NCLT Approves Resolution Plan Under Sections 30(6) and 31 of IBC, Extinguishing Past Claims

The NCLT Ahmedabad approved the resolution plan under Sections 30(6) and 31 of the IBC, 2016, for the corporate debtor. All past claims were extinguished upon approval. However, the successful resolution applicant must approach relevant statutory authorities to secure licenses, leases, and other concessions, which will be considered according to established procedures. The tribunal confirmed that the resolution plan included provisions for effective implementation, satisfying the requirements under the proviso to Section 31. The application for approval of the resolution plan was allowed.

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1. ISSUES PRESENTED and CONSIDERED

1. Whether the Resolution Plan submitted under Section 30(6) read with Section 31 of the Insolvency and Bankruptcy Code, 2016 (IBC) complies with the statutory requirements for approval by the Adjudicating Authority.

2. Whether the Resolution Applicant and its related entities are eligible under Section 29A of the IBC to submit and implement the Resolution Plan.

3. Whether the Resolution Plan provides for payment to dissenting financial creditors and operational creditors in accordance with Section 30(2)(b) and Section 53 of the IBC.

4. Whether the Resolution Plan complies with the provisions relating to payment of insolvency resolution process costs under Section 30(2)(a) of the IBC.

5. Whether the Resolution Plan provides adequate management and supervision mechanisms post-approval as required under Sections 30(2)(c) and 30(2)(d) of the IBC and CIRP Regulations.

6. Whether the Resolution Plan contravenes any applicable laws, including statutory dues and claims of government authorities, especially in light of the Supreme Court judgment on statutory dues (State Tax Officer vs. Rainbow Papers Limited).

7. Whether the commercial wisdom of the Committee of Creditors (CoC) in approving the Resolution Plan, including the distribution of funds and treatment of dissenting creditors, should be interfered with by the Adjudicating Authority.

8. Whether the Resolution Plan is feasible, viable, and provides for effective implementation within the prescribed timelines.

9. Whether the rights of financial creditors against personal or corporate guarantees remain unaffected by the approval of the Resolution Plan.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Compliance of the Resolution Plan with statutory requirements under Section 30(6) and Section 31 of the IBC

- The Resolution Plan was submitted by the Resolution Professional for approval after being approved by the CoC with requisite voting share.

- The Plan includes provisions for payment of CIRP costs, operational creditors, financial creditors (including dissenting creditors), and management control post-approval.

- The Plan was examined against the requirements of Section 30(2) of the IBC and relevant CIRP Regulations, including Regulation 38.

- The Court noted that the Plan provides for CIRP costs priority payment (Rs. 65.30 crores), payment to operational creditors, and dissenting financial creditors in compliance with statutory mandates.

- The Plan includes mechanisms for management takeover by the designated Special Purpose Vehicle (SPV) and monitoring committees for supervision of implementation.

- The Plan does not contravene any law for the time being in force.

- Conclusion: The Resolution Plan complies with the statutory requirements under Sections 30(2), 30(6), and 31 of the IBC and CIRP Regulations.

Issue 2: Eligibility of the Resolution Applicant under Section 29A of the IBC

- The Resolution Professional appointed an independent agency to assess eligibility under Section 29A.

- The agency's report found the successful Resolution Applicant and its strategic investor not disqualified under Section 29A.

- Pending objections regarding eligibility were disposed of separately, confirming no disqualification.

- An affidavit confirming eligibility was filed by the Resolution Applicant.

- Conclusion: The Resolution Applicant is eligible under Section 29A to submit and implement the Resolution Plan.

Issue 3: Payment to dissenting financial creditors and operational creditors under Section 30(2)(b)

- Section 30(2)(b) mandates that operational creditors and dissenting financial creditors receive not less than the liquidation value or the amount payable under Section 53, whichever is higher.

- The Plan proposes payment to dissenting secured financial creditors at Rs. 39.52 crores, corresponding to liquidation value.

- The Court referred to Supreme Court precedent clarifying that the minimum payment to dissenting financial creditors should be fair and equitable and generally the higher amount as per Section 30(2)(b) and Explanation 1.

