Monitoring Committee Cannot Revisit Approved Resolution Plan Or Alter Distribution Mechanism: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at New Delhi has reiterated that a Monitoring Committee constituted under a resolution plan cannot assume the role of the Committee of Creditors (CoC) or the Adjudicating Authority to revisit or modify the terms of an already approved resolution plan.

The tribunal dismissed an appeal filed by assenting financial creditors challenging the order of the NCLT, Cuttack Bench, which had directed payment to a dissenting financial creditor in accordance with its liquidation value as determined by the evaluation advisor appointed by the CoC under Section 30(2)(b) of the Insolvency and Bankruptcy Code, 2016.

The tribunal noted that the distribution mechanism based on liquidation value attributable to the security interest of each secured creditor had already been approved by the CoC in its commercial wisdom.

The bench of Chairperson Justice Ashok Bhushan and Technical Member Indevar Pandey observed, “…..The Monitoring Committee which is constituted by the CoC, only for a limited purpose of supervising and facilitating the implementation of the approved plan, cannot assume the role of the CoC or the Adjudicating Authority to revisit or modify the terms of the plan. Any attempt to alter the distribution mechanism at this stage would amount to rewriting the Resolution Plan itself, which is impermissible and contrary to the scheme of the Code. The sanctity and finality attached to an approved Resolution Plan cannot be diluted by subsequent decisions of the Monitoring Committee."

The tribunal further observed that the decision of the Monitoring Committee to reduce the amount payable to the dissenting financial creditor from Rs. 64.56 crores to Rs. 35.2 crores was clearly beyond its jurisdiction, as it is not vested with any power to revisit or alter the commercial decisions of the CoC.

The bench clarified that the role of the Monitoring Committee is limited to monitoring and implementing the approved resolution plan.

Any departure from the agreed distribution framework, the tribunal said, would effectively amount to altering the resolution plan itself, something the law does not permit. It referred to its earlier ruling in Bank of Baroda v. IDBI Bank Limited to underline that once the Committee of Creditors has exercised its commercial wisdom on how proceeds are to be distributed, that decision cannot be revisited after the plan has been approved.

The dispute stems from the corporate insolvency resolution process of OCL Iron and Steel Ltd, where a resolution plan submitted by successful applicant Indrani Patnaik secured 88.98% approval from the Committee of Creditors before being cleared by the NCLT.

State Bank of India, a dissenting financial creditor, was initially paid Rs. 35.2 crore during the implementation of the plan. Aggrieved, it approached the NCLT seeking payment of Rs. 64.56 crore, being the liquidation value attributable to it as determined by the evaluation advisor based on its security interest.

The NCLT allowed SBI's plea and directed payment in accordance with Section 30(2)(b) of the IBC. This order was challenged by the assenting financial creditors before the NCLAT, which has now dismissed the appeal.