Adjudicating Authority Not Justified In Rejecting Plan Based On Valuation Report When No Objections Were Raised By Stakeholders: NCLAT
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Barun Mitra (Technical Member) has held that when no objection to the valuation conducted of the Corporate Debtor was raised by any stakeholders, it was not open for the Adjudicating Authority to enter into the issue of valuation...
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Barun Mitra (Technical Member) has held that when no objection to the valuation conducted of the Corporate Debtor was raised by any stakeholders, it was not open for the Adjudicating Authority to enter into the issue of valuation of assets of the Corporate Debtor and to make the said ground for rejecting the Resolution Plan under section 31 of the Insolvency and Bankruptcy Code, 2016 (Code).
Brief Facts:
The Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor – Trishul Dream Homes Ltd. commenced vide order dated 16.06.2023.
Resolution Plans were received, which were examined and few Resolution Applicants were found ineligible. In 7th CoC meeting held on 20.12.2023, the Resolution Professional informed the CoC that plan submitted by Vashisth & Vashisth which was discussed.
The plan received from Vashisth & Vashisth, after due diligence, was found to be compliant. Certain clarifications were sought by the Authorised Representative of the allottees. Vashisth & Vashisth submitted Addendum on 26.02.2024, which was duly shared with the CoC members. The Resolution Plan dated 19.02.2024 along with the Addendum dated 26.02.2024 was put for voting by the CoC.
The Resolution Plan submitted by Vashisth & Vashisth was approved by the CoC members with 91.55% voting share on 28.02.2024.
Vide order dated 23.04.2023, the Adjudicating Authority dismissed the application I.A. No.(Plan)05/CHD/2024 seeking approval of the plan, aggrieved by which order these appeals have been filed.
Contentions:
Learned counsel for the CoC as well as learned counsel for the Resolution Professional and Successful Resolution Applicant submitted that Objection regarding valuation raised by the Adjudicating Authority cannot be reason for rejecting the plan. No objection regarding valuation of Corporate Debtor was raised by any member of the CoC or any other stakeholder.
It was further submitted that When no objection regarding valuation of the Corporate Debtor was raised by any stakeholder, it was not open for the Adjudicating Authority to raise objection with regard to not valuing certain assets shown in the balance sheet.
It was further contended that Observation of the Adjudicating Authority with regard to certain claim admitted being more than the amount reflected in the balance sheet also did not furnish any ground to reject the Resolution Plan. Balance sheet could not be only document for verification of claim, other documents are also to be considered.
Observations:
The Tribunal noted that In Para 18, the Adjudicating Authority noted that the Resolution Plan provides for a CIRP cost of ₹0.95 Crores and states that any increase in actual CIRP cost shall be borne proportionately by unsecured financial creditors, while any surplus will be used for the project's construction.
It further observed that the Authority found this clause irrational. However, since the Committee of Creditors (CoC), comprising a majority of homebuyers, approved the plan with 91% voting share and agreed to bear any increased cost, the provision cannot be termed irrational.
Therefore, the direction in Para 18(a) requiring the Successful Resolution Applicant (SRA) to bear the increased cost is not sustainable. The CoC's commercial wisdom should prevail.
It further noted that Valuers were appointed by the Resolution Professional as per Regulation 27 of the CIRP Regulations, who submitted its Valuation Report. Value of the assets of the Corporate Debtor is asked for to assist the CoC to take decision. It is relevant to notice that order impugned does not show that any stakeholder has raised any objection to the valuation done by the Valuers.
The Supreme Court in M. K. Rajagopalan vs. Dr. Periasamy Palani Gounder & Anr. held that the CoC being fully satisfied and having endorsed the process of valuation and re-evaluation, there was no reason to interfere with the order of the NCLT. The finding of this Tribunal on the question of valuation was not approved.
Similarly, the Supreme Court in Ramkrishna Forgings Ltd. Vs. Ravindra Loonkar, Resolution Professional of ACIL Ltd. & Anr. held that the core issue is the scope of the Adjudicating Authority's jurisdiction regarding revaluation, especially when no objections were raised by the RP, CoC, or appellant, and the Resolution Plan was approved in compliance with statutory requirements, including valuation by two registered valuers. The CoC, acting within its commercial wisdom, approved the plan with 88.56% votes after negotiations.
The Apex Court further said that as established in K. Sashidhar, Essar Steel, and Maharashtra Seamless, judicial intervention in CoC decisions is limited and should not override commercial decisions unless the plan violates Sections 30 or 31 of the Code. The Supreme Court in Kalpraj Dharamshi reaffirmed that CoC's commercial decisions, even when backed by a significant majority, are not to be second-guessed by the NCLT or NCLAT.
In light of the above discussion, the Tribunal held that “when no objection to the valuation conducted of the Corporate Debtor was raised by any stakeholders, it was not open for the Adjudicating Authority to enter into the issue of valuation of assets of the Corporate Debtor and to make the said ground for rejecting the Resolution Plan.”
The Tribunal also observed that the SRA filed a compliance affidavit as directed by the Adjudicating Authority. In Para 18(viii), it was noted that payments to certain creditors, including statutory liabilities listed in the balance sheet, were not required to be included in the plan as only one claim was filed and admitted. Since no other creditors filed claims, the absence of their mention in the Resolution Plan cannot be a valid ground for its rejection.
It further added that in this case, the Resolution Plan states that communication was sent to creditors, and a compliance affidavit detailing the steps taken per the Adjudicating Authority's order dated 16.07.2024 was submitted. However, the Adjudicating Authority, without considering this affidavit, held that Regulation 6A was breached. This finding is unsustainable.
The Tribunal further observed that moreover, the proviso to Regulation 6A deems public announcement as sufficient communication where direct communication is not possible. Therefore, rejection of the Resolution Plan on the grounds stated in Para 18(x) is not justified.
The Tribunal concluded that none of the observations made by the Adjudicating Authority in Para 18 indicate any violation of Section 30(2) of the IBC warranting rejection of the Resolution Plan. The issues raised were sufficiently addressed in the records, but the Authority failed to consider them. The Resolution Professional is not required to include every explanation in the approval application, as the Resolution Plan itself contains the necessary details. Therefore, the rejection of the plan on the basis of Para 18 is unsustainable.
Accordingly, the present appeals were allowed and the impugned order was set aside.
Case Title: Vashishth Builders And Engineers Limited And Vashisth Estates Limited (In Consortium) Vs Trishul Dream Homes Limited And Anr.
Case Number: Company Appeal (AT) (Insolvency) No. 732 of 2025
Judgment Date: 20/05/2025
For Appellant: Mr. Nipun Gautam, Mr. Kartik Pandey, Advocates.
For Respondents: Mr. Aalok Jagga, Mr. APS Madaan, Mr. Vibhu Aggarwal, Advocates for RP. Mr. Abhijeet Sinha, Sr. Advocate with Mr. Viren Sharma, Advocate for CoC.