singh Soni, the Tribunal reiterated that while the commercial wisdom of the Committee of Creditors is paramount, it is not immune from judicial scrutiny in cases of statutory non-compliance.

The tribunal held that the resolution plans, in their present form, could not be approved. However, taking note of the fact that the matter involved real estate projects with a large number of homebuyers, it declined to order liquidation.

“The Insolvency and Bankruptcy Code, 2016, prioritises resolution over liquidation; therefore, liquidation in the present circumstances would not serve the object of the Code,” it observed.

Accordingly, the tribunal remitted the resolution plans for the Nova Castle and Sanctuary projects back to the Committee of Creditors for reconsideration.

It directed the resolution professional to place revised, compliant plans before the Committee, which will then reconsider them in accordance with law before any fresh approval is placed before the tribunal.

For Applicant: Advocate Vinod PV and K Parameswaran Nair, RP