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NCLAT Holds Resolution Applicant's Death Before Plan Approval Not Ground for , Revives Genius Exports CIRP
Death of Resolution Applicant Not a Ground for ; Directs Consideration of
In a landmark ruling that fills a in insolvency law, the , New Delhi, has held that the death of a resolution applicant before the approval of a by the does not, by itself, justify the of the corporate debtor. The Bench of Justice N. Seshasayee (Member Judicial) and Indevar Pandey (Member Technical) set aside the order passed by the against and revived its . The tribunal also directed the to consider the pending application under for withdrawal of the CIRP, which was based on a settlement between the sole operational creditor and the suspended director.
Death of Resolution Applicant: A '' in the IBC
The insolvency proceedings of were progressing towards a successful resolution when the , comprising only the operational creditor Arun Kumar Singh (Proprietor of ), approved a submitted by Digvijay Nath Tripathi on . While the plan was pending approval before the , Tripathi died on .
Thereafter, the operational creditor and the suspended director of the corporate debtor reached a settlement. At the 25th CoC meeting, a resolution was passed to withdraw the CIRP under Section 12A of the IBC. The filed an application for withdrawal on . However, the , while considering both the application for approval of the plan and the withdrawal application, rejected the as unimplementable due to the death of the resolution applicant, ordered under , and dismissed the Section 12A application as infructuous.
Settlement and Section 12A: An Denied
The operational creditor appealed the order, arguing that the plan was not rejected for any illegality but only due to the death of the applicant. The appellant contended that the proper course was to issue a fresh and invite new resolution plans, not to order . It further argued that since the parties had reached a settlement, the ought to have kept the corporate debtor alive rather than ordering . The Resolution Professional also appealed, challenging the appointment of a liquidator of the court's choice instead of allowing him to continue.
The NCLAT found merit in these submissions. It noted that the had mechanically dismissed the Section 12A application without considering that a legitimate was available to the parties. The tribunal observed that the settlement between the operational creditor and the suspended director provided a clear basis for withdrawal, and the should have seized the opportunity to preserve the corporate debtor rather than ordering .
Court's Analysis: Not a Mechanical Response
The NCLAT delivered a detailed analysis on the effect of the death of a resolution applicant. It rejected the
's characterization of a resolution applicant as holding an 'office' with non-heritable obligations. Instead, the tribunal held that a resolution applicant is more akin to
"a
through an
as in an
"
and is not an office-holder.
The tribunal clarified that Section 33(1) of the IBC permits only under two circumstances: where no is received within the CIRP period, or where a approved by the CoC is rejected by the under . The death of a resolution applicant is not a statutory ground for . The tribunal emphasized that is a measure of and that the Code prioritizes the sale of the corporate debtor as a .
The judgment identified a "" in the Code regarding the death of a resolution applicant. To address this, the NCLAT held that where the (RFRP) and the do not provide for such a contingency, under can be invoked to direct the CoC to consider alternatives, including allowing the heirs of the deceased resolution applicant to implement the plan, subject to their qualifications and absence of disqualification under .
Key Observations from the Judgment
The tribunal made several powerful observations that underscore the philosophy of the IBC:
" is of the corporate assets for free sale in the market whereas CIRP requires of the corporate debtor by saving its body and life - the business of the corporate debtor."
"When death is an inevitable and inescapable incidence of every life, should the objective of the Code to keep alive the business of the corporate debtor be sacrificed merely because the Code has left a blank space in negotiating the death of the resolution applicant? It will be a startling, if not a baffling experience, in law and logic if the Code were to be understood as enabling any such extravagant interpretation."
"The ought to have paused, no matter how it has chosen to deal with the , for is of the corporate assets for free sale in the market whereas CIRP requires of the corporate debtor."
The tribunal described the issue as a
"
in the IBC terrain"
and stressed that it could not be reduced to
"a kindergarten story of an 'Elephant and Five blindmen'."
Final Decision
Allowing the appeals filed by the operational creditor (), the NCLAT set aside the order of dated passed by the . The CIRP of was revived, and the was directed to consider filed under Section 12A of the Code for withdrawal of the CIRP in accordance with law. The appeals filed by the Resolution Professional () were closed as infructuous, with the tribunal noting that resolution professionals have no vested right to continue in office. The decision reinforces the primacy of the CIRP over and provides a roadmap for dealing with the death of a resolution applicant, filling a critical gap in the insolvency framework.
