Resolution plan's employee payment classification based on Rs.10 lakh threshold upheld as non-discriminatory under Section 30(2)

The NCLAT held that the resolution plan's classification of employee payments based on dues up to Rs.10 lakhs versus higher amounts was not discriminatory and fell within the CoC's commercial wisdom, as it did not violate Section 30(2) of the Code. The tribunal set aside the adjudicating authority's direction for CoC to redetermine CIRP costs after plan approval, ruling that no further CoC approval was required since the resolution professional had properly determined costs through audited reports. However, the direction to withhold CIRP cost payments pending avoidance application outcomes was upheld as valid. The appeal was allowed in part.

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Issues Involved:
1. Discriminatory Classification in Resolution Plan
2. Directions for Redetermination of CIRP Cost
3. Withholding of CIRP Cost Payment to Promoters/KMPs
4. Direction to CoC to Pursue Avoidance Applications

Summary:

Issue I: Discriminatory Classification in Resolution Plan
The first issue was whether the classification in paragraph 3.3.2 of the Resolution Plan between employees with dues up to Rs.10 lakhs and those with dues above Rs.10 lakhs is discriminatory and violates Section 30(2) of the Insolvency and Bankruptcy Code (the "Code"). The Tribunal found that the classification was not discriminatory. The Hon'ble Supreme Court's judgment in M.K. Rajagopalan vs. Dr. Periasamy Palani Gounder and Anr supported the view that differential treatment of related parties is permissible. The Resolution Plan met the requirements of Section 30(2)(b) of the Code, and the liquidation value for employees was 'NIL'. Thus, the classification was upheld as falling within the commercial wisdom of the Committee of Creditors (CoC).

Issue II: Directions for Redetermination of CIRP Cost
The second issue was whether the Adjudicating Authority erred in directing the CoC to redetermine the Corporate Insolvency Resolution Process (CIRP) cost. The Tribunal noted that the CIRP cost, as defined under Section 5(13) of the Code, includes costs incurred by the Resolution Professional in running the business of the Corporate Debtor as a going concern and does not require CoC approval under Section 28. The Tribunal found the direction for redetermination of CIRP cost by the CoC unsustainable and set it aside. The Tribunal acknowledged that the Resolution Professional had obtained an audit report confirming the CIRP cost of INR 92.41 crores, which was approved by the CoC.

Issue III: Withholding of CIRP Cost Payment to Promoters/KMPs
The third issue concerned the Adjudicating Authority's direction to withhold CIRP cost payments to Promoters/Key Managerial Personnel (KMPs) pending the adjudication of avoidance applications. The Tribunal modified this direction, stating that the amount payable to Promoters/KMPs should be kept in a Fixed Deposit Receipt (FDR) and released only after the adjudication of their liability in avoidance applications. This ensures the interest of all parties and balances the need for expeditious resolution.

Issue IV: Direction to CoC to Pursue Avoidance Applications
The final issue was whether the Adjudicating Authority erred in directing the CoC to pursue avoidance applications under Sections 43, 45, 49, and 66 of the Code. The Tribunal upheld this direction, stating that the Adjudicating Authority is empowered to issue such directions post-approval of the Resolution Plan.

Conclusion:
The Tribunal partly allowed the appeal, setting aside the direction in paragraph 6.2 and modifying the direction in paragraph 6.5 regarding the withholding of payments to Promoters/KMPs. The Adjudicating Authority was directed to expeditiously decide the pending avoidance applications. Each party was ordered to bear its own costs.

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