IBC | Resolution Plan Requires Closer Examination If Plan Envisages Use Of Asset Owned By Statutory Authority: Supreme Court

Recently, the Supreme Court observed that ordinarily feasibility and viability of a resolution plan is best decided by the commercial wisdom of the Committee of Creditors (“CoC”), however when the resolution plan envisages the use of asset/land not owned by the Corporate Debtor but by a third party, which is a statutory body, bound by its own rules and regulations having statutory flavor, then there has to be a closer examination of the plan's feasibility.

In the instant case, the resolution applicant i.e., Greater Noida Industrial Development Authority is a statutory authority owning the land for which the resolution plan is envisaged. The same land was provided on lease to a Corporate Debtor (“CD”) subject to payment of interest as well as penal interest while reserving the right to cancel the lease and resume the demised land, subject to certain conditions. The CD committed a default in payment of installments and was served with a demand cum pre-cancellation notice.

When the resolution plan was submitted for the consideration of the CoC, the Appellant resolution applicant was denied its original claim as a Financial Creditor but contained a lesser claim as an Operational Creditor.

The NCLT approved the resolution plan passed by the CoC, and the same was upheld by the NCLAT.

Assailing the impugned order of the NCLAT, the appellant resolution applicant preferred a civil appeal before the Supreme Court.

Disagreeing with the view taken by Adjudicating Authorities while upholding the plan, the Bench Comprising Chief Justice DY Chandrachud, J.B. Pardiwala, and Manoj Misra observed that as per Regulation 38 (3) of the CIRP Regulations, 2016, the resolution plan must demonstrate that firstly, it is feasible and viable; and secondly, it has provisions for approvals required and the timeline for the same, failing which the plan requires the closer examination.

“In the instant case, the plan conceived utilisation of land owned by the appellant. Ordinarily, feasibility and viability of a plan are economic decisions best left to the commercial wisdom of the COC. However, where the plan envisages use of land not owned by the CD but by a third party, such as the appellant, which is a statutory body, bound by its own rules and regulations having statutory flavour, there has to be a closer examination of the plan's feasibility”, the judgment authored by Justice Manoj Misra noted.

The court also observed that when the resolution plan envisages the necessary approvals of the statutory authority, then the plan must reflect such approval as per the CIRP Regulations.

“Here, on the part of the CD there were defaults in payment of instalments which, allegedly, resulted in raising of demand and issuance of pre-cancellation notice. In these circumstances, whether the resolution plan envisages necessary approvals of the statutory authority is an important aspect on which feasibility of the plan depends. Unfortunately, the order of approval does not envisage such approvals. But neither NCLT nor NCLAT dealt with those aspects.”

“the resolution plan did not meet all the parameters laid down in sub-section (2) of Section 30 of the IBC read with Regulations 37 and 38 of the CIRP Regulations, 2016, we are of the considered view that the appeals of the appellant are entitled to be allowed and are accordingly allowed”, the court added.

Accordingly, the appeals preferred by the Resolution Applicant are allowed, and the resolution plan is sent back to the COC for re-submission after satisfying the parameters set out by the Code.

Also Read: IBC | Claim Submitted With Proof Cannot Be Overlooked Merely Because It Was Submitted In Wrong Form: Supreme Court

Also Read: NCLT Has Inherent Power To Recall Order Approving Resolution Plan Which Is Not Submitted As Per IBC: Supreme Court

Case Details:

GREATER NOIDA INDUSTRIAL DEVELOPMENT AUTHORITY VERSUS PRABHJIT SINGH SONI & ANR.

CIVIL APPEAL NOS.7590-7591 OF 2023

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