IBC Section 30(5) | Financial Creditor as Resolution Applicant Permitted to Vote on Own Plan : NCLAT Overrules NCLT Conflict of Interest Bar

The National Company Law Appellate Tribunal has affirmed that a financial creditor may act as a resolution applicant and vote on its own resolution plan under the Insolvency and Bankruptcy Code, 2016, overturning a lower tribunal’s rejection based on alleged conflict of interest. This ruling reinforces the statutory framework governing creditor participation in corporate insolvency resolution and clarifies the limits of judicial review over commercial decisions of the Committee of Creditors.

Background & Facts

The Dispute

The Corporate Debtor, KSS Limited, a listed company engaged in film distribution, underwent Corporate Insolvency Resolution Process (CIRP) after a petition under Section 7 of the IBC was admitted by the National Company Law Tribunal (NCLT), Mumbai, on 24.01.2023. The appellant, Micro Capitals Private Limited, a Non-Banking Financial Company registered with the Reserve Bank of India, was the largest financial creditor with an admitted claim of approximately Rs. 95.59 crores and a 77.97% voting share in the Committee of Creditors (CoC). It submitted the only resolution plan on 14.06.2023, which was approved by the CoC in its 7th meeting held on 17.10.2023. The NCLT rejected the plan on 24.03.2025, citing multiple grounds including conflict of interest, inadequate funding, non-compliance with statutory dues, and procedural deficiencies.

Key Facts

• KSS Limited was incorporated on 06.09.1995 and listed on NSE and BSE.
• The CIRP was initiated on 24.01.2023 after admission of Section 7 petition by Micro Capitals Private Limited.
• Admitted financial claims totaled approximately Rs. 95.59 crores (Micro Capitals) and Rs. 27.12 crores (Axis Bank), with total admitted claims exceeding Rs. 106 crores.
• Two registered valuers assessed the Fair Value at Rs. 3.21 crores and Liquidation Value at Rs. 2.52 crores.
• Eight Expression of Interest (EOI) applications were received; only Micro Capitals submitted a resolution plan.
• The Enforcement Directorate had sealed the Corporate Debtor’s premises during investigation, but de-sealing was underway by 07.09.2023.
• The Resolution Plan proposed total payment of Rs. 3.01 crores, comprising:
  • Rs. 2.65 crores to unsecured financial creditors
  • Rs. 35 lakhs towards CIRP costs
  • Rs. 1 lakh as ex-gratia to operational creditors
• Clause 2.3(vi) and Clause 4.20.4(b) of the plan provided for infusion of Rs. 5 crores within six months and Rs. 5 crores within twelve months as working capital, plus Rs. 3 crores via a Special Purpose Vehicle through equity subscription.
• Clause 4.3.3(1) and Clause 4.4 provided that dissenting financial creditors (Axis Bank, 22.07% voting share) would be paid not less than the liquidation value and in priority to assenting creditors.
• The Resolution Professional filed I.A. (IBC) (PLAN) No. 04 of 2024 under Section 30(6) seeking approval of the plan.

Procedural History

• 24.01.2023: NCLT admitted Section 7 petition and initiated CIRP; Mr. Dharmendra Dhelariya appointed as Interim Resolution Professional (later confirmed).
• 30.01.2023: Public announcement issued inviting claims.
• 17.10.2023: 7th CoC meeting approved Resolution Plan with 77.97% voting support.
• 14.06.2023: Resolution Plan submitted by Micro Capitals Private Limited.
• 29.08.2024: Arguments concluded before NCLT; order reserved.
• 24.03.2025: NCLT rejected Resolution Plan on seven grounds including conflict of interest, non-infusion of funds, non-compliance with Section 30(2)(b), omission of assets, Form-H discrepancies, non-filing of CoC minutes, and improper treatment of statutory dues.
• 12.04.2025: Company Appeal (AT) (Ins.) No. 714 of 2025 filed by Micro Capitals Private Limited.
• 12.04.2025: Company Appeal (AT) (Ins.) No. 721 of 2025 filed by Resolution Professional Dharmendra Dhelariya challenging adverse remarks.
• 30.06.2026: NCLAT delivered judgment.

