Preparation & Approval of Resolution Plan

The present case is similar to the case of Ramkrishna Forgings Limited vs. Ravindra Loonkar, Resolution Professional of ACIL Limited & Anr, Civil Appeal No.1527 of 2022;

In the above case the Supreme Court held that the Resolution Professional has complied with the statutory requirements of involving two approved valuers for giving reports regarding the fair market value and the liquidation value.

The Court emphasised the fact that the NCLT should not interfere with the commercial decisions of the CoC, especially when there were no irregularities raised. The Judgment also underlined the fact that the objective of the Resolution Plan was revival and not liquidation.

The Court highlighted the CoC’s Authority to decide on the Corporate Debtor’s Debt Resolution.

Therefore, NCLT and NCLAT have overstepped their powers in overlooking the decision of CoC, considering the above judgement.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 5(d) (Syllabus 2022).

The central issue here is whether Section 32A of the IBC provides immunity to Agarwal Textiles Ltd. under the new management of M/s. Khanna Ventures Pvt. Ltd. from actions taken by the ED concerning offences committed by the previous management before the CIRP commencement date.

Section 32A of the IBC provides immunity to the corporate debtor from prosecution for offences committed prior to the commencement of the CIRP, provided that:

1.The resolution plan has been approved by the NCLT.

2.The resolution plan results in a change in the management or control of the corporate debtor.

3.The new management or control was not a related party of the previous offenders.

4.The new management has not abetted or conspired in the commission of the offence.

In this case:

•Resolution Plan Approval: The resolution plan was approved by the NCLT on January 15, 2025.

•Change in Management: M/s. Khanna Ventures Pvt. Ltd. has taken over the management, representing a complete change in control.

•Independence of New Management: Mr. Sanjay Khanna and his team are not related to the previous management (Mr. Rajesh Agarwal) and had no prior involvement with Agarwal Textiles Ltd.

•No Abetment: There is no indication that the new management abetted or conspired in the commission of the offences.

Based on these facts, Agarwal Textiles Ltd., under the new management of M/s. Khanna Ventures Pvt. Ltd., can claim immunity under Section 32A of the IBC and the NCLT should consider to grant immunity to Agarwal Textiles Ltd. under the new management from the attachment of assets by the ED, as it meets the criteria specified under Section 32A of the IBC.

The purpose of Section 32A is to encourage genuine resolution applicants to take over distressed companies without fear of being penalized for the misdeeds of the previous management. Denying immunity in this case would defeat the purpose of the IBC, as it would deter potential resolution applicants.

However, it is important to note that the immunity under Section 32A is not absolute. The ED could still pursue action against the former MD, Mr. Rajesh Agarwal, for his alleged fraudulent activities. The immunity applies to the corporate debtor itself, provided the conditions of Section 32A are met.

***

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 6A(iv) (Syllabus 2022).

(i)Publish brief particulars of the invitation for expression of interest in Form G of the Schedule I

Not later than sixtieth day from the insolvency commencement date from interested and eligible prospective resolution applicants to submit resolution plans. (Regulation 36A (1) of CIRP Regulations)

(ii)Last date for submission of expression of interest-

Not less than fifteen days from the date of issue of detailed invitation. (Regulation 36A (3) of CIRP Regulations)

(iii)Objection for inclusion or exclusion of a PRA in the provisional list.

Within five days from the date of issue of the provisional list. Regulation 36A (11) of CIRP Regulations.

(iv)Issue of information memorandum, evaluation matrix and a request for resolution plans-

The resolution professional shall, within five days of the date of issue of the final list under subregulation (12) of regulation 36A, issue the information memorandum, evaluation matrix and a request for resolution plans to every resolution applicant in the final list. (Regulation 36B (1) of CIRP Regulations)

(v)Submission of resolution plans to the RP. -

The request for resolution plans shall allow prospective resolution applicants a minimum of thirty days to submit the resolution plan(s). (Regulation 36B (3) of CIRP Regulations)

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 6(b) (Syllabus 2022).

