Creditors Belonging to Different Classes Can Be Given Different Treatment: NCLAT - Synopsis
Dilpreet Singh 9 Mar 2020

The National Company Law Appellate Tribunal has reconfirmed the principle that the touchstone for judging a resolution plan does not rely on how it handles different-placed creditors. In response to the judgment recently passed by the Supreme Court in the case entitled 'Committee of Essar Steel v. Satish Kumar Gupta' passed on 15 November 2019, the NCLAT, in the appeal entitled 'Pacific World Shipping Pvt. Ltd. v. Dadi Impex Pvt. Ltd.', Carrying Company Appeal Bearing No. 728 of 2019, held that when a resolution plan successfully met the benchmark specified in Section 30(2) of the Insolvency and Bankruptcy Code (Amendment Act), 2019

On behalf of the COC, it was claimed that the 2% of their respective claim sums allocated to the Operational Creditors under the resolution plan exceeded the amount that the Appellant and other Operational Creditors would have received in the case of the corporate debtor's liquidation and therefore the resolution plan met the requirements of S.30(2)(b) of the Code [both unamended & amended]. It was stressed that, in the case of the liquidation of the Corporate Debtor ['Situation 1'], the amount to be charged to the Operational Creditors must be greater than either the sum to be paid to those Operational Creditors under Section 53 of the Code or the amount to be allocated under the resolution plan in accordance with the priority order set out in Section 53 ['Situation 2 ']. Under Situation 1, the sum payable to the operational creditors was NIL in the instant case, and in Situation 2, the amount payable to the operational creditors was also NIL. Nonetheless, as far as the debt owed to the Operational Creditors is concerned, the Resolution Plan recommended, as accepted, a payment of 2% of their claim

It was also argued that a Resolution Plan approved pursuant to Section 31(4) of the Code would be binding on all stakeholders, including all creditors, whatever class they might belong to, particularly if the CoC's decision to approve the Resolution Plan was properly considered in the interests of stakeholders. The bench appreciating the arguments put forward on behalf of the COC held that the Operational Creditors had objected to the 2 percent allocation for Operational Creditors when the Resolution Project was being discussed, and the minutes revealed that the Resolution Applicant had claimed that it would not be able to pay such a high amount. Thus, the issue was addressed at the COC meetings and it appears that the lead bank, the State Bank of India, has made changes to the Resolution Plan and has eventually accepted the same thing. It is noticed that the MSME has proposed paying of 100% debts of the Financial Creditors not as upfront.

In view of the unpaid debts and the liquidation value, the COC approved some restructuring, only to keep the Corporate Debtor a concern going. When the lead Bank has shown concern to accept changes to keep the MSME a going concern, it does not appear acceptable to the Hon'ble Bench to move the same to liquidation. Holding, as aforesaid the Hon'ble Tribunal was satisfied to deny the Appeal.

The Bench heard arguments on behalf of the Committee of Creditors, represented by the lead Bank, i.e. State Bank of India, which was represented by Mr. Nakul Sachdeva [Partner– L&L Partners (formerly Luthra & Luthra Law Offices)], Mr. Aakarshan Sahay [Managing Associate– L&L Partners (formerly Luthra & Luthra Law Offices)] and Mr. Damandeep S. Bhalla [Sr. Associate– L&L Partners (formerly Luthra & Luthra Law Offices)]. The Resolution Applicant was represented by Mr. Rahav Sankar, Ms. Arshiya Sharda and Ms. Ekta Bhasin, from Argus, Partners. The Appellant was represented by Mr. Rudreshwar Singh, Mr. Anjur Kashyap, Mr. Kaushik Poddar and Mr. Rohit. The Resolution Professional was represented by Mr. Nitesh Jain.

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