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2020 (2) TMI 54 - AT - Insolvency and BankruptcyCIRP process - constitution of Committee of Creditors (COC) - HELD THAT - If a Resolution Plan comes to be considered and approved, Section 30(2)(a) shows that such Plan would require providing for the payment of the Insolvency Resolution Process costs in a manner specified by the Board in priority to the payment of other debts of the Corporate Debtor. Even if no Resolution Plan comes around to get approved and contingencies as provided in Section 33(1) arise and order of liquidation is to be passed, even then Section 53(1) makes it clear that in the waterfall mechanism, the first in order of priority is the insolvency resolution process costs and the liquidation costs paid in full. The Impugned Order shows the reasons why without waiting for Appellant the Order was required to be passed. It was in interest of resolution of Corporate Debtor. Even now, Appellant has not made out good case that if it was heard, Impugned Order could have been different. We are not convinced with the argument that amended Sub-Section (4) of Section 30 requires only Secured Financial Creditors to contribute towards interim finance and not the Unsecured Financial Creditors. No such interpretation can be drawn. We will not interfere in the collective decision of COC in this regard - The dissenting Financial Creditor in COC cannot be allowed to scuttle CIRP process otherwise the provision permitting COC to take decisions with regard to subjects stated in Section 28(1) by given majority of 66% under Section 28(3) would be rendered nugatory. Appeal dismissed.
Issues Involved:
1. Approval of interim finance by the Committee of Creditors (COC). 2. Objection by the Appellant (EARC) to the interim finance resolution. 3. The role and responsibilities of the Resolution Professional (RP) and COC under the Insolvency and Bankruptcy Code (IBC). 4. The binding nature of COC decisions on all members, including dissenting creditors. 5. The implications of the Appellant's unsecured creditor status on its obligations. 6. Alleged violation of natural justice principles due to the lack of a hearing for the Appellant. Issue-wise Detailed Analysis: 1. Approval of Interim Finance by the Committee of Creditors (COC): The COC approved interim finance amounting to INR 35,25,80,379 for the non-fund based requirement towards GAIL and ONGC during its 6th meeting on 2nd August 2019. The resolution was passed with a 75% voting share, despite objections from the Appellant, Edelweiss Asset Reconstruction Company Limited (EARC). 2. Objection by the Appellant (EARC) to the Interim Finance Resolution: EARC objected to the resolution, arguing that as an unsecured creditor, it should not be compelled to incur additional liabilities in the form of interim finance or a Letter of Comfort. EARC claimed that the COC should raise CIRP costs from willing financial creditors or external sources. 3. The Role and Responsibilities of the Resolution Professional (RP) and COC Under the Insolvency and Bankruptcy Code (IBC): The RP filed an application under Section 60(5)(c) read with Section 25(1), 25(2)(c), and 28(1)(a) of the IBC, seeking certification that interim finance costs should be shared among all COC members proportionate to their voting rights. The RP emphasized the necessity of interim finance to keep the Corporate Debtor, engaged in electricity generation, operational. The RP's duties include raising interim finance with COC approval to manage the Corporate Debtor as a going concern. 4. The Binding Nature of COC Decisions on All Members, Including Dissenting Creditors: The Adjudicating Authority ruled that all COC members, including EARC, are bound by the resolution approved by the requisite majority. The tribunal highlighted that the COC's collective decision is enforceable, and dissenting members must comply with the majority decision. 5. The Implications of the Appellant's Unsecured Creditor Status on Its Obligations: EARC argued that as an unsecured creditor, it should not be forced to contribute to interim finance. The tribunal rejected this argument, stating that the collective decision of the COC, taken with the requisite voting majority, is binding on all members, regardless of their secured or unsecured status. 6. Alleged Violation of Natural Justice Principles Due to the Lack of a Hearing for the Appellant: EARC contended that the order was passed without giving it an opportunity to be heard, violating principles of natural justice. The tribunal found that the urgency of the situation justified the immediate order, and the principles of natural justice were satisfied as EARC's arguments were considered during the appeal. Conclusion: The appeal by EARC was dismissed, with the tribunal affirming that the COC's decision to approve interim finance is binding on all members, including dissenting creditors. The tribunal emphasized the importance of keeping the Corporate Debtor operational to maximize its value and upheld the collective decision-making process under the IBC.
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