NCLT Ahmedabad Remits Button Industries Resolution Plan To CoC Over Demerger Uncertainty, Cost Ambiguity

The Ahmedabad Bench of the National Company Law Tribunal (NCLT) on 22 April remitted the resolution plan of Button Industries Private Limited to the Committee of Creditors (CoC) for reconsideration, citing concerns over the conditional demerger structure, uncertainty on CIRP costs, and inadequate disclosure regarding the Successful Resolution Applicant's (SRA) financial capacity.

Judicial Member Chitra Hankare and Technical Member Dr. Velamur G. Venkata Chalapathy heard an application under Sections 30(6) and 60(5) of the Insolvency and Bankruptcy Code, 2016, filed for approval of the resolution plan in the Corporate Insolvency Resolution Process (CIRP) of the company. The Bench held:

"The COC has approved the resolution plan without considering whether the proposed de merger of the SRA will be done before or after implementation of the plan. However, this cannot be a condition for approving the resolution plan, hence the COC has to reconsider whether this forms part of the plan/condition for approving the plan."

The CIRP had commenced pursuant to a Section 9 petition, following which the CoC was constituted with Neurich Nutrifoods Limited as the sole unsecured financial creditor holding 100% voting share. The resolution plan was submitted jointly by Wellfin Corporation and Madhav Solar Private Limited and was approved by the CoC with 100% votes.

A key component of the plan involved the demerger of the “Precious Metal Division” of Madhav Solar into the corporate debtor under Sections 230 to 232 of the Companies Act, 2013. The Tribunal, however, noted that the CoC had cleared the plan without clarity on whether the demerger would occur before or after implementation, treating this ambiguity as a material defect requiring reconsideration.

The NCLT also raised concerns on CIRP costs, noting that the Resolution Professional had not specified the actual amount despite stating it would be fully paid. It directed the CoC to clarify whether CIRP costs were included over and above the plan amount and to obtain certification from the SRA detailing the precise cost breakup as of the approval date.

Further, the Tribunal observed that the SRA had not furnished a net worth certificate and had failed to disclose the source of funds for the proposed unsecured loan, casting doubt on implementation capability. It also directed the Resolution Professional to clarify the treatment of trade receivables and carry-forward losses reflected in the financial statements.

Accordingly, the NCLT remitted the resolution plan to the CoC for reconsideration in light of its observations.