2024 (4) TMI 39 - AT - Insolvency and Bankruptcy

Approval of Resolution Plan - whether the Resolution Plan submitted, which was approved by the Adjudicating Authority, is in compliance of provisions of Section 30, subsection (2) of IBC - HELD THAT - The extent of judicial review of Resolution Plan approved by the CoC in its commercial wisdom are very limited. The Hon ble Supreme Court in COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LIMITED THROUGH AUTHORISED SIGNATORY VERSUS SATISH KUMAR GUPTA OTHERS 2019 (11) TMI 731 - SUPREME COURT as well as in K. SASHIDHAR VERSUS INDIAN OVERSEAS BANK OTHERS 2019 (2) TMI 1043 - SUPREME COURT has laid down that commercial wisdom of the CoC has to be given paramount importance and limited jurisdiction provided to interfere in the approval of the Plan by the Adjudicating Authority or the Appellate Tribunal, i.e., only when the Plan is not in compliance with statutory provisions of Section 30, sub-section (2). The law is thus well settled that commercial wisdom of the CoC approving the Plan cannot be interfered and it can be interfered only when there is statutory non-compliance, i.e., non-compliance of Section 30, subsection (2). Thus, we need to answer the question as to whether there is statutory non-compliance in the present case - the Hon ble Supreme Court in JAYPEE KENSINGTON BOULEVARD APARTMENTS WELFARE ASSOCIATION ORS. VERSUS NBCC (INDIA) LTD. ORS. 2021 (3) TMI 1143 - SUPREME COURT , held that Operational Creditors are to be paid in priority over the Financial Creditors only by cash and not by issuing of equity. The distribution of the amount to the Operational Creditor (other than Government Departments) is clearly contrary to provisions of Section 30 (2)(b)(ii). The Adjudicating Authority has failed to advert to Section 30, sub-section (2) (b) (ii) and failed to notice that amount proposed to the Operational Creditor is clearly contrary to Section 30(2)(b)(ii) - order of Adjudicating Authority approving the Resolution Plan cannot be sustained. The order passed by Adjudicating Authority dated 09.11.2023 requires to be modified. No other part of the Resolution Plan being under challenge, ends of justice will be served in modifying the order of the Adjudicating Authority only with respect to distribution to the Operational Creditor. It was obligatory for the Resolution Plan to comply with the provisions of Section 30(2)(b)(ii) in the facts of the present case. Hence, the order is modified to make it in compliance of the provisions of Section 30, sub-section (2) (b)(ii). The order of Adjudicating Authority dated 09.11.2023 is modified to the extent of approving the distribution to the Operational Creditors, including the Appellant. Rest of the order is affirmed - appeal disposed off.

Summary

Issues Involved:
1. Compliance with Section 30(2)(b) of the Insolvency and Bankruptcy Code (IBC).
2. Distribution of Resolution Plan amount to Operational Creditors.
3. Priority of payments under the Resolution Plan.

Summary:

Issue 1: Compliance with Section 30(2)(b) of the IBC
The Appellant, an Operational Creditor, challenged the approval of the Resolution Plan submitted by Respondent No.2, arguing that it did not comply with Section 30(2)(b) of the IBC. The Appellant contended that the cash upfront amount offered was contrary to Section 30(2)(b)(ii), as the liquidation value of the Corporate Debtor was Rs.5.74 lakhs, and the total Plan amount was Rs.9.05 crores. The Appellant argued that the Operational Creditors were being paid only 2.16% of their admitted claims, which was not in accordance with the law laid down by the Hon'ble Supreme Court in Jaypee Kensington Boulevard Apartments Welfare Association & Ors. v NBCC & Ors.

Issue 2: Distribution of Resolution Plan amount to Operational Creditors
The Resolution Plan proposed by Respondent No.2 included a total Plan amount of Rs.9.05 crores, with key features summarized in the judgment. The Plan proposed various payments, including:
- Payment of CIRP cost: Rs.35,00,000 within 25 days of NCLT Approval Date.
- Payment to Secured Financial Creditors: Rs.19,65,908 within 25 days.
- Payment towards Operational Creditors (Non-Government): Rs.35,34,092 plus partly paid redeemable Preference Shares worth Rs.8,00,00,000 within 25 days.
- Payment towards Operational Creditors (Government Departments): Rs.15,00,000 within 25 days.
- The Appellant argued that the distribution to Operational Creditors was not in compliance with Section 30(2)(b)(ii), as it included partly paid redeemable preference shares instead of cash payments.

Issue 3: Priority of payments under the Resolution Plan
The Hon'ble Supreme Court in Jaypee Kensington had laid down that Operational Creditors are to be paid in priority over the Financial Creditors only by cash and not by issuing equity. The Tribunal noted that the payment offered to the Operational Creditors was not in accordance with Section 30(2)(b)(ii) and was contrary to the law laid down by the Supreme Court. The Tribunal concluded that the distribution of the amount to the Operational Creditors was clearly contrary to the provisions of Section 30(2)(b)(ii) and modified the order of the Adjudicating Authority to make it compliant with the provisions of Section 30(2)(b)(ii).

Conclusion:
The Tribunal modified the order of the Adjudicating Authority dated 09.11.2023 to the extent of approving the distribution to the Operational Creditors, including the Appellant. The Resolution Applicant was directed to distribute the Resolution Plan amount to the Operational Creditor on a pro-rata basis as per Section 30(2)(b)(ii) and as per priority under Section 53(1). In case of non-compliance, the Resolution Plan submitted by Respondent No.2 would be treated as disapproved. The rest of the order was affirmed, and the Appeal was disposed of with parties bearing their own costs.