Resolution Plan Lacks Feasibility, Viability and IBC Compliance: NCLT Rejects CoC’s ₹1.5 Cr Resolution Plan, Orders Liquidation u/s 33(1)(b) [Read Order]

The corporate insolvency resolution process (CIRP) against Shree Ram Cottex Industries Pvt. Ltd. was initiated under Section 9 of the IBC on an application filed by an operational creditor. Pursuant to the admission, a Resolution Professional (RP) was appointed, and the Committee of Creditors (CoC) was constituted with Raj Radhe Finance Ltd. as the sole financial creditor holding 100% voting rights.

After inviting expressions of interest and resolution plans, two proposals were received—one offering ₹2 crore and another for ₹1.5 crore by Mr Gunvantrai Vrajlal Bhadani. The CoC, in its commercial assessment, approved the ₹1.5 crore plan unanimously, citing its legal compliance and implementability compared to the higher offer, which was found non-compliant.

The approved plan was thereafter placed before the Adjudicating Authority under Sections 30(6) and 31 of the IBC for final approval.

The Resolution Plan proposed a total outlay of ₹1.5 crore against a liquidation value of ₹9.68 crore, representing barely 16–17% of the asset value. Statutory dues, including claims of ₹10.16 crore by the State Tax Department, were admitted but allocated only marginal recovery.

The State Tax Officer (Gondal) objected, arguing that the plan grossly undervalued assets and failed to recognize its status as a secured creditor under Rainbow Papers, which upheld that tax departments hold a statutory charge over the debtor’s property.

The Department contended that the Resolution Professional failed to treat its claim in accordance with Section 3(30) of the IBC and Section 48 of the Gujarat VAT Act, 2003, both of which recognize a statutory charge.

It argued that under the Rainbow Papers precedent, such tax dues constitute secured debts and must receive proportionate value in the plan. The Department further submitted that the plan’s value—far below the liquidation benchmark—demonstrated an abuse of the insolvency mechanism, depriving the exchequer of legitimate recovery.

The RP maintained that the plan satisfied all mandatory conditions under Section 30(2) of the IBC and Regulation 38 of the CIRP Regulations. The CoC’s decision, he argued, was a product of its commercial wisdom, which the Tribunal cannot ordinarily question.

The CoC defended its approval of the ₹1.5 crore plan as a pragmatic choice, noting that the ₹2 crore competing plan was procedurally defective, failed to earmark CIRP costs, and lacked statutory compliance under Rainbow Papers. The CoC submitted that its choice was guided by risk mitigation and legal sustainability rather than headline value.

The NCLT repeatedly sought clarifications from the RP and CoC regarding the viability and rationale of choosing the lower-valued plan. It directed the submission of affidavits, audited financials, and a revised Form-H to ensure the plan met statutory standards of feasibility, fairness, and implementation capacity.

After detailed consideration, the Tribunal found the resolution plan deficient on multiple counts. It held that the plan failed to comply with the requirements of Sections 30(2)(c), (d), (e), and (f) of the IBC, and Regulation 38(3)(a)–(e) of the CIRP Regulations, which mandate demonstrable feasibility, viability, and effective implementation mechanisms.

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The Bench observed that the plan lacked any strategic roadmap for revival, no business projections were provided, and the Resolution Applicant’s financial capacity to implement the plan was unsubstantiated.

The company had no ongoing operations, employees, or functional assets, and the plan neither addressed the cause of default nor proposed a workable revival framework. The Tribunal emphasised that mere CoC approval does not exempt a plan from compliance with the IBC framework.

Relying on the Supreme Court’s decision in Pratap Technocrats Pvt. Ltd. v. Monitoring Committee of Reliance Infratel Ltd. (2021) 10 SCC 623, the NCLT reiterated that judicial deference to commercial wisdom does not extend to plans that contravene statutory provisions or fail to achieve the Code’s twin objectives, maximisation of value and revival of the debtor. The Bench held that the present plan failed to balance creditor interests or offer a viable resolution pathway.

Concluding that the plan was not “commercially viable and legally compliant,” the two member bench comprising Shammi Khan (Judicial Member) and Sanjeev Sharma (Technical Member) rejected the resolution plan and invoked Section 33(1)(b) of the IBC to order liquidation of the Corporate Debtor.

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