2023 (11) TMI 1034 - AT - Insolvency and Bankruptcy

NCLAT allows resolution plan extinguishing security interests of dissenting financial creditors under Section 30(2) IBC

Puro Naturals JV Versus Warana Sahakari Bank & Ors., Ritesh R Mahajan Versus Shree Warana Sahakari Bank & Ors. And Narayan Shivaji Patil & Ors. Versus Shree Warna Sahakari Bank Ltd. & Ors.

NCLAT Principal Bench allowed the application challenging the adjudicating authority's rejection of a resolution plan. The tribunal held that the ... Approval of Resolution Plan - Plan providing for extinguishment of security interest and the guarantees of the Financial Creditors including dissenting Financial Creditors - payment, proposed to the dissenting Financial Creditors in the Resolution Plan - contrary to the provision of Section 30, sub-section (2) and the CIRP Regulations or not. Whether Resolution Plan providing for extinguishment of security interest and the guarantees of the Financial Creditors including dissenting Financial Creditors is contrary to the provision of Section 30, sub-section (2) and the CIRP Regulations? - HELD THAT:- The present is a case where CoC deliberated over the issue and on such deliberation and inputs, the Successful Resolution Applicant submitted revised Resolution Plan and the Resolution Plan dealt with security interest and the personal guarantee also - Resolution Plan in question has consciously dealt with securities and personal guarantees given to the Financial Creditors including the dissenting Financial Creditors and the said clauses of the Resolution Plan do not contravene any provisions of Section 30, sub-section (2) as well as CIRP Regulations, 2016. The view of the Adjudicating Authority that Resolution Plan is contrary to provisions of Section 30, sub-section (2) is unsustainable and deserved to be set-aside. Whether the payment, which have been proposed to the dissenting Financial Creditors in the Resolution Plan, is contrary to the provisions of Section 30, sub-section (2) and CIRP Regulations? - HELD THAT:- According to the scheme of the IBC, the payment to which a Financial Creditor, who does not vote in favour of the Resolution Plan is entitled for payment in accordance with sub-section (1) of Section 53, in the event of liquidation of the Corporate Debtor and further dissenting Financial Creditor has to be paid in priority to the Financial Creditors who vote in favour of such Resolution Plan. The submission advanced on behalf of learned Counsel for Respondent Nos.1 and 2 that dissenting Financial Creditors are entitled to upfront payment is not in line with the statutory scheme as contained in the IBC and the CIRP Regulations. There is no provision which can be pointed out, which requires Successful Resolution Applicant to make upfront payment to the dissenting Financial Creditors - The Successful Resolution Applicant having himself come out to make entire payment to the dissenting Financial Creditor within 90 days, it is opined that there can be no question of any contravention of provisions of IBC as well as CIRP Regulations with regard to payment to dissenting Financial Creditors. In the present case, it not the case of Respondent Nos.1 and 2 that they are not receiving the payment, which they could have been entitled under Section 53, sub-section (1). What have been contended is that payment to them is not in priority as compared to the payment to assenting Financial Creditors - it is found that payment as provided in Resolution Plan is in accordance with the priority to the dissenting Financial Creditors, hence, there are no substance in the above submission. The order impugned passed by the Adjudicating Authority is unsustainable and deserves to be set aside and the Application filed by RP deserves to be allowed - Application allowed. Issues Involved:1. Whether the Resolution Plan providing for extinguishment of security interest and personal guarantees of the Financial Creditors is contrary to Section 30(2) and CIRP Regulations.2. Whether the payment proposed to the dissenting Financial Creditors in the Resolution Plan is contrary to Section 30(2) and CIRP Regulations.Summary:Issue 1: Extinguishment of Security Interest and Personal GuaranteesThe Adjudicating Authority rejected the Resolution Plan on the grounds that it sought to extinguish the personal guarantees and securities without the consent of dissenting Financial Creditors, relying on a judgment from the NCLT Indore Bench. However, this judgment was set aside by the Appellate Tribunal, establishing that the security interest of dissenting Financial Creditors by virtue of personal guarantees could be dealt with in the Resolution Plan. The Tribunal held that the commercial decision of the CoC to accept the value for relinquishment of personal guarantees could not be impugned by dissenting Financial Creditors. Consequently, the Adjudicating Authority's view that the Resolution Plan contravened Section 30(2) was deemed unsustainable.Issue 2: Payment to Dissenting Financial CreditorsThe dissenting Financial Creditors argued that the payment to them was not in accordance with Section 30(2) and Regulation 38, as it was not upfront and not in priority over assenting Financial Creditors. The Tribunal clarified that the statutory scheme does not mandate upfront payment but requires that dissenting Financial Creditors be paid in priority. The Resolution Plan provided for payment to dissenting Financial Creditors in priority, which was in compliance with the law. Additionally, the Successful Resolution Applicant offered to make full payment to dissenting Financial Creditors within 90 days of the Plan's approval, further aligning with legal requirements.ConclusionThe Tribunal found that the Resolution Plan did not contravene any provisions of Section 30(2) or the CIRP Regulations and that the Adjudicating Authority's rejection of the Plan was erroneous. The Tribunal allowed the appeals, set aside the impugned order, and approved the Resolution Plan submitted by Puro Naturals JV, directing steps for its implementation. The applications filed by the dissenting Financial Creditors were rejected.