NCLT Bengaluru Refers Stellence Pharmascience Resolution Plan Back To CoC Over Nil Creditor Payouts

The National Company Law Tribunal (NCLT), Bengaluru, on 27 October, referred the resolution plan of Stellence Pharmascience Private Limited back to its Committee of Creditors (CoC) for reconsideration, observing that the plan appeared to assume nil liquidation value for operational creditors, employees and government authorities without adequate deliberation by the CoC.

A Bench of Judicial Member Sunil Kumar Aggarwal and Technical Member Radhakrishna Sreepada held that a resolution plan cannot be approved without adequate consideration of its compliance with statutory requirements governing payments to operational creditors and due diligence of the Successful Resolution Applicant (SRA). It observed:

“…material on record nowhere points out that RP and the CoC have deliberated on the issue in CoC meetings because SRA has made proposals based on assumption of liquidation value being significantly lower than Plan Value and therefore amount payable to Operational Creditors would be NIL is not correct then this Resolution Plan would violate Section 30(2)(b) of the Code and Regulation 38(1A) of the CIRP Regulations, 2016 which states that the SRA has not considered the interest of all the stakeholders.”

The CoC had approved the resolution plan submitted by SRA Dr. Mukesh Kumar Agarwal with 100% voting share. The SRA stated that the corporate debtor's liquidation value was unknown and assumed that it would be insufficient even to meet the admitted financial debt.

The Tribunal examined the due diligence requirements under Regulation 36A(8) of the Corporate Insolvency Resolution Process (CIRP) Regulations, 2016. It noted that clause (a) requires the prospective resolution applicant to comply with Section 25(2)(h) of the Insolvency and Bankruptcy Code (IBC), while clause (b) requires the resolution professional's due diligence report to address the applicability of Section 29A of the Code.

On examining the due diligence report, it found that it relied on the SRA's net worth as of 14 July 2023, although the corporate debtor entered the corporate insolvency resolution process (CIRP) on 6 March 2024 and the Form G inviting resolution plans was dated 8 June 2024. It observed:

“shows that net worth of the SRA for the purpose of Due diligence Report under Section 29A of the Code read with Regulation 36A(8) of the CIRP Regulations, 2016 was taken as on 14.07.2023 even though the Corporate Debtor was admitted into CIRP on 06.03.2024 and Form-G pursuant to which SRA had submitted its Resolution Plan is dated 08.06.2024 due to which Due Diligence Report submitted by the Applicant is defective and violates Regulation 36A(8) of the CIRP Regulations, 2016.”

Further, the Bench considered the scope of the adjudicating authority's interference in the approval of resolution plans, relying on the Supreme Court's ruling in K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150.

Accordingly, the NCLT referred the resolution plan back to the CoC for reconsideration, finding that it did not appear to comply with Section 30(2)(b) of the IBC and Regulations 36A(8) and 38(1A) of the CIRP Regulations, 2016.