The NCLT cannot reject a duly approved resolution plan and order liquidation of the corporate debtor; NCLAT Sets Aside NCLT’s Liquidation Order
- REEDLAW
- 5 days ago
- 3 min read
The NCLAT set aside the NCLT’s liquidation order on the grounds that it was passed without issuing notice to the resolution applicant and without providing any reasoned findings.
On 06-05-2025, the National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Yogesh Khanna (Judicial Member) and Mr. Ajai Das Mehrotra (Technical Member), reviewed a set of two appeals and connected interlocutory applications, holding that the NCLT cannot reject a duly approved resolution plan and order liquidation of the corporate debtor without issuing notice to the resolution applicant, affording an opportunity of hearing, or passing a reasoned order. This is particularly critical when the objection arises from a unilateral withdrawal of consent by a financial creditor that lacks the support of the Committee of Creditors (CoC). Such conduct amounts to a violation of the principles of natural justice and disregards the commercial wisdom of the CoC.
In the matter of Company Appeal (AT)(Ins) Nos. 183 & 446 of 2024, the National Company Law Appellate Tribunal (NCLAT) addressed an appeal against the order dated 09.01.2024 passed by the National Company Law Tribunal (NCLT), Mumbai Bench-I, which had rejected the resolution plan submitted by the appellants and directed the liquidation of the corporate debtor. The appellants contended that the NCLT's decision was based solely on the unilateral withdrawal of consent by Respondent No. 2, the State Bank of India (SBI), without any formal application under Section 33(2) of the Insolvency and Bankruptcy Code (IBC). They further argued that the NCLT failed to provide them an opportunity to respond to the allegations of fraud made by SBI and did not issue a notice before passing the impugned order.
The appellants had submitted a resolution plan with a resolution value of ₹77.98 crore, which was approved by the Committee of Creditors (CoC) with an overwhelming majority of 98.15%. As part of the plan, the appellants proposed five immovable properties as a source of funds, including the Girgaon property owned by Appellant No. 3, Parag Malde. SBI objected to the plan, alleging that the appellants did not have a clear title to the Girgaon property, which was valued at ₹90 lakh, representing only 1.5% of the resolution value. The appellants contended that they had purchased the property through a registered sale deed in 2014 and were unaware of any title dispute until 2020, when their vendors fraudulently executed an agreement to sell the same property to another party. Upon discovering this, the appellants filed a criminal complaint and a civil suit challenging the fraudulent transaction.
Despite the appellants' efforts to address the issue, including offering to replace the Girgaon property with a fixed deposit of ₹1 crore, SBI filed an objection application seeking to withdraw its consent to the resolution plan. The NCLT, relying solely on SBI's unilateral withdrawal, rejected the plan and ordered liquidation without issuing notice to the appellants or providing an opportunity to respond to the allegations.
The NCLAT found that the NCLT's order was a non-speaking order and violated principles of natural justice, as the appellants were not given an opportunity to explain the allegations against them. The NCLAT also noted that the NCLT had not adjudicated upon the allegations of fraud made by SBI and had failed to consider the commercial viability of the resolution plan, which offered a resolution value significantly higher than the liquidation value of the corporate debtor. The NCLAT emphasised that the commercial wisdom of the CoC should not be lightly interfered with and that the NCLT should have provided a reasoned order if it intended to reject the plan.
Consequently, the NCLAT set aside the impugned order and remanded the matter to the NCLT for reconsideration. The NCLT was directed to issue notices to the appellants, adjudicate upon the allegations of fraud, and pass a reasoned order in accordance with the provisions of the IBC. The NCLAT emphasised the need for expeditious disposal of the matter, preferably within eight weeks of the appellants' appearance before the NCLT. The appeals were disposed of accordingly, with no order as to costs.
Mr Nakul Dewan, Sr Advocate with Mr. Abhinav Agrawal, Mr Piyush Bhardwaj, Advocates, represented the Appellant.
Mr. Ayush J. Rajani and Ms Khushboo Shah Rajani, Advocates, appeared for the Respondent No. 1.
Mr Abhijeet Sinha, Sr Advocate, with Ms Shivani Sinha and Ms Meera Murali, Advocates, appeared for Respondent No. 2.
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