#NCLT: Modifications proposed to the first resolution plan under the Code [Read order]

The Hyderabad Bench of the NCLT has, through its written order, made modifications to the (first) resolution plan proposed and admitted under the Insolvency and Bankruptcy Code, 2016..Synergy-Dooray Automative Limited (SDAL), which was the first case to have been filed under the Code, was admitted in January, 2017. The application was filed under Section 10 which allows the corporate debtor itself to invoke the provisions of the Code. Thereafter, a committee of creditors (CoC) under Section 18 of the Code was constituted..While the Bench had recently orally accepted the proposed resolution plan, the modifications proposed to the plan have been revealed in the order..However, the journey to the resolution plan came with its set of roadblocks; roadblocks constructed by one financial creditor, Edelweiss Asset Reconstruction Company Limited– that had acquired debt from EXIM Bank..Edelweiss was opposed to the proceedings since the very beginning. After the case having been admitted, Edelweiss approached the NCLT under Section 60 of the Code, alleging various irregularities on part of the resolution professional, Mamta Biyani as well as the conduct of other financial creditors involved, viz, Syngergies Castings Limited (SCL), Millennium Finance Limited (MFL) and Alchemist ARC, all of whom have been assigned debts from various banks..Edelweiss alleged that MFL was wrongly included in the CoC based on malicious assignment of debt by SCL to MFL. Edelweiss also sought to invalidate the meeting of the CoC and the subsequent decisions that lead to the resolution plan..The NCLT, however, found no merit in the various allegations made by Edelweiss and dismissed them through a separate order..Apart from Edelweiss, the resolution plan was admitted by all other financial creditors which amounted to over 90% of the creditors allowed to vote in the CoC..The resolution plan, which was proposed by SCL, sought to amalgamate SDAL with SCL, both being related parties..Further, one of the points in the resolution plan proposed that the debt owed by SDAL to MFL be netted off against the debt owed by MFL to SCL. The Bench did not agree to this and ordered MFL to make the necessary payments to SCL..The resolution plan further proposed prioritised payment to financial creditors over operational creditors. The Bench, however, ordered to pay the operational creditors first..Does the Code empower the NCLT to suggest modifications to the resolution plan?.No..Section 31 of the Code only allows the NCLT to either approve or reject the proposed resolution plan. In this case, however, the parties aren’t aggrieved with the modification so the question of NCLT’s authority to make modifications to a resolution plan is unlikely to be dealt with. But there is certainly a possibility that in another case this will come before the superior courts..Abhirup Dasgupta, who represented SDAL, commented,.“Even though there was stiff opposition from Edelweiss Asset Reconstruction Company, we, (as the erstwhile management of the Corporate Debtor) are pleased that the Resolution Plan has been accepted by the Committee of Creditors and has also been ratified by the NCLT. This also happens to be the first case across India, where a Resolution Plan has been sanctioned by the NCLT. The sanctioning of the Resolution Plan is great news for the Company, since it will infuse a fresh lease of life into the Corporate Debtor.”.While admitting the resolution plan, the Bench appreciated the efforts by the Government to implement the Code efficaciously and observed the PAN India efforts by the parties to arrive at a resolution plan in this case. The Bench further noted,.“.…Therefore, a single financial creditor holding less than 9% of the total share of debt cannot super impose; to scuttle the process of the entire Resolution Plan. If Adjudicating Authority accepts the plea without any supporting evidence, we feel the preamble of the IBC will be jeopardised considering the social object of benefitting more than 1500 families directly/indirectly associated with SDAL.”.Abhirup Dasgupta appeared for Synergies, the original petitioner; S Chidambaramappeared for SCL. Senior Counsel Deepak Bhattacharya and Dishit Bhattacharya appeared for MFL. Senior Counsel Niranjan Reddy appeared for Edelweiss, briefed by Phoenix Legal. Krishnendu Datta and P Nagesh appeared for Mamta Binani, the IRP..Read the order below.