NCLT Kochi Rejects ADIMS Resolution Plan Over Dependence On Uncertain Lease, Terminates CIRP

On 25 June, the Kochi Bench of the National Company Law Tribunal (NCLT) declined to approve the resolution plan submitted for Attukal Devi Institute of Medical Sciences Limited (ADIMS), holding that plans founded on speculative contingencies and unresolved third-party disputes cannot be sustained solely on the basis of Committee of Creditors' (CoC) approval.

Judicial Member Vinay Goel and Technical Member Ravichandran Ramasamy dismissed the Resolution Professional's application under Section 30(6) of the Insolvency and Bankruptcy Code, 2016, noting that the resolution plan submitted by successful resolution applicant Dr. M. Ayyappan was not legally or practically implementable. The Bench held:

“A Resolution Plan must also be capable of practical and legal implementation. A plan that is dependent upon speculative future contingencies, uncertain litigation outcomes, or continuation of disputed third-party rights cannot readily be regarded as a self-sustaining and implementable resolution framework. Approval of such a plan would effectively require this Adjudicating Authority to assume that the disputes concerning the occupation of the premises shall ultimately be resolved in favour of the Resolution Applicant, an assumption which this Adjudicating Authority is neither empowered nor justified to make.”

The Resolution Professional of ADIMS approached the Tribunal for approval of the resolution plan submitted by Dr. M. Ayyappan, the successful resolution applicant.

ADIMS operates Attukal Devi Hospital, a 50-bed multi-speciality hospital in Thiruvananthapuram, from premises leased from Attukal Bhagavathy Temple Trust. Although the lease had expired before the commencement of the Corporate Insolvency Resolution Process (CIRP), the corporate debtor claimed statutory tenancy while a tenancy dispute remained pending.

The Tribunal admitted a Section 7 application filed by financial creditor Dr. Ayyappan Nair Raghavan Pillai in September 2024, commencing CIRP. During the process, the Temple Trust secured an attachment order, froze the corporate debtor's bank accounts, and triggered further litigation before the Kerala High Court.

After the first invitation failed to attract any resolution plan, the Resolution Professional issued a fresh invitation. Four applicants submitted plans in the second round. Following multiple rounds of deliberations, Dhanlaxmi Bank, the sole financial creditor with voting rights in the CoC, approved Dr. M. Ayyappan's resolution plan with a 100% voting share.

The plan proposed to revive the hospital through fresh capital infusion, operational restructuring, settlement of CIRP costs and creditors' dues, renewal of the hospital lease, and transfer of management control to the successful resolution applicant.

The Tribunal noted that the corporate debtor operated entirely from premises owned by Attukal Bhagavathy Temple Trust and that the lease had expired even before commencement of CIRP. It further noted that the Trust had unequivocally refused to renew the lease and had actively pursued legal proceedings to recover possession. Examining the resolution plan, it observed:

“A careful consideration of the Resolution Plan demonstrates that the entire resolution framework is founded upon the continued operation of the hospital from the existing premises….the viability and feasibility of the Resolution Plan are inseparably dependent upon the availability of the property from which the Corporate Debtor presently conducts its business.”

Further, the Bench observed that statutory tenant protections may operate as a shield but "cannot be used as a sword". It stated:

“Since the lease had expired before the commencement of the CIRP, the Corporate Debtor had no subsisting leasehold interest capable of being transferred to the Successful Resolution Applicant. In the absence of the landlord's consent for continued occupation, the implementation of the Resolution Plan remains dependent on an uncertain and unenforceable assumption.”

It also clarified that although it does not sit in appeal over the CoC's commercial wisdom under Section 31 of the IBC, it cannot ignore legal impediments that strike at the root of implementation. It also expressed concern over the lack of transparency in the resolution plan, observing that it appeared to permit the suspended management to continue exercising substantial control over the corporate debtor even after resolution.

Observing that the corporate debtor continued to operate as a going concern, the Tribunal stated:

“Closure of a functioning multi-speciality hospital would not merely affect stakeholders identified under the Code but would also have wider social and economic consequences, including loss of employment and disruption of healthcare services being provided to the community.”

Moreover, the Bench noted that the erstwhile promoter-director initiated CIRP even though his status as a financial creditor appeared doubtful. It also observed that the resolution plan benefited persons connected with the suspended management while leaving the crucial lease dispute unresolved. It concluded:

“…this Adjudicating Authority is of the considered view that the liabilities of the secured creditor and the operational creditors can be serviced from the ongoing operations of the Corporate Debtor in the ordinary course of business. The continuance of the Corporate Insolvency Resolution Process is therefore not necessary for protecting the interests of such stakeholders.”

Accordingly, the NCLT rejected the resolution plan, dismissed the Resolution Professional's application under Section 30(6) of the IBC, and disposed of the CIRP proceedings.

For Applicant: Advocate AC Venugopal and Rajmohan R, RP