CoC Cannot Modify Distribution Mechanism After Approval of Resolution Plan: NCLAT [Read Order]
NCLAT held that the finality of CoC-approved resolution plans, holding that post-approval reallocation of proceeds undermines IBC’s certainty and binding framework
The National Company Law Appellate Tribunal (NCLAT) has held that the Committee of Creditors (CoC) is not empowered to make any changes or modifications to the distribution arrangement of the resolution plan after it has been approved even if the same is approved through majority voting.
Rejecting the appeal filed by Bank of Baroda, the Tribunal confirmed the order passed by the National Company Law Tribunal, Mumbai Bench which had already rejected the post approval request for reallocation of resolution proceeds.
The Corporate Insolvency Resolution Process of Reliance Communications Infrastructure Limited was initiated in 2019. A resolution plan filed by the successful resolution applicant was approved by the CoC in August 2021 with the majority approval.
The resolution plan explicitly stated the distribution arrangement of the resolution proceeds, including the allocation of the Reliance Bhutan Loan exclusively to the approving financial creditors.
After the approval of the resolution plan but prior to its sanctioning by the NCLT, Bank of Baroda being an assenting financial creditor made a request for reallocation of the Reliance Bhutan Loan in favor of the dissenting financial creditors through a new resolution of the CoC in October 2023.
The appellant Bank of Baroda argued that the resolution plan itself allowed for flexibility in distribution and that the CoC using its commercial wisdom was capable of reallocating the loan. The bank relied on the NCLT’s earlier order to convene a CoC meeting as validating the later reallocation.
However, challenging this IDBI Bank(dissenting financial creditor) argued that once a resolution plan is approved under Section 30(4) of the IBC and its terms are binding and cannot be later changed by the CoC. Such post-approval changes, the IDBI Bank argued, would defeat the statutory provision and affect the dissenting financial creditors.
Dismissing the appeal NCLAT held that commercial wisdom is exercised at the time of approval of the plan and not later. The Tribunal held that permitting post-approval changes would lead to uncertainty and affect the sanctity of the resolution process.
The order was pronounced by a Bench consisting of Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) reiterating the binding and unalterable character of CoC-approved resolution plans under the IBC.
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