NCLAT upheld the rejection of a resolution plan worth ₹7 crore, agreeing it failed to address the cause of default and contravened mandatory IBC requirements under Section 30(3).
NCLAT Upholds Rejection of ₹7 Crore Resolution Plan
The National Company Law Appellate Tribunal (NCLAT) has upheld the rejection of a resolution plan proposing ₹7 crore for a corporate debtor, affirming that it failed to rectify the cause of default. The plan was evaluated under Section 30(3) of the Insolvency and Bankruptcy Code (IBC), which mandates that resolution plans must be feasible, viable, and address the root of financial distress.
The Committee of Creditors (CoC) had rejected the plan, citing inadequate provisions for resolving governance issues and lack of demonstrated financial capacity of the resolution applicant. NCLAT found no error in that decision, noting that "a resolution plan cannot be approved merely on the basis of higher haircut if it fails to remedy systemic default triggers".
The tribunal emphasized that compliance with IBC timelines, inter-creditor agreement norms, and statutory dues (including workmen’s salaries and tax liabilities under Section 53) are mandatory, not discretionary. It also confirmed the primacy of CoC’s commercial wisdom, so long as it acts within the IBC framework.
The ruling reinforces the importance of holistic remediation in resolution plans. Lawyers drafting or reviewing plans must ensure clarity on how governance lapses, promoter misconduct, or working capital mismanagement — if any — are addressed.
Citations
- Insolvency and Bankruptcy Code, 2016, Section 30(3)
