'Wafer-Thin Majority' Alone No Ground To Reject Insolvency Resolution Plan: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at Delhi has held that a resolution plan cannot be rejected merely because it was approved by a “wafer-thin majority,” setting aside the NCLT's rejection of Express Resorts and Hotels Ltd's plan for Neesa Leisure Ltd.

A bench of Judicial Member Justice Yogesh Khanna and Technical Member Ajai Das Mehrotra said the Ahmedabad bench of the NCLT had rejected the plan on legally unsustainable grounds despite it securing the requisite creditor approval.

“A plan cannot be rejected on the ground that it has been approved by a wafer-thin majority if it meets the statutory requirement of vote in favour of 66% of voting share of CoC members,” the tribunal observed.

The appellate tribunal also said the NCLT had failed to identify any actual legal infirmity in the resolution plan.

"We find that the Ld. NCLT has not given any specific finding on contravention of any provision of Section 30(2) of the IBC, 2016. The Ld. NCLT has rejected the plan based on subjective legally unsustainable observations, some of which are also factually incorrect. None of the observation can be said to be violation of any provision of Section 30(2) so as to call for rejection of the plan” the tribunal held.

Neesa Leisure Ltd was admitted into the corporate insolvency resolution process in April 2019. After multiple rounds of bidding, the resolution plan submitted by Express Resorts and Hotels Ltd was approved by the Committee of Creditors in October 2020 with 67.85% voting share.

The plan envisaged payment of ₹143.83 crore, along with an additional ₹250 crore proposed for capital expenditure, taking the total outlay to nearly ₹400 crore. A ₹50 crore performance bank guarantee was also furnished.

The resolution plan remained stuck before the NCLT for several years, with the proceedings repeatedly getting entangled in litigation, including multiple settlement proposals from the suspended management. The NCLT eventually rejected the plan in March 2024.

Express Resorts maintained that its plan was fully compliant with the Insolvency and Bankruptcy Code and had secured approval from the CoC in an exercise of commercial wisdom. It also pointed out that the plan had been approved in 2020, nearly two years before the Supreme Court delivered its Rainbow Papers ruling.

It further argued that the valuation exercise had been carried out by registered valuers under the supervision of the resolution professional and considered by the CoC, with no objections raised by stakeholders at the relevant time.

The respondents argued that the valuation exercise was flawed and that the plan was inconsistent with the law laid down in Rainbow Papers on treatment of statutory dues.

Examining the objections, the NCLAT found that disclosure of disputes relating to Rajasthan properties in the Information Memorandum was proper and that the resolution applicant had bid on an “as-is-where-is” basis with full awareness of litigation risks.

The tribunal said valuation was only an indicative exercise to assist the CoC and fell squarely within its commercial wisdom, while the resolution applicant independently assessed risks and value.

On statutory dues, the tribunal noted that the plan pre-dated Rainbow Papers and recorded the appellant's undertaking to pay an additional ₹2.33 crore towards such claims so that financial creditors' distributions remained unaffected.

The NCLAT noted that repeated settlement proposals by the suspended management had already been considered and rejected by the CoC.

Holding that the NCLT had erred in rejecting the plan, the appellate tribunal set aside the impugned order and approved the resolution plan submitted

For Appellant: Senior Advocate Abhijeet Sinha, with Advocates Raheel Patel, Himanshu Satija, Anshul Rao and Heena Kochar.