2024 (10) TMI 830 - AT - IBC

Related party unsecured financial creditor's challenge to nil distribution in resolution plan dismissed

West Coast Paper Mills Ltd. Versus Bijay Murmuria, Committee of Creditors Through Stressed Assets Stabiliozation Fund, Gloster Limited

The NCLAT dismissed an appeal by a related party unsecured financial creditor challenging its treatment in a resolution plan. The appellant sought parity ... Rejection of claim of the Appellant to be treated on par with other Financial Creditors and to make the Appellant eligible for distribution of claims as per Resolution Plan - requirement to treat the appellant as equity shareholder by the Adjudicating Authority while approving the resolution plan - discrimination of appellant vis-à-vis other Financial Creditors. Whether the appellant has been treated as an equity shareholder by the Adjudicating Authority while approving the resolution plan? - HELD THAT:- Both the CoC and Adjudicating Authority has treated the appellant as unsecured Financial Creditor. There are two entries in the category of unsecured financial creditors, in the resolution plan, one being West Coast Papers and second one is Gloster cables Ltd. In both these cases full amount of claim filed by them has been admitted by the RP. They were admitted as part of CoC. Later on, after their being identified as related parties, the RP informed the concerned parties that they could not attend the CoC meetings henceforth. The SRA has proposed NIL amount to the claimants under this head on account of them being related parties. Appellant in its submission has also accepted that he is a related party unsecured creditor. The resolution plan reflecting the status of Appellant as related party unsecured financial creditor has been approved by the CoC and Adjudicating Authority - the appellant has not been treated as equivalent to equity shareholder and such contention of Appellant is devoid of any merit. Whether the appellant has been discriminated against vis-`a-vis other Financial Creditors? - HELD THAT:- It is seen from the records that the Appellant was aware of the fact, that it was being treated as a related party and was accordingly removed from the Committee of Creditors. The same is evident from emails dated 25.01.2019 and 16.02.2019 sent by the RP to the appellant. However, the Appellant never challenged its treatment as a related party at any stage of the insolvency resolution proceedings, despite have complete knowledge of its status as that of a related party. In this case, the Appellant was held to be a related party of the Corporate Debtor. This has been admitted by the Appellant in his submission also. In the instant case, among the financial creditors, only secured financial creditors (not related to Corporate Debtor) are being paid Rs. 64.20 crores against their admitted claims of Rs. 619.24 crores. The appellant who is an unsecured financial creditor and related party to Corporate Debtor does not fall in that category as per IBC. The Court observed in Para 203 of the Judgment of M.K. Rajagopalan [2023 (5) TMI 344 - SUPREME COURT] that in the case under reference, promoter and erstwhile director who was also a contesting respondent in the matter, was also holding the post of Chairman of the said related party. It held that the Appellate Tribunal has erred in applying the principles on non-discrimination between related and non-related parties and held back the resolution plan - the Judgment of M.K. Rajagopalan squarely applies to the facts of the present case. The CoC and Adjudicating Authority were well within their rights not to treat a related party unsecured creditor on par with secured financial creditors - there are no infirmity in the order of Adjudicating Authority in this regard. There are no merit in the present appeal and the same is hereby dismissed. Issues Involved:1. Whether the appellant has been treated as an equity shareholder by the Adjudicating Authority while approving the resolution plan.2. Whether the appellant has been discriminated against vis-`a-vis other Financial Creditors.Issue-wise Detailed Analysis:1. Treatment of the Appellant as an Equity Shareholder:The appellant contended that the Adjudicating Authority equated them with equity shareholders, which they argued was incorrect. The Adjudicating Authority's order, particularly paragraph 75, was scrutinized to determine if the appellant was indeed treated as an equity shareholder. The Tribunal found that the reference to the waterfall mechanism and Section 53(1)(h) of the IBC in the order seemed to be a typographical error, and it should have referenced Section 53(1)(d). The resolution plan clearly treated the appellant as an unsecured financial creditor, and the Adjudicating Authority did not equate the appellant with equity shareholders. Both the CoC and Adjudicating Authority treated the appellant as an unsecured financial creditor, and the resolution plan reflected this status. Thus, the Tribunal concluded that the appellant was not treated as an equity shareholder, and this contention was without merit.2. Discrimination Against the Appellant vis-`a-vis Other Financial Creditors:The appellant argued that they were discriminated against as they were not provided for in the resolution plan, unlike other financial creditors. The Tribunal examined whether the appellant, as a related party unsecured financial creditor, was entitled to the same treatment as unrelated financial creditors. The Tribunal referred to the Supreme Court judgment in M.K. Rajagopalan, which clarified that there is no provision in the IBC mandating that related parties be paid in parity with unrelated parties. The Supreme Court emphasized that differential payments to different classes of creditors are subject to the commercial wisdom of the CoC, and no fault can be found with a resolution plan for not making provisions for related parties if the provisions of the IBC and CIRP Regulations are met. The Tribunal found that the appellant, being a related party unsecured financial creditor, was not entitled to the same treatment as secured financial creditors. The CoC and Adjudicating Authority were within their rights to treat the appellant differently, and there was no discrimination. The Tribunal upheld the Adjudicating Authority's decision, finding no infirmity in the order.Conclusion:The Tribunal dismissed the appeal, concluding that the appellant was not treated as an equity shareholder and was not discriminated against in the resolution plan. The decision of the Adjudicating Authority was upheld, and the appeal was found to lack merit.