NCLAT upholds proportionate distribution in resolution plan, rejects secured creditor's claim for priority distribution under Section 30(2)(b)

NCLAT dismissed an appeal by a dissenting financial creditor seeking priority distribution based on security interest. The appellant, recognized as a secured financial creditor with admitted claims, challenged the resolution plan's proportionate distribution mechanism. NCLAT distinguished the case from Vistra, noting the appellant participated in CoC proceedings and received distribution per Section 30(2)(b) of IBC. The tribunal upheld the adjudicating authority's rejection of the application, finding no error in the proportionate distribution approved by CoC rather than security-based priority distribution.

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Issues Involved:

1. Priority of Distribution of Plan Realizations.
2. Entitlement of Dissenting Financial Creditor.
3. Calculation Methodology for Distribution Amongst Secured Creditors.
4. Applicability of Section 30(2)(b) of the Insolvency and Bankruptcy Code, 2016 (IBC).

Summary:

Issue 1: Priority of Distribution of Plan Realizations

The appellant, ICICI Bank Ltd., challenged the order dated 01.03.2023, which rejected their application seeking direction for the Resolution Professional (RP) to consider the priority of distribution of plan realizations, particularly for dissenting financial creditors who are also secured creditors. The Adjudicating Authority rejected the IA, leading to this appeal.

Issue 2: Entitlement of Dissenting Financial Creditor

The appellant argued that as a dissenting financial creditor with a first charge on the assets of the corporate debtor, they were entitled to receive the liquidation value as per their security interest. They claimed that their admitted claim of Rs.15.52 crores should result in a payment of Rs.13.52 crores based on the liquidation value of secured assets. The appellant contended that the RP's proposal to pay Rs.4.54 crores was incorrect.

Issue 3: Calculation Methodology for Distribution Amongst Secured Creditors

The RP proposed a distribution methodology based on the proportion of admitted claims of secured creditors, which was approved by the Committee of Creditors (CoC) with a 78.79% vote share. The appellant objected, arguing that the distribution should consider the security interest. The CoC approved the distribution methodology as per the admitted claims, rejecting the appellant's objections.

Issue 4: Applicability of Section 30(2)(b) of the Insolvency and Bankruptcy Code, 2016 (IBC)

The appellant argued that under Section 30(2)(b) of the IBC, dissenting financial creditors are entitled to receive at least the liquidation value. The RP and CoC contended that the distribution methodology was consistent with the resolution plan and the statutory provisions. The court noted that the CoC's commercial wisdom in approving the distribution methodology could not be challenged by the dissenting financial creditor.

Conclusion:

The tribunal upheld the CoC's decision, emphasizing that the distribution based on the proportion of admitted claims was in line with the resolution plan and Section 30(2)(b) of the IBC. The appellant's claim for distribution based on security interest was rejected, aligning with the Supreme Court's judgment in India Resurgence ARC Pvt. Ltd. v. Amit Metaliks Ltd. The appeal was dismissed, affirming the Adjudicating Authority's order.

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