NCLAT Quashes NCLT Condition Restricting Use of Rs 20 Crore In Carnival Films Resolution Plan

The National Company Law Appellate Tribunal (NCLAT) at New Delhi has set aside an NCLT Indore order that approved Carnival Films Private Limited's resolution plan but barred the use of nearly Rs. 20 crore lying in the company's bank account to pay creditors.

A bench of Judicial Member Justice Mohd. Faiz Alam Khan and Technical Member Arun Baroka said the NCLT had overstepped its jurisdiction. It noted that the NCLT had first recorded that the plan complied with Section 30(2) of the Insolvency and Bankruptcy Code and then imposed fresh conditions.

The bench said the restriction on using the existing funds was “ a clear interference in the commercial wisdom of the COC and could not be permitted to stand and is liable to be set aside.”

Carnival Films operated cinema theaters and suffered heavy losses during the Covid-19 shutdowns. Cine-Corp Filmdom Private Limited emerged as the successful resolution applicant with a plan worth Rs. 23.19 crore.

The committee of creditors approved the plan with a 93.31% vote. The plan allowed the use of funds already available with the company to settle creditor dues.

While approving the plan, the NCLT Indore directed that about Rs. 20 crore lying in the company's current account be used only for business operations.

It further held that payments to creditors should come only from fresh funds brought in by the resolution applicant. Cine-Corp challenged this change as a “manifest illegality.” The resolution professional and the committee of creditors supported the challenge.

Allowing the appeal, the NCLAT said the adjudicating authority can only test whether a plan meets legal requirements. It said that once a plan is found compliant, the NCLT cannot rewrite its financial terms.

“When a Resolution Plan, has been approved by the COC, after due deliberations exercising its commercial wisdom, it has to be accepted, unless it violates any statutory provisions as contained under Section 30, sub-section (2) of the Code.” the tribunal said.

The NCLT order was set aside, and the matter was sent back for a fresh approval order in line with the law.

For Appellant: Advocates Abhishek Anand, Karan Kohli, Palak Kalra, and Ridhima Mehrotra

For Respondents: Advocates Nakul Sachdeva, Sagar Arora, Shreyansh Rathi, Shrinkhla Tiwari and Abhinandan Sharma.