13 February 2020

No requirement under IBC for Resolution Plan to match liquidation value of Corporate Debtor

Key Points:

No provision in the Code or insolvency regulations dictates that the bid of any Resolution Applicant has to match liquidation value of the estate of the Corporate Debtor. If the resolution plan has been approved by the Committee of Creditors by application of their commercial sense, as well as the plan has been considered as proper in terms of Section 30 of the Code, the Adjudicating Authority cannot interfere or re-assess the same under Section 31 of the said Code.


Brief facts:

The order approving the resolution plan of the Appellant was appealed against by one of the promoters of the Corporate Debtor, as well as a financial creditor, on the grounds that the amount offered under the resolution plan is less than the liquidation value of the Corporate Debtor. Vide a common order, the NCLAT had allowed the appeals and directed the Appellant to increase the upfront payment accordingly and that failure to deposit the enhanced amount with the escrow account within thirty (30) days would lead to setting aside of the Resolution Plan.

Aggrieved by the said order of the NCLAT, the Appellant sought for sustaining of the Resolution Plan. However, an interlocutory application (IA) for withdrawal of the plan was also filed by the Appellant because of difficulties in implementation of the Resolution Plan. To the IA, the counsel for the respondents has argued that the only route for withdrawal of a resolution plan at this stage is under Section 12-A of the Code.


Observations of the Court:

Whether the scheme of the Code contemplates that the sum forming part of the resolution plan should match the liquidation value or not?

Held: No provision in the Code dictates that the bid of any Resolution Applicant has to match liquidation value arrived at in the manner provided in Regulation 35 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Further, basis the observations of the Apex Court in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta, whereunder great emphasis was laid on the commercial sense of the CoC, and that the approval of the same is the prime consideration while deciding on the approval of any resolution plan under Section 31 of the Code, it was re-iterated that the Adjudicating Authority may not be allowed to re-assess the said plan, if such an approval is obtained and that the plan meets the criteria laid down in section 30 of the Code.

Whether Section 12-A of the Code is the applicable route through which a successful Resolution Applicant can retreat?

Held: No. The procedure envisaged in the said provision only applies to applicants invoking Sections 7, 9 and 10 of the Code. In the present case, having appealed against the NCLAT order with the object of implementing the resolution plan, MSL cannot be permitted to take a contrary stand in an application filed in connection with the very same appeal



The appeal was allowed by the Supreme Court on 22-1-2020 in the case Maharashtra Seamless Limited v. Padmanabhan Venkatesh & Ors. and the impugned order of the NCLAT was set aside. The Resolution Professional was directed to take physical possession of the assets of the Corporate Debtor and hand it over to the Appellant.

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