Tribunal Affirms CoC's Decision, Strikes Down Unauthorized Clause Insertion
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) has set aside an order by the Adjudicating Authority that unilaterally modified an approved resolution plan by inserting a clause not originally present. The case, "Ashok Mansukhlal Kapasi v. Bhavi Shah," involved the resolution of Techno Forge Limited, where the CoC-approved plan was altered to include a provision mandating the allocation of 5% equity to the public.
The appellants, including directors of the suspended Board of Techno Forge Ltd., participated in the resolution process under the Insolvency and Bankruptcy Code, 2016, leveraging Section 240A due to the company's MSME status. The plan was initially accepted by the Committee of Creditors (CoC), which included significant stakeholders like the Bank of India.
The controversy arose when the Adjudicating Authority, upon approving the resolution plan, unexpectedly added a clause that reserved 5% equity for public shareholders. This insertion was not part of the CoC-approved plan and was contested by the appellants. The NCLAT, comprising Justice N. Seshasayee and Mr. Arun Baroka, ruled that the Adjudicating Authority overstepped its bounds, emphasizing that such modifications could not be made without CoC approval.
The Tribunal's decision underlines the sanctity of the CoC's decisions in the corporate insolvency resolution process, highlighting that any deviation from the approved plan must be meticulously scrutinized. The NCLAT's order restores the resolution plan to its original form, sans the contested clause, thereby preserving the integrity of the CoC's approval process.
This ruling reaffirms the principle that adjudicating authorities must adhere strictly to the terms approved by the CoC, ensuring that the resolution process remains transparent and fair for all stakeholders.
Bottom Line:
Resolution Plan approved by CoC cannot be modified by Adjudicating Authority by inserting clauses that are not part of the original resolution plan.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016, Section 240A
