Introduction

The case of Sanjeev Mahajan v. Indian Bank (Erstwhile Allahabad Bank) & Ors adjudicated by the National Company Law Appellate Tribunal (NCLAT) on November 21, 2022, marks a significant development in the realm of insolvency proceedings under the Insolvency and Bankruptcy Code (IBC), 2016. The appellant, Sanjeev Mahajan, a suspended director of the corporate debtor, challenged the admissibility of Indian Bank's (formerly Allahabad Bank) application under Section 7 of the IBC, which pertains to the liquidation process. Central to this dispute was the consideration of Mahajan's settlement proposal under Section 12A alongside resolution plans submitted by other prospective resolution applicants.

Summary of the Judgment

The NCLAT, presided over by Justice Ashok Bhushan, delivered a comprehensive judgment addressing both the appeals and the accompanying contempt case. The Tribunal reaffirmed its previous order dated July 4, 2022, emphasizing the necessity for the Committee of Creditors (CoC) to evaluate Mahajan's settlement proposal under Section 12A alongside the resolution plans received during the Corporate Insolvency Resolution Process (CIRP). Key directives from the judgment include:

• The appellant must submit a fresh application under Section 12A with an offer exceeding ₹81 Crores.
• The CoC is to deliberate on both the settlement proposal and the resolution plans to optimize asset maximization and debt recovery.
• The CIRP timeline was extended by 15 days to accommodate these proceedings.
• The contempt application by the appellant was dismissed, as no violation of the Tribunal's order was found.

Analysis

Precedents Cited

Legal Reasoning

The Tribunal's legal reasoning centers on ensuring that the CoC exhaustively evaluates all viable avenues to maximize the value of the corporate debtor's assets and recover dues effectively. By mandating the CoC to consider both settlement proposals and resolution plans, the judgment seeks to prevent unilateral decisions that might overlook more beneficial outcomes. Factors highlighted include:

• The financial credibility of proposals, ensuring offers exceed previously made bids (e.g., Mahajan's ₹81 Crores offer).
• The potential realization of greater value through resolution plans compared to settlement offers.
• The imperative of maximizing asset value while ensuring the bank's financial dues are prioritized.

This balanced approach ensures that the insolvency resolution process remains transparent, competitive, and geared towards the best interests of all stakeholders.

Impact

The NCLAT's judgment sets a pivotal precedent for future CIRPs, particularly in scenarios where multiple stakeholders present competing proposals. By enforcing a comprehensive evaluation framework, the judgment ensures that settlement proposals are not dismissed without due consideration. This enhances the procedural fairness of the insolvency process and potentially leads to more optimal outcomes, reducing the likelihood of litigation over procedural disputes. Additionally, the affirmation that differing interpretations of Tribunal orders do not constitute contempt provides clarity and reassurance to stakeholders regarding procedural discretion.

Complex Concepts Simplified

Section 12A of the IBC

Section 12A allows stakeholders to submit settlement proposals as an alternative to resolution plans within the CIRP. This provides a structured avenue for debtors and other stakeholders to negotiate and agree upon terms without resorting to liquidation.

Committee of Creditors (CoC)

The CoC comprises financial creditors (like banks) and plays a crucial role in deciding the fate of the corporate debtor by evaluating and approving resolution plans or settlement proposals. Their decisions are pivotal in determining whether the company will continue operations or proceed to liquidation.

Corporate Insolvency Resolution Process (CIRP)

CIRP is a legal framework under the IBC aimed at rehabilitating insolvent companies by enabling them to settle their debts through resolution plans, thereby avoiding liquidation and preserving business value.

Conclusion

The NCLAT's judgment in Sanjeev Mahajan v. Indian Bank reinforces the procedural integrity of the CIRP under the IBC. By mandating the CoC to evaluate settlement proposals alongside resolution plans, the Tribunal ensures a holistic approach to insolvency resolution, prioritizing asset maximization and debt recovery. This decision not only upholds the principles of fairness and transparency but also provides a clear roadmap for stakeholders to navigate the complexities of insolvency proceedings. Future cases will likely reference this judgment to advocate for comprehensive deliberations within the CoC, ensuring that all viable options are thoroughly assessed before arriving at a resolution.