- An affidavit was filed stating that if dissenting creditors had consented, they would have received Rs. 63.32 crores.

- Despite this, dissenting secured financial creditors holding 5.14% voting share did not object to the proposed payment.

- The Court held that the provision is beneficial to dissenting creditors and that the commercial wisdom of the CoC in deciding distribution must be respected, absent discrimination or non-compliance.

- Operational creditors are proposed to receive Rs. 3.08 crores, which is above the liquidation value.

- Conclusion: The Plan complies with Section 30(2)(b) and CIRP Regulations regarding payments to dissenting financial and operational creditors; the CoC's commercial wisdom is upheld.

Issue 4: Payment of insolvency resolution process costs under Section 30(2)(a)

- The Plan provides for payment of CIRP costs amounting to Rs. 65.30 crores within 90 days of approval.

- This payment is prioritized over other debts, in accordance with Section 30(2)(a).

- Conclusion: The Plan complies with the requirement for payment of insolvency resolution process costs in priority.

Issue 5: Management and supervision mechanisms post-approval under Sections 30(2)(c) and 30(2)(d)

- The Plan provides for takeover and management of the Corporate Debtor by the SPV "Hazel Infra Limited."

- Clause 26.7 mandates formation of the Board of Directors with nominees of the Resolution Applicant within 14 days of closing.

- Clause 29 provides for a monitoring committee responsible for supervision from approval date until 30 days post-closing, and thereafter a Monitoring Agency to oversee implementation until obligations are fulfilled.

- Conclusion: The Plan satisfies requirements for management control and supervision post-approval.

Issue 6: Compliance with laws and statutory dues, including impact of Supreme Court judgment on statutory dues

- The Supreme Court judgment in State Tax Officer vs. Rainbow Papers Limited was considered regarding statutory dues' priority and treatment in CIRP.

- The Resolution Professional admitted claims of Maharashtra VAT and GST departments aggregating Rs. 14.37 crores.

- The MVAT Act Section 37 provides statutory dues as first charge, subject to central legislation creating first charge (financial creditors).

- Maharashtra GST Act Section 82 provides tax as first charge, except as otherwise provided in IBC.

- Ministry of Finance Notification treats pre-CIRP GST dues as operational debt.

- The CoC submitted that statutory secured creditors cannot raise claims at this stage to alter the Plan and that the Supreme Court judgment does not apply to secured creditors.

- The Court accepted that the Plan does not require revision or modification in light of statutory dues and the judgment.

- Past claims stand extinguished as per settled law, but statutory rights like licenses and leases remain subject to appropriate applications to authorities.

- Conclusion: The Plan complies with statutory dues provisions and applicable law, including judicial precedents.

Issue 7: Interference with commercial wisdom of the Committee of Creditors

- Supreme Court precedent establishes that the Adjudicating Authority cannot interfere with the commercial wisdom of the CoC if the Plan complies with the Code and Regulations.

- The payment to dissenting financial creditors, distribution of funds, and other commercial decisions fall within the CoC's domain.

- The dissenting secured financial creditors did not object to the distribution proposed.

- Conclusion: The Court refrained from interfering with the CoC's commercial wisdom, upholding the Plan's approval.

Issue 8: Feasibility, viability, and effective implementation of the Resolution Plan

- The Plan provides a detailed implementation schedule over five years.

- Sources of funds include promoter contribution, loans, and anticipated internal accruals from operations totaling approximately Rs. 2957.86 crores.

- The Resolution Applicant undertakes to ensure payments even if internal accruals fall short.

- The Plan includes provisions for approvals, timelines, and monitoring mechanisms.

- Conclusion: The Plan is feasible, viable, and contains adequate provisions for effective implementation.

Issue 9: Rights of financial creditors against personal or corporate guarantees post-approval

- The Court clarified that financial creditors retain the right to pursue guarantees independent of the Resolution Plan's approval.

- There will be no right of subrogation of such guarantors against the Corporate Debtor.

- Conclusion: Approval of the Resolution Plan does not affect guarantors' rights to recover dues.

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