NCLAT Delhi Affirms Resolution Plan: Commercial Wisdom of CoC Prevails Over Operational Creditors' Objections

Case Overview

The National Company Law Appellate Tribunal (NCLAT), Delhi Bench, addressed multiple appeals filed under Section 61(3) of the Insolvency and Bankruptcy Code, 2016 challenging the approval of a resolution plan concerning a power generation company undergoing Corporate Insolvency Resolution Process (CIRP). The case of Balaji Associates Vs V. Venkatachalam and others centered on whether the Adjudicating Authority was correct in sanctioning the resolution plan that received approval from the Committee of Creditors (CoC) with 75.91% voting support.

The Adjudicating Authority had greenlit the resolution plan after determining its compliance with Section 30(2) of the Code. The resolution applicant consortium had already assumed control of the corporate debtor, and implementation of the plan was complete. Multiple operational creditors—comprising contractors providing manpower, fuel supply, logistics services, civil construction, and auxiliary services—contested the approval based on several grounds including alleged discriminatory treatment, insufficient payment provisions, concealment of critical assets such as a Power Purchase Agreement (PPA), incorrect valuation methodology, exclusion from CoC deliberations, and substantive irregularities committed by the Resolution Professional.

Background Facts

The Corporate Insolvency Resolution Process was initiated against M/s Sai Wardha Power Generation Limited through an order dated 09.11.2018 passed by the Adjudicating Authority (National Company Law Tribunal, Hyderabad Bench) in C.P. (IB) NO. 275/7/HDB/2018. The application was filed by Indian Opportunities III Pte Limited and another entity. Mr. V Venkatachalam was designated as the Resolution Professional (RP).

The RP subsequently filed I.A. No. 703 of 2019 under Section 30(6) and 31 of the Code read with Regulation 39(4) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and Rule 11 of NCLT Rules, 2016, seeking approval of the resolution plan that had been endorsed by the CoC with 75.91% voting share. After examining the feasibility and viability aspects, the Adjudicating Authority approved the application on 17.10.2019. The successful resolution applicants—the Consortium of Sri City Private Limited and KCR Enterprise LLP—subsequently took over the corporate debtor company.

Arguments Advanced by Appellants

Balaji Associates' Contentions

The appellant Balaji Associates contended that they were awarded a contract dated 09.10.2015 for round-the-clock field Operation and Maintenance of Electrical Systems covering all Controls and Instrumentation Equipment of the complete plant including all subsystems. The contract tenure spanned five years with a total value of Rs. 81,17,73,308/-.

According to the appellant, approximately 105 personnel were deployed at the power generation unit, and the entire plant operations depended on this manpower. Due to non-payment of salaries, the corporate debtor proposed short closure of the contract effective 30.06.2017 through mutual agreement. A reconciliation meeting occurred on 05.07.2017, and the contract was ultimately short-closed on 13.07.2017.

After final reconciliation up to June 2017, the parties agreed on 05.07.2019 that the total payable amount stood at Rs. 11.18 Crores. The corporate debtor was to release Rs. 1.75 Crores immediately for smooth transition, with the remainder in installments. However, after releasing only Rs. 50 Lakhs in two tranches, no further payments were made.

The appellant argued that the approved resolution plan provided for full payment of Rs. 1.67 Crores to the corporate debtor's own employees and workmen, but failed to address salaries and dues of manpower deployed by Balaji Associates, constituting clear discrimination. They claimed they were never informed about CIRP proceedings or CoC meetings, nor was a copy of the resolution plan supplied to them.

Common Grievances of Operational Creditors

The operational creditors collectively raised several objections:

Discriminatory Treatment: The resolution plan allegedly discriminated between financial creditors and operational creditors. Against admitted claims of Rs. 5002,48,82,331, financial creditors received Rs. 635,00,00,000 against their admitted claim of Rs. 1844.69 Crores (representing 10.79% recovery), while operational creditors received only Rs. 5,00,00,000 (representing merely 0.26% of claimed amounts).

Regulatory Non-Compliance: Under Regulation 38, operational creditors should receive priority over financial debtors, which the plan allegedly violated.

Lack of Stakeholder Analysis: The resolution plan purportedly lacked a comprehensive statement explaining how it addressed interests of all stakeholders, including both financial and operational creditors.

Inadequate Disclosure: Critical assets, particularly the Power Purchase Agreement (PPA), were allegedly not disclosed in the Information Memorandum or Expression of Interest, thereby devaluing the corporate debtor and preventing maximization of asset value.

Valuation Concerns: Significant discrepancies existed between valuations provided by two approved valuers—approximately Rs. 932 Crores difference in liquidation value and Rs. 737 Crores in fair values—yet no third valuer was appointed.

Resolution Applicant's Eligibility: Questions were raised regarding the qualifications and experience of resolution applicants for operating a power generation facility.

The appellants relied on Gujarat Urja Vikas Nigam Ltd. Vs. Yes Bank Limited and Essar Steel Vs. Satish Kumar Gupta reported at 2019 SCC Online SC 1478 to support their contentions.

Respondents' Defense

Arguments by Resolution Professional and Corporate Debtor

The respondents contended that relationships between appellants and the corporate debtor were purely contractual and commercial, documented through executed contracts for Operation & Maintenance (O&M) services and supply of manpower. The classification of appellants as operational creditors was never objected to during the process.

The resolution plan approved by the CoC complied with all provisions of the Code read with applicable Rules and Regulations. The CoC exercised its commercial wisdom, which is non-justiciable as established in K Sashidhar Vs. Indian Overseas Bank & Ors., 2019 12 SCC 150.

The CoC approved appointment of Ernst & Young and Duff & Phelps India Pvt. Ltd as valuers under Regulation 27 of the CIRP Regulations with 94.29% majority. Eligibility criteria under Section 29A of the Code were verified by Kroll Associates.

Regarding the PPA dated February 2, 2020 and MERC Orders dated January 9, 2019 and June 1, 2020, the respondents argued these events occurred after approval of the resolution plan dated 17.10.2019, and therefore could not constitute material irregularity. The RP acted in accordance with statutory obligations throughout the CIRP.

Successful Resolution Applicants' Submissions

The consortium members emphasized that contractual manpower providers could not claim parity with the corporate debtor's direct employees and workmen. Operational creditors whose aggregate claims totaled less than 10% of overall admitted claims had no statutory entitlement to attend CoC meetings.