The Parties' Positions

For the Appellant (Micro Capitals Private Limited)

• Argued that Section 30(5) proviso explicitly permits a financial creditor to be a resolution applicant and vote on its own plan.
• Contended that the CoC’s approval was valid, and judicial review under Section 31 is limited to compliance with Section 30(2) and CIRP Regulations.
• Cited Clause 2.3(vi) and Clause 4.20.4(b) to prove genuine fund infusion.
• Asserted that dissenting creditor treatment complied with Section 30(2)(b) and Regulation 38(1)(b).
• Rejected NCLT’s reliance on State Tax Officer v. Rainbow Papers as inapplicable, citing Paschimanchal Vidyut and Sundresh Bhatt to establish that statutory dues are unsecured under IBC’s waterfall mechanism.
• Argued that Form-H’s “Yes” entry was correctly interpreted as compliance with Regulation 38(1B).
• Highlighted that Rs. 2.65 crores (unsecured financial creditors) and Rs. 3.01 crores (total outlay) were reconcilable.
• Stated that rented premises need not be included as assets.
• Cited Midpoint Commodeal Pvt. Ltd. v. Neha Chhawchharia as directly analogous precedent.

For the Respondents (Customs, SEBI, Income Tax)

• Argued that the resolution plan violated Section 30(2)(b) by allocating only Rs. 1 lakh collectively to statutory and operational creditors despite claims exceeding Rs. 23 crores (Customs) and significant SEBI penalties.
• Contended that the financial creditor’s dual role as CoC member and resolution applicant violated nemo judex in causa sua.
• Relied on Rainbow Papers to assert that statutory dues under Customs Act and SEBI Act constitute secured claims.
• Alleged lack of feasibility and viability due to absence of operational expertise and failure to produce minutes of CoC meetings 2 - 6, Information Memorandum, and RFRP.
• Claimed the plan was a self-serving arrangement to extinguish liabilities and benefit the dominant creditor.
• Asserted that the Resolution Professional failed in his duty to ensure transparency.

Relief Sought

• Micro Capitals sought setting aside of the NCLT’s order dated 24.03.2025 and approval of its resolution plan.
• Resolution Professional sought expunging of adverse remarks in paragraphs 4, 12 - 17 of the impugned order.
• Both appellants sought costs and direction for consequential orders within one month.

The Legal Issue

Can a financial creditor, who is also the sole resolution applicant and holds a majority voting share in the Committee of Creditors, validly vote on its own resolution plan under Section 30(5) of the Insolvency and Bankruptcy Code, and does such participation vitiate the process under the doctrine of nemo judex in causa sua?

Arguments Presented

For the Appellant/Petitioner

The appellant relied on the express language of the proviso to Section 30(5) of the IBC, which permits a resolution applicant who is also a financial creditor to vote on its own plan. It argued that the CoC’s approval was procedurally valid, with requisite majority, and that judicial review under Section 31 is confined to statutory compliance, not commercial wisdom. The appellant demonstrated that the plan provided for genuine fund infusion through working capital and SPV equity subscription, and that dissenting creditors were accorded priority and liquidation value protection under Clause 4.3.3(1). It further contended that statutory authorities like Customs and SEBI are unsecured operational creditors under Section 53, as clarified in Sundresh Bhatt and Paschimanchal Vidyut, and that the NCLT’s reliance on Rainbow Papers was misplaced. The appellant cited Midpoint Commodeal as binding precedent where a similar plan was approved despite 99.87% voting control by the resolution applicant.

For the Respondent/State

The respondents contended that the resolution plan was inherently biased and violated the principle of nemo judex in causa sua, as the dominant creditor effectively controlled both the approval and beneficiary roles. They argued that the plan’s allocation of Rs. 1 lakh to statutory creditors with claims exceeding Rs. 23 crores was arbitrary and violated Section 30(2)(b). They relied on Rainbow Papers to assert that statutory dues under the Customs Act and SEBI Act constitute secured claims. They further alleged that the absence of CoC minutes, Information Memorandum, and RFRP rendered the process opaque and non-compliant with Regulation 39(4). They contended that the resolution applicant lacked operational expertise in film distribution and that the proposed fund infusion was illusory, as funds would ultimately benefit the same entity. They asserted that the NCLT’s rejection was justified to protect public interest and statutory integrity.

The Court's Analysis

The NCLAT undertook a rigorous statutory interpretation of Section 30(5) and its proviso, holding that the legislature had deliberately created an exception to the general prohibition on self-voting. The Court observed: > "The provision is very much part of the statute and Ld. Adjudicating Authority has failed to take it in consideration, while examining the application for approval of Resolution Plan, which in our view, is a grave error." The Court emphasized that the proviso was the product of detailed deliberations by the Bankruptcy Law Reforms Committee and cannot be overridden by judicial doctrines absent statutory conflict.

