Approved Resolution Plan Overrides BIFR Scheme: NCLAT Declares All Prior Concessions Extinguished Under IBC
- REEDLAW
- Nov 3
- 4 min read
REEDLAW Legal News Network reports: In a pivotal ruling, the Appellate Tribunal reaffirmed that once a resolution plan is duly approved under Section 31(1) of the Insolvency and Bankruptcy Code, 2016, it becomes binding and overrides any prior schemes sanctioned under the repealed SICA framework. The Tribunal clarified that any concessions, waivers, or reliefs previously granted under such rehabilitation schemes stand extinguished if not expressly incorporated within the approved resolution plan.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Mohd. Faiz Alam Khan (Judicial Member) and Mr. Naresh Salecha (Technical Member), while adjudicating Company Appeals, held that once a resolution plan is approved under Section 31(1) of the Insolvency and Bankruptcy Code, 2016, it attains finality and supersedes all earlier financial arrangements, including those sanctioned under repealed SICA schemes. The Bench emphasised that any pre-CIRP claims or concessions not included in the resolution plan stand extinguished and cannot subsequently be revived.
The Appellant had filed an appeal under Section 60(5) read with Section 31(1) of the Insolvency and Bankruptcy Code, 2016, assailing the order passed by the Adjudicating Authority, Mumbai Bench, whereby its interlocutory application was partly allowed. The Appellant, engaged in the manufacture of critical forged components, had earlier been taken over under a rehabilitation scheme sanctioned by the erstwhile BIFR under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985. The sanctioned scheme had provided certain concessions, including a reduction of the interest rate to 12% per annum, which was binding upon all stakeholders under Sections 18(8) and 19(3) of SICA.
Following the repeal of SICA in 2016, the Respondent Bank began levying a higher rate of interest ranging between 14.75% and 16%, contrary to the BIFR scheme. The Appellant alleged that despite representations, the Bank failed to revise the rate and continued charging excess interest. This led the Appellant to initiate a corporate insolvency resolution process under Section 10 of the Code. During CIRP, a resolution plan was duly approved by the Committee of Creditors and subsequently by the Adjudicating Authority in January 2018. Under the approved plan, the Respondent Bank was obligated to extend further working capital assistance of Rs. 400 lakhs and to charge interest at 12% per annum from the date of admission of the insolvency petition. The Appellant, however, claimed that excess interest for the pre-resolution period had not been refunded, and that the Bank had wrongfully sought recovery of Rs. 1.18 crores credited earlier as interest adjustment under the BIFR scheme.
The Respondent Bank contended that the BIFR scheme had failed due to non-compliance by the Appellant and that the subsequent approval of the resolution plan eclipsed the earlier BIFR arrangement. It was submitted that the Bank had already fulfilled its obligations under the approved plan by restructuring the working capital facility and advancing further credit as stipulated. The Bank maintained that, in the absence of an explicit provision incorporating the BIFR scheme within the resolution plan, the Appellant could not selectively invoke its benefits while disregarding the mutual obligations contained therein.
Upon examining the rival submissions and the material on record, the Appellate Tribunal observed that there was no explicit clause in the approved resolution plan that preserved the terms of the BIFR scheme. The Tribunal held that the plan’s specific provisions governing the Respondent’s obligations, including the stipulated rate of interest and working capital structure, took effect from the date of admission of the insolvency petition and superseded all prior arrangements. It noted that granting continued effect to BIFR concessions without corresponding obligations would amount to extending selective reliefs inconsistent with the approved plan.
The Tribunal concluded that once a resolution plan is approved under Section 31(1) of the Code, it attains finality and binds all stakeholders. Any past or pre-CIRP claims not forming part of the approved plan stand extinguished, in line with the principle affirmed by the Supreme Court in Ghanashyam Mishra and Sons Private Limited Through The Authorised Signatory v. Edelweiss Asset Reconstruction Company Limited Through The Director and Others, REEDLAW 2021 SC 04534. The Appellant, therefore, could not rely on the superseded BIFR scheme to claim any further refund or concession. The Tribunal, however, found merit in the claim of overcharging for the limited period between 25 May 2017 and 28 August 2018, and accordingly directed the Respondent Bank to refund or adjust the differential interest for that duration. All other reliefs sought by the Appellant were declined.
Mr. Sanat Jariwala (CA), Ms. Purti Gupta, Ms. Heena George and Ms. Sunidhi Shah, Advocates, represented the Appellant.
Mr. Ranjeev Carvalho, Ms. Suchitra Valjee, Ms. Rajni Shah and Mr. Vansh Ved, Advocates, appeared for the Axis Bank.
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