NCLT Delhi: Adjudicating Authority Bars Consideration Of Settlement Proposal Despite Higher Value Post CoC's Resolution Plan Approval

NCLT Delhi: Adjudicating Authority Bars Consideration Of Settlement Proposal Despite Higher Value Post CoC's Resolution Plan Approval

The National Company Law Tribunal (NCLT) Delhi bench, comprising Shri Mahendra Khandelwal (Judicial Member) and Dr. Sanjeev Ranjan (Technical Member), has ruled that the adjudicating authority cannot entertain a settlement proposal, even if it offers a higher value than a previously approved resolution plan by the Committee of Creditors (CoC).

Mr. Sanjeev Mahajan, the promoter of Nimitaya Hotel & Resorts Pvt. Ltd. (the corporate debtor), proposed a one-time settlement (OTS) policy to Indian Bank (the respondent bank).

However, the Resolution Professional (RP) forwarded the Settlement Proposal to the bank without following the mandated procedures under the Insolvency and Bankruptcy Code, 2016 (IBC) and the IBBI (Corporate Insolvency Resolution Process) Regulations, 2016. The bank rejected this proposal outright without negotiation. In the 8th CoC Meeting on September 2, 2022, where Indian Bank was the sole CoC secured financial creditor, the proposal was also dismissed without any specific reasons provided.

On January 8, 2023, the resolution plan submitted by Nehru Place Hotels and Real Estate Pvt. Ltd. (the successful resolution applicant) received unanimous approval in the 14th CoC Meeting. Subsequently, on August 28, 2023, Mr. Mahajan submitted a revised settlement proposal amounting to Rs. 120 crores, which exceeded the value of the approved resolution plan. However, this revised proposal was rejected by the respondent bank without substantive justification.

The applicant then filed an application challenging the CoC's rejection of the settlement proposal and sought directives for the respondent bank to deliberate and decide on the proposal. Additionally, he requested an interim stay on further proceedings regarding the RP's application for the Resolution Plan's approval pending before NCLT Delhi.

The applicant argued that the CoC did not afford a genuine opportunity to discuss and negotiate the submitted settlement proposal. He further contended that the CoC failed to maximize stakeholder value by consistently disregarding his proposal and opting for a resolution plan that neglected approximately Rs. 500 crores owed to other operational creditors.

The NCLT Delhi dismissed the application, emphasizing that once a resolution plan is approved by the CoC, the adjudicating authority cannot entertain any settlement proposal, even if it promises a higher value.

The Tribunal reviewed multiple settlement proposals submitted by the applicant on different occasions, noting that all were rejected by the CoC, which comprises solely the respondent bank as the principal financial creditor.

Based on the minutes of the CoC meetings and in compliance with the directives of the Hon'ble NCLAT dated July 4, 2022, and November 21, 2022, the CoC exercised its commercial judgment in rejecting the proposals after due deliberation.

The Tribunal highlighted that after approving the resolution plan, the applicant submitted another settlement proposal on March 21, 2023, purportedly offering more than the approved plan. However, this too was turned down by the respondent bank. The decision of the respondent bank's competent authority effectively reflects the commercial judgment of the CoC.

NCLT affirmed that, under established legal principles, the CoC possesses the authority to decide on the financial aspects of any settlement proposal using its commercial acumen. The Tribunal's role is limited to verifying whether the CoC duly considered the applicant's settlement proposal in accordance with previous NCLAT directives.

Therefore, the Tribunal concluded that it cannot adjudicate on the merits or financial specifics of the applicant's settlement proposal. It reiterated that the acceptance or rejection of such proposals falls within the exclusive domain of the CoC's commercial judgment.

In conclusion, the Tribunal ruled against the applicant's contentions, stating that it cannot direct the CoC to reconsider his settlement proposal under the current circumstances.