The Tribunal distinguished State Tax Officer v. Rainbow Papers by noting that the judgment applied only to Section 48 of the Gujarat VAT Act, which created an explicit first charge. In contrast, Section 142A of the Customs Act expressly subjects its charge to the IBC under Section 238, which mandates that the Code overrides inconsistent laws. The Court relied on Sundresh Bhatt to hold that statutory dues of Customs, Income Tax, and SEBI are unsecured operational creditors under Section 53(1)(e)(i), and cannot be elevated to secured status.

Regarding the dissenting creditor’s treatment, the Court found that Clause 4.3.3(1) and Clause 4.4 of the plan clearly provided for payment not less than liquidation value and priority over assenting creditors. The Court accepted the appellant’s clarification that payment would be made within 30 days of the effective date, resolving the ambiguity noted by the NCLT.

On feasibility and viability, the Court held that the CoC had duly deliberated, as evidenced by the minutes of the 7th meeting, and that Clause 3.4(b) and 3.4(e) of the plan provided sufficient projections and experience to satisfy Regulation 38(3). The Court reiterated: > "The commercial wisdom of the CoC is supreme and judicial authorities should not substitute their own judgment over the commercial wisdom of the CoC."

The Court dismissed the NCLT’s findings on Form-H compliance, noting that the “Yes” entry in the compliance column correctly indicated adherence to Regulation 38(1B), as confirmed by Clause 3.5 of the plan. The alleged discrepancy between Rs. 2.65 crores and Rs. 3.01 crores was explained as the difference between unsecured creditor payments and total outlay, including CIRP costs and ex-gratia.

The Court also held that the rented premises, disclosed in the first CoC meeting, need not be included as an asset. Finally, the Court found no merit in the adverse remarks against the Resolution Professional, noting that all objections were based on misinterpretations of the plan and statutory provisions.

The Verdict

The NCLAT allowed both appeals, set aside the NCLT’s order dated 24.03.2025, and approved the resolution plan submitted by Micro Capitals Private Limited. The Tribunal directed the NCLT to pass consequential orders within one month of the judgment date. The plan’s total value of Rs. 3.01 crores was upheld, with dissenting financial creditor Axis Bank entitled to payment not less than the liquidation value of Rs. 2.52 crores in priority within 30 days of the effective date. The Resolution Professional’s adverse remarks were expunged. The parties were directed to bear their own costs.

What This Means For Similar Cases

Financial Creditor as Resolution Applicant Is Legally Valid

• Practitioners may now confidently structure resolution plans where financial creditors are also applicants, provided they comply with Section 30(5) proviso.
• The doctrine of nemo judex in causa sua cannot override express statutory provisions permitting such participation.
• CoC voting patterns, even with 90%+ control by the applicant, are not per se invalid if the plan satisfies Section 30(2) and CIRP Regulations.

Statutory Dues Are Unsecured Under IBC Waterfall

• Claims by Income Tax, Customs, and SEBI must be treated as unsecured operational creditors under Section 53(1)(e)(i), not secured creditors.
• Reliance on Rainbow Papers is now legally untenable in IBC proceedings; practitioners must cite Sundresh Bhatt and Paschimanchal Vidyut to oppose elevation of statutory dues.
• Resolution plans may allocate statutory dues proportionally under Section 53 without violating public interest, provided the liquidation value threshold is met.

Judicial Review Is Limited to Statutory Compliance

• Courts and tribunals cannot substitute their view on feasibility, viability, or commercial wisdom unless there is a clear breach of Section 30(2) or CIRP Regulations.

• Failure to file CoC minutes prior to the approval meeting does not invalidate a plan if the minutes of the approving meeting are submitted.

• Form-H compliance must be assessed on its face; minor clerical ambiguities should not lead to rejection if the underlying plan is compliant.

• Practitioners must ensure resolution plans explicitly state: (i) fund infusion mechanisms, (ii) priority and minimum payment to dissenting creditors, and (iii) compliance with Regulation 38(1B) via Clause 3.5.

• Resolution Professionals must document all disclosures to CoC, especially regarding asset status (e.g., leased premises), to preempt judicial criticism.