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

The NCLAT dismissed an appeal by a related party unsecured financial creditor challenging its treatment in a resolution plan. The appellant sought parity with other financial creditors and disputed being treated as an equity shareholder. The NCLAT held that both the Committee of Creditors and Adjudicating Authority correctly treated the appellant as an unsecured financial creditor, not an equity shareholder. The appellant was properly classified as a related party and excluded from CoC meetings, receiving nil distribution under the resolution plan. The NCLAT found no discrimination, noting only secured financial creditors received payments, while related party unsecured creditors were legitimately treated differently under IBC provisions.

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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.

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