Introduction
In a significant reaffirmation of the primacy of the Insolvency and Bankruptcy Code, 2016 (IBC), the Supreme Court in Noida Special Economic Zone Authority v. Manish Agarwal & Ors. clarified the treatment of statutory and leasehold dues within resolution plans. The Court ruled that once a resolution plan is approved under the IBC, any statutory dues or leasehold charges not forming part of the plan stand extinguished. The judgment also clarified the limited judicial review available over the commercial wisdom of the Committee of Creditors (CoC).
1. Factual Background and Procedural History
Shree Bhoomika International Ltd., the corporate debtor, had been sub-leased a plot in the Noida Special Economic Zone (NSEZ) in 1995. It defaulted on lease payments from 1999 and ceased operations around 2003–04. The Noida SEZ Authority (NOIDA SEZ), acting as an operational creditor, initiated CIRP under Section 9 of the IBC before the NCLT.
Upon admission of the application on 11 July 2019, the IRP constituted the CoC with the Stressed Assets Stabilization Fund (IDBI Bank) as the sole financial creditor. The RP admitted NOIDA SEZ’s claim of ₹6.29 crores.
A resolution plan by Commodities Trading was submitted and approved by the CoC on 6 January 2020. The NCLT approved the plan on 5 October 2020, allocating only ₹50 lakhs to NOIDA SEZ. A subsequent application by NOIDA SEZ to revise this amount was dismissed. The NCLAT upheld the NCLT’s decision on 14 February 2022. NOIDA SEZ then appealed to the Supreme Court.
2. Identification of Legal Issues
The Supreme Court addressed the following legal issues:
- Whether the CoC can approve a resolution plan that allocates a lesser amount to an operational creditor than its admitted dues.
- Whether lease charges and statutory dues claimed by a SEZ Authority are extinguished if not fully incorporated in the resolution plan.
- Whether valuation under CIRP without physical inspection violates the IBC regulations.
- Whether a resolution plan can direct a statutory body (like SEZ) to waive charges or fees contrary to governing legislation.
3. Arguments of the Parties
Appellant (NOIDA SEZ Authority):
- Challenged the approval of the resolution plan allocating only ₹50 lakhs against its admitted dues of ₹6.29 crores.
- Argued that auction and valuation processes were conducted without its participation and in violation of IBBI regulations (particularly Regulation 35).
- Contended that Clause 10.9 of the plan sought to override SEZ Rules by waiving fees and penalties, which was impermissible under the SEZ Act, 2005.
- Claimed the CoC ignored statutory claims and unlawfully subordinated them to financial creditors.
Respondents (RP, Resolution Applicant, CoC):
- Argued that the resolution plan was approved as per due process, including fair valuation by two registered valuers.
- Cited precedents affirming the CoC’s commercial wisdom, including Essar Steel, Ghanashyam Mishra, and K. Sashidhar.
- Emphasized the overriding effect of Section 238 of the IBC over other laws, including the SEZ Act.
- Stated that the resolution plan had already been implemented, with payment made via demand draft in 2020.
4. Court’s Analysis and Reasoning
a. CoC’s Commercial Wisdom Prevails
The Court upheld the principle that the distribution of proceeds under a resolution plan falls squarely within the domain of the CoC. Citing Essar Steel and K. Sashidhar, the Court reaffirmed that:
“Courts shall not interfere with the commercial wisdom of the CoC except on grounds set out in Section 30(2) of the IBC.”
Since no such violation was demonstrated, judicial review was not warranted.
b. Statutory Dues Not in Resolution Plan Stand Extinguished
The Court noted that as per Ghanashyam Mishra and Maharashtra Seamless, statutory dues owed to governments or authorities not provided for in the plan stand extinguished once the plan is approved.
The Court emphasized:
“All the dues including statutory dues… which is not the part of the Resolution Plan shall stand extinguished.”
c. Validity of Valuation Process
The Court held that valuation is a question of fact, relying on Duncans Industries. Both valuers’ estimates were averaged, and although physical inspection was not conducted, the Court found no procedural violation serious enough to vitiate the process.
d. SEZ Act Cannot Override IBC
On Clause 10.9, which dealt with waiver of penalties or fees by the NSEZ, the Court invoked Section 238 of the IBC to hold that the IBC overrides inconsistent provisions of the SEZ Act.
“Section 238 provides for the IBC to have overriding effect over other laws… SEZ Act, 2005 must give way.”
Since NOIDA SEZ had already received the ₹50 lakh and the plan had been implemented, the Court saw no reason to intervene.
5. Final Conclusion and Holding
The Supreme Court dismissed the appeals, holding that:
- The approved resolution plan, allocating only a portion of the admitted dues to an operational creditor, cannot be challenged once approved by the CoC and implemented.
- Statutory claims by authorities not included in the plan stand extinguished upon plan approval.
- IBC overrides conflicting laws, including the SEZ Act.
The Court reiterated:
“Financial decisions of the CoC, especially relating to viability… shall prevail.”
FAQs:
1. Can a resolution plan under IBC allocate less than full dues to operational creditors?
Yes. The IBC permits differential treatment of operational and financial creditors, and courts will not interfere unless there is a violation of Section 30(2).
2. Do statutory dues survive after approval of a resolution plan?
No. As per the Supreme Court, statutory dues not forming part of an approved resolution plan stand extinguished and cannot be enforced thereafter.
3. Can SEZ rules override an IBC resolution plan?
No. The IBC has overriding effect under Section 238, and any conflicting provisions in other laws, including the SEZ Act, are rendered inoperative.
4. Is physical inspection mandatory in valuation under IBC?
Preferably yes, but lack of physical inspection alone does not invalidate valuation if overall procedure is followed and valuations are reasonable.
5. Can courts alter a resolution plan approved by the CoC?
No. Courts have limited power to interfere and cannot question the commercial wisdom of the CoC unless the plan violates statutory provisions under IBC.
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