In a significant ruling, the Hon’ble Supreme Court set aside the decision of NCLAT, emphasizing procedural integrity in insolvency proceedings under the IBC. The case, M.K. Rajagopalan v. Periasamy Palani Gounder (2023 SCC Online SC 574), deals with the submission and approval of a revised resolution plan by-passing the Committee of Creditors (CoC). The Court held that the revised resolution plan must be reconsidered by the Committee of Creditors (“COC”) before being submitted for the approval of the Adjudicating Authority; highlighting the critical role of creditor oversight in ensuring fair and informed decisions in Corporate Insolvency Resolution Processes.
The Insolvency Proceedings initiated before the NCLT by the Tourism Finance Corporation of India Limited against the Corporate Debtor under Section 7 of the IBC; wherein NCLT admitted the Corporate Debtor to the CIRP. During the ninth CoC meeting, the Resolution Plan, submitted by a Successful Resolution Applicant (“the Applicant”) for the Corporate Debtor was received on a conditional approval to revise the Plan in consultation with the creditors, with 87.39% votes; resulting the allocation for unsecured dissenting financial creditors in the amended plan increasing from Rs. 29 crores to Rs. 49.13 crores.
Subsequently, the Applicant submitted a revised Resolution Plan directly to the Resolution Professional, followed by NCLT approval; by-passing the CoC. This approval was challenged before the NCLAT wherein the Resolution Plan was rejected, noting it lacked final CoC approval and remitted the matter to the CoC to restart the CIRP from the stage of publishing Form "G" and inviting expressions of interest, as per the CIRP Regulations. Additionally, the Applicant was declared ineligible under Section 88 of the Trusts Act, 1882, and disqualified under Section 164(2)(b) of the Companies Act, 2013. Aggrieved by the NCLAT's decision, the Applicant approached the Hon’ble Supreme Court.
The Supreme Court, while rejecting post facto approval by the CoC, ruled that bypassing the CoC and directly submitting the revised resolution plan to the NCLT for approval was a significant and incurable material irregularity and not a mere ignorance on technicality. It further emphasized that the financial details of the Resolution Plan needed the CoC's consideration for a well-considered decision The Hon’ble Court concluded by stating that the CoC's conditional approval in the ninth meeting was insufficient, necessitating final CoC approval before NCLT submission and by criticizing the process, warned that it could undermine IBC and CIRP regulations, leading to arbitrariness.
In setting aside the NCLAT’s order, the Hon’ble Supreme Court ruled that the NCLT should not have approved the resolution plan for two reasons: first, the Applicant failed to present the revised plan to the CoC before seeking NCLT approval; second, the Applicant was ineligible under Section 88 of the Trusts Act.
M.K. Rajagopalan v. Periasamy Palani Gounder;
2023 SCC OnLine SC 574.
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