As per section 12A of Insolvency and Bankruptcy Code, 2016, the Adjudicating Authority may allow the withdrawal of application admitted under section 7 or section 9 or section 10, on an application made by the applicant with the approval of ninety per cent voting share of the committee of creditors, in such manner as may be specified.

Regulation 30A(1)(b) of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016 also provides that application for withdrawal under section 12A of Code may be made to the Adjudicating Authority after the constitution of the committee, by the applicant through the resolution professional, subject to the applicant stating the reasons justifying withdrawal, if the application for withdrawal made after issue for expression of interest under regulation 36A.

In the matter of ‘ Brilliant Alloys Pvt. Ltd. vs. Mr. S. Rajagopal & Ors.’ , Hon’ble Supreme Court held that Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016 has to be read subject to Section l2A of the Insolvency and Bankruptcy code, 2016 which does not impose the condition that withdrawal application has to be filed before the invitation of expression of interest. Thus, the Apex Court upheld withdrawal of CIRP even after the Resolution Professional issued invitation for expression of interest from resolution applicants to submit resolution plans under Regulation 36A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. A similar stand was taken by Apex Court in the matter of Abhishek Singh vs Huhtamaki PPL Ltd.

Hence, keeping in light the provisions of Insolvency and Bankruptcy Code and Regulations, the contentions of other operational creditor are not tenable.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 4(a) (Syllabus 2017).

As per section 32A (1) of the Insolvency & Bankruptcy Code the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted for such an offence from the date the resolution plan has been approved by the Adjudicating Authority under section 31.

According to section 32A (2) of the Insolvency & Bankruptcy Code no action shall be taken against the property of the corporate debtor in relation to an offence committed prior to the commencement of the corporate insolvency resolution process of the corporate debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority, if the resolution plan results in the change in the management or control of the corporate debtor to a person who was not-

(a)a promoter or in the management or control of the corporate debtor or a related party of such a person; or

(b)a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court It is further to be noted that if a prosecution had been instituted during the corporate

insolvency resolution process against such corporate debtor, it shall stand discharged from the date of approval of the resolution plan subject to requirements of this subsection having fulfilled.

Apex Court in the case of Ghanashyam Mishra and Sons Private Limited Vs. Edelweiss Asset Reconstruction Company Limited stated that, on the date of approval of the Resolution Plan by the Adjudicating Authority, all such claims which are not a part of the Resolution Plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not a part of the Resolution Plan. The legislative intent behind this is to freeze all the claims so that the Resolution Applicant starts on a clean slate and is not flung with any surprise claims.

Accordingly, Q Ltd cannot proceed against EF LLP whose management is totally changed due to approval of Resolution plan of XY Private Limited, approved by the Adjudicating Authority. Hence, Q Ltd, cannot proceed against EF LLP or its present Partners for the breach done prior to CIRP.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 4(d) (Syllabus 2017).

In the matter of Binani Industries Limited v. Bank of Baroda & Anr, the National Company Law Appellate Tribunal (NCLAT), noticed the object of the Insolvency & Bankruptcy Code, 2016 and laid down that the first order objective is “resolution”, the second order objective is “maximisation of value of assets of the ‘Corporate Debtor’’ and the third order objective is “promoting entrepreneurship, availability of credit and balancing the interests of all the stakeholders.”

The Hon’ble Appellate Tribunal also held that the Insolvency & Bankruptcy Code defines ‘Resolution Plan’ as a plan for insolvency resolution of the ‘Corporate Debtor’ as a going concern, and not as a sale, or auction, or recovery or liquidation .

The Tribunal held that the resolution plan is:

•not an auction: Each resolution plan has a different likelihood of turnaround depending on credibility and track record of ‘Resolution Applicant’ and feasibility and viability of a ‘Resolution Plan’ are not amenable to bidding or auction. It requires application of mind by the ‘Financial Creditors’ who understand the business well.

•not recovery: Recovery is an individual effort by a creditor to recover its dues through a process that has debtor and creditor on opposite sides. The 'I&B Code’ prohibits and discourages recovery.

