Equal Treatment for Creditors in Resolution Plans Upheld by NCLAT

The National Company Law Appellate Tribunal (NCLAT) held that all financial creditors should be treated equally in a resolution plan, regardless of their support or dissent. The Tribunal invalidated specific provisions in the Resolution Plan that mandated different treatment for operational and dissenting financial creditors, emphasizing alignment with the Insolvency and Bankruptcy Code. The Successful Resolution Applicant's equal treatment of creditors was upheld, and the appellant was prohibited from discriminating against dissenting creditors. The NCLAT clarified the limitations of the Board's authority in determining creditor payments and dismissed the appeal without costs.

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Issues:
Challenge to Resolution Plan Approval under Regulation 38(1)(c) of IBBI (IRPCP) Regulations

Analysis:
The appeal was filed by 'Central Bank of India', a 'Financial Creditor', against the order passed by the Adjudicating Authority, alleging that the approved Resolution Plan violated Regulation 38(1)(c) of the IBBI (IRPCP) Regulations. The appellant argued that dissenting financial creditors were treated equally with those who supported the plan. The Successful Resolution Applicant contended that all Financial Creditors were treated equally, with provisions for upfront payment and a 20-year redemption period for preferential shares.

The National Company Law Appellate Tribunal (NCLAT) held that no discrimination should exist between Financial Creditors in a Resolution Plan based on their support or dissent. The right to dissent is protected under Section 30(4) of the Insolvency and Bankruptcy Code, and creditors cannot be disadvantaged for dissenting during the Corporate Insolvency Resolution Process. The Tribunal emphasized that Section 53, concerning liquidation value, is only applicable during liquidation, not the resolution process.

Regulation 38(1) of the IBBI (IRPCP) Regulations mandates specific provisions in Resolution Plans, including payment priorities for insolvency resolution costs, operational creditors, and dissenting financial creditors. The Tribunal found sub-clauses (b) and (c) of Regulation 38(1) invalid as they mandated different treatment for operational and dissenting financial creditors, which was inconsistent with the Code.

The Tribunal clarified that the Board's regulations should align with the Insolvency and Bankruptcy Code and cannot override its provisions. It emphasized that Resolution Plans should not discriminate between Financial Creditors or Operational Creditors without valid reasons. The Successful Resolution Applicant's equal treatment of Financial Creditors was upheld, and the Central Bank of India was prohibited from discriminating against dissenting creditors.

The NCLAT emphasized that the Board lacks the authority to determine payment amounts for creditors and should not issue regulations forcing discrimination between equal creditors. It clarified that Section 53's provisions are not applicable during the Corporate Insolvency Resolution Process, except for determining the minimum amount. The appeal was dismissed with these observations, and no costs were awarded.

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