NCLT Hyderabad Approves Resolution Plan Under IBC S.31 Involving Merger, Upholding CoC's Commercial Wisdom - 2025-08-22

NCLT Hyderabad Greenlights Innovative Resolution Plan for Taaza International, Approving Merger and Ensuring 100% Payout to Creditors

Hyderabad, Telangana – The National Company Law Tribunal (NCLT), Hyderabad Bench, has approved a resolution plan for Taaza International Limited, which includes a strategic merger with Keto Motors Private Limited. In a significant order, the bench comprising Shri Rammurti Kushawaha (Member Judicial) and Shri Charan Singh (Member Technical) sanctioned the plan, which remarkably proposes a 100% payout to all financial and operational creditors, resulting in a zero percent haircut.

The decision underscores the tribunal's limited scope of judicial review, reaffirming the paramountcy of the Committee of Creditors' (CoC) commercial wisdom, as established by the Supreme Court.

Case Background

The Corporate Insolvency Resolution Process (CIRP) against M/s. Taaza International Limited was initiated on October 1, 2024, following an application by financial creditor M/s. MSRM International Trading Private Limited under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). Mr. Chinna Gurappa was appointed as the Resolution Professional (RP).

During the CIRP, total admitted claims amounted to ₹6.02 crores. The valuation reports presented a grim picture, assessing both the fair value and liquidation value of the company at a mere ₹0.39 lakhs.

The Resolution Plan: A Path to Revival

Despite the low liquidation value, a resolution plan submitted by Mrs. Jhansi Sanivarapu and Keto Motors Private Limited as a co-applicant was unanimously approved (100% vote) by the CoC. The plan, with a total outlay of ₹9.10 crores, stood out for its innovative approach to reviving the corporate debtor.

Key features of the approved plan include:

* Full Payment to Creditors: The plan ensures 100% payment of the admitted claims of ₹5.42 crores to the unsecured financial creditor and ₹60.12 lakhs to all operational creditors.

* Merger Scheme: The core of the revival strategy is a Scheme of Arrangement, which involves the merger of Keto Motors Private Limited (an electric vehicle manufacturer) into Taaza International Limited. Post-merger, the revived entity will be renamed M/s Keto Motors Limited.

* Payment to Shareholders: Unusually, the plan also allocates ₹2.68 crores for existing shareholders at ₹3.70 per share.

* Capital Infusion: The plan includes an infusion of ₹9.10 crores to settle CIRP costs and creditor dues, with an additional ₹5 crores earmarked for future business development.

The resolution applicants argued that the merger would create significant operational synergies, optimize costs, and facilitate strategic expansion into the electric vehicle sector, thereby unlocking far greater value than liquidation.

NCLT's Reasoning and Legal Precedents

The tribunal conducted a thorough review to ensure the plan complied with the mandatory requirements of Section 30(2) of the IBC and associated regulations. The RP, Mr. Chinna Gurappa, confirmed that the plan provided for CIRP costs in priority, treated operational creditors fairly, and outlined a clear path for its implementation and supervision.

In its order, the NCLT extensively cited landmark Supreme Court judgments, including:

* Sashidhar v. Indian Overseas Bank : Reinforcing that the NCLT's role is to verify if the plan meets the requirements of Section 30(2), and not to question the CoC's business decision.

* Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta : Emphasizing that judicial review cannot "trespass upon a business decision of the majority of the CoC."

* Vallal RCK vs M/s Siva Industries : Highlighting the need for minimal judicial interference in the framework of the IBC.

The tribunal concluded that the plan satisfied all statutory requirements and that the Resolution Applicant was eligible under Section 29A of the Code.

“...the instant resolution plan satisfies the requirements of Section 30 (2) of the Code and Regulations 37, 38, 38 (1A) and 39 (4) of the Regulations. We also find that the Resolution Applicant is eligible to submit the Resolution Plan under Section 29A of the Code.” - NCLT Hyderabad Bench

Final Decision and Implications

The NCLT formally approved the resolution plan, making it binding on all stakeholders, including the corporate debtor, its employees, members, and creditors. The moratorium under Section 14 of the IBC has been lifted, and a Monitoring Committee will be constituted to oversee the plan's implementation within the stipulated 60-day period.

This judgment serves as a strong precedent for resolution plans that employ creative corporate restructuring mechanisms like mergers to achieve a revival that is beneficial for all stakeholders, moving far beyond the liquidation value and resulting in a rare zero-haircut resolution.