2025 (11) TMI 1714 - AT - IBC

Resolution plan upheld, secured operational creditor protected under Section 13A and Section 30(2) IBC compliance

Greater Noida Industrial Development Authority Through Its Manager (Builder) Versus Devashis Nanda, RP for Bulland Buildtech Pvt. Ltd. & Anr. And CA Anil Matta, RP for Primrose Infra Tech Pvt. Ltd. & Anr.

Appeal by an operational creditor against approval of a resolution plan was dismissed by NCLAT. Relying on SC precedent, the Tribunal held the appellant ... Payout to the appellant not in accordance with 30(2) of IBC - valuation of the corporate debtor was not correctly appreciated and the liquidation value of the operational creditor has been mentioned as nil - lease premium or similar amounts falling due during the CIRP period qualify as CIRP costs and thereby have preferential treatment in distribution under a resolution plan or not. Payout to the appellant not in accordance with 30(2) of iBC - HELD THAT:- In view of the judgment of Hon’ble Supreme Court in Prabhjit Singh Soni [2024 (2) TMI 681 - SUPREME COURT (LB)] the appellant is to be treated as secured creditor by virtue of Section 13A of ‘The Uttar Pradesh Industrial Area Development Act, 1976’. The effect of said is that the appellant is to receive the amount equal to the secured financial creditors. The resolution plan proposes the payment of Rs. 16.50 crores against the admitted claim of Rs. 26,45,49,297/- which payout is more than the secured financial creditor - the payout of the appellant is in accordance with the law. Valuation of the corporate debtor - HELD THAT:- Valuation was conducted as per Regulation 35 of ‘CIRP Regulation’ and which has been accepted by the CoC and plan have been submitted relying on the said valuation. The issue of valuation cannot be allowed to be considered at the time of approval of the resolution plan. Lease premium or similar amounts falling due during the CIRP period qualify as CIRP costs and thereby have preferential treatment in distribution under a resolution plan or not - HELD THAT:- The submission of the appellant is that premium became due during the CIRP period the appellant is also entitled for the same treatment as was given in The Authorised Representative of Granite Gate Properties Pvt. Ltd [2025 (7) TMI 1460 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI] - In view of the aforesaid, there are no ground to interfere with the order rejecting the application filed by the appellant. However, in so far as the premium during the CIRP period and other charges as held in The Authorised Representative of Granite Gate Properties Pvt. Ltd. appellant shall be entitled for the same treatment as noticed in tthe above case. Application disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether the payout proposed to a statutory/operational creditor under the resolution plan complies with Section 30(2) of the Insolvency and Bankruptcy Code when that creditor is held to be a secured creditor by operation of a statutory provision conferring security rights. 2. Whether valuation of the corporate debtor and the liquidation value attributed to the operational creditor can be re-opened at the stage of approval of the resolution plan. 3. Whether lease premium or similar amounts falling due during the CIRP period qualify as CIRP costs and thereby have preferential treatment in distribution under a resolution plan. 4. Whether proceeds of actions under Section 66 (preference/avoidance / recoveries) can be assigned to a resolution applicant as part of a resolution plan, or whether such assignment is impermissible because those proceeds ought to be made available to creditors. 5. Whether the commercial wisdom of the Committee of Creditors (CoC) in approving elements of a resolution plan (including assignment of recoveries) is subject to interference at the stage of plan approval. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Compliance of payout with Section 30(2) where a statutory provision renders the operational creditor secured Legal framework: Section 30(2) mandates that a resolution plan must provide for payment to creditors in accordance with the Code; secured creditors are to be treated consistently with their security rights. Precedent treatment: The Tribunal applied the binding principle from the Supreme Court decision recognizing that a statutory provision (Section 13A of a state industrial area development Act) may render the operational/authority creditor a secured creditor for distribution purposes. Interpretation and reasoning: The Court equated the operational creditor to secured financial creditors by virtue of the statutory security, compared the quantum payable under the plan to amounts provided to secured financial creditors, and found the proposed payout (Rs. 16.50 crores against admitted claim) to be equal to or higher than amounts received by secured financial creditors; thus the plan satisfies the parity and statutory protection required by Section 30(2). Ratio vs. Obiter: Ratio - where a creditor is secured by statute, the resolution plan must treat such creditor on parity with secured creditors and the adequacy of payout is to be measured against treatment of other secured creditors. Conclusion: The payout to the statutory/operational