Differential treatment of operational creditors upheld where linked to plan viability and liquidation value under insolvency law.

A resolution plan may validly differentiate between operational creditors where the classification has a rational nexus with the plan's feasibility and viability, and operational creditors receive at least liquidation value. Differential treatment of project land lessors was upheld because it supported the hotel business as a going concern and reflected commercial wisdom. The appellate tribunal could not rework the approved distribution on equitable grounds or disturb the committee of creditors' allocation. A condition precedent tied to contractual project requirements was held valid, MSME status did not confer special protection on operational creditors, and a post-CIRP arbitral award created no independent entitlement contrary to the approved plan.

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Issues: (i) Whether a separate sub-class of operational creditors, described as special operational creditors, could be created within the operational creditor class; (ii) whether differential treatment inter se operational creditors was permissible on the facts; (iii) whether the appellate tribunal could direct redistribution of plan amounts without disturbing the approved resolution plan and the commercial wisdom of the committee of creditors; (iv) whether the condition precedent in the approved resolution plan was contrary to the Code and Regulations; (v) whether MSME status conferred special protection on operational creditors in CIRP; and (vi) whether the post-CIRP arbitral award had any impact on the approved resolution plan.

Issue (i): Whether a separate sub-class of operational creditors, described as special operational creditors, could be created within the operational creditor class.

Analysis: The operative framework under the Code recognises financial creditors and operational creditors, and the statutory definitions do not create a distinct category called special operational creditor. At the same time, the plan had treated the lessors of the project land differently because of their special role in the business structure of the corporate debtor. The distinction was examined in the context of feasibility of the plan and the need to keep the corporate debtor as a going concern.

Conclusion: The creation of a separate treatment for the identified operational creditors was upheld in the facts of the case and the issue was answered against the appellants.

Issue (ii): Whether differential treatment inter se operational creditors was permissible on the facts.

Analysis: The governing standard is that operational creditors must receive at least the amount payable under liquidation, and distribution under the plan must be fair and equitable. The decision distinguished cases where differential treatment lacked nexus with revival from the present plan, where preferential treatment to the land lessors was linked to the continuing viability of the hotel business and was funded by reducing the haircut of financial creditors. The tribunal applied the principle that commercial wisdom may recognise different treatment for differently placed creditors.

Conclusion: Differential treatment among operational creditors was held permissible on these facts, and the issue was decided in favour of the respondents.

Issue (iii): Whether the appellate tribunal could direct redistribution of plan amounts without disturbing the approved resolution plan and the commercial wisdom of the committee of creditors.

Analysis: Once a resolution plan meets the requirements of the Code and is approved, judicial interference with the manner of distribution chosen by the committee of creditors is confined to statutory compliance. The tribunal held that it could not rework the allocation on equitable grounds or substitute its own view for the commercial assessment made during the resolution process.

Conclusion: No jurisdiction existed to order redistribution of the plan proceeds in the manner sought by the appellants, and the issue was answered against them.

Issue (iv): Whether the condition precedent in the approved resolution plan was contrary to the Code and Regulations.

Analysis: The condition precedent required consent of the project lessors for change of control and restructuring, reflecting pre-existing contractual arrangements essential to the project structure. The tribunal treated such a condition as integral to implementation of the plan rather than as an impermissible contingency, and found it aligned with the business realities of the corporate debtor.

Conclusion: The condition precedent was held valid and the challenge failed.

Issue (v): Whether MSME status conferred special protection on operational creditors in CIRP.

Analysis: The tribunal noted that the special protections under the insolvency framework for MSMEs are directed to MSME corporate debtors and not to MSME creditors. The non-obstante effect of the insolvency code prevailed over the MSMED Act, and no separate preferential treatment for MSME operational creditors was found in the statutory scheme.

Conclusion: MSME status did not entitle the appellants to any additional protection as operational creditors, and the issue was decided against them.

Issue (vi): Whether the post-CIRP arbitral award had any impact on the approved resolution plan.

Analysis: The tribunal held that post-CIRP recoveries or awards form part of the corporate debtor's assets and do not create a separate entitlement in favour of operational creditors unless the approved plan so provides. The award challenge and any potential proceeds were already within the plan's commercial structure, and the appellate forum could not reopen that allocation.

Conclusion: The arbitral award had no independent impact on the approved plan, and the issue was answered against the appellants.

Final Conclusion: The approved resolution plan was found to comply with the Code, the objections to differential treatment and condition precedent were rejected, and the appeals challenging approval of the plan failed.

Ratio Decidendi: A resolution plan may validly treat differently placed operational creditors differently where the classification has a rational nexus with the feasibility and viability of the plan, the operational creditors receive at least liquidation value, and the tribunal does not transgress into the commercial wisdom of the committee of creditors.

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