NCLT Cannot Insert New Terms in CoC-Approved Resolution Plan: Unauthorised 5% Public Shareholding Clause Set Aside
- REEDLAW
- 1 day ago
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REEDLAW Legal News Network reports: In a significant ruling clarifying the limits of judicial intervention at the plan approval stage, the Appellate Tribunal held today, 5 January 2026, that the Adjudicating Authority cannot insert or modify substantive terms in a resolution plan that were never approved by the Committee of Creditors. The Tribunal ruled that any inadvertent alteration affecting the equity structure of the corporate debtor, including mandatory public shareholding conditions, travels beyond the statutory jurisdiction under the Insolvency and Bankruptcy Code and is impermissible in law.
The Appellate Tribunal, comprising Justice N. Seshasayee (Judicial Member) and Mr. Arun Baroka (Technical Member), while adjudicating a company appeal arising from approval of a resolution plan, examined whether the Adjudicating Authority could alter the equity structure of the corporate debtor by introducing a condition that was never contemplated in the plan approved by the Committee of Creditors. The Tribunal observed that the role of the Adjudicating Authority under the Code is limited to examining compliance with statutory requirements and does not extend to rewriting or supplementing commercial terms decided by the CoC.
The appeal arose from an order approving a resolution plan in respect of a Corporate Debtor undergoing the corporate insolvency resolution process. The Appellants, comprising members of the suspended board and the Chief Financial Officer, participated in the resolution process in their capacity as eligible resolution applicants, the Corporate Debtor being an MSME. The Committee of Creditors consisted of two Financial Creditors, with the majority voting share held by one Financial Creditor. The resolution plan submitted by the Appellants was approved by the Committee of Creditors, notwithstanding objections raised by the minority Financial Creditor to a clause proposing exoneration of personal guarantors.
Upon approval of the plan by the Adjudicating Authority, while sanctioning the resolution plan, the Adjudicating Authority modified certain terms of the plan. It declined to approve the clause extinguishing the liability of personal guarantors and, additionally, introduced a condition directing that the revived Corporate Debtor should earmark five per cent of its equity in favour of the public. Aggrieved by these modifications, the Appellants preferred the present appeal.
During the pendency of the appeal, the dispute concerning the extinguishment of the personal guarantors’ liability was amicably resolved between the Appellants and one of the Financial Creditors, and the same was placed on record through affidavits and supporting correspondence, leaving only the issue relating to the alteration of the equity structure for adjudication.
The Tribunal examined the approved resolution plan and found that the plan, as sanctioned by the Committee of Creditors, provided for cancellation and extinguishment of existing share capital and issuance of new shares in favour of the resolution applicants, without any stipulation reserving a portion of equity for public shareholding. It was observed that the Adjudicating Authority had inadvertently inserted an additional paragraph in the narration of the resolution plan while reproducing it in the impugned order, directing the reduction of public shareholding to five per cent, a clause which did not form part of the plan approved by the Committee of Creditors.
The Tribunal held that such an inadvertent insertion materially altered the complexion of the resolution plan and exceeded the scope of judicial scrutiny permissible at the stage of approval under the Insolvency and Bankruptcy Code. Since the inserted clause was neither part of the resolution plan nor approved by the Committee of Creditors, it could not be sustained.
Accordingly, the appeal was allowed, and the order of the Adjudicating Authority approving the resolution plan was modified to the limited extent of deleting the erroneously inserted clause relating to public shareholding, with no order as to costs.
Mr. Arjun R. Sheth, Advocate, represented the Appellant.
Mr. Atul Sharma, Advocate, appeared for the Respondent No. 1.
Mr. Harshal Kumar, Advocate, appeared for the Respondent No. 2.
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