Tribunal deems Resolution Plan illegal, urges fair distribution for small investors

The Tribunal declared the Resolution Plan as illegal and violative of the Insolvency and Bankruptcy Code, emphasizing the need to protect the interests of various applicants, including Fixed Deposit Holders, employees, and small investors. It recommended revisiting the distribution method to provide a fair share to small investors without imposing additional monetary obligations on the Resolution Applicant. The Tribunal highlighted the importance of equitable distribution among creditors, urging the Committee of Creditors to consider a fair distribution mechanism for operational and unsecured financial creditors. The decision aimed to ensure a fair and increased share for small investors, public depositors, and Fixed Deposit holders.

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Issues:
1. Declaration of Resolution Plan as illegal and violative of the Insolvency and Bankruptcy Code.
2. Refund of Fixed Deposits with interest.
3. Benefit of recoveries and contributions under specific provisions.
4. Repayment of matured deposits to applicants.
5. Restraining Respondent from granting loans or credit facilities.
6. Pre-mature repayments in case of death/critical illness.
7. Release of amounts due to the Applicant by Financial Service Provider.
8. Distribution method and share money allocation among creditors.

Analysis:

1. The main prayers in the applications sought to declare the Resolution Plan as illegal and violative of the Code, quash the plan, refund Fixed Deposits with interest, and ensure recoveries benefit the creditors. The Tribunal considered the claims of various applicants, including Fixed Deposit Holders, employees, and small investors, emphasizing the need to protect their interests and ensure a fair share of the Resolution Plan.

2. The Tribunal acknowledged the risk profile of Fixed Deposits and NCDs as low-risk investments, urging the Committee of Creditors (CoC) to reconsider the distribution method to provide a fair share to small investors. It recommended enhancing the payment percentage for public depositors and Fixed Deposit holders, aligning it with the level of Secured Financial Creditors without imposing additional monetary obligations on the Resolution Applicant.

3. Referring to precedents, the Tribunal highlighted the importance of equitable distribution among creditors, citing a case where the CoC was directed to consider a fair distribution mechanism for operational and unsecured financial creditors. It emphasized the need for CoC to revisit the distribution method to benefit small investors and public depositors.

4. The Tribunal drew attention to a Supreme Court ruling stating that the Adjudicating Authority cannot modify an approved resolution plan but can suggest amendments for reconsideration. Based on this, the Tribunal recommended that the CoC reconsider the distribution method within two weeks and report back to the Adjudicating Authority.

5. In conclusion, the Tribunal disposed of the applications, urging the CoC to review the distribution method to ensure a fair and increased share for small investors, public depositors, and Fixed Deposit holders. The decision aimed to protect the interests of the numerous small investors and depositors affected by the Resolution Plan, emphasizing the importance of equitable distribution among creditors.

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