Section 114(3) IBC Discretion to Reconsider Repayment Plans is Not Obligatory Absent Sufficient Justification

The Appellant was the promoter of the Nithin Group of Companies and a personal guarantor for loan facilities availed from the Bank of India.

Proceedings under Section 94 of the Insolvency and Bankruptcy Code (IBC), 2016, were initiated and admitted on 02.12.2019.

The Appellant submitted a repayment plan offering Rs. 68.84 lakhs against total outstanding dues exceeding Rs. 106 crores.

Although the Appellant’s assets were valued at only Rs. 36.93 lakhs by the Resolution Professional (RP), the Bank of India—holding 71.22% of the voting shares—rejected the plan in the meeting of creditors on 31.03.2022.

The National Company Law Tribunal (NCLT), Amaravati Bench, accepted the RP’s report regarding the rejection on 17.03.2023.

The Appellant challenged this order, contending that the NCLT failed to exercise its discretion under Section 114(3) of the IBC to direct reconsideration of the plan.

1. Whether the Adjudicating Authority is obligated under Section 114(3) of the IBC to direct the reconsideration of a repayment plan rejected by the creditors if the offer exceeds the debtor's asset valuation.

2. Whether the commercial decision of the Financial Creditors to reject a repayment plan can be interfered with by the Adjudicating Authority in the absence of arbitrary conduct.

Section 114 of the Insolvency and Bankruptcy Code, 2016, which governs the Adjudicating Authority's orders on repayment plans.

Section 114(3) provides that the Authority may direct the RP to reconvene a meeting for reconsideration if it is of the "opinion that the repayment plan requires modification".

The court also reaffirmed the principle that no legal obligation can be cast on a Financial Creditor to accept a resolution or repayment plan unless the decision is shown to be arbitrary.

The Court observed that while Section 114(3) is an enabling provision granting the NCLT discretion to direct reconsideration, such power is "hedged" by the requirement that the Authority must first form a specific opinion that the plan requires modification.

In the present case, the court found the gap between the Appellant’s offer (Rs. 68.84 lakhs) and the total dues (over Rs. 106 crores) to be "too wide," representing less than 1% of the admitted debt.

The Court reasoned that the mere fact that a repayment plan offers a value higher than the debtor’s liquidated asset value does not automatically necessitate its acceptance or a direction for reconsideration.

The commercial wisdom of the Bank (holding 71.22% voting share) in rejecting the plan after due deliberation was held to be paramount, and the Appellant failed to demonstrate any arbitrary interference that would warrant judicial review.

The NCLAT dismissed the appeal, upholding the NCLT's order.

The court concluded that there were no sufficient grounds or apparent circumstances on record to mandate the exercise of discretionary power to interfere with the creditors' decision.