2024 (4) TMI 305 - AT - Insolvency and Bankruptcy

NCLAT upholds escrow order limiting protection to Rs.1 lakh from resolution plan despite Rs.132 crore claim under Section 30(2)

The NCLAT dismissed an appeal challenging the interpretation of an escrow account order dated 30.11.2023. The appellant claimed the entire Rs.132 crores ... Approval of Resolution Plan - what is the import of order dated 30.11.2023, whether the entire amount of claim of Rs.132,89,52,568/- was to be kept in escrow account or only the amount provided in the plan against the admitted claim has to be kept in the escrow account? - HELD THAT:- On looking into Para 41 and 42 of the order, it is clear that what was intended by the Adjudicating Authority was that value provided against the claim in the plan should be held in escrow account subject to decision in the execution petition. Resolution Plan has provided amount of Rs.1 Lakh against the claim of the Appellant and the Successful Resolution Applicant proposed to pay said amount to the Appellant. The submission of the Appellant that order meant that entire amount of Rs.132 crores be kept in escrow account cannot be accepted. The order dated 30.11.2023 cannot be read to mean that amount of Rs.132,82,52,568/- has to be kept in escrow account. Hon’ble Supreme Court in COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LIMITED THROUGH AUTHORISED SIGNATORY VERSUS SATISH KUMAR GUPTA & OTHERS [2019 (11) TMI 731 - SUPREME COURT] has held that allocation of plan value to different category of creditors can be different. It was held that Operational Creditor has to be given priority of payment above all Financial Creditors. It is also relevant to notice that commercial wisdom of the CoC in approving Resolution Plan has to be given paramount importance and NCLT and this Appellate Tribunal can interfere in the order approving the Resolution Plan only when there is violation of statutory provisions of Section 30(2) of the Code. Present is not a case where violation of any statutory provision under Section 30(2) of the Code has been alleged by the Appellant. Appellant’s claim was accepted as ‘Other Creditor’ and in the allocation of amount of Rs.1 Lakh against the claim of the Appellant it is not shown that there is any violation of any statutory provision. There are no ground to interfere with the order passed by the Adjudicating Authority approving the Resolution Plan - there are no error in the order impugned - appeal dismissed. Issues Involved:1. Qualification of the Appellant's claim as 'financial debt' or 'other debt'.2. Legality of admitting only Rs.1 against the Appellant's claim of Rs.132,89,52,568/-.3. Approval of the Resolution Plan by the Adjudicating Authority.Summary:Issue 1: Qualification of the Appellant's claim as 'financial debt' or 'other debt'The Adjudicating Authority held that the Appellant cannot be considered a Financial Creditor but should be allowed as an 'Other Creditor' since the debt arises from a foreign award. The Appellant is not entitled to participate in the Committee of Creditors (CoC) meetings during the CIRP process.Issue 2: Legality of admitting only Rs.1 against the Appellant's claim of Rs.132,89,52,568/-The Adjudicating Authority disapproved the Resolution Professional's action of admitting the Appellant's claim for a notional value of Rs.1. It was directed that the value provided against the Appellant's claim in the Resolution Plan should be held in an escrow account, subject to the outcome of the execution petition pending before the Delhi High Court. The provision in the plan against the claim made by the Appellant should be made on a fair and equitable basis, balancing the interests of all stakeholders.Issue 3: Approval of the Resolution Plan by the Adjudicating AuthorityThe Appellant challenged the approval of the Resolution Plan, arguing that it did not balance the interests of all stakeholders and that the amount of Rs.132,89,75,268/- should be kept in an escrow account. The Resolution Professional and the Successful Resolution Applicant contended that the plan allocated Rs.1 Lakh for the Appellant, and there was no direction to keep the entire amount in escrow. The commercial wisdom of the CoC in approving the plan was emphasized, and it was noted that the liquidation value of the Corporate Debtor was insufficient to discharge the debts of Secured Financial Creditors, making the Appellant's entitlement 'Nil' under the waterfall mechanism u/s 53 of the Code.Conclusion:The Appellate Tribunal found no violation of statutory provisions u/s 30(2) of the Code in the allocation of Rs.1 Lakh against the Appellant's claim. The order dated 04.01.2024 approving the Resolution Plan was upheld, and the appeal was dismissed.