NCLAT affirms CoC's authority: once approved, resolution plan must be adhered to in NFB facility dispute, read judgment

In a recent ruling, the National Company Law Appellate Tribunal (NCLAT) observed that "the commercial wisdom of the Committee of Creditors (CoC) is central to the feasibility and viability of the Resolution Plan," as per Section 30(4) of the Insolvency and Bankruptcy Code.

The NCLAT’s observation emphasized that the commercial decisions made by the CoC, particularly regarding the roll-over of Non-Fund Based (NFB) facilities, must be respected once a resolution plan is approved. The issue at hand was whether the Respondents (Corporate Debtor and investors) were entitled to the release of NFB limits without further evaluation of the borrower’s financial condition, as prescribed by the terms of the approved Resolution Plan.

The two Appeals challenged the common order dated 20.08.2024 passed by the National Company Law Tribunal (NCLT) Mumbai Bench-1 in IA No.4959 of 2023 & IA No.5023 of 2023. IA No.4959 was filed by the Corporate Debtor (Jyoti Structures Limited) and IA No.5023 was filed by investors in the company. The Corporate Debtor was admitted to the Insolvency Resolution Process in 2017, and a Resolution Plan was approved in 2019. The plan allowed for a roll-over of Non-Fund Based (NFB) facilities, but there were delays in the disbursement of these facilities due to procedural issues. A Tripartite Agreement was signed in 2022, and the company sought exclusion of time from the repayment timeline for the period of delay. In 2023, the company and investors filed IAs seeking directions for the release of the NFB limits, leading to the impugned order. The Appeals challenged parts of this order, specifically regarding the release of the NFB limits.

Contentions of the Respondent:

The Respondents (Corporate Debtor and Investors) countered the Appellants' arguments, stating that the Resolution Plan, approved by the majority of creditors, explicitly contemplates the roll-over of NFB facilities, which must be released without unreasonable withholding. They asserted that the Appellants approved the plan with full knowledge of the company’s viability and that the feasibility check was already completed during the plan’s approval stage. They emphasized that the company’s operations rely on the timely release of the NFB facilities, particularly for issuing Performance Bank Guarantees required for its business. The Respondents argued that the Appellants cannot now challenge the release of the NFB limits, which are essential for the company to continue operations and fulfil its obligations under the Resolution Plan.

The NCLAT noted that "there is no dispute between the parties that the Respondents have right to evaluate each project before issuing any Guarantee/Letter of Credit." The dispute concerns whether the Respondents can evaluate the Company before issuing such guarantees, as per the approved Resolution Plan.

The NCLAT highlighted that the Resolution Plan requires rolling over BG/LC limits to ensure the Company's growth and ability to meet debt obligations, emphasizing that BG/LC issuance should not be "unreasonably withheld." It further stressed that the "commercial wisdom of the Committee of Creditors" (CoC) is central to the feasibility and viability of the Resolution Plan, as per Section 30(4) of the Insolvency and Bankruptcy Code, citing Essar Steels v. Satish Chandra Gupta.

The NCLAT affirmed that the CoC had examined the Company’s viability and the resolution applicant's capability in the context of the business’s peculiar requirements and financial projections. It also acknowledged that there was "no allegation of violation in payment of money to various stakeholders proposed so far" and that the CoC was aware of the NFB limits contingent on project appraisal.

Addressing the RBI Circular, the NCLAT clarified that the case did not involve fraud concerns, stating, "Present is not a case that the borrower is asking for issuance of NFB facilities which will lead to perpetuating any fraud on the lenders."

The NCLAT emphasized that once a resolution plan is approved, stakeholders must adhere to it, and the issue of feasibility cannot be raised afterward. Lenders cannot alter terms such as the roll-over of NFB facilities.

The NCLAT held that the NFB Agreement should align with the approved resolution plan, quoting the Supreme Court's ruling, "It is not permissible for the court to make a new contract, however reasonable, if the parties have not made it themselves."

The NCLAT concluded that the directions issued by the Adjudicating Authority in paragraph 7.9 adequately protected the interests of both parties. It found that no sufficient grounds had been presented to justify interference with the impugned order through appellate jurisdiction. As a result, the Court dismissed the appeals, concluding that they lacked merit.

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