NCLAT Clarifies Continuance of IBC Resolution Plans Upon Applicant’s Death

The National Company Law Appellate Tribunal (NCLAT) has provided a significant ruling on the fate of resolution plans under the Insolvency and Bankruptcy Code (IBC) when the resolution applicant dies before plan approval. In the matter of Arun Kumar Singh v. Genius Exports, the tribunal concluded that such plans do not automatically become invalid due to the applicant’s death.

This clarification came from a Bench comprising Judicial Member Justice N. Seshasayee and Technical Member Indevar Pandey. The Bench acknowledged that the IBC does not specifically address the scenario of an applicant’s death, identifying it as a “blind spot” in the current legislation.

The case involved insolvency proceedings for Genius Exports Private Limited. A resolution plan submitted by Digvijay Nath Tripathi had been approved by the Committee of Creditors (CoC) in May 2022 and awaited approval from the National Company Law Tribunal (NCLT). However, Tripathi passed away in September 2024 before attaining such approval. The NCLT subsequently rejected the plan, stating that the responsibilities of a resolution applicant are neither transferable nor inheritable, prompting an order for the liquidation of the company.

Disagreeing with this decision, the NCLAT emphasized that a resolution applicant differs from statutory positions like a resolution professional or a liquidator. The tribunal noted that the death of a resolution applicant is not included in Section 33(1) of the IBC as a cause for liquidation. The ruling highlighted the importance of preserving the company’s viability, stating, “Liquidation is the amputation of corporate assets for free sale in the market, whereas the CIRP requires preserving the soul of the corporate debtor by saving its body and life – the business of the corporate debtor.”

Offering guidance on handling such situations, the NCLAT advised that if the request for a resolution plan or the plan itself includes a provision for the applicant’s death, that provision should be followed. In the absence of such a clause, the CoC should reassess the plan’s viability. Additionally, the deceased applicant’s heirs may be considered, but they do not possess an automatic right to assume the plan. The CoC must evaluate whether the heir has the requisite experience, meets the eligibility criteria under Section 29A of the IBC, and is prepared to fulfill the plan’s obligations on the original terms.

In this specific instance, the NCLAT recognized that a settlement had been reached between the suspended director and the sole member of the CoC, and a withdrawal application for the insolvency proceedings had been filed. Consequently, the tribunal annulled the liquidation order, reinstated the corporate insolvency resolution process, and instructed the NCLT to consider the withdrawal application.

Representing the operational creditor Arun Kumar Singh were Advocates Deep Bisht and Astitwa Kumar. Advocate Shubham Budhiraja appeared for the former resolution professional Parag Singhal, and Advocate Sujal Bhatt represented respondent Nripendra Kumar Tripathi.