•not a liquidation: The IBC does not allow liquidation of a Corporate Debtor directly and permits liquidation only on failure of the resolution process. The ‘Insolvency & Bankruptcy Code’, therefore, does not allow liquidation of a ‘Corporate Debtor’ directly. It allows liquidation only on failure of ‘Corporate Insolvency Resolution Process’.

Insolvency & Bankruptcy Code rather facilitates and encourages resolution in several ways. Insolvency & Bankruptcy Code aims to balance the interests of all stakeholders.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 5(a) (Syllabus 2017).

Section 32A of the Insolvency & Bankruptcy Code provides relief to the resolution applicant or the persons who shall be in charge of the management of the company in the future by way of immunity from the liability of offences that the promoters or the persons in charge of the corporate debtor had committed prior to the initiation of CIRP, subject to certain conditions.

Section 32A(1) states that notwithstanding anything to the contrary contained in this Code or any other law for the time being in force, the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted for such an offence from the date the resolution plan has been approved by the Adjudicating Authority under section 31, if the resolution plan results in the change in the management or control of the corporate debtor to a person who was not-

(a)a promoter or in the management or control of the corporate debtor or a related party of such a person;

(b)a person with regard to whom the relevant investigating authority has, on the basis of material in its

possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court:

According to Section 32A(2), no action shall be taken against the property of the corporate debtor in relation to an offence committed prior to the commencement of the corporate insolvency resolution process of the corporate debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority under section 31, which results in the change in control of the corporate debtor to a person, or sale of liquidation assets under the provisions of Chapter III of Part II of this Code to a person, who was not –

(i)a promoter or in the management or control of the corporate debtor or a related party of such a person;

(ii)a person with regard to whom the relevant investigating authority has, on the basis of material in its

possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court.

Section 32A (3) provides that subject to the provisions contained in sub-sections (1) and (2), and notwithstanding the immunity given in this section, the corporate debtor and any person, who may be required to provide assistance under such law as may be applicable to such corporate debtor or person, shall extend all assistance and co-operation to any authority investigating an offence committed prior to the commencement of the corporate insolvency resolution process.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 4(b) (Syllabus 2017).

Regulation 38 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, lists down the mandatory contents of the resolution plan which are as follows:

(1)The amount payable under a resolution plan (a) to the operational creditors shall be paid in priority over financial creditors; and (b) to the financial creditors, who have a right to vote under sub-section (2) of section 21 and did not vote in favour of the resolution plan, shall be paid in priority over financial creditors who voted in favour of the plan.

(1A) A resolution plan shall include a statement as to how it has dealt with the interests of all stakeholders, including financial creditors and operational creditors, of the corporate debtor.

(1B) A resolution plan shall include a statement giving details if the resolution applicant or any of its related parties has failed to implement or contributed to the failure of implementation of any other resolution plan approved by the Adjudicating Authority at any time in the past.

(2)A resolution plan shall provide:

•the term of the plan and its implementation schedule:

•the management and control of the business of the corporate debtor during its term; and adequate means for supervising its implementation.

(3)A resolution plan shall demonstrate that -

•it addresses the cause of default:

•it is feasible and viable:

•it has provisions for its effective implementation;

•it has provisions for approvals required and the timeline for the same; and

•the resolution applicant has the capability to implement the resolution plan.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 5(e) (Syllabus 2017).

(i)In terms of Section 32 of the Insolvency and Bankruptcy Code, 2016, read along with section 61(3), an appeal can be made against the order approving a resolution plan under the specified grounds.

(ii)(a) The approved resolution plan is in contravention of the provisions of any law for the time being in force (b) there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period; (c) the debts owed to the operational creditors of the corporate debtor have not been provided for; (d) the insolvency resolution process costs have not been provided for repayment in priority to all other debts; (e) the resolution plan does not comply with any other criteria specified by the Board.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 5(d) (Syllabus 2017).

Changes brought about in section 30 of the Insolvency and Bankruptcy Code, 2016 by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 are as under:

(a)A resolution applicant to file an affidavit stating that it is eligible under section 29A of the Code.

