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TMI Blog2019 (9) TMI 1440X X X X Extracts X X X X X X X X Extracts X X X X ..... to confirm that the plan provides for the payment of debts of operational creditors in such manner which shall not be less than the amount to be paid to the operational creditor in the event of liquidation of the Corporate Debtor under section 53 of the I B Code. By insertion of this sub-section, simply a mechanism is provided, which is in nature of a helping guideline for the RP as how to ascertain the minimum quantum of the claim of the operational creditor. Therefore, this Bench makes it clear that the provisions incorporated in Chapter III of the I B Code containing liquidation process from section 33 to Section 54 is a Code in itself, enforceable independently and by no means over reaching to the provisions of Chapter II of the I B Code. If the creditors are allowed to claim their remaining dues from the guarantors after the approval of resolution plan, and the guarantors pay off the remaining debt of the Corporate Debtor, the guarantors would step into the shoes of the creditor of the Corporate Debtor. Thereafter, they would be entitled to exercise their right of subrogation against the Corporate Debtor which is then under the control and management of the Resolution Applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seeks modification or deletion of certain provisions of the Resolution Plan which adversely affects the interests of the Applicant. 3. The grievance of the Applicant is that the Resolution Plan of RPIF provides for liquidation value as 'NIL' and therefore, the Operational Creditors in the said plan are not being given anything. The Applicant states that the 'nil' liquidation value as given in the plan is incorrect as the two valuation reports given by RBSA Valuation Advisors LLP and Rakesh Narula & Co. have provided for a substantial liquidation value of the Corporate Debtor. So the basis of 'NIL' liquidation value as given in the plan is not known. 4. The Applicant states that on 04.09.2018, the claim of the Applicant for an amount of ₹ 464.37 Crore in Form B as prescribed in CIRP Regulations was submitted to the RP and on 08.09.2018, the RP acknowledged the receipt of the claim filed by the Applicant. The 270 days period for completion of CIRP ended on 13.01.2019. On the same date, an Application being MA No. 315 of 2019 was filed in this Tribunal for approval of Resolution Plan by the RP. 5. The Applicant states that its claim was rejected by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich shall not be less than the amount to be paid to the 'Operational Creditors' in the event of a liquidation of the 'Corporate Debtor' under Section 53. That means, the 'Operational Creditors' should not be paid less than the amount they could have received in the event of a liquidation out of the asset of the 'Corporate Debtor'. It does not mean that they should not be provided the amount more than the amount they could have received in the event of a liquidation which otherwise amount to discrimination. 170. In view of the aforesaid position of law, we hold that Section 53 cannot be made applicable for distribution of amount amongst the stakeholders, as proposed by the 'Resolution Applicant' in its 'Resolution Plan'. " 8. The Applicant states that the above said order pertains to the question whether operational creditors are to be treated at par with the financial creditors when it comes to the distribution under a resolution plan. The Applicant also mentions that unlike in liquidation, where operational creditors are placed much below the financial creditors in the waterfall mechanism, the same priority to financial credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment to the operational creditors under a resolution plan should be higher of the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under section 53 or the amount that would have been paid to such creditors, in the event the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in subsection (1) of section 53. Hence, it is clarified that section 53 of the I&B Code is applicable to distribution under resolution mechanism also. 13. It may be further noted that the Statement of Objects and Reasons as given in the Insolvency and Bankruptcy (Amendment) Bill, 2019 clearly mention that different classes of creditors cannot be treated at parity with each other as it would lead to equality among unequals and would lead to defeating the object of the Code. "2. The Preamble to the Code lays down the objects of the Code to include "the insolvency resolution" in a time bound manner for maximisation of value of assets in order to balance the interests of all the stakeholders. Concerns have been raised that in some cases extensive litigation is causing undue delays, which m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing discriminated against, is wrong in law. 17. The Hon'ble Supreme Court while discussing the constitutionality of the I&B Code, throws light on Section 53 in the case of Swiss Ribbons Pvt. Ltd. & Ors. V. Union of India & Ors. [Writ Petition (Civil) No. 99 of 2018], order dated 25.01.2019, reproduced below for ready reference: 84. It will be seen that the reason for differentiating between financial debts, which are secured, and operational debts, which are unsecured, is in the relative importance of the two types of debts when it comes to the object sought to be achieved by the Insolvency Code. We have already seen that repayment of financial debts infuses capital into the economy inasmuch as banks and financial institutions are able, with the money that has been paid back, to further lend such money to other entrepreneurs for their businesses. This rationale creates an intelligible differentia between financial debts and operational debts, which are unsecured, which is directly related to the object sought to be achieved by the Code. In any case, workmen's dues, which are also unsecured debts, have traditionally been placed above most other debts. Thus, it can be see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financial creditors is not arbitrary or unreasonable. The value being paid to operational creditors is determined pursuant to and in accordance with the recent amendment in section 30(2)(b) of the I&B Code which provides that the RP shall examine each Resolution Plan received to confirm that the plan provides for the payment of debts of operational creditors in such manner which shall not be less than the amount to be paid to the operational creditor in the event of liquidation of the Corporate Debtor under section 53 of the I&B Code. By insertion of this sub-section, simply a mechanism is provided, which is in nature of a helping guideline for the RP as how to ascertain the minimum quantum of the claim of the operational creditor. Therefore, this Bench makes it clear that the provisions incorporated in Chapter III of the I&B Code containing liquidation process from section 33 to Section 54 is a "Code" in itself, enforceable independently and by no means over reaching to the provisions of Chapter II of the I&B Code. Hence, in view of the above findings, MA 2738 of 2019 is Dismissed. Ordered Accordingly. MISCELLANEOUS APPLICATION NO. 354 OF 2019 20. This is an appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an would be automatically released and all liabilities in respect thereof would be extinguished. 27. It is further submitted that the Resolution Plan sought to protect the interests of the promoters and guarantors of the Corporate Debtor over the rights of creditors, which is against the object of the Code and hence the Applicant voted against the Resolution Plan in the CoC meeting dated 10.01.2019, when the resolution plan was approved by majority of the creditors i.e. by 73.17%. 28. It is contended that the very purpose of the guarantee is to recover the amount from the guarantor in case the principle debtor is unable to repay the debt. In this case, when the resolution plan does not provide for the full payment of debt of the financial creditor, imposing a restriction on the rights of the applicant to proceed against the guarantor of the corporate debtor, aims at defeating the statutory right of the Applicant to prosecute the guarantor for its unsatisfied claims. 29. During the course of hearing, it was submitted by the Resolution Professional that only one member of CoC i.e. Applicant/EXIM Bank has voted against the approval of resolution plan. Rest of the CoC members have v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent or arrangement securing payment or performance of any obligation of any person: Provided that security interest shall not include a performance guarantee; xxx xxx xxx" This would certainly include a guarantor who may be a member of the erstwhile Board of Directors. Further, under Regulation 37(1)(f), a resolution plan may provide for reduction in the amount payable to the creditors, which again vitally impacts the rights of a guarantor. Last but not least, a resolution plan which has been approved or rejected by an order of the Adjudicating Authority, has to be sent to "participants" which would include members of the erstwhile Board of Directors - vide Regulation 39(5) of the CIRP Regulations" 31. It is noted that the proposals in the resolution plan are one kind of settlement between the Resolution Applicant and the creditors of the Corporate Debtor to pay off the dues of the Corporate Debtor and take over the Corporate Debtor company. Until and unless the resolution plan expressly provides that guarantees would survive even after the approval/implementation of resolution plan, it cannot be said that the guarantors would be liable to pay the debt of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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