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 than liquidation value when resolution value exceeds liquidation value. The tribunal directed payment of Rs. 42.09 crores to appellant bank and established that dissenting creditors receive priority in payment per Regulation 38(1)(b) of IBBI Regulations, meaning they are paid first in each instalment distribution while maintaining pro-rata calculation. The adjudicating authority erred in limiting dissenting creditor payment to minimum liquidation amounts. Appeal allowed with directions for payment by March 31, 2025.

---

---

1. ISSUES PRESENTED and CONSIDERED

The 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 ANALYSIS

Issue 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.

---