NCLAT Upholds Resolution Plan Approved Within CIRP Timeline; Dissenting Unsecured Creditors Bound by CoC’s Commercial Wisdom

The NCLAT upheld the resolution plan approved within the CIRP timeline, ruling that dissenting unsecured creditors are bound by the commercial wisdom of the CoC.

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating multiple appeals, held that a resolution plan approved by the Committee of Creditors (CoC) with the requisite majority is binding on all creditors, including dissenting unsecured financial creditors, provided it complies with Section 30(2)(b) of the IBC by ensuring a payout not less than the liquidation value. The Tribunal further clarified that homebuyers, being a distinct class of financial creditors, cannot be equated with unsecured financial creditors for the purpose of plan distribution. Additionally, the approval of a resolution plan by the Adjudicating Authority beyond the 330-day CIRP period does not invalidate the process if the plan was duly approved by the CoC and submitted within the prescribed timeline.

The National Company Law Appellate Tribunal (NCLAT), in its judgment dated 2024, dismissed three appeals filed by unsecured financial creditors challenging the approval of a resolution plan submitted by M/s. Max Heights Infrastructure Limited, the Successful Resolution Applicant (SRA), which had been approved by the Adjudicating Authority (NCLT, Chandigarh Bench) on 14.05.2024. The appeals were filed by creditors aggrieved by their treatment in the resolution plan, particularly regarding the amount allocated to them and the alleged delay in plan approval beyond the CIRP period.

The CIRP of the corporate debtor, Suman Vilas Private Ltd., was initiated on 08.04.2022 upon a Section 7 IBC application filed by allottees of a housing project. The appellant creditors, whose claims were admitted as unsecured financial creditors, were collectively allotted a 13.81% voting share in the Committee of Creditors (CoC). However, due to related party classification, the effective voting share of some creditors was reduced. The CoC approved the resolution plan by a majority vote of 86.67%, and the plan proposed a total payout of ₹1.5 crore to unsecured financial creditors, to be paid over 24 months. The balance funds were earmarked for completing the housing project to ensure delivery to homebuyers, who held over 86% of the voting share and were not subjected to any haircut.

The appellants argued that the resolution plan violated Section 30(2)(b) of the IBC, claiming the amount proposed under the plan was inadequate and disproportionately favoured homebuyers, who were receiving flats without any financial deduction. They also contended that the plan had been approved after the expiry of the 330-day statutory period of CIRP. However, the NCLAT held that the CoC had approved the resolution plan on 31.01.2023 and the application for its approval was filed before the lapse of the CIRP period. Hence, the fact that the Adjudicating Authority passed its approval order subsequently on 14.05.2024 did not invalidate the plan.

The Tribunal also found that the allocation to dissenting financial creditors met the minimum threshold under Section 30(2)(b) of the IBC, i.e., not less than the amount they would receive in liquidation under Section 53. Referring to earlier precedent, the NCLAT reiterated that comparison between dissenting financial creditors and homebuyers (as a class of financial creditors) was misplaced, as homebuyers were entitled to possession of flats they had already paid for, and hence, differential treatment under the resolution plan did not constitute unfair discrimination. The commercial wisdom of the CoC, having approved the plan by a substantial majority, was held to be binding.

Finding no procedural or legal infirmity in the approval of the resolution plan and no violation of the statutory provisions, the NCLAT dismissed all three appeals, affirming the decision of the Adjudicating Authority.

Mr. Abindra Maheshwari, Advocate, represented the Appellants.

For the Respondent/ Defendant: Mr. Karan Gandhi and Mr. Sikhar Tiwari, Advocates, appeared for the Resolution Professional.

Mr. Abhishek Anand, Mr. Karan Kohli and Ms. Palak Kalra, Advocates, appeared for the SRA.

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