The National Company Law Appellate Tribunal has clarified that surplus cash flows generated during the Corporate Insolvency Resolution Process (CIRP), when not expressly addressed in the approved Resolution Plan, do not vest in the Successful Resolution Applicant but must be distributed among financial creditors under Section 53 of the Insolvency and Bankruptcy Code. This ruling reinforces the primacy of statutory distribution mechanisms over implied entitlements in insolvency proceedings.
Background & Facts
The Dispute
The dispute centers on the ownership of approximately Rs. 1.42 crore in surplus cash flows generated by Deegee Cotsyn Pvt. Ltd. (Corporate Debtor) during its CIRP period from 26.02.2019 to 11.03.2022. The Appellant, M/s Manjeet Cotton Pvt. Ltd., as the Successful Resolution Applicant, claimed entitlement to this surplus under the approved Resolution Plan. The Respondent, Phoenix ARC Pvt. Ltd. (Financial Creditor), contended that the surplus, being generated during CIRP and not contemplated in the Plan, formed part of the insolvency estate and must be distributed under Section 53 of the IBC.
Key Facts
- The Corporate Debtor had outstanding financial debt of Rs. 28,05,66,577/- as of 31.03.2018, classified as a Non-Performing Asset since 31.12.2014.
- On 29.06.2015, UCO Bank assigned its debt and security interests to Phoenix ARC Pvt. Ltd., acting as trustee of Phoenix Trust FY 16-4.
- The Adjudicating Authority admitted the Section 7 petition on 26.02.2019, initiating CIRP and appointing an Interim Resolution Professional.
- Admitted claims totaled Rs. 164,27,31,562/- as per the Information Memorandum dated May 2019, which recorded the Corporate Debtor’s cash balance at Rs. 43,87,046/-.
- Seven Resolution Applicants expressed interest; three submitted plans. The Appellant’s plan was approved by the Committee of Creditors (CoC) on 16.11.2019 with 67.54% voting share, including 22.23% from the Respondent.
- The approved Resolution Plan, dated 02.11.2019 and sanctioned on 11.03.2022, provided for 31.5% repayment to financial creditors (Rs. 3100 lakhs) and contained no clause addressing surplus cash flows generated during CIRP.
- Clause 3.9.5 mentioned margin money and fixed deposits as part of company assets but did not reference CIRP-generated surplus.
- Clause 3.9.8 permitted the Resolution Professional to use surplus cash flow for foreclosure of dues without prepayment charges, but conferred no ownership rights.
- Clause 4.1(ii) extinguished all claims not provided for in the Plan but did not define the scope of assets transferred.
- The surplus of Rs. 1.42 crore was generated between 01.11.2019 and 11.03.2022 under the control of the Resolution Professional, with no contribution from the Appellant.
- The surplus was parked in fixed deposits and identified as part of the Corporate Debtor’s cash and cash equivalents.
- The Appellant took over management on 11.03.2022 and infused Rs. 16 crores as working capital post-approval.
- The Respondent filed I.A. No. 1393 of 2022 on 17.05.2022 seeking distribution of the surplus under Section 53.
- The Adjudicating Authority allowed the application by order dated 03.09.2025.
Procedural History
- 26.02.2019: CIRP initiated by NCLT Mumbai upon Section 7 application.
- 16.11.2019: CoC approved Appellant’s Resolution Plan.
- 11.03.2022: NCLT Mumbai approved Resolution Plan under Section 31.
- 17.05.2022: Respondent filed I.A. No. 1393 of 2022 seeking surplus distribution.
- 03.09.2025: NCLT Mumbai ordered distribution of surplus under Section 53.
- 27.04.2026: NCLAT delivered judgment on Appeal No. 1676 of 2025.
The Parties' Positions
- Appellant (M/s Manjeet Cotton Pvt. Ltd.): Argued that Clause 3.9.5 and 4.1(ii) of the Resolution Plan transferred all assets, including accretions and cash balances, to the Resolution Applicant. Contended that the surplus was an accretion to the Corporate Debtor’s assets and thus vested upon approval of the Plan. Relied on Ebix Singapore, Essar Steel, and Ghanshyam Mishra to assert finality of the Plan.
- Respondent (Phoenix ARC Pvt. Ltd.): Argued that the Resolution Plan was silent on surplus treatment. Contended that the surplus was generated during CIRP under the Resolution Professional’s control, without Appellant’s involvement, and thus remained part of the insolvency estate. Asserted that Section 53 governs distribution in absence of contractual provision. Relied on Kalyan Janata Sahakari Bank Ltd. v. Arun Kapoor and statutory scheme.
Relief Sought
The Appellant sought to set aside the NCLT’s order dated 03.09.2025 and declare that the surplus amount of Rs. 1.42 crore vests in the Appellant as part of the Corporate Debtor’s assets transferred under the approved Resolution Plan. The Respondent sought dismissal of the appeal and confirmation of the distribution order.
The Legal Issue
The central question was whether surplus cash flows generated during the Corporate Insolvency Resolution Process, which are neither contemplated nor addressed in the approved Resolution Plan, vest in the Successful Resolution Applicant under the general transfer clauses of the Plan, or must be distributed among financial creditors in accordance with Section 53 of the Insolvency and Bankruptcy Code.
