Judicial Interference in CoC-Approved Resolution Plan Due to Procedural Irregularities and Non-Disclosure of Avoidance Transactions
- Apr 29
- 3 min read
REEDLAW Legal News Network reports: The Appellate Tribunal reaffirmed that approval of a resolution plan by the Committee of Creditors does not grant absolute immunity from judicial scrutiny where the Corporate Insolvency Resolution Process is compromised by procedural irregularities, lack of transparency, and statutory non-compliance. The ruling highlights the critical obligation of the Resolution Professional to ensure full disclosure of avoidance transactions and strict adherence to regulatory timelines to preserve the integrity of the insolvency process.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Mohd. Faiz Alam Khan (Judicial Member) and Mr. Arun Baroka (Technical Member) upheld the rejection of a CoC-approved resolution plan and directed re-initiation of CIRP, replacement of the Resolution Professional, and potential liquidation upon failure to complete the process within the prescribed timeline. The Tribunal found material lapses, including non-disclosure of avoidance transactions, delayed filing of applications under Sections 43 and 66, and impermissible sharing of recoveries with the Successful Resolution Applicant, thereby violating statutory provisions and CIRP Regulations.
The Appellate Tribunal considered appeals challenging the rejection of a resolution plan approved unanimously by the Committee of Creditors and the consequential directions for re-initiation of the CIRP and replacement of the Resolution Professional. The Appellant contended that the commercial wisdom of the CoC was non-justiciable and that avoidance applications were independent proceedings which did not affect plan approval.
The Tribunal noted that although the CoC had approved the resolution plan, the CIRP process suffered from significant procedural lapses. The Resolution Professional had failed to properly disclose and place before the CoC the details of avoidance transactions identified through the transaction audit, which involved substantial amounts. Further, avoidance applications under Sections 43 and 66 were filed only after approval of the resolution plan, contrary to the statutory timelines prescribed under Regulation 35A. The Tribunal also observed that the resolution plan provided for the sharing of recoveries from avoidance transactions between the creditors and the resolution applicant, which was inconsistent with Section 36(3)(f), as such recoveries form part of the assets of the Corporate Debtor.
Relying on principles laid down in K. Sashidhar v. Indian Overseas Bank and Others, REEDLAW 2019 SC 02502, Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others, REEDLAW 2019 SC 11505, and Maharashtra Seamless Limited v. Padmanabhan Venkatesh and Others, REEDLAW 2020 SC 01501, the Tribunal reiterated that while the commercial wisdom of the CoC is generally non-justiciable, the Adjudicating Authority retains jurisdiction to examine compliance with statutory provisions. The Tribunal found that the CIRP process lacked transparency and fairness, and that material information was not disclosed to prospective resolution applicants, thereby affecting the integrity of the process.
The Tribunal upheld the findings of the Adjudicating Authority, including rejection of the resolution plan, replacement of the Resolution Professional, and direction for fresh CIRP. It further directed an investigation into the conduct of the Resolution Professional by the IBBI.
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