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2019 (9) TMI 894 - AT - Insolvency and BankruptcyCIRP - discrimination against secured creditor - separate treatment to dissenting Secured Financial Creditors - Liability of successful resolution applicant to remove the discrimination - HELD THAT - (Un-amended/ old) Regulation 38 having held to be discriminatory was substituted on 5th October, 2018 by new Regulation 38. Sub-clause (c) of clause (1) of Regulation 38 shows that the liquidation value payable to dissenting financial Creditors has been deleted. In Swiss Ribbons Pvt. Ltd. Anr. vs. Union of India Ors. 2019 (1) TMI 1508 - SUPREME COURT , the Hon ble Supreme Court observed that the NCLAT while looking into viability and feasibility of resolution plans as approved by the committee of creditors, always gone into whether the operational creditors are given roughly the same treatment as financial creditors, and if they are not, such plans are either rejected or modified so that the operational creditors' rights are safeguarded . In the present case, the Resolution Plan approved by the Committee of Creditors do not confirm the test of Section 30(2) (e), being discriminatory, as having discriminated the similarly situated Secured Creditors . The Insolvency and Bankruptcy Board of India has not provided for separate treatment to dissenting Secured Financial Creditors who do not vote in favour of the Resolution Plan . No such amendment has been made in Regulation 38 since amended Section 30(2) (b) came into force i.e. 16th August, 2019. The Appellant a Secured Financial Creditor has been discriminated with other Secured Financial Creditors , we hold that the Resolution Plan is violative of Section 30(2) (e) of the I B Code . However, we are not inclined to set aside the approved plan on such ground. The Successful Resolution Applicant is given opportunity to remove the discrimination of Appellant by providing similar treatment as provided to other similarly situated Financial Creditors . Appeal allowed.
Issues Involved:
1. Discrimination against the Appellant (Hero Fincorp Limited) in the approved Resolution Plan. 2. Compliance with Regulation 38 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. 3. Applicability of amended Regulation 38 and Section 30(2)(b) of the Insolvency and Bankruptcy Code. 4. Feasibility and legality of the approved Resolution Plan. Detailed Analysis: 1. Discrimination Against the Appellant (Hero Fincorp Limited) in the Approved Resolution Plan: The Appellant, Hero Fincorp Limited, challenged the approved Resolution Plan on grounds of discrimination. It was argued that other Secured Financial Creditors were provided with a higher percentage of their claim amounts compared to Hero Fincorp Limited, which was allowed only 32.34% of its admitted claim. The Successful Resolution Applicant had provided different percentages to various creditors, such as Tata Capital Financial Services Ltd. (75.63%), Indian Overseas Bank (45%), Bank of Baroda (45%), and Punjab National Bank (45%). The Tribunal found that Hero Fincorp Limited, being a Secured Financial Creditor, was indeed discriminated against compared to other similarly situated Secured Financial Creditors. 2. Compliance with Regulation 38 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016: The Tribunal examined the old Regulation 38, which mandated liquidation value for dissenting Financial Creditors. This regulation was previously held to be inconsistent with the Insolvency and Bankruptcy Code (I&B Code) and was amended on 5th October 2018. The Tribunal noted that the old Regulation 38 was discriminatory and had been repealed. The new Regulation 38 does not mandate liquidation value for dissenting Financial Creditors and emphasizes fair and equitable treatment of all stakeholders. 3. Applicability of Amended Regulation 38 and Section 30(2)(b) of the Insolvency and Bankruptcy Code: The Tribunal referred to the amended Regulation 38 and Section 30(2)(b) of the I&B Code, which came into force on 16th August 2019. The amended regulation requires that the amount due to operational creditors under a resolution plan shall be given priority in payment over financial creditors. The Tribunal observed that the Successful Resolution Applicant failed to bring the amended Regulation 38 to the notice of the Adjudicating Authority, leading to the approval of a discriminatory Resolution Plan. The Tribunal emphasized that the new Regulation 38 and amended Section 30(2)(b) do not allow for differential treatment of dissenting Financial Creditors unless specified by the Board. 4. Feasibility and Legality of the Approved Resolution Plan: The Tribunal found that the approved Resolution Plan did not conform to the requirements of Section 30(2)(e) of the I&B Code, as it discriminated against similarly situated Secured Financial Creditors. The Tribunal directed the Successful Resolution Applicant to remove the discrimination by providing Hero Fincorp Limited with 45% of its admitted claim, equating it with other similarly situated Secured Financial Creditors. The Tribunal allowed the Successful Resolution Applicant one month to comply with this directive, failing which the impugned order approving the Resolution Plan would be set aside. Conclusion: The appeal was allowed, and the Tribunal directed the Successful Resolution Applicant to rectify the discrimination against Hero Fincorp Limited by providing it with 45% of its admitted claim. The Tribunal emphasized the need for fair and equitable treatment of all similarly situated creditors in accordance with the amended Regulation 38 and Section 30(2)(b) of the I&B Code.
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