NCLAT Rules, Application For Approval Of Resolution Plan Can't Be Rejected Solely Based On Withdrawal Of Consent By One Of Coc Members
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench comprising Justice Yogesh Khanna (Judicial Member) and Mr. Ajai Das Mehrotra (Technical Member), has held that a resolution plan approved by an overwhelming majority of 98.15% of the Committee of Creditors (CoC) cannot be rejected solely on the basis of a unilateral withdrawal of consent by one financial creditor, particularly when the successful resolution applicant was never afforded an opportunity to respond to the allegations raised. The Tribunal set aside the impugned order of the NCLT and remanded the matter for fresh consideration.
The appeal arose out of an order dated 09.01.2024 passed by the National Company Law Tribunal (NCLT), Mumbai Bench, in IA No. 68/2021 in CP(IB) 1874/MB/2019. The NCLT had rejected the resolution plan submitted by the appellants and proceeded to order the liquidation of the corporate debtor, Prabhat Technologies (India) Ltd., based solely on the withdrawal of consent by State Bank of India (SBI), one of the members of the CoC.
According to the appellants, the resolution plan had been approved on 07.11.2020 in the ninth CoC meeting with a voting share of 98.15%. Subsequently, an application under Section 30(6) of the Insolvency and Bankruptcy Code, 2016 was filed by the Resolution Professional seeking approval of the plan. However, the NCLT, instead of adjudicating that application, passed the impugned order directing liquidation, based only on the objection raised by SBI. The objection was premised on the claim that one of the properties used as a funding source in the resolution plan—Flat No. 2402, Siddesh Apartment, Girgaon, Mumbai—was not free from encumbrance due to a disputed title.
The Girgaon property had been purchased in 2014 by one of the resolution applicants through a registered sale deed and had since been mortgaged to a consortium of banks including SBI, Union Bank of India, and Bank of India. The mortgage remained active throughout, and the property was regularly subject to title searches by the banks. However, during the CIRP, it came to light that the previous vendors had fraudulently executed a second agreement to sell in 2020. Upon discovering this, the appellants filed a criminal complaint on 25.10.2023 and instituted a civil suit (Suit No. 139/2024) on 12.12.2023 to challenge the fraudulent sale.
The appellants offered to either replace the disputed property or submit a fixed deposit of ₹1 crore as security—well exceeding the distressed value of the Girgaon property, which was only ₹90 lakh and constituted just 1.5% of the total resolution value of ₹77.98 crore. Despite these steps, SBI chose to unilaterally withdraw its consent to the resolution plan. The NCLT accepted SBI’s objection and passed the liquidation order without issuing notice to the appellants or addressing the alleged fraud or the steps taken by the appellants to rectify the issue.
The NCLAT observed that SBI’s decision lacked commercial logic, especially since no other financial creditor supported the withdrawal of consent. It noted that the liquidation value of the corporate debtor was only ₹23.45 crore, while the resolution plan offered ₹77.98 crore. The Tribunal found that the property in dispute contributed only marginally to the resolution plan, and the appellants had shown readiness to substitute it. The decision to proceed with liquidation in such circumstances, the Tribunal held, made little commercial sense.
The Appellate Tribunal also noted serious procedural lapses in the NCLT’s decision. It held that the impugned order was a non-speaking one and was passed in violation of the principles of natural justice. The resolution applicants, who were directly affected by the allegations of fraud, were never given an opportunity to respond. The NCLT also failed to discuss the implications of key judgments such as Ebix Singapore Pvt. Ltd. v. Committee of Creditors of Educomp Solutions [2022(2) SCC 401], Express Resorts and Hotels Ltd. v. Amit Jain [2023 SCC Online NCLAT 97], and Deccan Value Investors LP v. Dinkar Venkatasubranian [2024 SCC OnLine SC 4075], all of which bear on the legal questions relating to withdrawal of consent and the authority to order liquidation.
The Tribunal further pointed out that the NCLT had previously, on 19.12.2023, directed SBI to file a formal application bringing on record the consent withdrawal by the other banks. However, no such application was filed by Union Bank of India or Bank of India. Despite this, and without notice to the appellants, the NCLT proceeded to order liquidation based solely on the oral statement of SBI.
Setting aside the NCLT’s order, the NCLAT held that the adjudicating authority had failed to adjudicate the matter in accordance with law and had denied the appellants an opportunity to present their case. It remanded the matter to the NCLT for fresh adjudication with a direction to dispose of the case within eight weeks. The Tribunal clarified that the NCLT should independently evaluate the issues and pass a reasoned order uninfluenced by any observations made by the Appellate Tribunal.
Appearance [ In Compny Appeal (AT)(INS) No.183 OF 2024]
For Appellant: Mr Nakul Dewan, Sr Advocate with Mr. Abhinav Agrawal, Mr Piyush Bhardwaj, Advocates.
For Respondent: Mr. Ayush J Rajani, Ms Khushboo Shah Rajani, Advocates for R1. Mr Abhijeet Sinha, Sr Advocate with Ms Shivani Sinha, Ms Meera Mvrali, Advocates for R2.
Ms Parul Shukla, Mr Saday Mondol, Advocates for R3/RP. Mr Rajender K Bhuta, IRP
[In Company Appeal (AT)(INS) No.446 Of 2024]
For Appellant: Mr P.B. Suresh, Sr Advocate with Ms Shubhangi Pandey, Advocate.
For Respondent: Mr. Ayush J Rajani, Ms Khushboo Shah Rajani, Advocates for R1. Mr Abhijeet Sinha, Sr Advocate with Ms Shivani Sinha, Ms Meera Mvrali, Advocates for R2. Ms Parul Shukla, Mr Saday Mondol, Advocates for R3/RP. Mr Rajender K Bhuta, IRP
Cause Title: M/s Essar (India) Ltd V. Prabhat Technologies (India) Ltd and Ors.
Case No: Compny Appeal (AT)(INS) No.183 OF 2024 & Company Appeal (AT)(INS) No.446 Of 2024
Coram: Justice Yogesh Khanna [Member (Judicial)], Mr. Ajai Das Mehrotra [Member (Technical)]
[Read/Download order]
