2021 (1) TMI 184 - AT - Insolvency and Bankruptcy

Operational Creditors' Appeal Dismissed Upholding Equitable Treatment and Priority in Resolution Plan Distribution

The Tribunal dismissed the appeal by Operational Creditors challenging the approval of a Resolution Plan for a Corporate Debtor. It found that the ... Approval of Resolution Plan - impugned order is assailed primarily on the ground that the Appellants were kept unaware of the CIRP qua the Corporate Debtor, thus being wholly unaware of the progress of Resolution Process with no details provided by the Resolution Professional as regards disbursal of fund towards their claims and that their claims have not received a fair and equitable treatment - HELD THAT:- Admittedly being Operational Creditors cannot claim that they have been treated unfairly or inequitably as regards distribution of funds provided under the approved Resolution Plan. It is not the case of the Appellants that they have been completely ignored or left out of consideration while distributing the upfront money provided under the plan approved by the Committee of Creditors with the requisite majority and finally passing the muster under Section 30(2) of the Insolvency and Bankruptcy Code, 2016, which stands approved by the Adjudicating Authority. Infact what emerges from the record and is borne out from page 45 of the Appeal paper-book (Financial Terms of the approved Resolution Plan) is that the Operational Creditors other than related parties and Statutory Creditors (the Class to which the Appellants belong) have been allocated 19.62% of the upfront payment of ₹ 3,720 crores while the Financial Creditors have been paid only 10.32% of the upfront payment. This factual position being undisputed, it should not lie in the mouth of the Appellants that they have been discriminated against and treated unfairly. The approved Resolution Plan ensures restructuring and revival of the Corporate Debtor. The Appellants are also not justified in claiming that they have been excluded from the Resolution Process proceedings. Admittedly they have filed claims during CIRP proceedings and their claims have been partly admitted. In the face of this factual position, it is of no avail on their part to allege being excluded from CIRP proceedings - It is by now well settled that equitable treatment can be claimed only by similarly situated creditors. Operational Creditors stand at a different footing as compared to Financial Creditors. They are entitled to receive a minimum payment being not less than liquidation value, which does not apply to Financial Creditors. Admittedly, Appellants are Operational Creditors and being different from the Financial Creditors and Secured Creditors, they were not entitled to the same treatment. Their claim to proceeds of sale of preference shares, not being part of the assets value or a component of upfront payment is not warranted as the Corporate Debtor has been restructured and revived and protected from being pushed into liquidation. It is futile to contend on their behalf that the Financial Creditors being lenders having huge financial resources can take a bigger hair cut as compared to the financial condition of the Appellants. The distribution mechanism adopted in the instant case being not only conformable to the mechanism envisaged under Section 53 of the I&B Code but also according priority in upfront payment to Operational Creditors cannot be termed unfair or inequitable qua the Appellants – Operational Creditors. Appeal dismissed. Issues:Appellants challenging approval of Resolution Plan, Allegations of unfair treatment, Exclusion from Corporate Insolvency Resolution Process (CIRP), Distribution of funds to Operational Creditors, Equitable treatment of creditors.Analysis:The judgment involves the appeal by Operational Creditors against the approval of a Resolution Plan for a Corporate Debtor. The Appellants contested that they were unaware of the progress in the Corporate Insolvency Resolution Process (CIRP) and claimed unfair treatment regarding the distribution of funds. They argued that the fair market and liquidation values were not considered, resulting in a substantial reduction and rejection of their claims.The Respondents defended the treatment of Appellants, stating they were allocated 19.62% of the upfront payment under the approved Resolution Plan, which was higher than the Financial Creditors' allocation. The Respondents contended that the Appellants participated in the Resolution Process and were not excluded from the CIRP proceedings.The Tribunal examined the distribution of funds under the approved Resolution Plan and found that Operational Creditors, including the Appellants, were allocated a significant portion of the upfront payment. The judgment emphasized the difference in treatment between Financial and Operational Creditors, citing legal precedents that operational creditors are entitled to a minimum payment not less than the liquidation value.The Tribunal concluded that the Appellants were not discriminated against and had participated in the CIRP proceedings with their claims partly admitted. The approved Resolution Plan aimed at restructuring and reviving the Corporate Debtor, providing priority in upfront payment to Operational Creditors. The judgment dismissed the appeal, stating that the distribution mechanism was in line with the Insolvency and Bankruptcy Code, and the Appellants were not unfairly treated as Operational Creditors.In summary, the judgment addressed the Appellants' claims of unfair treatment in the approval of the Resolution Plan, highlighting the equitable treatment of Operational Creditors and the legal principles governing the distribution of funds among different classes of creditors.