2024 (9) TMI 411 - AT - IBC

NCLAT upholds resolution plan with zero payment to operational creditor under Section 30(2)(b) following Essar Steel precedent

NCLAT dismissed operational creditor's challenge to approved resolution plan proposing zero payment. Court held Section 30(2)(b) requires operational ... Challenge to approved Resolution Plan - no consideration with regard to payment to Operational Creditor - Operational Creditor not been proposed any amount in the Resolution Plan - HELD THAT:- Section 30(2)(b) provides that payment of debts of the Operational Creditors shall not be less than the amount to be paid to such Creditor in the event of Liquidation of the Corporate Debtor under Section 53. Hon’ble Supreme Court in the matter of COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LIMITED THROUGH AUTHORISED SIGNATORY VERSUS SATISH KUMAR GUPTA & OTHERS [2019 (11) TMI 731 - SUPREME COURT], has categorically laid down that the scope of interference in decision of the CoC regarding the approval of the Resolution Plan. The Hon’ble Supreme Court has laid down that payment to different class of Creditors can be different payment and entitlement of Operational Creditor is not less than payment which becomes due in event the Corporate Debtor is liquidated. It has been held by the Hon’ble Supreme Court that so long as the provisions of the Code and Regulations having met, it is the commercial wisdom of the CoC which is to negotiate and accept the Resolution Plan which may involve differential payment to different classes of Creditors. The Hon’ble Supreme Court while noticing the jurisdiction of the Adjudicating Authority and Appellate Tribunal has held that provisions investing jurisdiction in NCLT and NCLAT has not made the commercial wisdom exercise by CoC of not approving the Plan rejecting the same justiciable. Hon’ble Supreme Court held that Adjudicating Authority is circumscribed by Section 30(2). As per the provision of Section 30(2)(b) Operational Creditor has to be paid not less than the amount which would have been payable in event the Corporate Debtor is liquidated under Section 53. On notionally computing the amount which could have been payable to the Operational Creditor in the Liquidation, the amount comes as NIL since sole Financial Creditor itself is not able to receive its full amount. The sole Financial Creditor who is the sole Member of the CoC has approved the Resolution Plan which Plan has proposed payment of total payout to ₹23,12,50,000/- to the Financial Creditor and CIRP Cost ₹30,50,206/–. The payout as proposed in the Resolution Plan cannot be said to be violate in any manner provisions of Section 30(2)(b). It is well settled that Adjudicating Authority can interfere with commercial wisdom of CoC only when Resolution Plan violates any of the provisions of Section 30(2)(b). It is true that Operational Creditor’s claim was submitted for an amount of ₹1,54,64,926/– but as per the provisions of Section 30(2)(b), it cannot be said that in the facts of the present case there is any non-compliance of Section 30(2)(b) in proposing NIL amount to the Operational Creditor. It is true that non-payment of any payment of Operational Creditor is harsh but the law as stand today is to that effect. It is noticed that this Tribunal in the matter of Damodar Valley Corporation Vs. Dimension Steel and Alloys Pvt. Ltd. & Ors. [2022 (5) TMI 1365 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI], has observed that time has come when it should be examined by the Government to find out as to whether there are any grounds for considering change in the Legislative Scheme towards the payment to the Operational Creditor which also consists of the Government dues. It is true that Operational Creditors as the law stands now are denied any payment when the amount payable to them in the event of Liquidation is NIL, but till the Legislature comes to the aid of the claim of Operational Creditor by amending the Legislative Scheme hands of the Courts are tied to take any other view in the matter. There are no error in the Order of the Adjudicating Authority, approving the Resolution Plan which was approved by the CoC - there is no merit in the appeal - appeal dismissed. Issues Involved:1. Approval of the Resolution Plan by the Adjudicating Authority.2. Non-consideration of the Operational Creditor's claim in the Resolution Plan.3. Compliance with Section 30(2)(b) of the Insolvency and Bankruptcy Code (IBC).4. Commercial wisdom of the Committee of Creditors (CoC).5. Judicial review of the CoC's decision.Detailed Analysis:1. Approval of the Resolution Plan by the Adjudicating Authority:The appeal was filed by an Operational Creditor challenging the Order dated 21.04.2022 by the National Company Law Tribunal (NCLT), New Delhi Bench, which approved the Resolution Plan submitted by the Resolution Professional (RP). The Operational Creditor was aggrieved as the Resolution Plan did not propose any amount for them.2. Non-consideration of the Operational Creditor's claim in the Resolution Plan:The Corporate Debtor was put into Corporate Insolvency Resolution Process (CIRP) on 16.06.2020. The Appellant filed its claim as an Operational Creditor for Rs. 1,54,64,626/-, but the RP admitted only Rs. 93,00,564/-. The Appellant's application against the rejection of the claim was dismissed. Consequently, the Appellant filed an application for rejecting the Resolution Plan, which was also dismissed. The Resolution Plan proposed Rs. 2312.50 Lakhs to the sole Financial Creditor and 100% CIRP Cost of Rs. 30,50,206/-, but no amount was proposed for the Operational Creditor.3. Compliance with Section 30(2)(b) of the Insolvency and Bankruptcy Code (IBC):Section 30(2)(b) mandates that the payment of debts to Operational Creditors should not be less than the amount payable in the event of liquidation. The Supreme Court in the case of 'Committee of Creditors of Essar Steel India Ltd., Through Authorized Signatory vs. Satish Kumar Gupta & Ors.' clarified that the entitlement of Operational Creditors is not less than what they would receive in liquidation. In this case, the liquidation amount payable to the Operational Creditor was NIL, as the Financial Creditor itself was not receiving the full amount of its claim.4. Commercial wisdom of the Committee of Creditors (CoC):The Supreme Court has emphasized that the commercial wisdom of the CoC is paramount and should not be interfered with unless it violates Section 30(2)(b). The CoC approved the Resolution Plan, which proposed a total payout of Rs. 23,12,50,000/- to the Financial Creditor and CIRP Cost of Rs. 30,50,206/-. The Adjudicating Authority noted that the proposed payout did not violate Section 30(2)(b).5. Judicial review of the CoC's decision:The Supreme Court has limited the scope of judicial review regarding the CoC's decision on the approval of the Resolution Plan. The Adjudicating Authority can only interfere if the Resolution Plan violates Section 30(2)(b). The Tribunal in 'Hammond Power Solutions Private Limited vs. Mr. Sanjit Kumar Nayak & Ors.' set aside the order approving the Resolution Plan due to non-consideration of Operational Creditors. However, in this case, the Tribunal found no violation of Section 30(2)(b) as the liquidation value payable to the Operational Creditor was NIL.Conclusion:The Tribunal concluded that the non-payment to the Operational Creditor was harsh but compliant with the current legal framework. The appeal was dismissed, and the order of the Adjudicating Authority approving the Resolution Plan was upheld. The Tribunal suggested that the legislative scheme regarding payment to Operational Creditors might need reconsideration to ensure fair and equitable distribution.