2022 (8) TMI 325 - AT - Insolvency and Bankruptcy

Right of second charge holder to claim priority over the first charge holder - bifurcation of the amounts to be distributed to the lenders - waterfall mechanism as provided under section 53 of the IBC for distribution of funds - HELD THAT - It cannot be gainsaid that the Appellant, who is a stakeholder in the liquidation process, is entitled to know his share in the distribution matrix and how it has been arrived at. The Impugned Order falls short of providing a reasoned answers to the Applicant s (ARSEC (India) Limited) prayers. The Impugned Order falls short in providing a reasoned basis and clarity to the prayers of the Appellant made in MA 520/2019 - the case is remanded back to the Adjudicating Authority for providing an appropriately reasoned and clear order in the light of prayers made in MA 520/2019 after giving due opportunity of hearing to the parties - appeal disposed off.

Summary

Issues involved:
- Appeal under section 61(1) of the Insolvency & Bankruptcy Code, 2016 against Impugned Order dated 02.12.2019.
- Right of second charge holder to claim priority over the first charge holder.
- Bifurcation of amounts to be distributed to lenders and application of 'waterfall mechanism' under section 53 of the IBC for fund distribution.
- Clarity on distribution ratios between Term Lenders and Working Capital Lenders.
- Adequacy of reasoning and clarity in the Impugned Order.

Analysis:
1. The appeal was filed challenging the Impugned Order passed by the National Company Law Tribunal, Mumbai Bench, regarding the right of the second charge holder to claim priority over the first charge holder. The Appellant sought clarification on the distribution of funds and adherence to the 'waterfall mechanism' under section 53 of the IBC for fund distribution.

2. The Appellant argued that meetings were held to decide the sharing ratio between Term Lenders and Working Capital Lenders, which was initially 70:30 and later revised to 80:20. The Respondent (Liquidator) contended that there was no agreement on the distribution ratio among all lenders. The liquidator proposed following IBC provisions for fund distribution, which was communicated to stakeholders.

3. The Appellant's prayers included directing the Liquidator to provide bifurcation of amounts to be distributed, follow the waterfall mechanism under section 53 of the IBC, and consider the sharing pattern agreed upon by lenders. The Impugned Order did not provide clarity on these aspects, leading to ambiguity.

4. The Tribunal noted that the Impugned Order lacked a reasoned basis and clarity on addressing the Appellant's prayers. Citing Supreme Court precedents, the Tribunal emphasized the importance of providing reasons for decisions to ensure transparency and enable effective judicial review.

5. Consequently, the Tribunal remanded the case to the Adjudicating Authority for a clear and reasoned order considering the Appellant's prayers in MA 520/2019. The Authority was directed to provide a well-reasoned decision after hearing all parties, given the final stage of the corporate debtor's liquidation, emphasizing expeditious resolution.

6. The Tribunal disposed of the appeal without costs, highlighting the need for a transparent and well-reasoned approach in addressing the distribution and priority issues raised by the Appellant.