NCLAT Overturns NCLT Decision Allowing Settlement during Pending Resolution Plan Approval Application

NCLAT Overturns NCLT Decision Allowing Settlement during Pending Resolution Plan Approval Application

The National Company Law Appellate Tribunal ("NCLAT"), Principal Bench, chaired by Justice Ashok Bhushan, with Shri Barun Mitra and Shri Arun Baroka as Technical Members, overturned a directive issued by the NCLT. The directive allowed the suspended director to negotiate a settlement while an application filed by the resolution professional for the approval of a resolution plan was pending. The NCLAT Bench ruled that given the application's year-long pendency, the NCLT should have rendered a decision on the matter.

On January 8, 2023, the Committee of Creditors (CoC) unanimously approved the resolution plan submitted by the resolution applicant, garnering a 100% vote share. Conversely, the settlement proposal presented by the suspended director of the corporate debtor was unanimously rejected by the CoC, also with a 100% vote share. Consequently, the resolution professional filed an application seeking approval of the resolution plan. Concurrently, the suspended director filed an application seeking reconsideration of their revised settlement proposal.

The NCLT granted the suspended director another opportunity to negotiate a settlement with the CoC. Meanwhile, the application for approval of the resolution plan was placed in abeyance by the NCLT.

In 2021, corporate debtor M/s. Nimitya Hotel & Resorts Limited was admitted into the Corporate Insolvency Resolution Process ("CIRP") by the NCLT.

On 04.07.2022, the NCLAT allowed the suspended director of the corporate debtor to present a new settlement proposal under Section 12A of the Insolvency and Bankruptcy Code (IBC).

The appellant, Nehru Place Hotels and Real Estates Pvt. Ltd., presented a resolution plan on August 20, 2022, accompanied by an earnest money deposit (EMD) of Rs. 5 crore. The suspended director of the corporate debtor lodged an application before the NCLT requesting consideration of its settlement proposal.

On 21.11.2022, the NCLT permitted the suspended director to submit a settlement proposal.

The CoC deliberated on the resolution plan and settlement proposal during its 14th CoC meeting. The resolution plan garnered approval with a 100% vote share, while the settlement proposal was rejected unanimously with a 100% vote share.

The resolution professional filed an application with the NCLT to seek approval for the resolution plan submitted by the successful resolution applicant.

On 04.05.2023, the suspended director filed I.A. No. 2594 of 2023, requesting reconsideration of its revised proposal. Subsequently, a CoC member conveyed to the suspended director that their competent authority had dismissed the settlement proposal submitted on 21.03.2023.

The NCLT, in an order dated 01.12.2023 issued in I.A. No. 2594 of 2023, provided a final chance to the suspended director to submit a settlement proposal before the CoC.

The court observed that the Committee of Creditors (CoC) had already approved the resolution plan, which was pending consideration by the adjudicating authority. Despite this, the suspended management had filed certain applications proposing a higher amount than that proposed by the Successful Resolution Applicant (SRA) for consideration by the CoC. Given the age of the matter and to facilitate the possibility of reaching an acceptable settlement, the court granted a final opportunity. It specified that if no settlement arose before the next date of hearing, the resolution plan would be heard on its merits. The court directed that the application be listed on January 11, 2023.

The Successful Resolution Applicant lodged an appeal with the NCLAT challenging the order dated 01.12.2023. He argued that since the resolution plan had been endorsed with a 100% vote share on 08.01.2023, there was no justification for affording the suspended director any opportunity to negotiate a settlement with the CoC.

The Bench noted that the Resolution Plan of the Successful Resolution Applicant (SRA) had been approved with 100% vote share, and the settlement proposal submitted by the Suspended Director under Section 12A of the IBC was deliberated upon and rejected with 100% vote share on 08.01.2023.

There can be no dispute with the proposition that the adjudicating authority holds jurisdiction to overturn the CoC's decision to reject a proposal under Section 12A, if such a decision by the CoC is deemed arbitrary.

The court observed that, based on the foregoing discussion and findings, the adjudicating authority erred in providing an opportunity to Respondent No. 1 to reach an acceptable settlement.

The court ruled that, considering the resolution plan approval application has been pending for over a year, the NCLT should have made a decision on it. The Bench instructed the NCLT to promptly resolve the application for resolution plan approval.

The court observed that the application for approval of the resolution plan, which had already been filed and was pending consideration, ought to have been considered and decided by the adjudicating authority. It was also noted that the adjudicating authority could have considered I.A. No. 2594 of 2023 and made a final decision. Considering that the plan had been approved on 8th January 2023 and the application had been pending for about a year, the court emphasized that the adjudicating authority should have proceeded expeditiously to decide the application filed by the resolution professional for approval of the plan (i.e., I.A. No. 987 of 2023). The court also mentioned that the adjudicating authority could have considered and decided I.A. No. 2594 of 2023 filed by Respondent No. 1. The court set 11th January 2024 as the date for further proceedings and asked the adjudicating authority to proceed with the decision on the mentioned applications on that date or as soon as possible.