Extension of time in payment by  Resolution Applicant is not modification of Resolution Plan: NCLAT

The Delhi bench of the National Company Law Appellate Tribunal (NCLAT) held that extension of time in payment by the resolution applicant is not modification of the resolution plan.

The present appeal was filed by Cosmos Cooperative Bank Ltd,financial creditor against the order of adjudicating authority. In this case the Adjudicating Authority directed for commencement of the Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor - S.K. Wheels Private Limited. Mr. Vishal Ghishulal Jain was appointed as Interim Resolution Professional (“IRP”), who was confirmed as Resolution Professional.

The Corporate Debtor being a MSME,(Micro, Small Medium Enterprises) the Resolution Plan submitted by Anil Kumar, the Promoter/ Director of the Corporate Debtor was approved by the CoC in its 12th Meeting held on 23.01.2020 with 75.78% vote share. The RP filed an application for approval of the Resolution Plan and Adjudicating Authority vide ordered and approved the Resolution Plan.

Thereafter an application was filed by Successful Resolution Applicant (“SRA”) for exclusion of time due to Covid-19 pandemic and extension of time for making further payments, which Application was dismissed by the Adjudicating Authority .The Adjudicating authority disposed the application by directing RP to convene a Meeting of the CoC and file appropriate application for liquidation if suggested by the CoC with the mandate of the CoC.With voting share of 59.73%, CoC decided not to liquidate the Corporate Debtor.

Respondents filed an application for seeking commencement of the liquidation process. Thereafter a Meeting of Financial Creditors of the Corporate Debtor was held where with a majority decision of 69.04%, the Financial Creditors decided to extend the time for Resolution Applicants to make the payments as per schedule contained in the Resolution.

Subsequently the adjudicating authority directed for liquidation. The Financial Creditor with 59.73% voted not to liquidate the Corporate Debtor, but the said decision was not accepted by the Adjudicating Authority on the premises that decision not to liquidate will lead to modification of the Resolution Plan, which is impermissible in the Code.

By challenging the order two appeals were filed after hearing the appeal the adjudicating authority stayed the matter by passing an interim order.

Krishnendu Datta, Senior Counsel appearing for the Appellant argued that Adjudicating Authority committed error in taking the view that extension of timeline for payment as approved by the Financial Creditors is modification of the Plan.

It was further submitted that extension of timeline in payment to be made by SRA is not modification of the Plan and the Adjudicating Authority, taking the erroneous view of law, has allowed the liquidation Application.

R.P. Agarwal, Counsel appearing for the respondent submitted that Respondent, who was not in agreement with the decision taken by the CoC, had every right to file the Application for liquidation, the SRA having not made the payment within the timeline as provided in the Resolution Plan.

Further the counsel submitted that “SRA having not been able to make the payments within time, Respondent has every right to pray for liquidation and Adjudicating Authority did not commit any error in directing for liquidation.”

Counsel for SRA in his rejoinder submits that SRA has already made the payments amounting to Rs.11.5 crores, which details are on the record in the affidavit filed by SRA in Company Appeal.

It was observed by the tribunal that As per the Resolution Plan, payments, which were required to be made within 60 days, could not be made by SRA and SRA has filed an Application praying for exclusion/ extension of time being IA No. 80 of 2022, which Application was rejected by the Adjudicating Authority vide order dated 04.05.2022.

Accordingly an IA No.1054 of 2022 was filed by the RP, praying for liquidation under Section 33, sub-section (3) on the ground that SRA has not made the payments within the timeline allowed under the Resolution Plan for the upfront payments.

Subsequently the decision of the Members, not to liquidate, will lead to the modification of the Resolution Plan, which is impermissible in the Code. Thus, the basis of the order of liquidation passed by the Adjudicating Authority is that not to liquidate the Corporate Debtor would lead to modification of the Plan, which is impermissible in the Code.

After analyzing the submission of both parties the bench comprising Justice Ashok Bhushan (Chairperson), Barun Mitra (Technical Member) observed that the extension of time in payment by the Resolution Applicant is not modification of the Resolution Plan

To Read the full text of the Order CLICK HERE

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