Adjudicating Authority cannot Reject Plan Based on Valuation Report When No Objections were Raised by Stakeholders: NCLAT [Read Order]

The National Company Law Appellate Tribunal (NCLAT) New Delhi has held that when no objection to the valuation conducted of the Corporate Debtor was raised by any stakeholders, it was not open for the Adjudicating Authority to enter into the issue of valuation of assets of the Corporate Debtor and to make the said ground for rejecting the Resolution Plan under section 31 of the Insolvency and Bankruptcy Code, 2016 (Code).

By decree dated 16.06.2023, Trishul Dream Homes Ltd., the corporate debtor, began the Corporate Insolvency Resolution Process (CIRP). After reviewing the received Resolution Plans, a small number of Resolution Applicants were determined to be ineligible. The Resolution Professional reported to the CoC that the plan submitted by Vashisth & Vashisth was addressed during the 7th CoC meeting on December 20, 2023.

After careful consideration, it was determined that the plan from Vashisth & Vashisth was in compliance. The Authorized Representative of the allottees requested certain clarifications. On February 26, 2024, Vashisth & Vashisth submitted an addendum, which was appropriately sent to the CoC members. The CoC put the Resolution Plan dated 19.02.2024 and the Addendum dated 26.02.2024 up for vote.

On February 28, 2024, the CoC members gave their approval to the Resolution Plan that Vashisth & Vashisth had proposed, with a 91.55% vote share. These appeals were filed when the Adjudicating Authority rejected the application I.A. No. (Plan)05/CHD/2024, which sought approval of the plan, in an order dated 23.04.2023.

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Counsel for the CoC, Resolution Professional, and Successful Resolution Applicant argued that the Adjudicating Authority's valuation objection could not be used as justification for rejecting the plan. No member of the CoC or other stakeholder had any objections to the value of the corporate debtor.

It was further argued that the Adjudicating Authority could not protest to the undervaluation of certain assets listed on the balance sheet if no stakeholder objected to the value of the Corporate Debtor.

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The bench of Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Barun Mitra (Technical Member) observed that as instructed by the Adjudicating Authority, the SRA submitted a compliance affidavit. Since just one claim was submitted and accepted, it was mentioned in Paragraph 18(viii) that payments to specific creditors, such as statutory liabilities shown on the balance sheet, did not need to be included in the plan. Since no other creditors submitted claims, the Resolution Plan's rejection cannot be justified by omitting any reference to them.

According to the Resolution Plan, a compliance affidavit outlining the actions performed in accordance with the Adjudicating Authority's ruling dated 16.07.2024 was submitted, and correspondence was addressed to creditors. Nevertheless, the Adjudicating Authority determined that Regulation 6A was violated without taking this affidavit into account. This conclusion cannot be maintained.

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Furthermore, the Tribunal noted that in situations where direct contact is not feasible, the proviso to Regulation 6A considers public announcements to be adequate communication. Consequently, it is not warranted to reject the Resolution Plan on the grounds listed in Paragraph 18(x).

It was held that “when no objection to the valuation conducted of the Corporate Debtor was raised by any stakeholders, it was not open for the Adjudicating Authority to enter into the issue of valuation of assets of the Corporate Debtor and to make the said ground for rejecting the Resolution Plan.”

The Tribunal came to the conclusion that none of the Adjudicating Authority's findings in Paragraph 18 pointed to any infraction of Section 30(2) of the IBC that would have justified rejecting the Resolution Plan. Although the records adequately addressed the points identified, the Authority did not take them into account. Since the Resolution Plan itself contains all the information needed, the Resolution Professional does not need to submit all of the explanations in the application for approval. Consequently, it is untenable to reject the plan on the grounds of Paragraph 18.

To Read the full text of the Order CLICK HERE

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