CoC Abstention from Voting on Resolution Plan Leads to Liquidation: NCLAT Upholds NCLT’s Decision [Read Order]

The Delhi Bench of National Company Law Appellate Tribunal(NCLAT)upheld the  National Company Law Tribunal(NCLT)’s decision to approve liquidation for Sintex Plastics Technologies Ltd. following the Committee of Creditors (CoC) abstaining from voting on the resolution plan and the subsequent move for liquidation was valid.

Subh Laxmi Investment Advisory Pvt. Ltd.,appellant,filed an appeal against the NCLT Ahmedabad order dated May 3, 2024, which allowed the liquidation of Sintex Plastics Technologies Ltd. and appointed Mr. Bimal Ashok Desai as the liquidator.

The insolvency proceedings had been initiated on February 21, 2023, based on a Section 7 petition filed by Asset Reconstruction Company (India) Pvt. Ltd. Mr. Kshitiz Chhawchharia was appointed as the IRP, and later Mr. Nimai Gautam Shah took over as the RP.

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The Resolution Professional(RP) invited EOIs on August 14, 2023, and the appellant submitted its EOI on August 29, 2023. It was included in both the provisional and final list of prospective resolution applicants and was provided with necessary documents on September 7, 2023.

The appellant initially submitted a resolution plan with a ₹4 crore offer on October 17, 2023, and later revised it to ₹7.75 crore on October 27, 2023. A final plan offering ₹8 crore was submitted on December 2, 2023. Another addendum with two proposals,₹8 crore with brand rights and ₹4.5 crore without,was submitted on February 21, 2024.

Three compliant resolution plans were put to vote, but the CoC abstained from voting. On March 26, 2024, the RP informed the appellant that the plan was not approved and sought bank details for refund of the EMD.

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The appellant later requested reasons and minutes of the meeting, but the CoC responded that it chose not to vote and its commercial wisdom could not be questioned. The RP then moved for liquidation, which the Tribunal approved.

The third CoC meeting on 11.08.2023 approved the RP’s fees, eligibility criteria, and evaluation matrix. The CoC also voted unanimously to seek a 90-day extension of Corporate Insolvency Resolution Process(CIRP), which was granted till 20.11.2023.

In the fourth meeting on 25.10.2023, the CoC decided to file for a 90-day exclusion, but the Tribunal dismissed the plea on 18.12.2023. The RP and RBL Bank challenged the order, and the NCLAT allowed the exclusion on 30.01.2024, extending CIRP till 30.03.2024.

During the fifth and sixth CoC meetings, the sole CoC member abstained from voting on all resolution plans. On 27.03.2024, the RP informed the CoC of plans to file for liquidation and proposed CA Bimal Ashok Desai as liquidator, which the CoC accepted.

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With the CIRP period ending on 30.03.2024 and no plan approved, the RP filed for liquidation. The tribunal first dismissed the plea due to missing documents but later allowed it when the RP refiled with Form H and all approvals.

Meanwhile, an e-auction on 21.06.2024 attracted a successful bid of ₹20.63 crore. The buyers paid the full amount and received the sale certificate.

The appellant claimed the CoC acted unfairly by abstaining from voting and misused the process to force liquidation. Respondents argued that the CoC used its commercial wisdom, and since no plan was approved within time, liquidation was mandatory. They also said the appellant didn’t participate seriously in the resolution or auction process.

The RP maintained that proper consent for liquidation was taken, and the process followed the law.

The two member bench Justice Rakesh Kumar Jain(Judicial Member) and Mr.Naresh Salecha(Technical Member) heard both parties and reviewed the case.It noted that RBL Bank was the sole CoC member and had the right to abstain from voting on the resolution plan, which it did. This was seen as an exercise of its commercial wisdom and couldn’t be questioned.

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The appellant claimed the liquidation application lacked CoC consent. The tribunal found this incorrect, as liquidation was discussed in the sixth CoC meeting, and the RP received email consent from the bank before filing.Since the CIRP ended on 30.03.2024, the RP was required to file for liquidation, which was done on 12.04.2024 and approved on 03.05.2024.

The NCLAT also noted that the appellant did not participate in the e-auction held on 21.06.2024. Respondents 4 to 7 won the bid with ₹20.63 crore, and the sale was completed.

Finding no error, the tribunal dismissed the appeal without costs.

To Read the full text of the Order CLICK HERE

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