2022 (4) TMI 14 - AT - Insolvency and Bankruptcy

Operational Creditor Appeal Dismissed: Payment Disparity in Resolution Plan Upheld

The National Company Law Appellate Tribunal, New Delhi, dismissed the appeal by an Operational Creditor challenging payment disparity in a Resolution ... Parity between class of Operational Creditors and class of Financial Creditors - great disparity between the amount offered to the Operational Creditors as compared to payment of dues offered to the Financial Creditors - HELD THAT:- In the present case, there is payment of different percentages to the Financial Creditors and the Operational Creditors. The Appellant’s case is not that they are getting payment which is less than the liquidation value to which they are entitled under Section 53 r/w Section 32. The Hon’ble Supreme Court in Essar Steel India Ltd. Committee of Creditors vs. Satish Kumar Gupta [2019 (11) TMI 731 - SUPREME COURT] has occasion to consider this very issue and held that equality should be looked into with regard to same class of creditors. It is also held that there cannot be equality between class of Operational Creditors and class of Financial Creditors. The Appellant cannot claim any parity in payment offered to the Financial Creditors - there are no arbitrariness and inequality vitiating the order passed by the Adjudicating Authority - appeal dismissed. Issues:1. Disparity in payment between Operational Creditors and Financial Creditors in a Resolution Plan.Analysis:The judgment by the National Company Law Appellate Tribunal, Principal Bench, New Delhi, involved an appeal against an order approving a Resolution Plan where the Appellant, an Operational Creditor, challenged the inequality in payment terms. The Appellant argued that Financial Creditors were offered 25.74% while Operational Creditors were only offered 1.24%, alleging clear inequality and arbitrariness. The Respondent countered, stating that the CoC, dominated by Unsecured Financial Creditors, had accepted less than 1% payment, indicating no inequality or arbitrariness. The Respondent emphasized that the Appellant was not receiving less than the liquidation value entitled under Section 53.The Tribunal considered the arguments and examined the payment percentages to different creditors. Referring to a previous Supreme Court judgment, it was noted that equality should be assessed within the same class of creditors, distinguishing between Operational and Financial Creditors. The Tribunal highlighted that operational creditors must receive a minimum payment not less than the liquidation value, which does not apply to financial creditors. The judgment cited specific principles from the Supreme Court decision, emphasizing the discretion of the Committee of Creditors in negotiating and accepting resolution plans, which may involve differential payments to various classes of creditors.Ultimately, the Tribunal concluded that the Appellant could not claim parity in payment with Financial Creditors, especially since Unsecured Creditors had agreed to a minimal payment percentage. The Tribunal found no arbitrariness or inequality in the order passed by the Adjudicating Authority and dismissed the Appeal, upholding the Resolution Plan. The judgment highlighted the commercial wisdom of the CoC in negotiating terms with prospective resolution applicants and the differentiation between Operational and Financial Creditors under the insolvency framework.