How to Challenge a Resolution Plan Before the NCLT: Best Practices and Legal Perspectives

The Insolvency and Bankruptcy Code (IBC), 2016, is India’s landmark legislation designed to resolve insolvency and bankruptcy cases efficiently. Central to the IBC process is the Resolution Plan, which determines the future of the corporate debtor and ensures equitable treatment for creditors. However, not all stakeholders may agree with the approval or rejection of a resolution plan. In such cases, they may consider challenging the decision before the National Company Law Tribunal (NCLT). The present study explains the legal grounds, procedures, and best practices for challenging a resolution plan and ensuring compliance with the IBC and related legal frameworks.

What Is a Resolution Plan?

A resolution plan, as defined under Section 5(26) of the IBC, is a proposal submitted by a resolution applicant to revive the corporate debtor. This plan must:

• Maximize asset value.
• Balance the interests of all stakeholders.
• Be compliant with Section 30(2) of the IBC.

The plan is evaluated and approved by the Committee of Creditors (CoC) before being presented to the NCLT for final approval under Section 31 of the IBC.

Grounds for Challenging a Resolution Plan

An aggrieved party can challenge the approval or rejection of a resolution plan on specific legal grounds:

1. Non-compliance with Section 30(2) of the IBC: The plan must comply with provisions such as payment of insolvency resolution process costs, priority to operational creditors, and adherence to legal requirements.
2. Violation of Principles of Natural Justice: If the resolution plan process was opaque, or stakeholders were not given adequate opportunities to present their case, the plan could be challenged.
3. Discriminatory or Unfair Treatment: The plan must ensure equitable treatment of all creditors. Discrimination among creditors of the same class can be contested.
4. Fraud or Malfeasance: Any fraudulent activities or misrepresentations in the preparation or approval of the resolution plan can be a grounds for challenge.
5. Contravention of Other Laws: The resolution plan must adhere to all applicable laws. A plan violating tax laws, environmental laws, or labour laws can be questioned.
6. Improper Conduct by CoC: If the CoC’s decision-making process was arbitrary, influenced by conflicts of interest, or lacked a proper evaluation, it could be challenged.
7. Non-Maintenance of Value Maximization Objective: A resolution plan must prioritize value maximization for stakeholders. Any deviation from this objective is challengeable.

Procedure to Challenge a Resolution Plan Before the NCLT

1. Determine Standing to Challenge: Only an aggrieved party, such as an operational creditor, dissenting financial creditor, or any stakeholder whose rights are affected, can file a challenge.
2. File an Application Under Section 60(5) of the IBC: Section 60(5) grants NCLT jurisdiction to entertain disputes related to the resolution plan. The application must detail the grounds of challenge and the relief sought.
3. Adhere to Timelines: Challenges must be filed promptly. The IBC emphasizes strict timelines to ensure expeditious resolution.
4. Submit Relevant Documentation: Attach supporting evidence, including:

1. • The resolution plan.
   • CoC meeting minutes.
   • Correspondence highlighting objections or non-compliance.

     5. Seek Interim Relief (if necessary): Parties can seek interim relief to stay the              implementation of the resolution plan pending final adjudication.

     6. Present Arguments Before the NCLT:

• • Legal representatives must present the case highlighting the violation of statutory provisions or procedural lapses.
  • Counterarguments from other stakeholders, including the CoC and the resolution applicant, will also be heard.

Await NCLT Order:

The NCLT will examine the merits of the challenge and issue an order, which could either uphold, modify, or set aside the resolution plan.

Landmark Judgments on Challenging Resolution Plans

1. ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta (2018): The Supreme Court emphasized the importance of adherence to the IBC’s objectives and strict timelines, limiting frivolous challenges.
2. Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta (2019): The apex court clarified that the CoC’s commercial wisdom is paramount, but it must align with statutory requirements.
3. Jaypee Kensington Boulevard Apartments Welfare Association v. NBCC (India) Limited (2021): This case highlighted the importance of balancing stakeholders’ interests and the need for fair treatment.

Common Pitfalls in Challenging Resolution Plans

1. Delay in Filing: Late challenges are often dismissed due to the IBC’s strict timeline requirements.
2. Lack of Supporting Evidence: Failing to provide adequate documentation can weaken the case.
3. Frivolous Challenges: Filing baseless objections may lead to penalties or dismissal by the NCLT.
4. Ignoring Commercial Wisdom of the CoC: Challenges must respect the commercial wisdom of the CoC, focusing only on legal violations.

Tips for Stakeholders Considering a Challenge

1. Engage Legal Experts: Consult professionals well-versed in IBC and NCLT procedures.
2. Understand Your Rights: Familiarize yourself with the provisions of the IBC and other applicable laws.
3. Document Objections Early: Raise concerns during CoC meetings and maintain a record of all communications.
4. Adopt a Focused Approach: Limit challenges to substantive legal issues rather than subjective disagreements.