NCLAT Directs Adjudicating Authority to Decide Distribution of Funds in Insolvency Proceedings

KanoonHQ Legal Gazette · AI-generated brief from the source linked below. How briefs are made

Published 23 October 2026

Statutes: Insolvency and Bankruptcy Code, 2016
Source: Indian Kanoon (NCLAT)

Bottom Line Up Front (BLUF)

The NCLAT, Mumbai, directed the Adjudicating Authority (NCLT) to expeditiously decide on the distribution of funds among secured financial creditors in IA No. 995 of 2025, while upholding the Resolution Plan approval. The Resolution Professional was ordered to hold Rs. 2,23,84,000/- in an interest-bearing account, pending the NCLT's decision on the reclassification of a first charge to pari-passu.

Ratio Decidendi · Legal Principle Established

When an appeal challenges only the distribution mechanism among creditors and not the approval of the Resolution Plan itself, the appellate authority may dispose of the appeal by directing the Adjudicating Authority to decide the distribution issue, while ensuring the disputed amount is secured in an interest-bearing account.

Practice & Procedural Impact for Advocates

Advocates should advise clients that challenges to resolution plans can be bifurcated; issues of distribution can be separately adjudicated by the NCLT even after plan approval, provided the disputed funds are ring-fenced. Litigants should ensure specific amounts in dispute are clearly identified and secured.

Key Legal Takeaways

1NCLAT can uphold Resolution Plan approval while remanding distribution disputes to NCLT.
2Disputed amounts must be held in interest-bearing accounts pending NCLT's decision.
3Challenges to creditor reclassification (e.g., first charge to pari-passu) are to be decided by the Adjudicating Authority.

The Legal Issue This case addresses the National Company Law Appellate Tribunal's (NCLAT) approach when an appeal against a Resolution Plan's approval is limited to the distribution of amounts among secured financial creditors, specifically concerning the reclassification of a first charge to a pari-passu charge. The core issue was whether the NCLAT should interfere with the plan's approval or allow the Adjudicating Authority (National Company Law Tribunal - NCLT) to resolve the distribution dispute separately.

Court's Reasoning The NCLAT observed that the Appellant, an Assenting Financial Creditor, had no grievance with the approval of the Resolution Plan itself. Their concern was solely with the distribution of amounts, particularly the reclassification of their first charge to a pari-passu charge, which was already pending before the Adjudicating Authority in I.A. No. 995 of 2025. Recognizing this, the NCLAT decided that the ends of justice would be served by not interfering with the plan approval order. Instead, it directed that the distribution of the amount should abide by the NCLT's decision in the pending IA. To safeguard the Appellant's interest, the NCLAT ordered the Resolution Professional to keep a specific amount of Rs. 2,23,84,000/- in a separate interest-bearing account, contingent upon the NCLT's final decision.

Why It Matters This decision provides clarity on the NCLAT's power to bifurcate issues in insolvency appeals. It demonstrates that where the overall Resolution Plan is acceptable, but a specific dispute regarding creditor distribution exists, the NCLAT may uphold the plan's approval while remanding the distribution issue to the NCLT for a final determination. The directive to secure the disputed amount in an interest-bearing account is a crucial safeguard, ensuring that the rights of the aggrieved creditor are protected during the ongoing adjudication process. This approach facilitates the timely implementation of resolution plans while allowing for detailed scrutiny of specific financial distribution grievances.