Tribunal Upholds Committee of Creditors' Decision on Distribution | Insolvency Law

The tribunal upheld the Committee of Creditors' decision to distribute proceeds based on voting shares, finding it compliant with Section 30(2)(b) of the Insolvency and Bankruptcy Code. The appellant's claim for distribution based on the value of its security interest was dismissed, emphasizing that judicial review is limited to ensuring statutory compliance and cannot question the commercial wisdom of the CoC. The appeal was deemed unsubstantial, and the tribunal rejected the appellant's application.

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Issues Involved:

1. Entitlement of dissenting financial creditor for distribution of proceeds under the Resolution Plan.
2. Compliance of the Resolution Plan with Section 30(2)(b) of the Insolvency and Bankruptcy Code (IBC).
3. Interpretation of "debt" and its implications on distribution under Section 53 of the IBC.
4. Judicial review of the commercial wisdom of the Committee of Creditors (CoC).

Issue-wise Detailed Analysis:

1. Entitlement of Dissenting Financial Creditor for Distribution of Proceeds:

The main contention raised by the appellant was that as a dissenting financial creditor, it should receive distribution based on the value of its security interest rather than its voting share. The appellant argued that it had a first charge on two properties of the Corporate Debtor, with a liquidation value of Rs. 5.64 Crores, equating to 6.93% of the liquidation value of the assets. However, the CoC approved a distribution based on voting shares, allocating the appellant only 2.03% of the proceeds, amounting to Rs. 1,65,47,078/-. The appellant claimed this was contrary to Section 30(2)(b) of the IBC.

2. Compliance of the Resolution Plan with Section 30(2)(b) of the IBC:

The appellant argued that the Resolution Plan did not comply with Section 30(2)(b) of the IBC, which mandates the distribution to dissenting financial creditors. The appellant cited the Supreme Court's judgment in "Jaypee Kensington Boulevard Apartments Welfare Association & Ors. Vs. NBCC (India) Ltd. & Ors." to support its claim that the judicial review should ensure compliance with Section 30(2)(b). However, the tribunal noted that the plan's compliance with Section 30(2)(b) is within the commercial wisdom of the CoC and that judicial review is limited to ensuring that the plan does not contravene statutory provisions.

3. Interpretation of "Debt" and its Implications on Distribution under Section 53 of the IBC:

The tribunal clarified that "debt" as defined in Section 3(11) of the IBC refers to the liability or obligation in respect of a claim due from any person. Under Section 53(1)(b)(ii), the distribution of proceeds is based on the debt owed to a secured creditor, not the value of the security interest. The tribunal emphasized that the value of the security interest is not equivalent to the debt owed. This interpretation was supported by previous judgments, including "India Resurgence Arc Private Limited Vs. M/s. Amit Metaliks Limited & Anr." and "Union Bank of India Vs. Resolution Professional of M/s Kudos Chemie Ltd. & Ors."

4. Judicial Review of the Commercial Wisdom of the CoC:

The tribunal reiterated that the commercial wisdom of the CoC in approving the distribution of proceeds is paramount and cannot be questioned by dissenting financial creditors. The tribunal referred to the Supreme Court's judgment in "India Resurgence Arc Private Limited Vs. M/s. Amit Metaliks Limited & Anr." which upheld that the amount to be paid to different classes of creditors is determined by the CoC's commercial wisdom. The tribunal also noted that the report of the Insolvency Law Committee (March 2018) and the Statement of Objects and Reasons of the Insolvency and Bankruptcy Code (Amendment Bill), 2019, support this view.

Conclusion:

The tribunal found no error in the Adjudicating Authority's order rejecting the appellant's application. It upheld the CoC's decision to distribute the proceeds based on voting shares, finding it compliant with Section 30(2)(b) of the IBC. The appellant's arguments were deemed unsubstantial, and the appeal was dismissed.

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