The ) Bengaluru Bench has formally directed the to revisit the for Stellence Pharmscience Private Limited, citing critical compliance failures and insufficient . The bench, comprising judicial member Sunil Kumar Aggarwal and technical member Radhakrishna Sreepada, identified significant discrepancies regarding the treatment of and the integrity of the report submitted by the . This directive puts a temporary halt on the resolution process, requiring the CoC to rectify procedural lapses before the plan can be reconsidered for final approval.
The , submitted by , had previously secured unanimous support from the CoC during its 19th meeting held on . Despite the 100% voting share in favor of the proposal, the scrutinized the plan’s underlying assumptions regarding the of the . The tribunal noted that the had operated on the assumption that the company’s was insufficient to cover even the admitted financial debts, effectively concluding that the residual value available for , government dues, and employees would be nil.
In its order, the highlighted that the CoC failed to adequately deliberate on the actual , raising concerns about whether the plan meets the threshold set by . This provision mandates that resolution plans must ensure payments to are not lower than what they would receive in a liquidation scenario. The tribunal observed: “Material on record nowhere points out that RP and the CoC have deliberated on the issue in CoC meetings because SRA has made proposals based on assumption of being significantly lower than Plan Value and therefore amount payable to would be NIL.”
The court further emphasized that failing to rigorously verify these values could render the plan legally non-compliant, as it risks unfairly prioritizing the interests of certain stakeholders at the expense of . By sending the matter back to the CoC, the bench has effectively compelled the stakeholders to undertake a more transparent and evidence-based assessment of the company’s asset valuation.
Regulatory Oversight and Deficiencies
Beyond the distribution of funds, the identified a substantive flaw in the report prepared by the , . Under Regulation 36A(8) of the Corporate Insolvency Resolution Process ( ) Regulations, 2016, the is required to conduct a thorough investigation into the prospective resolution applicant to ensure compliance with the eligibility criteria set out in .
The tribunal’s review revealed that the report relied on the SRA's net worth as of . However, the only entered the on , and the formal invitation for resolution plans was issued in . The bench noted that this chronological mismatch invalidated the reliability of the report. The court stated: “The Report submitted by the Applicant is defective and violates .”
This finding underscores the tribunal's commitment to ensuring that resolution applicants are evaluated based on contemporaneous financial data rather than outdated information. By mandating a review of these processes, the aims to prevent the approval of plans that might be founded on inaccurate financial standings, thereby protecting the integrity of the insolvency resolution framework.
Balancing with Judicial Oversight
The ’s intervention in this case is framed against the backdrop of the Supreme Court's landmark judgment in , which delineated the scope of in insolvency matters. While the court acknowledged that the CoC possesses the final say regarding the " " of a , it stressed that this authority does not insulate a plan from scrutiny when is in question.
The tribunal noted that while it cannot interfere with the commercial merits of a proposal, it has a mandatory duty to ensure that the CoC has acted responsibly. If the tribunal finds that the committee has not balanced the interests of all stakeholders, it is empowered to return the plan for further deliberation. In the case of Stellence Pharmscience, the tribunal determined that the CoC’s failure to critically evaluate the SRA’s assumption of "nil" payouts for non-financial creditors amounted to a missed oversight that requires immediate correction.
This ruling serves as a reminder to resolution professionals and committees that the " " argument is not a blanket immunity against . The requirement to maximize the value of assets while addressing the interests of every stakeholder remains a primary objective that must be evidenced in the meeting minutes and the final resolution submission.
The matter is now scheduled for an update hearing on . Until that time, the duration for the has been extended, allowing the CoC the necessary window to conduct the requisite remedial actions and address the deficiencies highlighted by the tribunal. The outcome of the upcoming meeting will determine whether the current plan can be salvaged through adjustments to its payout structures and the submission of a corrected report, or if the process must be further revisited to align with the rigorous standards of the Insolvency and Bankruptcy Code. The focus for the immediate future remains on achieving a compliant, balanced resolution that satisfies the regulatory requirements mandated by the for all classes of creditors involved in the Stellence Pharmscience insolvency.
resolution plan approval - operational creditor payouts
