NCLAT Upholds Resolution Plan Below Liquidation Value, Reinforcing CoC's Discretion

NCLAT Upholds Resolution Plan Below Liquidation Value, Reinforcing CoC's Discretion

The National Company Law Appellate Tribunal (NCLAT) Chennai Bench, presided over by Justice Rakesh Kumar Jain and Shreesha Merla, recently delivered a significant verdict upholding the approval of a Resolution Plan for SD Pharmacy Pvt Ltd. even though the offered amount fell below the company's liquidation value.

SD Pharmacy Pvt Ltd., facing financial difficulties, entered the Corporate Insolvency Resolution Process (CIRP) under the provisions of the Insolvency and Bankruptcy Code (IBC). Resolution Professional CA Jasin Jose filed a Resolution Plan on July 17, 2023, which received unanimous approval from the CoC with a 100 per cent voting share in its 12th meeting held on June 26, 2023. The plan outlined a proposed settlement for creditors, but it was important to note that the offered amount fell below the estimated liquidation value of the company.

On October 13, 2023, the NCLT Kochi bench approved the Resolution Plan, finding it compliant with Sections 30 & 31 of the IBC and Regulations 38 & 39 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. However, Ramesh Kesavan, the promoter and suspended director of SD Pharmacy, appealed this decision to the NCLAT Chennai Bench.

Kesavan's primary argument against the plan centred around the fact that it offered creditors less than the liquidation value, potentially disadvantaging them. However, the NCLAT Chennai Bench dismissed the appeal, asserting that the IBC does not explicitly mandate Resolution Plans to exceed the liquidation value. The tribunal acknowledged the crucial role of the CoC in the CIRP process and underscored their authority to exercise commercial wisdom and negotiate settlements that they deem most beneficial to the company's revival and the interests of creditors.

The NCLAT further highlighted a specific aspect of the plan, where Kerala Ayurvedic Limited, one of the creditors, voluntarily agreed to accept an amount lower than the liquidation value. This, according to the tribunal, negated Kesavan's claim of discriminatory treatment towards creditors.

Furthermore, the NCLAT cited the Supreme Court's ruling in Kalparaj Dharamshi v. Kotak Investment Advisors Ltd., which established that a Resolution Plan approved with a 100 per cent voting share by the CoC and without any material irregularities should not be challenged. In this case, since the NCLT Kochi bench confirmed that the approval process followed all necessary procedures and received unanimous support from the CoC, the NCLAT deemed it appropriate to uphold the decision.

The NCLAT hence deemed the Resolution Plan legally sound as it met the criteria laid out in Section 30(2) of the IBC. Additionally, it adhered to the guidelines established in Regulations 38 and 39 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.