Reassignment of Reliance Bhutan Loan to Dissenting Creditors Invalid: NCLAT Dismisses Bank of Baroda Appeal [Read Order]
The tribunal held,that once a resolution plan is approved, the CoC cannot reopen or alter the agreed distribution mechanism under the IBC.
The National Company Law Appellate Tribunal (NCLAT) rejected the appeal filed by Bank of Baroda holding that the reallocation of the Reliance Bhutan Loan in favor of the dissenting financial creditors after the approval of the resolution plan is not permissible.
The Tribunal held that the Committee of Creditors (CoC) does not have the power to alter the distribution scheme after the approval of the resolution plan under Section 30(4) of the Insolvency and Bankruptcy Code, 2016.
The appeal has arisen out of the Corporate Insolvency Resolution Process of Reliance Communications Infrastructure Limited. A resolution plan filed by the successful resolution applicant was approved by the CoC with the majority vote in August 2021.
As per the approved plan the Reliance Bhutan Loan was specifically allocated to the assenting financial creditors as part of the distribution scheme.
Further,Bank of Baroda sought the reallocation of the Reliance Bhutan Loan to the dissenting financial creditors through a new resolution by the CoC in October 2023 claiming that the reallocation was valid. The NCLT Mumbai Bench had already rejected this attempt and the present appeal has been filed.
The appellant Bank of Baroda relied on the fact that the resolution plan provides flexibility in distribution and that the CoC based on its commercial wisdom was capable of altering the loan distribution.
It further relied on the fact that the NCLT had earlier ordered the CoC to hold a meeting, thereby validating the subsequent resolution.IDBI Bank appearing for the dissenting creditors opposed the appeal and relied on the fact that the resolution plan had attained finality and any subsequent change would be in violation of the IBC provisions and would cause prejudice to the stakeholders who had relied on the resolution plan.
The NCLAT dismissed the appeal and held that the commercial wisdom of the CoC is limited to the time of approval of the resolution plan. After that the distribution mechanism is binding and cannot be altered. The Tribunal clarified that the clauses which provide flexibility in distribution cannot be utilized to alter the financial terms of the approved resolution plan.
The order was pronounced by Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member).
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