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

NCLAT Principal Bench allowed the application challenging the adjudicating authority's rejection of a resolution plan. The tribunal held that the resolution plan's provisions for extinguishing security interests and guarantees of financial creditors, including dissenting creditors, did not contravene Section 30(2) of IBC or CIRP Regulations 2016. The court clarified that dissenting financial creditors are not entitled to upfront payment but must receive payment in priority over assenting creditors as per liquidation waterfall under Section 53(1). Since the successful resolution applicant committed to pay dissenting creditors within 90 days with appropriate priority, the plan complied with statutory requirements. The adjudicating authority's order was set aside.

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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 Guarantees
The 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 Creditors
The 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.

Conclusion
The 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.

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