NCLAT Upholds Binding Nature of CoC-Approved Resolution Plans, Rejects Post-Approval Modifications The appellate tribunal reaffirms that once a resolution plan is approved by the Committee of Creditors, it cannot be altered, even by the CoC itself, reinforcing the binding nature of such plans under the IBC.
In a significant judgment, the National Company Law Appellate Tribunal (NCLAT) Principal Bench, New Delhi, has upheld the sanctity of resolution plans approved by the Committee of Creditors (CoC) under the Insolvency and Bankruptcy Code (IBC) 2016, emphasizing their binding nature on all stakeholders, including the CoC itself. The judgment, delivered by Justice Ashok Bhushan, Chairperson, and Barun Mitra, Member (Technical), came in the case of Bank of Baroda v. IDBI Bank Limited, where the appellant challenged the modification of a resolution plan post its approval by the CoC.
The dispute arose from the insolvency proceedings of Reliance Communications Infrastructure Limited (RCIL), where a resolution plan submitted by Reliance Projects & Property Management Services Limited was approved by the CoC with a 67.97% vote share. Bank of Baroda, an assenting financial creditor, sought to reallocate proceeds under the approved resolution plan, specifically targeting the assignment of the Reliance Bhutan Loan to dissenting financial creditors, including IDBI Bank, which had initially dissented to the plan.
The NCLAT clarified that once a resolution plan is approved by the CoC under Section 30(4) of the IBC, it becomes binding on all stakeholders and cannot be modified or altered, even by the CoC itself. The tribunal highlighted that the commercial wisdom of the CoC exercised in approving the resolution plan is non-justiciable, but subsequent modifications to the approved plan do not fall under the protection of commercial wisdom.
The appellate tribunal rejected the argument that the CoC, in its commercial wisdom, could alter the distribution mechanism post-approval, stating that such a change is impermissible under the IBC framework. The judgment referenced the Supreme Court's rulings in similar cases, reinforcing that the resolution plan, once approved and submitted to the adjudicating authority, becomes irrevocable and binding on the CoC and all stakeholders involved.
The tribunal found that the attempt by Bank of Baroda to modify the distribution mechanism was contrary to the statutory provisions of the IBC and could not be justified as a matter of commercial wisdom. The decision affirms the principle that any modification to an approved resolution plan requires consent from all parties involved and cannot be unilaterally imposed by the CoC.
This ruling is expected to reinforce the stability and predictability of insolvency resolutions under the IBC, ensuring that once a resolution plan is approved, it is executed as intended, without post-approval alterations that could undermine its integrity.
Bottom Line:
Resolution Plan approved by the CoC under Section 30(4) of the I&B Code is binding on all stakeholders, including the CoC, and cannot be modified or altered, even by the CoC itself, after approval.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 - Sections 30(2)(b), 30(4), 31(1).
