Tribunal finds resolution plan failed mandatory regulatory requirements despite CoC approval; clarifies plan value need not match liquidation value; sets aside premature capping of assignee ARC's entitlement
In a significant decision delivered on October 12, 2026, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, upheld the rejection of the resolution plan submitted by Dickey Special Situation Investment Trust-DSSF Series 2 ("Dickey Trust" or "Appellant") in the Corporate Insolvency Resolution Process (CIRP) of Worlds Window Exim Private Limited ("Corporate Debtor"). The Tribunal also affirmed the order directing liquidation of the Corporate Debtor and an investigation into its affairs.
The appeal arose after the National Company Law Tribunal (NCLT), New Delhi Bench, rejected the resolution plan approved by the Committee of Creditors (CoC) primarily on two grounds: non-compliance with Regulation 38(3)(a) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ("CIRP Regulations"), which mandates that the plan must address the cause of default, and the plan's total resolution amount being lower than the liquidation value of the Corporate Debtor. The NCLT also issued directions for an investigation under Sections 43, 45, 50, and 66 of the Insolvency and Bankruptcy Code, 2016 ("Code") and capped the entitlement of the assignee asset reconstruction company (ARC) to the amount paid to the assignor bank.
The Corporate Debtor, an asset holding company incorporated under the Companies Act, 1956, had no operational business and primarily held parcels of land charged to financial creditors. The insolvency petition was admitted on May 16, 2025, following a default on loans assigned to Prudent ARC Limited, which held a 94.86% voting share in the CoC after the assignment.
The Appellant contended before the NCLAT that:
- There is no statutory requirement under the Code or CIRP Regulations that the resolution plan's value must match or exceed the liquidation value. The CoC's commercial wisdom in approving the plan, which expressly protected dissenting creditors' minimum entitlement under Section 30(2)(b), should not be interfered with.
- The plan adequately addressed the cause of default, as it identified losses, nil turnover, and excess liabilities, and proposed utilizing the land post-settlement of dues.
- The NCLT's direction capping the ARC's entitlement was premature and beyond its jurisdiction, especially since the assignment was duly recorded by the NCLT itself.
- The newly introduced proviso to Section 31(2) and Section 33(1A) of the Code required the CoC to be given an opportunity to cure defects and the CIRP to be considered for restoration before liquidation, which was not followed.
The Resolution Professional and Respondents supported the rejection but highlighted that the total recovery under the plan, including cash equivalents, was approximately 86.56% of the liquidation value, and that valuation is only a guiding tool for the CoC. They also underscored that the plan had to meet mandatory statutory criteria beyond the CoC's commercial wisdom.
The NCLAT's analysis and findings:
- The Tribunal held that the Adjudicating Authority (NCLT) is empowered and obligated under Section 31(1) of the Code to scrutinize whether the resolution plan complies with mandatory provisions, including Regulation 38(3)(a), which requires a plan to demonstrate that it addresses the cause of default. This is a statutory requirement and not a matter of commercial wisdom.
- The plan's Clause 2.14, stating that the resolution applicant was "not fully aware" of the cause of default and proposing only vague future business propositions, failed to demonstrate how the cause of default would be cured. The Tribunal found this insufficient to satisfy Regulation 38(3)(a), justifying the rejection.
- The Tribunal clarified that there is no legal provision requiring the plan value to match or exceed the liquidation value, and that Section 30(2)(b) protects only dissenting financial creditors' minimum payment. Since the dissenting creditor's entitlement was expressly guaranteed in the plan, the mere fact that total plan value was below liquidation value did not invalidate it. However, this did not affect the overall rejection based on failure to meet Regulation 38(3)(a).
- The overall circumstances, including the Corporate Debtor being an asset holding company with no operations, assignment of debts during CIRP, and immediate concession of the plan by suspended promoters, justified the Adjudicating Authority's doubts and the order for liquidation and investigation.
- The direction capping the ARC's entitlement was set aside as premature, with all rights and contentions preserved for determination after investigation.
- The Tribunal held that the proviso to Section 31(2) and Section 33(1A) of the Code are enabling provisions and not mandatory in all cases. Given the serious defects and suspicion about the plan, the Adjudicating Authority was justified in directly rejecting the plan and ordering liquidation without offering an opportunity to cure defects or restore CIRP.
The appeal was accordingly dismissed, and the NCLT's order rejecting the resolution plan, directing liquidation, and ordering investigation was upheld, subject to the modification regarding the ARC's entitlement.
This judgment underscores the critical role of mandatory compliance with regulatory requirements in CIRP and affirms the limited but significant scope of judicial scrutiny by the Adjudicating Authority to ensure resolution plans meet statutory criteria. It also reaffirms that commercial wisdom of the CoC is paramount but not absolute when mandatory provisions are not complied with.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - Adjudicating Authority can examine whether a resolution plan complies with mandatory requirements under Section 30(2) read with Regulation 38(3)(a) - Resolution plan need not match or exceed liquidation value, but must demonstrate that it addresses the cause of default - Where plan failed to satisfy Regulation 38(3)(a), rejection of plan and order of liquidation upheld - However, direction capping assignee ARC's entitlement to amount paid under assignment held premature and set aside.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 7, 14, 30(2)(b), 30(2)(f), 31(1), 31(2) proviso, 33(1)(b), 33(1A), 43, 45, 50, 53, 66;
Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 Regulation 38(3)(a);
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
