Tribunal orders equal treatment for creditors in resolution plan, prohibits misuse by related parties

The tribunal directed the resolution professional to modify the resolution plan to ensure equal treatment of operational creditors and classify the debt of related parties as equity contributions. The modified resolution plan was to be submitted for approval by 31st July 2018, failing which liquidation proceedings would be initiated. The order aimed to prevent the misuse of provisions of the Insolvency and Bankruptcy Code by related parties of the corporate debtor.

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Issues Involved:
1. Approval of the resolution plan under Section 30(6) of the Insolvency and Bankruptcy Code (IBC) 2016.
2. Eligibility of the resolution applicant under Section 29A of the IBC.
3. Treatment of operational creditors versus financial creditors.
4. Preferential, undervalued, and fraudulent transactions under Sections 43, 45, and 66 of the IBC.
5. Compliance with statutory provisions and regulations under the IBC and CIRP Regulations.

Detailed Analysis:

1. Approval of the Resolution Plan under Section 30(6) of the IBC 2016:
The resolution professional filed an application under Section 30(6) of the IBC for approval of the resolution plan submitted by Rajasthan Liquors Ltd. (RLL), which was approved by the Committee of Creditors (CoC) with a 100% vote share. The CoC comprised four financial creditors, excluding Jya Finance and Investment Company Limited, a related party of the corporate debtor (CD). The resolution professional certified that the resolution plan met the requirements of Sections 30(2) and 31(1) of the IBC and Regulations 38 and 39 of the CIRP.

2. Eligibility of the Resolution Applicant under Section 29A of the IBC:
The eligibility of JR Agro Industries Ltd. (JRAL) was questioned under Section 29A of the IBC, and it was ultimately disqualified. The objections raised against RLL's eligibility under Section 29A were examined. The tribunal clarified that there is no bar on common promoters/directors to present a resolution plan for a company undergoing CIRP. RLL was not an undischarged insolvent, and the clause (j) of Section 29A did not apply to RLL as the corporate debtor SOPL, which is undergoing insolvency resolution, is not eligible to submit a resolution plan for itself.

3. Treatment of Operational Creditors versus Financial Creditors:
The resolution plan provided for a significant haircut for operational creditors, who were to receive only 5% of their principal dues, while unsecured financial creditors were offered a 38% haircut. The tribunal emphasized that there should be no discrimination among the same class of creditors, and all operational creditors should be treated equally. The tribunal directed that the part of the resolution plan discriminating against operational creditors based on the age of dues was unsustainable in law and needed modification.

4. Preferential, Undervalued, and Fraudulent Transactions under Sections 43, 45, and 66 of the IBC:
The tribunal noted that the corporate debtor had made preferential payments to the State Bank of India to release bank guarantees of its promoters, which are prohibited transactions under Sections 43, 45, and 66 of the IBC. The tribunal emphasized that such transactions are subject to appropriate orders by the Adjudicating Authority.

5. Compliance with Statutory Provisions and Regulations under the IBC and CIRP Regulations:
The tribunal examined the resolution plan's compliance with statutory provisions and regulations. It was noted that the resolution plan did not provide for the payment of income tax liabilities, which could not be exempted without hearing the income tax department. The tribunal directed the resolution professional to modify the resolution plan in light of the observations made and to treat the unsecured debt of related parties as equity contributions, ranking lower in priority than other unsecured creditors.

Conclusion:
The tribunal directed the resolution professional to modify the resolution plan to ensure equal treatment of operational creditors and to classify the debt of related parties as equity contributions. The modified resolution plan was to be submitted for approval by 31st July 2018, failing which liquidation proceedings would be initiated. The order was communicated to relevant authorities to prevent misuse of the provisions of Section 53 of the IBC by related parties of the corporate debtor.

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