NCLAT Rules CoC Cannot Alter Approved Resolution Plan For Dissenting Creditors

New Delhi, Dec 30 (KNN) The Committee of Creditors (CoC) cannot modify or alter a resolution plan to reallocate funds meant for dissenting creditors once the plan has been approved, the National Company Law Appellate Tribunal (NCLAT) has held.

NCLAT Rejects Bank of Baroda’s Appeal

Dismissing an appeal filed by Bank of Baroda (BoB) in the insolvency proceedings of Reliance Communications Infrastructure Ltd (RCIL), a two-member NCLAT bench ruled that assenting members of the CoC cannot change the financial structure of an approved resolution plan, reported PTI.

While the CoC is entitled to exercise its commercial wisdom on all aspects of a resolution plan, including the manner of distribution, once that wisdom is exercised and the plan is approved, any subsequent alteration of the distribution mechanism is impermissible, the tribunal held.

Background of the Case

The appeal arose from the insolvency proceedings of RCIL, where the Mumbai bench of the National Company Law Tribunal (NCLT) had approved the resolution plan submitted by Reliance Projects & Property Management Services Ltd (RPPMSL).

The resolution plan was approved by the CoC on August 5, 2021, with a vote share of 67.97 percent. BoB was among the assenting financial creditors, while IDBI Bank, State Bank of India and some other lenders dissented.

Dispute Over Reallocation of Proceeds

After the plan was sent to the NCLT for approval, BoB filed an application seeking directions to convene a CoC meeting to consider reallocation of proceeds related to a loan extended to Reliance Bhutan.

Following an NCLT direction on October 17, 2023, the CoC approved the reallocation and reassignment of the Reliance Bhutan loan on October 27 with a 67.55 per cent majority, despite objections from IDBI Bank and SBI.

NCLT and NCLAT Rulings

On December 19, the NCLT approved RPPMSL’s original resolution plan and ruled that the CoC could not alter the financial allocation affecting dissenting creditors. 

It held that the Reliance Bhutan loan could not be reassigned to dissenting creditors. Bank of Baroda’s appeal against this order was dismissed by the NCLAT. 

“The adjudicating authority rightly concluded that the CoC’s decision dated October 27, 2023, was contrary to the approved resolution plan and could not bind the dissenting financial creditors,” the NCLAT said.

The appellate tribunal reiterated that dissenting financial creditors are entitled to receive payments strictly in accordance with the approved resolution plan and that the CoC cannot alter the financial distribution after approval.

(KNN Bureau)