creditor was held to be in accordance with Section 30(2); no interference with the plan on this ground. Issue 2 - Re-opening valuation and liquidation value at plan approval Legal framework: Valuation for CIRP proceeds under the CIRP Regulations (Regulation 35) and CoC reliance on such valuation when approving/accepting plans. Precedent treatment: The Adjudicating Authority and Tribunal treated valuation adopted during CIRP and accepted by the CoC as the basis for the resolution plan; the Tribunal held that valuation challenges are not ordinarily to be entertained at approval stage. Interpretation and reasoning: Valuation was carried out in accordance with Regulation 35 and relied upon by the CoC; allowing collateral attack on valuation at the approval stage would undermine the CoC process and finality of bids. Ratio vs. Obiter: Ratio - valuation accepted by CoC under CIRP Regulations is not a ground for rejecting a resolution plan at approval unless material illegality or mala fides is demonstrated. Conclusion: Valuation and liquidation value objections were not permitted to vitiate approval of the resolution plan; no interference on this ground. Issue 3 - Treatment of lease premium (and similar charges) falling due during CIRP as CIRP costs Legal framework: CIRP costs are defined under the Code and applicable jurisprudence on whether amounts like lease premiums due during CIRP qualify as CIRP costs. Precedent treatment: The Tribunal followed its prior coordinate-bench decisions which held that lease premium may not be treated as CIRP cost, but acknowledged a later protective direction in a higher appeal (Civil Appeal No. 901 of 2023) that may afford protection to the authority in certain circumstances. Interpretation and reasoning: The Tribunal considered a recent coordinate-bench decision which declined to treat lease premium as CIRP cost and felt bound by it, while also acknowledging that if the Supreme Court ultimately holds such premiums to be CIRP costs, the resolution applicant would remain liable to pay the instalments so found due. The Tribunal therefore granted the same conditional protection to the creditor as had been recognized in the prior decision: the creditor is entitled to protection and may claim amounts if higher courts determine so. Ratio vs. Obiter: Mixed - ratio that the Tribunal is bound by coordinate-bench precedent rejecting lease premium as CIRP cost; obiter/qualification that higher court outcome could mandate payment by the resolution applicant and that remedies/undertakings may be required in future plans. Conclusion: No interference with the plan on the ground that premiums were not allowed as CIRP costs; however, the creditor is entitled to the same prospective protection/relief as set out in the cited Tribunal decision should higher authority determine such premiums to be CIRP costs (cross-reference to the protective direction summarized in para-25 of the cited decision). Issue 4 - Assignment of proceeds of Section 66 actions to the resolution applicant Legal framework: Section 66 empowers action for avoidance of transactions; distribution of recoveries is governed by the Code and the commercial terms of a resolution plan approved by the CoC subject to legal compliance. Precedent treatment: The Tribunal recognized that the CoC's commercial decision to assign certain recoveries to a resolution applicant falls within its commercial wisdom unless the assignment is unlawful or contrary to the Code. Interpretation and reasoning: The assignment of Section 66 proceeds in the resolution plan was the result of CoC approval and commercial negotiations; absent demonstrable illegality or perversity, the Tribunal will not substitute its view for the CoC's commercial judgment at the approval stage. Ratio vs. Obiter: Ratio - CoC commercial wisdom in structuring plan components (including assignment of recoveries) is entitled to deference and not ordinarily interfered with on plan approval review. Conclusion: Assignment of Section 66 proceeds to the resolution applicant was not interfered with by the Tribunal; objection on this ground rejected. Issue 5 - Scope of interference with CoC commercial wisdom at plan approval Legal framework: The adjudicatory role at plan approval is limited to checking compliance with statutory requirements and public policy, not substituting judicial views for CoC commercial decisions. Precedent treatment: The Tribunal reiterated established principle that CoC's commercial wisdom is to be respected and courts/tribunals will not ordinarily interfere unless there is a violation of law or public policy. Interpretation and reasoning: The objections raised were primarily commercial and related to CoC choices (payout structure, assignment of recoveries); absent legal infirmity, these choices were upheld. Ratio vs. Obiter: Ratio - plan approval stage is not a forum to re-evaluate CoC commercial decisions; interference is limited to cases of illegality, non-compliance with statutory mandates, or contravention of public policy. Conclusion: The Tribunal declined to interfere with the CoC's commercial decisions embodied in the resolution plan; appeal dismissed subject to the conditional protection regarding CIRP-cost character of premiums as noted above.