Limitations on Challenges to Approved Resolution Plans under the Insolvency & Bankruptcy Code: Insights from Shree Sidhivinayak Cotspin Pvt. Ltd. & Anr v. Resolution Professional of Maruti Cotex Ltd. & Anr

Introduction

The case of Shree Sidhivinayak Cotspin Private Limited & Anr v. Resolution Professional of Maruti Cotex Limited & Anr was adjudicated by the National Company Law Appellate Tribunal (NCLAT) on August 20, 2020. This case revolves around the challenges posed by the Successful Resolution Applicant (SRA) against the National Company Law Tribunal (NCLT)'s decision to modify certain provisions of the approved Resolution Plan under the Insolvency & Bankruptcy Code, 2016 (I&B Code).

The primary contention of the appellant was that the NCLT, while approving the Resolution Plan, arbitrarily altered paragraphs 23, 24, and 25, thereby denying crucial reliefs and concessions that were integral to the viability of the Plan. The appellant argued that such modifications went beyond the limited grounds permissible under Section 61(3) of the I&B Code for challenging an approved Resolution Plan.

Summary of the Judgment

The NCLAT dismissed the appeal filed by Shree Sidhivinayak Cotspin Private Limited, holding that the appellant's challenges were outside the permissible scope defined under Section 61(3) of the I&B Code. The Tribunal emphasized that the grounds for appeal are strictly confined to specific criteria, and any objections beyond these are not entertained.

Specifically, the NCLT had modified the Resolution Plan by rejecting the reliefs and concessions sought by the SRA in paragraphs 23, 24, and 25. The NCLAT upheld this modification, asserting that the appellant failed to present challenges within the limited and statutory grounds provided for under Section 61(3).

Analysis

Precedents Cited

The judgment extensively referenced the landmark Supreme Court case Civil Appeal No. 8766-67 of 2019 (Committee of Creditors of Essar Steel India Limited vs Satish Kumar Gupta and Others). In this case, the Supreme Court clarified the limited scope of appeals under Section 61(3) of the I&B Code, reinforcing that appellate authorities are not forums for re-evaluating business decisions made by the Committee of Creditors (CoC).

The NCLAT relied on this precedent to assert that only specific grounds listed under Section 61(3) are valid for challenging an approved Resolution Plan, and any deviation or expansion beyond these grounds is impermissible.

Legal Reasoning

The core legal reasoning in the judgment centers on the interpretation of Section 61(3) of the I&B Code, which delineates the grounds on which an appeal against an approved Resolution Plan can be filed. The NCLAT emphasized that these grounds are:

• The approved plan is in contravention of any law in force.
• Material irregularity in the exercise of powers by the resolution professional.
• Debts to operational creditors not provided for as per the Board's specifications.
• Insolvency resolution process costs not prioritized for repayment.
• Non-compliance with any other criteria specified by the Board.

In this case, the appellant attempted to challenge the modifications made by the NCLT on the grounds that they denied essential concessions necessary for the plan’s success. However, the NCLAT found that these objections did not align with any of the permissible grounds under Section 61(3), rendering the appeal untenable.

Furthermore, the NCLAT clarified that the Adjudicating Authority's observations (paragraphs 23, 24, and 25) did not alter the Resolution Plan in a fundamental manner but merely reiterated the necessity for compliance with applicable laws and allowed the SRA to seek reliefs through relevant regulatory bodies.

Impact

This judgment reinforces the constrained framework within which appeals against approved Resolution Plans must operate. By strictly adhering to the statutory grounds outlined in Section 61(3), the NCLAT ensures that the appellate process does not become a tool for revisiting business judgments or discretionary decisions made by the NCLT.

For practitioners and stakeholders in corporate insolvency proceedings, this case underscores the importance of aligning challenges to approved Resolution Plans within the narrowly defined legal parameters. It also highlights the judiciary's intent to maintain procedural efficiency and finality in insolvency resolutions, thereby fostering a predictable and stable environment for corporate restructuring.

Complex Concepts Simplified

Resolution Plan: A strategy formulated by a potential buyer (Resolution Applicant) to revive a financially distressed company by resolving its debts and restructuring its operations.

Section 61(3) of the I&B Code: Specifies the permissible grounds on which an appeal can be filed against the approval of a Resolution Plan. These are intentionally limited to prevent misuse of the appellate process.

Adjudicating Authority: Typically the NCLT, which oversees insolvency proceedings and approves or modifies Resolution Plans based on compliance with legal requirements.

Committee of Creditors (CoC): A body comprising the financial creditors of the corporate debtor, empowered to make key decisions regarding the insolvency resolution process, including the approval of the Resolution Plan.

Material Irregularity: Significant errors or deviations in the process carried out by the resolution professional that could affect the validity of the Resolution Plan.

Conclusion