2018 (9) TMI 1771 - AT - Insolvency and Bankruptcy

Corporate insolvency process - whether provisions made by the Board cannot override the provisions of I&B Code? - Held that - In the present case, as the Successful Resolution Applicant has treated all the Financial Creditors equally at the same level and made no discrimination, it cannot be interfered on the ground that it is in violation of Regulation 38(1)(c). Admittedly, the Central Bank of India is also a Financial Creditor who is equally situated with other Financial Creditors who are co-members of the Committee of Creditors. Therefore, the Central Bank of India cannot discriminate with those members who dissented with the Resolution Plan and on the ground that they have not agreed with the Central Bank of India. We again make it clear that the Board has not been delegated with the power under I&B Code including Section 240 of I&B Code to decide as to what amount is to be paid to the Financial Creditor or Operational Creditor including the liquidation value, therefore, they should not pass any mandatory regulation forcing the Resolution Applicant(s) to discriminate between equals. It is also made clear that the provisions such as Section 53 of I&B Code, except for the purpose of finding out minimum amount to be noticed, as provided under Section 30(2)(b), cannot be relied upon at the stage of Corporate Insolvency Resolution Process , though it is open to the Board to issue guidelines as to how Section 53 is to be followed during the liquidation. The appeal is dismissed with aforesaid observations.

Summary

Issues:
Challenge to Resolution Plan Approval under Regulation 38(1)(c) of IBBI (IRPCP) Regulations

Analysis:
The appeal was filed by 'Central Bank of India', a 'Financial Creditor', against the order passed by the Adjudicating Authority, alleging that the approved Resolution Plan violated Regulation 38(1)(c) of the IBBI (IRPCP) Regulations. The appellant argued that dissenting financial creditors were treated equally with those who supported the plan. The Successful Resolution Applicant contended that all Financial Creditors were treated equally, with provisions for upfront payment and a 20-year redemption period for preferential shares.

The National Company Law Appellate Tribunal (NCLAT) held that no discrimination should exist between Financial Creditors in a Resolution Plan based on their support or dissent. The right to dissent is protected under Section 30(4) of the Insolvency and Bankruptcy Code, and creditors cannot be disadvantaged for dissenting during the Corporate Insolvency Resolution Process. The Tribunal emphasized that Section 53, concerning liquidation value, is only applicable during liquidation, not the resolution process.

Regulation 38(1) of the IBBI (IRPCP) Regulations mandates specific provisions in Resolution Plans, including payment priorities for insolvency resolution costs, operational creditors, and dissenting financial creditors. The Tribunal found sub-clauses (b) and (c) of Regulation 38(1) invalid as they mandated different treatment for operational and dissenting financial creditors, which was inconsistent with the Code.

The Tribunal clarified that the Board's regulations should align with the Insolvency and Bankruptcy Code and cannot override its provisions. It emphasized that Resolution Plans should not discriminate between Financial Creditors or Operational Creditors without valid reasons. The Successful Resolution Applicant's equal treatment of Financial Creditors was upheld, and the Central Bank of India was prohibited from discriminating against dissenting creditors.

The NCLAT emphasized that the Board lacks the authority to determine payment amounts for creditors and should not issue regulations forcing discrimination between equal creditors. It clarified that Section 53's provisions are not applicable during the Corporate Insolvency Resolution Process, except for determining the minimum amount. The appeal was dismissed with these observations, and no costs were awarded.