Mumbai: The National Company Law Appellate Tribunal (NCLAT) has dismissed appeals filed by the Bank of Maharashtra and the Central Bank of India, holding that their challenge to the distribution mechanism under the Rs 3,965.06-crore resolution plan of Jyoti Structures Limited was not maintainable and suffered from gross delay.
Challenge to Finalised Plan Cannot Be Entertained
The appellate tribunal observed that the two lenders were, in effect, seeking to reopen and modify a resolution plan that had already attained finality. The bench held that such a challenge, raised years after approval, could not be entertained under the Insolvency and Bankruptcy Code (IBC), particularly when the plan had already been implemented and acted upon.
The case stems from the insolvency resolution of Jyoti Structures, where the resolution plan submitted by Sharad Sanghi was approved by the committee of creditors (CoC) with a voting share of 81.31% in 2018 and subsequently sanctioned by the National Company Law Tribunal (NCLT) on March 27, 2019. While a majority of lenders supported the plan, Bank of Maharashtra abstained from voting and Central Bank of India voted against it. Under the approved plan, dissenting and abstaining creditors were to be paid amounts aligned with liquidation value, in accordance with Section 30(2)(b) of the Code.
Banks Alleged Inequality in Creditor Treatment
The appellants contended that such treatment resulted in glaring inequality within the same class of secured financial creditors. They pointed out that assenting creditors were receiving nearly 73% of their admitted claims, while dissenting and abstaining creditors were left with only about 14%, effectively suffering an 86% haircut. They argued that Section 30(2)(b) only prescribes a minimum payment threshold and does not permit discriminatory distribution, and that all secured creditors should have been treated on par irrespective of their voting stance.
However, the tribunal was not persuaded. It noted that the application seeking parity in distribution was filed before the NCLT only in September 2021—more than two and a half years after the resolution plan had been approved. The appellate bench found this delay to be unjustified, observing that the lenders were fully aware of the terms of the plan at all relevant stages but chose not to challenge it within the prescribed time. The tribunal further pointed out that the appeal itself was filed beyond the limitation period stipulated under Section 61 of the Code, without any sufficient cause for condonation.
Relief Sought Was Challenge to Plan Disguised as Modification
Significantly, the NCLAT held that the relief sought by the banks—seeking equal treatment in payout and modification of distribution terms—amounted to a direct challenge to the resolution plan. “This is a case of challenge of resolution plan disguised as modification in distribution,” the tribunal noted, adding that such an exercise could not be undertaken once the plan had been approved and implemented.
The bench also relied on settled legal principles that once a resolution plan is approved under Section 31 of the Code, it becomes binding on all stakeholders and stands “frozen.” Referring to the Supreme Court’s ruling in the Ghanashyam Mishra case, the tribunal reiterated that no claims outside the approved plan can be entertained thereafter, and the successful resolution applicant cannot be burdened with unforeseen liabilities.
Implementation Since 2021 Bars Interference Now
The tribunal further noted that the resolution plan had already been implemented in November 2021, with the management of the company having been taken over and payouts under the plan already underway. Interfering at this stage, it said, would unsettle the entire resolution process and defeat the objective of finality under the IBC framework.
Rejecting the contention that only distribution and not the plan itself was being challenged, the tribunal held that any alteration in payout structure would necessarily impact the commercial terms of the resolution plan. It emphasized that the commercial wisdom of the CoC, particularly in matters of distribution, cannot be interfered with so long as the minimum statutory requirements are met.
In conclusion, the NCLAT dismissed the appeals as not maintainable on the grounds of limitation and delay, while also holding that no interference was warranted with the NCLT’s order. The tribunal remarked that the appellants had approached the adjudicating authority belatedly in an attempt to circumvent limitation and reopen a concluded process, which could not be permitted in law.
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