SRA Related to Sole CoC Member is Eligible Under S.29A IBC; Plan Below Liquidation Value Permissible: NCLT Mumbai - 2025-08-25

NCLT Approves Resolution Plan for Pritdip Impex, Upholds Commercial Wisdom of CoC

Mumbai, Maharashtra – The National Company Law Tribunal (NCLT), Mumbai Bench, has approved the resolution plan for Pritdip Impex (India) Private Limited, reinforcing key principles of the Insolvency and Bankruptcy Code, 2016 (IBC). In a significant order, the bench, comprising Hon’ble Shri K. R. Saji Kumar (Judicial Member) and Hon’ble Shri Anil Raj Chellan (Technical Member), held that a resolution applicant related to the sole member of the Committee of Creditors (CoC) is not barred under Section 29A of the IBC.

The tribunal also reiterated the settled legal position that a resolution plan with a value lower than the company's liquidation value can be approved, as the commercial wisdom of the CoC is paramount.

Background of the Case

The Corporate Insolvency Resolution Process (CIRP) of Pritdip Impex, a steel trading company, was initiated on November 22, 2023, following an application by an operational creditor, Steel Resources. Mr. Rajesh Ramesh Kamath was appointed as the Resolution Professional (RP).

A unique aspect of this case was the composition of the CoC, which consisted of only one member—Steel Resources, the operational creditor who initiated the insolvency proceedings. After three attempts to invite Expressions of Interest (EoI), only one resolution plan was submitted by Mr. Kushal S. Rungta. This plan was unanimously approved by the CoC with a 100% voting share.

Key Legal Questions and Tribunal's Analysis

The tribunal's approval of the plan hinged on two critical legal considerations:

1. Eligibility of the Resolution Applicant: The Successful Resolution Applicant (SRA), Mr. Kushal S. Rungta, is a partner in Steel Resources, the very firm that constituted the sole-member CoC. The tribunal examined whether this relationship disqualified him under Section 29A of the IBC, which lists ineligibility criteria for resolution applicants.

The NCLT concluded that there was no legal impediment. The judgment noted:

"...we observe that there is no bar under Section 29A of the Code for a sole operational creditor for being a resolution applicant in the corporate insolvency resolution process of a corporate debtor. The definition of the expression 'related party'... refer to persons and individuals of corporate debtors, and not in relation to operational creditors."

Since the SRA was not a related party to the Corporate Debtor, Pritdip Impex, his connection to the operational creditor was deemed irrelevant for the purpose of eligibility under Section 29A.

2. Plan Value vs. Liquidation Value: The resolution plan proposed a total outlay of Rs. 75 lakhs, from which CIRP costs would be paid first, with the remainder going to the operational creditor. This amount was significantly lower than the company's average liquidation value, which was assessed at Rs. 4.20 crore.

Addressing this disparity, the NCLT leaned on established Supreme Court precedents. The tribunal cited landmark cases like Maharashtra Seamless Limited Vs. Padmanabhan Venkatesh & Ors. and Kalpraj Dharamshi & Anr. Vs. Kotak Investment Advisors Ltd & Anr. to underscore that the adjudicating authority's role is not to question the commercial wisdom of the CoC.

The bench observed, "...there is no provision in the IBC or the regulations that the bid of a resolution applicant has to match with that of liquidation value... The Court ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis..."

As the plan was approved by 100% of the CoC and complied with the mandatory requirements of Section 30(2) of the IBC, the NCLT found no grounds to reject it based on its financial value.

Salient Features of the Approved Plan

• Financial Outlay: A total of Rs. 75 lakhs will be infused by the SRA. CIRP costs (approved at Rs. 20.25 lakhs) will be paid in priority, with the remaining amount settling the dues of the operational creditor.
• Future Management: The SRA, Mr. Kushal S. Rungta, along with Mr. Suresh Rungta, will form the new board of directors. The existing share capital of the company will be extinguished, and new shares will be issued.
• PUFE Transactions: A pending application for fraudulent transactions amounting to Rs. 9.27 crore against the former director, Mr. Deepak Dahyalal Mavani, will be pursued by the SRA. Any amount recovered will be for the benefit of the revived company.
• Clean Slate: The order grants a "clean slate" to the company, extinguishing all prior claims, dues, and liabilities not included in the resolution plan, in line with the Supreme Court's ruling in Ghanshyam Mishra and Sons .

Final Decision and Implications

The NCLT allowed the application and approved the resolution plan submitted by Mr. Kushal S. Rungta. The moratorium under Section 14 of the IBC has been lifted, and the RP has been directed to hand over the company's records and assets to the SRA. The order provides a pathway for the revival of Pritdip Impex, preventing its liquidation and preserving it as a going concern, thereby fulfilling the primary objective of the IBC.