Tribunal holds that mandatory payments to dissenting financial creditors cannot be deferred or increased beyond agreed limits, directing CoC to decide the future course of action in Reliance Communications Infrastructure Ltd. insolvency case.
In a significant ruling dated August 21, 2026, the National Company Law Tribunal (NCLT), Mumbai Bench, addressed critical issues concerning the implementation of an approved resolution plan under the Insolvency and Bankruptcy Code (IBC), 2016 in the Corporate Insolvency Resolution Process (CIRP) of Reliance Communications Infrastructure Limited ("Corporate Debtor"). The tribunal's decision highlights the complexities involved in insolvency resolutions where mandatory payments to dissenting financial creditors (DFCs) cannot be fully met due to insufficient funds, and resolves that the approved plan, in its current form, is not implementable.
The case originated from an application filed by IDBI Bank Limited, one of the dissenting financial creditors holding 3.48% voting share, seeking enforcement of mandatory payments under the approved resolution plan. The plan, submitted by Reliance Projects and Property Management Services Limited (Resolution Applicant or SRA) and approved by the Committee of Creditors (CoC) and the tribunal, provided a financial outlay including Rs. 57 crore from the SRA, cash balances, assignment of loans, and proceeds from real estate monetization. However, a shortfall of approximately Rs. 26.29 crore in meeting payments to DFCs emerged, even after considering an additional infusion cap of Rs. 35 crore by the SRA as per the resolution plan.
The tribunal scrutinized the terms of the resolution plan, particularly Section 30(2)(b) of the IBC, which mandates that all creditors, including dissenting financial creditors, receive payments as prescribed. It was held that the resolution plan cannot be modified to increase the SRA's liability beyond Rs. 35 crore or to defer mandatory payments to DFCs because such modifications would contravene the approved plan's terms. The tribunal also rejected the notion that payments to dissenting creditors could be deferred until after the effective date, emphasizing that mandatory payments are a condition precedent to the effective date and thus must be fulfilled beforehand.
The monitoring committee's role was also discussed, with the tribunal noting its obligation to issue a closing action notice to the resolution applicant to ensure payment of resolution money once the statutory period for appeals expires. The tribunal observed that the delay in issuing such notice contributed to the impasse.
Given that the plan was found unimplementable in its present form due to the fund shortfall and the inability to alter the plan's financial terms, the tribunal exercised its powers under Section 33(1A) of the IBC. This provision allows the CoC to consider re-initiation of the CIRP in case of contravention or failure of the approved plan. Although the tribunal clarified that there was no strict contravention by the parties, the terms themselves had rendered the plan unimplementable.
Consequently, the tribunal directed the erstwhile Resolution Professional to convene a meeting of the CoC within 30 days to take note of the situation and decide on the future course of action in accordance with their commercial wisdom. The tribunal emphasized the need for a pragmatic resolution to the deadlock, acknowledging the complexities of creditor interests and statutory mandates.
This ruling underscores the judiciary's firm stance on adherence to statutory mandates for creditor payments under the IBC and highlights the challenges of balancing commercial realities with legal obligations in insolvency resolutions. It also signals to resolution applicants and creditors the importance of ensuring financial feasibility and compliance with mandatory payment provisions in resolution plans.
Bottom Line:
Insolvency and Bankruptcy Code - Approved resolution plan rendered non-implementable due to insufficiency of funds for mandatory payments to dissenting financial creditors - Resolution Professional directed to convene a meeting of the CoC to decide the future course of action.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 30(2)(b), 33(1A), 60(5)
This news report aims to provide a comprehensive and accessible summary of the NCLT Mumbai's judgment on the non-implementability of the approved resolution plan due to financial shortfall, capturing the legal reasoning and procedural directions for stakeholders involved.
IDBI Bank Limited v. Artish Niranjan Nanavaty, (NCLT)(Mumbai) : Law Finder Doc Id # 2971993