Arguments Presented
For the Appellant
The Appellant contended that Clause 3.9.5 of the Resolution Plan, which states that "margin money and fixed deposits, if any, shall continue to be part of the company's asset," and Clause 4.1(ii), which provides for transfer of the Corporate Debtor "as a going concern" with all assets, cash balances, and business operations, collectively vest all accretions - including surplus cash flows - in the Resolution Applicant. It argued that the surplus, being generated from the Corporate Debtor’s operations during CIRP, is an accretion to its assets and thus automatically transferred upon approval of the Plan under Section 31. The Appellant relied on Ebix Singapore v. CoC of Educomp Solutions Ltd. to assert the binding and irrevocable nature of approved Resolution Plans, and on Essar Steel to argue that profits generated during CIRP may be retained by the Resolution Applicant if the Plan so permits. It further contended that the mere fact that the surplus was parked in fixed deposits confirmed its character as an asset of the Corporate Debtor.
For the Respondent
The Respondent countered that the Resolution Plan contained no provision addressing surplus cash flows generated during CIRP. Clause 3.9.8 only permitted the Resolution Professional to use surplus for foreclosure of dues, without conferring ownership on the Appellant. The Respondent emphasized that the surplus was generated entirely under the control of the Resolution Professional, prior to the Appellant’s takeover, and without any financial or operational input from the Appellant. It argued that in the absence of any contractual stipulation, Section 53 governs distribution of insolvency estate assets. The Respondent relied on Kalyan Janata Sahakari Bank Ltd. v. Arun Kapoor to assert that financial creditors, who bore haircuts and funded operations during CIRP, are entitled to such surplus. It further contended that treating the surplus as part of the transferred assets would result in unjust enrichment of the Appellant and undermine the statutory distribution mechanism.
The Court's Analysis
The NCLAT undertook a meticulous textual and contextual analysis of the Resolution Plan and the statutory framework under the IBC. The Tribunal emphasized that a Resolution Plan is a binding commercial contract, but its binding nature is confined to what is expressly agreed upon. The Court observed that the Plan’s silence on surplus cash flows was not an oversight but a deliberate omission, as the surplus was neither quantified in the Information Memorandum nor presented to the CoC for approval.
"The crucial factor here is that this surplus was generated during the CIRP period, when the Corporate Debtor was under the control of the Resolution Professional and was being run under the oversight of CoC. The Appellant had no role in generating this surplus, nor had it taken any operational or financial risk during that period."
The Tribunal rejected the Appellant’s argument that the surplus constituted an "accretion" under Clause 3.9.5. It clarified that the reference to "fixed deposits" in that clause pertained to pre-CIRP margin money or deposits, not operational surpluses generated during CIRP. The Court further held that Clause 4.1(ii), which extinguishes claims not provided for in the Plan, does not operate to transfer assets not contemplated in the Plan - it only extinguishes liabilities. The absence of any mention of surplus in the Plan meant it could not be impliedly included.
The Court distinguished Essar Steel, noting that the Supreme Court’s observation in that case was based on an express contractual provision in the RFP excluding surplus from creditor distribution. In the present case, no such clause existed. Similarly, Ghanshyam Mishra was held inapplicable as it dealt with extinguishment of pre-CIRP claims, not treatment of CIRP-generated value. The Tribunal also distinguished its own earlier decision in SPS Steels, which concerned undisclosed pre-existing assets, from the present case involving value created during CIRP.
The Court underscored that the legal character of funds depends on their origin, not their form. Parking surplus in fixed deposits did not alter its nature as a CIRP-period accrual. The Tribunal concluded that the statutory scheme under Section 53, designed to ensure equitable distribution among creditors, must govern in the absence of a contractual provision. The Adjudicating Authority’s order was thus upheld as a lawful application of the Code’s framework.
The Verdict
The Appellant’s appeal was dismissed. The NCLAT upheld the order dated 03.09.2025 of the NCLT Mumbai directing that the surplus amount of Rs. 1,42,72,094.93/- generated during the CIRP period be distributed among financial creditors in accordance with the waterfall mechanism under Section 53 of the Insolvency and Bankruptcy Code. No costs were awarded. All pending applications were closed.
What This Means For Similar Cases
Resolution Plans Must Explicitly Address Surplus
- Practitioners must ensure that Resolution Plans explicitly address the treatment of potential surplus cash flows generated during CIRP.
- Silence on surplus will result in automatic application of Section 53, regardless of general transfer clauses.
- Drafting teams should include specific clauses either vesting surplus in the Resolution Applicant or directing its distribution to creditors.
Surplus Is Not Automatically an "Accretion"
- Accretion claims based on broad language like "all assets" or "going concern" will not suffice to claim CIRP-generated surplus.
- Courts will examine whether the surplus was contemplated, valued, and presented to the CoC at the time of Plan approval.
- Operational surpluses generated under the Resolution Professional’s control remain part of the insolvency estate unless contractually allocated.
Financial Creditors Retain Entitlement to Unallocated Value
- Financial creditors who accepted haircuts under the Plan retain a legitimate claim to unallocated CIRP-generated value.
- Resolution Applicants cannot claim windfall gains from value they did not create or finance.
- This reinforces the Code’s objective of maximizing value for creditors and preventing unjust enrichment of Resolution Applicants.
