2025 (4) TMI 71 - AT - IBC

Dissenting financial creditors under Section 30(2) entitled to pro-rata share of resolution value, not liquidation value

NCLAT Chennai held that dissenting financial creditors under Section 30(2) of I&B Code, 2016 are entitled to pro-rata share of resolution value rather ... Payment to the Appellant (RBL Bank) in terms of Section 30(2) of the I & B Code, 2016 - dissenting financial creditors should receive priority in payment over assenting creditors as per Regulation 38(1)(b) of the IBBI Regulations, 2016 or not - determination of the fund-sharing ratio - waterfall mechanism - HELD THAT:- The Ld. Adjudicating Authority has erred in holding that the amount payable to a Dissenting Creditor is the minimum amount prescribed in Section 30(2)(b) of I & B Code, 2016, which is the amount to be determined as per Section 53(1) of the I & B Code, 2016, in the event of liquidation of the Corporate Debtor in compliance with the provision of Section 30(2) of the Code as mentioned in para 1.2.9.1.b of the approved Resolution Plan. The entitlement of Dissenting Creditor is laid down in Section 30(2)(b)(ii) along with explanation (I). Section 30(2)(b)(ii) stipulates that Resolution Plan shall provide for payment to a Dissenting Creditor, which shall not be less than the amount to be paid in accordance with Section 53(1) in the event of liquidation of the Corporate Debtor. This implies that the payment to be given shall not be less than the proportionate share of liquidation value. Explanation (I) states that the distribution under this Clause shall be fair and equitable to such Creditors. In the instant case, the resolution value is higher than liquidation value. So it is fair and equitable that the Dissenting Creditor gets a pro-rata share of the resolution value rather than the pro-rata share of the liquidation value - the Appellant in the present Appeal is seeking direction for payments to be made to the mandatory Dissenting Creditors in terms of Clause 1.2.9(1)(b) of the Resolution Plan. Clause 1.2.9(1)(b) stipulates that the payment to such Financial Creditors will be made as per Section 30(2)(b) of I & B Code, 2016, whose provisions are in variance with the order of Ld. Adjudicating Authority in IA No. 250/2023. Therefore, it will be correct to satisfy the ends of equity and justice, to hold that the Appellant will be entitled to an amount of Rs. 42.09 Crores and that all other Dissenting FCs will also be paid proportionate share of Resolution Plan value. Receiving payment in priority - HELD THAT:- The priority in payment will mean that whenever any payment is released by the Successful Resolution Applicant (SRA) to the FCs, the Dissenting Creditor will still be paid pro-rata, but first in case where SRA pays the plan amount at one go, then the issue is simple, pay dissenting FC first and then to other FCs. But in most cases, payments from Successful Resolution Applicant (SRA) will come in instalments: this being the case, payment to creditors will have to be paid in instalments. Further, even within an instalment, fund infusion may be done in stages. In such a case it may not be possible to pay in full to the Dissenting Creditors before disbursement to Assenting Creditors can start. Therefore, priority in payment will mean that whenever an amount is going to be distributed among creditors, the payment will be done pro-rata but the Dissenting Creditor has to be paid first before others. This is also in sync with the views taken by this Tribunal in para 19 of its judgment in the matter of Puro Naturals JV Vs Warana Sahakari Bank & Ors. [2023 (11) TMI 1034 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI], which has also been referred by the Ld. Adjudicating Authority. Conclusion - i) The amount determined to be paid under the Resolution Plan would be remitted by the Respondent No. 1 in consonance to the provisions contained under Section 30(2)(b) to be read with Regulation 38 to the Resolution Professional latest by 31.03.2025. ii) Respondent No. 2 will distribute the amount among the FCs in the manner as detailed in the Resolution Plan and para 18 & 19 of this judgment. iii) Simultaneously, upon the deposit of the due full amount made by Respondent No. 1, the respective Financial Creditors holding the title deeds of the assets of the Corporate Debtor will return them to the Resolution Professional, who in turn will return the same to the Respondent No. 1. Appeal allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include:Whether the payment to the dissenting financial creditors, specifically