The National Company Law Appellate Tribunal (NCLAT) has delivered a significant ruling stating that the Committee of Creditors (CoC) cannot modify or alter a resolution plan for reallocation of funds of dissenting creditors after it has been approved. The decision came while dismissing an appeal by Bank of Baroda in the Reliance Communications Infrastructure Ltd (RCIL) insolvency proceedings.

Key Ruling and Legal Precedent

A two-member NCLAT bench emphasized that assenting members of the committee cannot alter the financial layout once bids have been approved. The tribunal clarified that while the CoC possesses commercial wisdom to make decisions regarding various aspects of resolution plans, including distribution mechanisms, this authority has limitations.

"It is true that the CoC with commercial wisdom can take a decision regarding different aspects of the plan, including manner of distribution, but once the commercial wisdom has been exercised by approving the resolution plan in meeting, the modification of the said distribution mechanism, which is impermissible, cannot be saved in the name of commercial wisdom of the CoC," the NCLAT stated.

Case Background and Resolution Plan Details

The insolvency proceedings involved Reliance Communications Infrastructure Ltd (RCIL), where the National Company Law Tribunal (NCLT) had approved the bid of Reliance Projects & Property Management Services Ltd (RPPMSL), a Jio subsidiary. The resolution plan received approval with a significant majority vote from the CoC.

Creditor Positions and Disputes

Bank of Baroda was among the CoC members who approved RPPMSL's plan, while IDBI Bank, State Bank of India, and other financial institutions dissented. The controversy arose when Bank of Baroda, despite being an assenting financial creditor, filed an application before the NCLT requesting the CoC to convene a meeting for reallocating distribution proceeds under the resolution plan concerning the Reliance Bhutan loan.

Timeline of Legal Proceedings

The case witnessed several key developments across multiple dates:

During the October 27, 2023 CoC meeting, the resolution for reallocation and reassignment of Reliance Bhutan was passed with a 67.55% majority. However, IDBI Bank and State Bank of India maintained their objections to these modifications.

Final Tribunal Decision

IDBI Bank subsequently challenged the reallocation of proceeds by the CoC. The NCLT held that the CoC cannot alter the financial layout with respect to the entitlement of financial creditors. The tribunal specifically noted that the Reliance Bhutan loan was to be assigned to the approving financial creditor, and this resolution plan could not be modified by assigning it to dissenting financial creditors.

The NCLAT upheld the lower tribunal's decision, stating: "The Adjudicating Authority in the impugned order after considering all relevant clauses has rightly come to the conclusion that the decision of the CoC dated 27.10.2023 is contrary to the approved resolution plan and cannot bind the dissenting financial creditors."

Legal Implications

The ruling establishes that dissenting financial creditors are entitled to receive payment in the manner provided in the original resolution plan. The NCLAT emphasized that the CoC cannot alter the financial layout regarding their entitlement under the approved plan, providing clarity on the limits of CoC authority in post-approval modifications.

The tribunal concluded that it found no grounds to interfere with the adjudicating authority's decision, thereby dismissing Bank of Baroda's appeal and reinforcing the principle that resolution plan modifications affecting dissenting creditors' rights are impermissible after approval.