Introduction
In a significant ruling that further clarifies the scope of the Committee of Creditors’ (CoC) authority and the permissibility of extending Corporate Insolvency Resolution Process (CIRP) timelines, the National Company Law Appellate Tribunal (NCLAT) has reaffirmed the primacy of commercial wisdom in insolvency proceedings. The judgment delivered on March 7, 2025, addresses several critical aspects of the insolvency resolution process, including CIRP extensions beyond statutory limits, the necessity of disclosure of valuation reports, and the treatment of operational creditors under resolution plans.
Case Background
The appeal arose from an order passed by the National Company Law Tribunal (NCLT), Ahmedabad Bench-II on November 27, 2024, which approved a resolution plan for the Corporate Debtor. The appellant, an operational creditor, challenged this approval on multiple grounds, including:
Repeated extensions of the CIRP period beyond the 330-day limit prescribed in Section 12 of the IBC
Alleged irregularities in Form-G publication
Non-disclosure of detailed valuation reports to operational creditors
Inadequate allocation to operational creditors under the resolution plan
The CIRP of the Corporate Debtor had commenced on December 7, 2022, with the initial 180-day period expiring on June 5, 2023. Following this, multiple extensions were granted, with the final extension running until February 20, 2024. The resolution plan, submitted by Mercury Terra Firma, was approved by the CoC on January 29, 2024, with a 97.36% majority vote.
Key Issues and NCLAT’s Findings
1. Extension of CIRP Beyond 330 Days
The appellant contended that the NCLT approved the resolution plan by granting repeated CIRP extensions beyond the statutorily prescribed 330 days without adequate justification, violating Section 12 of the IBC.
NCLAT’s Finding: The Tribunal held that although the resolution plan was approved beyond the 330-day period, this extension was permitted by the Adjudicating Authority on January 8, 2024, before the CoC’s approval on January 29, 2024. Importantly, the Tribunal noted that the appellant had participated in CoC meetings but failed to challenge these extensions at the relevant time.
The NCLAT referenced the Supreme Court’s ruling in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta (REEDLAW 2019 SC 11505), clarifying that this precedent does not entirely prohibit CIRP extensions beyond 330 days, particularly when only a short period remains for completion of the process.
2. Non-disclosure of Valuation Report
The appellant argued that despite requesting valuation reports in the 17th CoC meeting on October 19, 2023, the Resolution Professional (RP) only provided fair and liquidation values without a detailed valuation report, thereby hampering the CoC’s ability to exercise commercial wisdom judiciously.
NCLAT’s Finding: Upon examining the minutes of the 17th CoC meeting, the Tribunal found that the issue was discussed, and CoC members had been provided with the fair and liquidation values. The NCLAT ruled that since operational creditors have no voting rights under the IBC framework, the non-disclosure of the detailed valuation report to the appellant did not cause any prejudice to their interests.
3. Irregularities in Form-G Publication
The appellant alleged that the re-publication of Form-G in newspapers on November 3, 2023, but not on the IBBI website, violated Regulation 36-A(2) of the CIRP Regulations.
NCLAT’s Finding: The Tribunal rejected this argument, noting that the complaint was belated and that non-publication on the IBBI website primarily affected prospective resolution applicants, not the appellant. The NCLAT held that raising such an objection at a late stage contradicted the appellant’s own concerns about CIRP delays.
4. Treatment of Operational Creditors
The appellant claimed that operational creditors, with an aggregate admitted claim of Rs. 18.34 crores, were allocated only Rs. 60 lakhs under the resolution plan, thereby violating Section 30(2)(b) of the IBC.
NCLAT’s Finding: The Tribunal found that the treatment of operational creditors under the plan was in compliance with the IBC, as they received more than the minimum liquidation value, which was determined to be nil. The NCLAT emphasized that the approval of the plan by the CoC with a 97.36% vote underscored the commercial wisdom of the creditors, which courts are generally reluctant to interfere with.
Legal Implications and Analysis
Reinforcement of CoC’s Commercial Wisdom
This ruling reinforces the principle established in numerous Supreme Court judgments that the commercial wisdom of the CoC is paramount in insolvency proceedings. When a resolution plan is approved by an overwhelming majority (97.36% in this case), courts will be reluctant to interfere without compelling evidence of material irregularities or contravention of law.
Flexible Interpretation of Timelines
The NCLAT has taken a pragmatic approach to the 330-day timeline stipulated in Section 12 of the IBC. While the Code prescribes this outer limit, the NCLAT has recognized that extensions may be justified in certain circumstances, particularly when the resolution process is at an advanced stage and a short extension would facilitate a successful resolution rather than liquidation.
Participation Without Objection Principle
A critical takeaway from this judgment is the importance of raising objections at the appropriate time. The NCLAT emphasized that the appellant had participated in CoC meetings but did not challenge the CIRP extensions when they were granted. This reinforces the legal principle that acquiescence or failure to object at the appropriate stage can weaken subsequent legal challenges.
Disclosure Requirements for Operational Creditors
The ruling clarifies the extent of information disclosure required for operational creditors. Since operational creditors do not have voting rights in the CoC, the NCLAT has held that providing them with fair and liquidation values is sufficient, and detailed valuation reports are not necessary.
Conclusion
This NCLAT ruling provides valuable guidance on several aspects of the insolvency resolution process. It balances the need for timely completion of CIRP with the practical realities of complex insolvency cases. The judgment also reaffirms the primacy of the CoC’s commercial wisdom while setting reasonable boundaries for information disclosure and procedural compliance.
For stakeholders in insolvency proceedings, this ruling underscores the importance of raising objections promptly, understanding the limitations of their roles based on creditor classification, and recognizing the courts’ reluctance to interfere with the commercial decisions of the CoC when made by substantial majority.
As the IBC jurisprudence continues to evolve, this case serves as another important pillar in interpreting the Code’s provisions in a manner that promotes successful resolutions while respecting the statutory framework established by Parliament.
Disclaimer
This blog post is for informational purposes only and does not constitute legal advice. The information provided herein reflects our interpretation of the specific NCLAT judgment discussed and should not be construed as a comprehensive analysis of all aspects of the Insolvency and Bankruptcy Code or CIRP regulations.
Each insolvency proceeding involves unique facts and circumstances that may lead to different outcomes. Readers should consult with qualified legal professionals before making any decisions based on the information contained in this blog post.
The views expressed are based on the legal position as of March 2025 and may be subject to change as new judgments are delivered or amendments are made to the relevant laws and regulations. Our firm assumes no liability for any actions taken based on the information provided in this blog post.