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Garib Nawaz Hotels: NCLT Chandigarh Holds CoC on for Estate Dues
The (NCLT) has delivered a significant ruling affirming that the decision to raise for discharging disputed dues payable to the falls squarely within the of the . The judgment, rendered by Judicial Member Khetrabasi Biswal and Technical Member Shishir Agarwal, underscores the limited scope of judicial intervention in insolvency proceedings and reinforces the primacy of creditor-driven commercial decisions.
The case arose from the (CIRP) of , which was admitted on , with as the sole financial creditor and the only member of the CoC. The , approved unanimously in the 11th CoC meeting, envisaged a total outlay of ₹66.20 crore and designated a consortium of Karan Grover and Akshay Grover as the Successful Resolution Applicant (SRA). A key component of the plan was the settlement of dues owed to the —dues that had become contentious due to the conversion of an industrial plot to commercial use.
Background: The Dispute
The dispute traces back to the conversion of the corporate debtor’s leasehold plot from industrial to commercial use. The initially imposed conversion charges of ₹57.94 lakh upfront and ₹5.21 crore in instalments, with interest at 8.25%. Upon default, the lease was cancelled in , and at 18% was levied. Although appellate and revisional proceedings followed, the Adviser to the Administrator, UT Chandigarh, on , conditionally restored the lease—subject to full payment of all dues with 18% interest within 45 days. This set the stage for the resolution professional’s application to raise .
The Resolution Professional (RP), Hemanshu Jetley, sought permission to raise approximately ₹10.23 crore as from the SRA to discharge the dues. He argued that settlement was essential to preserve the corporate debtor’s sole valuable asset and to enable implementation of the . The amount would consequently form part of . The CoC, in its 14th meeting, had approved raising up to ₹10 crore or the actual obligation, whichever was lower.
CoC’s Upheld
The NCLT bench observed that the decision to discharge the dues under protest—while simultaneously contesting disputed components before —was taken by PNB, holding 100% voting share, after deliberation in the 12th to 15th CoC meetings. The bench held:
“Such a decision falls within the of the CoC, which is ordinarily not open to except on the limited grounds…”
This reasoning aligns with the settled position under the , that courts and tribunals should not interfere with the business decisions of the CoC unless they are or . The bench emphasized that raising from the SRA to clear title on the sole asset was a pragmatic step, especially when the itself provided for full settlement of dues.
The Application and Opposition
The RP’s application was supported by the SRA, which offered to provide up to ₹10 crore as , to be treated as , with interest at 12% only in the event of liquidation. However, respondents—the and the Adviser—opposed any extension of time, contending that the lease stood cancelled and that the order of was conditional and could not be revived.
The suspended director, Sunil Bansal, also objected, arguing that the CoC approval was limited to ₹10 crore and that he was excluded from deliberations. He challenged the inclusion of “anticipated unearned increase” as a liability of the corporate debtor, and contended that would increase , thereby reducing recovery for stakeholders.
Legal Analysis:
Addressing these objections, the NCLT noted that the 14th CoC meeting had authorised up to ₹10 crore or the actual obligation , and the enhanced figure of ₹10.23 crore was merely the quantified demand from the . The delay due to the pendency of the application did not render it infructuous.
The bench made a crucial observation on the strategy of paying under protest while challenging disputed components:
“, coupled with a simultaneous challenge to the correctness of specific heads of the demand, is a well-recognised protective measure and does not amount to the adoption of legally inconsistent positions.”
This statement affirms that an RP or CoC may prudently clear a title-threatening liability while preserving the right to contest the amount, without being accused of . The bench further held that the correctness of the “anticipated unearned increase” component was in another matter and best left to the .
Implications for Insolvency Practice
The ruling carries significant implications for insolvency professionals and creditors. First, it reinforces the autonomy of the CoC in funding the resolution process through from the SRA, even before final plan implementation. Second, it clarifies that the CoC’s extends to making strategic payments to safeguard the corporate debtor’s assets, even if certain demands are disputed. Third, it provides a template for handling legacy government dues that threaten to derail CIRP: a two-pronged approach of and parallel litigation is legally sound.
The NCLT also dismissed objections based on alleged jurisdictional bar and operational handover. It concluded that the of ₹10.23 crore fell within the CoC’s approval, and that disputes over the unearned increase and interest rate were appropriately left for determination.
Conclusion
By allowing the application, the NCLT Chandigarh Bench has sent a clear message: judicial forums will not second-guess CoC decisions that are financially rational and aimed at maximising value. The judgment is a practical endorsement of the IBC’s objective to revive distressed companies through collaborative, creditor-led strategies. For insolvency practitioners, it serves as a reminder that proactive use of —backed by CoC consensus—can be a powerful tool to clear obstacles and keep resolution plans on track.
The case also highlights the importance of maintaining robust minutes of CoC meetings to demonstrate the deliberative process behind such decisions. With the now a step closer to implementation, all eyes will be on the proceedings concerning the disputed components of the demand. Regardless, the NCLT’s principled stand on is likely to be cited in future battles over and asset preservation during CIRP.
