2025 (2) TMI 77 - AT - IBC

Distribution of distribution mechanism - Whether CoC was justified in approving the Resolution Plan on the basis of security interest of the Financial Creditor and not approving the distribution mechanism on the basis of vote share of the financial creditors? - HELD THAT - The amended provisions clearly empower the CoC to vote after considering its feasibility and viability. The manner of distribution proposed which may take into account the order of priority amongst creditors as laid down in sub-section (1) of Section 53 including the priority and value of the security interest of a secured creditor. After the amendment of sub-section (4) of Section 30 the priority and value of the security interest of a secured creditor has also become one of the factor which may be considered by the CoC for approval of a plan. Section 30(2)(b) also provided that the Financial Creditor who do not vote in favour of the Resolution Plan shall be paid an amount not 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 takes place. In the present case the Resolution Plan was submitted by the SRA which contains provision for pertaining to mechanism for payment amongst the Financial Creditors and payment to the dissenting financial creditor. Judgment of the Hon ble Supreme Court in India Resurgence ARC (P) Ltd. 2021 (6) TMI 684 - SUPREME COURT which has been relied by both the parties clearly has laid down the law on the subject. In case before the Hon ble Supreme Court the CoC has approved the Resolution Plan approving the distribution as per the vote share of the financial creditor. The Appellant who was a financial creditor with vote share of 3.94% expressed reservations on the distribution mechanism. The CoC however approved the Resolution Plan with 95.35% vote shares which decision was challenged by the Appellant. The Adjudicating Authority approved the Resolution Plan and rejected the objection and Appeal filed by Appellant was also dismissed by this Tribunal against which the matter was taken by the Appellant before the Hon ble Supreme Court. As per liquidation value of the Appellant he was to receive Rs.97 Crores and as per the plan approved by the CoC he has been offered Rs.1.05 Crores thus provision of Section 30(2)(b) are fully satisfied. Conclusion - i) It is clear that after amendments made in Section 30(4) the CoC have been given jurisdiction to take a decision as to distribute the amount as per vote share of the financial creditor or as per the security interest which is in their commercial wisdom and decision taken by requisite vote share by the CoC is final and binding on all including the dissenting financial creditors and dissenting financial creditors at best is entitled for minimum of liquidation value. The use of expression may in Section 30(4) clearly indicate the discretion vested in the CoC to take into account of the matter of security interest of the secured creditors in approving the Resolution Plan. ii) There are no error has been committed by the Adjudicating Authority rejecting the application filed by the Appellant seeking direction to distribute the amount as per security interest. The decision of the CoC approving the Resolution Plan as per security interest was in accordance with Section 30(4) and has rightly been not interfered with by the Adjudicating Authority in the impugned order. There are no error in the impugned order warranting interference by this Tribunal. There is no merit in the Appeal. The Appeal is dismissed.

Summary

The judgment from the National Company Law Appellate Tribunal (NCLAT) addresses an appeal filed by a dissenting financial creditor against the order of the National Company Law Tribunal (NCLT), which upheld a distribution mechanism based on security interest rather than voting share in the corporate insolvency resolution process (CIRP) of Birla Tyres Limited.

Issues Presented and Considered:

The central issue in this appeal was whether the Committee of Creditors (CoC) was justified in approving a resolution plan based on the security interest of financial creditors rather than their voting share. This involved interpreting the provisions of Section 30(4) and Section 53(1) of the Insolvency and Bankruptcy Code (IBC), particularly in light of amendments made by the Act 26 of 2019.

Issue-wise Detailed Analysis:

Relevant Legal Framework and Precedents:

The legal framework primarily involved Section 30(4) of the IBC, which allows the CoC to approve a resolution plan by considering the priority and value of the security interest of secured creditors. Section 53(1) outlines the order of priority for distribution in liquidation. The judgment also referenced precedents from the Supreme Court, including "Essar Steel India Ltd. Committee of Creditors vs. Satish Kumar Gupta" and "India Resurgence ARC (P) Ltd. vs. Amit Metaliks Ltd." which clarified the commercial wisdom of the CoC and the limited scope of judicial review.

Court's Interpretation and Reasoning:

The Tribunal emphasized that the CoC's decision in its commercial wisdom should be respected, and judicial review is limited. The amendments to Section 30(4) empower the CoC to consider security interest in approving a resolution plan. The Tribunal noted that the CoC had approved the distribution mechanism based on security interest with a 75.67% vote share, which was within their jurisdiction and discretion.

Key Evidence and Findings:

The evidence included the voting results from the 16th CoC meeting, where the distribution mechanism based on security interest was approved, while the mechanism based on voting share was not. The Tribunal also considered the provisions of the resolution plan, which allowed the CoC to decide the distribution in its commercial wisdom.

Application of Law to Facts:

The Tribunal applied the legal framework to the facts by affirming that the CoC's decision to distribute based on security interest was in line with the amended Section 30(4). The dissenting financial creditor's entitlement was limited to the liquidation value as per Section 30(2)(b)(ii), which was satisfied in this case.

Treatment of Competing Arguments:

The appellant argued that distribution should be based on voting share, citing Section 53(1)(b)(ii). However, the Tribunal rejected this, referencing Supreme Court judgments that upheld the CoC's discretion to decide the distribution mechanism. The Tribunal also noted that the appellant received more than the liquidation value, thus fulfilling statutory requirements.

Conclusions:

The Tribunal concluded that the CoC's decision to approve the distribution mechanism based on security interest was justified and in accordance with the IBC. The appellant's arguments did not warrant interference with the CoC's commercial decision.

Significant Holdings:

The Tribunal reiterated the principle that the CoC's commercial wisdom should be respected, and judicial review is limited to ensuring compliance with statutory provisions. The Tribunal cited the Supreme Court's clarification that the CoC has the discretion to consider security interest in distribution decisions. It was held that dissenting financial creditors are entitled to the liquidation value, which was met in this case.

Core Principles Established:

The judgment reinforced the principle that the CoC's decision in approving a resolution plan, including the distribution mechanism, is primarily a matter of commercial wisdom. The CoC has the discretion to consider security interest, and dissenting creditors are entitled to at least the liquidation value.

Final Determinations on Each Issue:

The Tribunal dismissed the appeal, affirming that the CoC's decision to approve the distribution mechanism based on security interest was valid and consistent with the IBC. The appellant's entitlement to the liquidation value was satisfied, and no error was found in the NCLT's order.