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2019 (9) TMI 1440 - Tri - Insolvency and BankruptcyApproval of Resolution Plan - section 31 of the Insolvency Bankruptcy Code 2016 - Resolution Plan challenged on the ground that it is arbitrary and discriminatory as it provides for nil payment to Operational Creditors - grievance of the Applicant is that the Resolution Plan of RPIF provides for liquidation value as NIL and therefore the Operational Creditors in the said plan are not being given anything - HELD THAT - This Bench holds that section 53 of the I B Code is applicable to resolution mechanism and the Operational Creditors being placed below the financial creditors is not arbitrary or unreasonable. The value being paid to operational creditors is determined pursuant to and in accordance with the recent amendment in section 30(2)(b) of the I B Code which provides that the RP shall examine each Resolution Plan received to confirm that the plan provides for the payment of debts of operational creditors in such manner which shall not be less than the amount to be paid to the operational creditor in the event of liquidation of the Corporate Debtor under section 53 of the I B Code. By insertion of this sub-section simply a mechanism is provided which is in nature of a helping guideline for the RP as how to ascertain the minimum quantum of the claim of the operational creditor. Therefore this Bench makes it clear that the provisions incorporated in Chapter III of the I B Code containing liquidation process from section 33 to Section 54 is a Code in itself enforceable independently and by no means over reaching to the provisions of Chapter II of the I B Code. If the creditors are allowed to claim their remaining dues from the guarantors after the approval of resolution plan and the guarantors pay off the remaining debt of the Corporate Debtor the guarantors would step into the shoes of the creditor of the Corporate Debtor. Thereafter they would be entitled to exercise their right of subrogation against the Corporate Debtor which is then under the control and management of the Resolution Applicant. Hence the Resolution Applicant will then pay the debt of the guarantor under its right of subrogation. Hence in effect the Resolution Applicant would pay the full amount of creditors therefore there was no idea left for filing the resolution plan and taking over the debtor company by settling the dues of the creditors. This vicious circle is a never ending process and it was definitely not intended by the legislators while framing the I B Code - The RP of the Corporate Debtor has clarified that the Resolution Plan of Royal Partners Investment Fund Limited has been approved by a majority of 73.17% of Creditors and considering the fact that this issue of guarantee is very well placed before the CoC while approving the resolution plan this Bench is not inclined to interfere with the commercial wisdom exercised by CoC qua the issue of guarantee. Application dismissed.
Issues Involved:
1. Challenge to the Resolution Plan by an Operational Creditor. 2. Rights of Operational Creditors under the Resolution Plan. 3. Performance Bank Guarantee by the Resolution Applicant. 4. Commercial Viability of the Resolution Plan. 5. Rights of Financial Creditors against Guarantors. Issue-wise Detailed Analysis: 1. Challenge to the Resolution Plan by an Operational Creditor: The Operational Creditor, Indian Oil Corporation Limited (IOCL), filed a Miscellaneous Application challenging the Resolution Plan approved by the Committee of Creditors (CoC) for EPC Constructions India Limited. IOCL argued that the plan was arbitrary and discriminatory because it provided 'nil' payment to Operational Creditors. The applicant contended that the resolution plan was not fair and equitable as required by the Insolvency & Bankruptcy Code (I&B Code). 2. Rights of Operational Creditors under the Resolution Plan: IOCL's claim of ?464.37 Crore was rejected by the Resolution Professional (RP) on the grounds that it was uncrystallized and pending arbitration. IOCL argued that the 'nil' liquidation value assigned to Operational Creditors was incorrect, citing valuation reports that provided substantial liquidation values. IOCL also referenced the NCLAT judgment in Standard Chartered Bank Vs. Satish Kumar Gupta, which stated that Operational Creditors should not be paid less than what they would receive in liquidation. However, the Tribunal held that the recent amendment to Section 30(2)(b) of the I&B Code clarified that Operational Creditors should be paid the higher of the liquidation value or the amount distributed under the resolution plan. The Tribunal concluded that the 'nil' payment to Operational Creditors was justified as the liquidation value available to them was also 'nil'. 3. Performance Bank Guarantee by the Resolution Applicant: IOCL contended that the Resolution Applicant, Royal Partners Investment Fund Limited (RPIF), had not furnished the required Performance Bank Guarantee of ?90 Crore, providing only ?42 Crore. The Tribunal noted that the remaining security deposit was yet to be deposited, but held that IOCL had no locus to question the understanding between the CoC and the Resolution Applicant. The Tribunal suggested that it could order the Resolution Applicant to deposit the remaining amount if it approved the plan. 4. Commercial Viability of the Resolution Plan: IOCL argued that the Resolution Plan was commercially unviable, offering only ?420 Crore upfront and the rest based on projections, which was less than what was offered by another bidder, Arcelormittal. The Tribunal, however, found that the total payment to revive the Corporate Debtor was ?901.74 Crore, with a significant portion being deferred payments. It held that the contention of discrimination against Operational Creditors was incorrect as Financial Creditors were also receiving only about 12% of their debt. 5. Rights of Financial Creditors against Guarantors: Export-Import Bank of India (EXIM Bank), a Financial Creditor, filed a separate application seeking to protect its rights against the guarantors of the Corporate Debtor. The Resolution Plan provided for the release and extinguishment of all guarantees and securities provided by the promoters. EXIM Bank argued that this provision defeated its statutory right to proceed against the guarantors. The Tribunal noted that the resolution plan had been approved by a majority of 73.17% of the CoC members and that the extinguishment of guarantors' rights was a settlement between the Resolution Applicant and the creditors. It held that allowing creditors to claim remaining dues from guarantors would create a never-ending cycle, contrary to the intent of the I&B Code. The Tribunal upheld the commercial wisdom of the CoC and rejected EXIM Bank's application. Conclusion: The Tribunal dismissed IOCL's application, holding that the 'nil' payment to Operational Creditors was justified under the amended I&B Code. It also rejected EXIM Bank's application, affirming the CoC's decision to extinguish guarantors' rights. The Tribunal emphasized the importance of the CoC's commercial wisdom in approving the Resolution Plan and the legislative intent to ensure the revival and continuation of the Corporate Debtor.
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