(b)Added an explanation to sub-section (2) of section 30 of the Code to clarify that if any approval of shareholders is required under the Companies Act, 2013 or any other law for the time being in force for the implementation of actions under the resolution plan, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law.

(c)Substituted sub-section (4) of section 30 of the Code, inter alia, reducing the threshold for voting from 75% to 66% for approving a resolution plan by committee of creditors.

(d)in sub-section (2), in clauses (a) and (b), for the word "repayment" at both the places where it occurs, the word "payment" shall be substituted;

(e)after the third proviso, the following proviso shall be inserted, namely:— "Provided also that the eligibility criteria in section 29A as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 shall apply to the resolution applicant who has not submitted resolution plan as on the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018.".

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 5(b) (Syllabus 2017).

The Insolvency and Bankruptcy Code, 2016 was created to benefit the Financial and Operational Creditors, through the insolvency resolution process. However, it was observed that existing promoters of the Corporate Debtor were directly or indirectly acquiring stake in their own assets through the resolution plan, at a big discount.

Hence, through the resolution process, the existing promoters were regaining control over their assets (directly or indirectly) after a huge hair-cut (discount) from lenders. In other words, repurchase the same assets at a much lower cost and getting a back-door entry into their company.

To plug this loophole, the IBC was amended though the ordinance of the President of India. The amendment inserted section 29A, which provides for persons ineligible to be a Resolution Applicant.

The newly added section 29A declares certain persons ineligible to be a resolution applicant and prohibits such persons from submitting a resolution plan.

As per Section 29A of the Insolvency and Bankruptcy Code, 2016 following persons are not eligible to submit a resolution plan -

(a)applicant is an undischarged insolvent,

(b)wilful defaulters (as defined by RBI and Banking Regulation Act, 1949),

(c)persons whose accounts are classified as NPA for one year or more and are unable to settle their overdue amount (incl. interest), at the time of submission of the resolution plan,

(d)persons convicted for any offence punishable with imprisonment for two years or more (for offences of XII Schedule) or for seven years or more (under any other law) and a period of two years has not been expired from the date of his release from imprisonment

(e)persons disqualified to act as director under the Companies Act, 2013,

(f)persons prohibited by SEBI, from trading in securities or accessing the securities market,

(g)person who has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction (PUFE) has taken place and in respect of which an order has been made by the Adjudicating Authority under this Code except when such PUFE transactions has taken place prior to acquisition of such corporate debtor by resolution applicant and resolution applicant has not contributed in those transactions.

(h)persons who have executed any guarantee to a creditor for the corporate debtor w.r.t. which CIRP application initiated by such creditor has been admitted by the Adjudicating Authority and such guarantee has been invoked by the creditor and remains unpaid in full or part

(i)persons disqualified by any law of other country, for the conditions mentioned in (a) to (h),

(j)has connected person not eligible under clauses mentioned in (a) to (i).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 5(d) (Syllabus 2017).

The acquisition of Bhushan Steel Ltd (BSL) for Rs. 35,200 crore by Bamnipal Steel Ltd (BNL), a subsidiary of Tata Steel Ltd. in May 2018, has been the first major case of acquisition of a major stressed asset under the Insolvency and Bankruptcy Code.

BNL completed the acquisition of controlling stake of 72.65 per cent in BSL in accordance with the approved resolution plan under the Corporate Insolvency Resolution Process (CIRP) of the IBC. Tata Steel has paid Rs.35,200 crore in cash to acquire Bhushan Steel. It would pay another Rs.1,200 crore over next 12 months to operational creditors.

The promoters of BSL approached the National Company Law Appellate Tribunal (NCLAT) over issue of ineligibility of Tata Steel to acquire BSL. L&T, an operational creditor also approached the Hon’ble NCLAT over issue of unfair distribution of settlement amount for its claim under the provisions of IBC, 2016.

