NCLAT Delhi Sets Aside NCLT Order Permitting Suspended Director To Enter Settlement During Pendency Of Plan Approval Application

The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson), Shri Barun Mitra (Technical Member) and Shri Arun Baroka (Technical Member), has set aside a direction given by the NCLT, whereby the Suspended Director was given opportunity to enter settlement during the pendency of application filed by Resolution Professional for approval of Resolution Plan. The Bench has held that since the application for approval of resolution plan is pending for over a year, the NCLT ought to have decided the same. On 08.01.2023, the Committee of Creditors (CoC) approved the Resolution Plan submitted by Resolution Applicant with 100% vote share and rejected the Settlement Proposal submitted by Suspended Director of Corporate Debtor with 100% vote share. Accordingly, the Resolution Professional filed an application seeking approval of Resolution plan. The Suspended Director also filed an application seeking consideration of its revised settlement proposal. The NCLT granted another opportunity to Suspended Director to enter settlement with CoC and kept the application for approval of resolution plan in abeyance. Background Facts In 2021, M/s. Nimitya Hotel & Resorts Limited (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the NCLT. On 04.07.2022 the NCLAT permitted the Suspended Director of Corporate Debtor to submit a fresh settlement proposal under Section 12A of IBC. Nehru Place Hotels and Real Estates Pvt. Ltd. (“Appellant/Successful Resolution Applicant”) submitted a Resolution Plan on 20.08.2022 along with EMD of Rs. 5 Crores. Suspended Director (“Respondent No. 1”) of the Corporate Debtor filed an application before the NCLT seeking consideration of its settlement proposal. On 21.11.2022, the NCLT permitted the Suspended Director to submit a settlement proposal. The Committee of Creditors (CoC) considered the Resolution Plan and Settlement Proposal in its 14th CoC Meeting. The Resolution Plan was approved with 100% vote share whereas Settlement Proposal was rejected with 100% vote share. The Resolution Professional filed an application before the NCLT seeking approval of the Resolution Plan submitted by the Successful Resolution Applicant. On 04.05.2023, the Suspended Director filed I.A. No. 2594 of 2023 seeking consideration of its revised proposal. Thereafter, one of the CoC members informed the Suspended Director that its competent authority has rejected the settlement proposal submitted on 21.03.2023. The NCLT vide order dated 01.12.2023 passed in I.A. No. 2594 of 2023, granted a last opportunity to Suspended Director to place settlement proposal before the CoC, as under: “CoC has already approved the Resolution Plan which is pending for consideration of this Adjudicating Authority. Suspended Management has filed certain applications proposing higher amount than proposed by the SRA for consideration of the CoC. Since, the matter is an old one, last opportunity is granted, so that any acceptable settlement can be arrived. If no settlement arises before the next date of hearing, the Resolution Plan will be heard on merits. List this Application on 11.01.2023.” The Successful Resolution Applicant filed an appeal before the NCLAT against the order dated 01.12.2023. It was contended that since the Resolution Plan has been approved with 100% vote share on 08.01.2023, there is no occasion for granting any opportunity to Suspended Director to enter into a settlement with CoC. NCLAT Verdict The Bench observed Resolution Plan of SRA was approved with 100% vote share and settlement proposal submitted by Suspended Director under 12A of IBC was considered and rejected with 100% vote share on 08.01.2023. “There can be no quarrel to the proposition that Adjudicating Authority has jurisdiction to set aside the order of the CoC rejecting 12A proposal when the decision of the CoC is arbitrary.” In view of the aforesaid discussion and our conclusions, we are of the view that the Adjudicating Authority committed error in giving an opportunity to Respondent No. 1 to arrive at acceptable settlement. The Bench has deleted the following observations from the NCLT Order dated 01.12.2023: “Since, the matter is an old one, last opportunity is granted, so that any acceptable settlement can be arrived. If no settlement arises before the next date of hearing, the Resolution Plan will be heard on merits.” It has been held that since the application filed by Resolution Professional for approval of resolution plan is pending for over a year, the NCLT ought to have decided the same. The Bench has directed the NCLT to expeditiously decide the application for approval of resolution plan. “We are of the view that application for approval of the Resolution Plan which has already been filed and pending...

NCLAT Delhi Sets Aside NCLT Order Permitting Suspended Director To Enter Settlement During Pendency Of Plan Approval Application

Pallavi Mishra

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