2022 (7) TMI 356 - Tri - Insolvency and Bankruptcy

Implementation and effect of the Insolvency and Bankruptcy Code (Amendment) Act, 2019 - Seeking direction to Resolution Professional to rework the distribution pattern so as to implement the provisions of amended section 30(2) of the Code - seeking direction to resolution Professional to pay the liquidation value determined by the Resolution Professional - seeking direction that pending hearing and disposal of the Present Application, all disbursals pursuant to the Resolution Plan submitted by the successful Resolution Applicant be stayed - HELD THAT - The Insolvency and Bankruptcy Code (Amendment) Act, 2019 dated 05 August 2019 came into effect from 16 August 2019. The Explanation 2 of section 30(2) (b) 1 of the Code envisages that the on and from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, the provisions of section 30(2)(b) shall also apply to the CIRP of a Corporate Debtor, where a resolution plan has not been approved or rejected by the Adjudicating Authority or where an appeal has been preferred under section 61 or section 62 or where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan - It is clear that the provision in Explanation 2 of section 30(2) (b) of the Code, shall apply to the Resolution Plan of Ramsarup Industries Limited as the Resolution Plan was still under the consideration of the Adjudicating Authority when the Insolvency and Bankruptcy Code (Amendment) Act, 2019 came into force. The Applicant had emailed the Resolution Professional on various occasions requesting the Resolution Professional to revise the distribution methodology. Why did the Applicant not bring it to the notice of the Adjudicating Authority or the Hon ble NCLAT when the approval of the Resolution Plan had not attained finality? - HELD THAT - Explanation 2 of section 30(2) (b) of the Code is applicable to the distribution of the proposed amount to the dissenting Financial Creditor, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of section 53 in the event of a liquidation of the corporate debtor. In theory one would assume that the Financial Creditor would be calculated from the estimated liquidation value. But one cannot assume that the liquidation value would be fetched in case of liquidation. The amount could be higher than the liquidation or could be lesser that the estimated liquidation value. The liquidator would have distributed in accordance with subsection (1) of section 53 on the amount received during liquidation - Similarly, the amount proposed by the successful Resolution Professional shall be considered and the distribution shall be done accordingly. The dissenting Financial Creditor shall receive payment in accordance with sub-section (1) of section 53, but calculated as per the amount proposed in the Resolution Plan. Application disposed off.

Summary

Issues:
1. Distribution pattern under section 30(2) of the Insolvency and Bankruptcy Code, 2016.
2. Application for reworking distribution methodology and payment to the applicant.
3. Disbursement stay pending application hearing.

Analysis:

Issue 1: Distribution Pattern under Section 30(2) of the Insolvency and Bankruptcy Code, 2016
The case involved an application filed by Kotak Mahindra Bank seeking reworking of the distribution pattern under section 30(2) of the Code. The applicant objected to the distribution methodology based on security interest, advocating for distribution based on voting share. The Resolution Plan approved by the CoC did not specify the distribution methodology, leading to a dispute. The amendment of section 30(2) post-approval of the Resolution Plan raised questions regarding the treatment of dissenting financial creditors in line with section 53(1) of the Code.

Issue 2: Application for Reworking Distribution Methodology and Payment to the Applicant
The applicant, a Financial Creditor, requested reworking of the distribution methodology based on the amended section 30(2) of the Code. The applicant's claim was admitted by the Interim Resolution Professional, and the Resolution Plan approved by the Adjudicating Authority faced challenges due to the lack of clarity on the distribution methodology. The Resolution Professional's refusal to rework the distribution process post-amendment led to further contention.

Issue 3: Disbursement Stay Pending Application Hearing
The application sought a stay on disbursals following the Resolution Plan's approval until the hearing and disposal of the present application. The CoC's approval of the Resolution Plan, the subsequent dismissal of appeals by the NCLAT, and the Supreme Court's validation of the Resolution Plan added complexity to the distribution issue. The application's disposal provided directions for the distribution of the proposed amount to dissenting Financial Creditors in accordance with section 53(1) while considering the Resolution Professional's proposed amount.

In conclusion, the judgment addressed the challenges arising from the distribution pattern under the Insolvency and Bankruptcy Code, emphasizing the application of amended provisions and the equitable treatment of dissenting Financial Creditors. The decision provided clarity on the distribution methodology and highlighted the importance of adhering to statutory requirements for fair and just distribution in insolvency proceedings.