NCLAT upheld the acquisition of Bhushan Steel, rejecting allegations of its ineligibility by the promoters of the company. The NCLAT also rejected the claims of L&T, an operational creditor of Bhushan Steel Ltd, opposing Tata Steel’s resolution plan seeking a higher priority in debt settlement.

The NCLAT said that Tata Steel UK, a foreign subsidiary of Tata Steel, which was fined by an English Court in February 2018 under UK act, had a provision of ‘imprisonment for a term not exceeding twelve months, or a fine, or both’. While, the provision in section 29A(d) of the Code, which deals with eligibility , stipulates “has been convicted for any offence punishable with imprisonment for two years or more”, cannot be equated with Section 33(1)(a) of the U.K Act, said NCLAT. Section 29A of the IBC mandates that a person convicted for any offence punishable with imprisonment for two years or more is ineligible for submitting a resolution plan.

Over the claims of L&T, which had supplied goods and machineries over Rs.900 crore, NCLAT said that Tata Steel’s resolution plan was fair towards operational creditors of Bhushan Steel which has a total demand of Rs.1,422 crore. The NCLAT observed that the company has allotted Rs.1,200 crore for them and L&T plea for a higher priority could not be accepted.

Moreover, it also declined the plea of the promoter’s family, contending Tata Steel’s Resolution Plan’ was illegal as it purports to transfer shares of the ‘preference shareholders’ of Bhushan Steel without their consent for a fixed consideration of Rs.100 as against Rs.2,269 crore.

****

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 6A(iii) (Syllabus 2017).

A person convicted of any offence punishable with imprisonment for five years under any Act specified in the Twelfth schedule of the Insolvency and Bankruptcy Code, 2016 is not eligible to be resolution applicant. The statement is true /correct.

Section 29A of the Insolvency and Bankruptcy Code, 2016 specified the persons not eligible to be resolution applicant. They are as under:

A person shall not be eligible to submit a resolution plan if he:

a.is an undischarged insolvent.

b.is a wilful defaulter in accordance with the guidelines of Reserve Bank of India.

c.at the time of submission of the resolution plan has an account, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949.

d.has been convicted of an offence punishable with imprisonment

i.for two or more years under any Act Specified under the Twelfth schedule of the I & B Code

ii.for seven years or more under any other law for the time being in force.

e.disqualified to act as director under the Companies Act, 2013.

f.is prohibited by SEBI from trading in securities.

g.has been a promoter or in the management or control of a corporate debtor in which preferential transactions, undervalued transaction or fraudulent transaction

has taken place.

h.has executed a guarantee in favour of a creditor in respect of a corporate debtor against which an application for insolvency resolution has been admitted.

i.is subject to any disability corresponding to stated above, under any law in a jurisdiction outside India.

j.has a connected person not eligible under clause (a) to (f) stated above.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 6(b) (Syllabus 2017).

Sec 29 A of Insolvency and Bankruptcy Code, 2016 contains list of persons who are not eligible to be resolution applicant-

(i)In terms of Clause (b) of Sec 29A, a wilful defaulter, as declared by Reserve Bank of India, can't be a resolution applicant.

(ii)In terms of Clause (c) of Sec 29A, if at the time of submission of resolution plan Mr A has an account which has been classified as non performing asset and if he is yet to repay the entire overdue amount of the loan account, he can't be an eligible resolution applicant. This prohibition does not apply to a financial entity who is not a related party of the corporate debtor.

(iii)In terms of Clause (h) of Sec 29A, if Mr B has executed a guarantee in favour of PQR Bank towards dues payable by ABC Ltd, and if Mr B hasn't paid the invoked guarantee amount, he will not be eligible to be a Resolution Applicant for ABC

Ltd.

(iv)Section 240A of the IBC stipulates that Clause (h) of Section 29A shall not apply to the resolution applicant (Mr B) in respect of Corporate Insolvency Resolution Process (CIRP) of ABC Ltd, if ABC Ltd is a Micro, Small and Medium Enterprise. In such a case, Mr B can be a resolution applicant for ABC Ltd.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6(d) (Old syllabus).