RBL Bank, was in accordance with Section 30(2) of the Insolvency and Bankruptcy Code (I & B Code), 2016, and the approved Resolution Plan.Whether the dissenting financial creditors should receive priority in payment over assenting creditors as per Regulation 38(1)(b) of the IBBI Regulations, 2016.Whether the original title documents of the Corporate Debtor's assets should be released to facilitate the sale of assets as per the approved Resolution Plan.Whether the dissenting creditors are entitled to receive their share based on the resolution value rather than the liquidation value.Whether the interest on deferred financial creditor payments should be waived until the release of original title documents.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Payment to Dissenting Financial Creditors- Relevant Legal Framework and Precedents: Section 30(2) of the I & B Code, 2016, mandates that a Resolution Plan must provide for payment to dissenting creditors not less than the amount they would receive in liquidation under Section 53(1). Regulation 38(1)(b) of the IBBI Regulations, 2016, specifies that dissenting creditors should be paid in priority over assenting creditors.- Court's Interpretation and Reasoning: The Tribunal concluded that the dissenting creditors, including RBL Bank, should receive a pro-rata share of the resolution value rather than the liquidation value. This interpretation aligns with the principle of fair and equitable distribution as outlined in the I & B Code.- Key Evidence and Findings: The Tribunal noted that the resolution value was higher than the liquidation value, justifying a pro-rata share based on the resolution value.- Application of Law to Facts: The Tribunal determined that RBL Bank's entitlement should be 9.88% of the resolution plan payout of Rs. 425.93 Crores, amounting to Rs. 42.09 Crores, rather than the liquidation value share of Rs. 34.76 Crores.- Treatment of Competing Arguments: The Tribunal addressed the competing claim by the Appellant for a higher payout based on the resolution value and the Respondent's adherence to the liquidation value.- Conclusions: The Tribunal held that RBL Bank should receive Rs. 42.09 Crores, reflecting a pro-rata share of the resolution value.Issue 2: Priority in Payment to Dissenting Creditors- Relevant Legal Framework and Precedents: Regulation 38(1)(b) of the IBBI Regulations, 2016, requires that dissenting creditors be paid in priority over assenting creditors.- Court's Interpretation and Reasoning: The Tribunal clarified that priority in payment means dissenting creditors should be paid first whenever payments are made by the Successful Resolution Applicant (SRA), but still on a pro-rata basis.- Key Evidence and Findings: The Tribunal referenced its previous judgment in Puro Naturals JV Vs Warana Sahakari Bank & Ors., which supported pro-rata payment with priority.- Conclusions: The Tribunal affirmed that dissenting creditors, including RBL Bank, should receive payments in priority over assenting creditors in a pro-rata manner.Issue 3: Release of Original Title Documents- Relevant Legal Framework and Precedents: The approved Resolution Plan included provisions for the release of title documents to facilitate asset sales.- Court's Interpretation and Reasoning: The Tribunal ordered the release of title documents to enable the sale of Corporate Debtor's assets as per the Resolution Plan.- Key Evidence and Findings: The Tribunal emphasized the binding nature of the Resolution Plan and the obligation of financial creditors to cooperate in its implementation.- Conclusions: The Tribunal directed the release of title documents to facilitate asset sales.Issue 4: Waiver of Interest on Deferred Payments- Relevant Legal Framework and Precedents: The Resolution Plan outlined terms for deferred payments and interest obligations.- Court's Interpretation and Reasoning: The Tribunal declined to waive interest on deferred payments, as the Resolution Plan did not provide for such a waiver.- Conclusions: The Tribunal upheld the interest obligations as outlined in the Resolution Plan.3. SIGNIFICANT HOLDINGS- Core Principles Established: The Tribunal reinforced the principle that dissenting creditors should receive a pro-rata share of the resolution value, not less than their share of the liquidation value, and should be paid in priority over assenting creditors.- Final Determinations on Each Issue: The Tribunal ordered the payment of Rs. 42.09 Crores to RBL Bank, directed the release of title documents, and upheld the interest obligations on deferred payments.