NCLAT affirms rejection of ₹7 crore resolution plan for failing to address root cause of default and non-compliance with mandatory IBC requirements.
NCLAT Upholds Rejection of ₹7 Crore Resolution Plan Under IBC
The National Company Law Appellate Tribunal (NCLAT) has upheld the rejection of a ₹7 crore resolution plan submitted under the Insolvency and Bankruptcy Code (IBC), holding that it failed to address the primary cause of default and did not meet mandatory statutory conditions. The Appellate Tribunal reinforced that resolution plans must prioritize financial creditors and ensure sustainability.
The plan was filed for a corporate debtor in default, but the Resolution Professional and Committee of Creditors (CoC) rejected it on grounds that it neither cured past defaults nor provided adequate safeguards against future ones. The NCLAT agreed, noting that compliance with IBC's procedural and substantive timelines is non-negotiable.
The Tribunal reiterated that a resolution plan must not only be financially viable but also demonstrate that the defaulting behaviour has been addressed—such as by replacing promoters or restructuring governance. Mere infusion of funds without structural reform is insufficient.
For legal and financial advisors, this decision underscores that CoC’s commercial wisdom is subject to judicial review when statutory mandates are ignored. A plan that fails to tackle the root cause of insolvency is at risk of invalidation, even if it promises partial recovery.
Citations
- Insolvency and Bankruptcy Code, 2016