Summary
The rejection of the Appu Hotels resolution plan was maintained because of fiduciary conflicts affecting the applicant and the failure to obtain CoC approval of the finally revised plan before filing it with the NCLT. Several other NCLAT grounds, including valuation, website publication, deemed director disqualification and related-party parity, were set aside. The later unanimously approved settlement proposal remained for the NCLT’s independent consideration.
Issues
- Whether statutory conflicts and the absence of CoC approval of the final revised plan invalidated approval.
- Whether valuation, Form G publication, director disqualification, fees, related-party treatment and the earlier settlement offer justified rejection.
- Effect of the subsequent unanimous approval of a fresh settlement proposal.
Provisions considered
- Sections 30(2)(e), 30(3), 30(4), 30(6) and 31, Insolvency and Bankruptcy Code, 2016A plan must comply with other applicable law and receive CoC approval in its final form before presentation to the adjudicating authority. (¶¶ 44-50, 67-70)
- Section 88, Indian Trusts Act, 1882The applicant’s dual pursuit as managing trustee and individual, with reliance on the disqualified trust’s credentials, engaged the fiduciary-advantage restriction on these facts. (¶¶ 38.3, 44-44.5)
- Sections 164(2)(b) and 166(4), Companies Act, 2013Rejected assumed director disqualification, but upheld the separate conflict-of-interest objection arising from the proposed competing hospital activity. (¶¶ 38.4, 43-45.2)
- Regulations 27, 35 and 36A, IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016Found the valuation process and reasonable publication steps sufficient in the circumstances; rejected annulment for the identified technical shortcomings without demonstrated prejudice. (¶¶ 38.2, 41, 42)
- Section 12A; CIRP Regulation 30A, Insolvency and Bankruptcy Code, 2016Distinguished the earlier inadequately supported settlement offer from the later approved proposal, whose justification after fresh invitations and plans remained for adjudication. (¶¶ 55-66, 69, 70)
Held
- The valuation objections did not establish the violations presumed by NCLAT. Fair and liquidation values had been supplied on confidentiality undertakings, and CoC was satisfied with valuation and revaluation. A resolution plan need not itself match liquidation value. Newspaper publication, notification to IBBI of website technical difficulty and the absence of demonstrated prejudice also defeated annulment on the Form G ground in these circumstances. (¶ 41-42.3)
- NCLAT could examine an eligibility issue first raised on appeal because eligibility goes to the root. However, the alleged deposit default of another company did not justify assuming disqualification under section 164(2)(b): no categorical competent-forum finding and disqualifying order existed, and the applicant’s DIN status was active compliant. (¶ 43-43.3)
- The trust objection was different. The applicant submitted expressions of interest for himself and as managing trustee of a charitable trust already held ineligible, and relied on the trust’s credentials in his personal plan. On these facts he could not use the individual route as its alter ego to obtain an advantage engaging section 88. Commercial wisdom could not override the resulting legal defect. (¶ 44-44.5)
- The applicant was also managing director of MGM Healthcare while proposing to convert the debtor’s Coimbatore property into a hospital. The direct conflict with that company’s activities engaged section 166(4), supplying a further reason why the plan could not satisfy the requirement of compliance with applicable law. (¶ 45-45.2)
- CoC commercial wisdom presupposes an informed, deliberated decision on the final plan and its financial layout. The conditional vote was not advance approval of the later revision for dissenting creditors. Filing that revised plan without a further CoC vote was a material irregularity; later updates or purported deemed post facto approval did not cure it. (¶ 46-50)
- NCLAT’s suggestion connecting that procedural failure to the increase in the resolution professional’s fees was unwarranted. The fee increase had been considered by CoC and the adverse inference was set aside. (¶¶ 51, 51.1)
- The Code does not mandate payment parity between related and unrelated creditors. Subject to compliance with the Code and Regulations, differential distribution falls within CoC’s commercial wisdom; this plan could not be faulted merely for making no provision for the related party. (¶ 52-54.3)
- The earlier last-minute, inadequately supported settlement offer had in fact been addressed by CoC, whose substantial creditors declined to depart from the voting agenda. Its purported non-consideration was not a valid ground for rejecting the plan. The later settlement, unanimously approved after fresh EOIs and seven plans were received, was not automatically endorsed: all aspects, including justification for withdrawal at that stage, remained for NCLT under section 12A and Regulation 30A. (¶¶ 55-66, 69, 70)
Result
Appeals disposed of. Rejection of the resolution plan maintained only on the fiduciary/conflict grounds and want of CoC approval of the final revision; other NCLAT findings, observations and directions set aside. Fresh settlement proposal left to NCLT according to law.