NCLAT urges IBBI to consider modifying the legislative scheme

NCLAT urges IBBI to consider modifying the legislative scheme

The tribunal directed the government and the Board to examine the payments to the Operational Creditors

The National Company Law Appellate Tribunal (NCLAT) has urged the Central government and the Insolvency and Bankruptcy Board of India (IBBI) to consider making changes to the legislative scheme. It said that it would facilitate equitable distribution of payments to operational creditors in the insolvency process.

The bench of Justice Ashok Bhushan and Technical Member Shreesha Merla stated, "We are consistently receiving the plans, where Operational Creditors are either not paid any amount towards their claim or paid negligible amount, sometimes even less than 1 percent. In the present case, they were given claim to the extent of only 0.19 percent.

"As the law stands today, no exception can be taken to such plans, which provide payments to the Operational Creditors in accordance with Section 30(2)(b) of the Insolvency and Bankruptcy Code (IBC). However, the time has come when it should be examined by the Government and the Board to find out whether there are any grounds for considering a change in the legislative scheme towards the payment to the Operational Creditors."

The bench also pointed out that time and again the question of payment to the Operational Creditors and the manner of distribution of money routed through the Resolution Plans (RPs) were raised before various platforms.

Meanwhile, the Insolvency Law Committee Report, 2018 had also deliberated upon the objection to the IBC Section, which provided minimum payment of liquidation value. However, the Committee decided against any amendment and retained the minimum value to be paid to the Operational Creditors.

Because of this, the bench had dismissed the appeal filed by an Operational Creditor challenging the RP approved by a Committee of Creditors (CoC). It had said that it was pursuant to the RP that the appellant had not received a fair amount.

However, the entire process of entertaining the RP, including its approval, was challenged by the appellant. He maintained that the Plan was received after the expiry of 330 days, the maximum time allowed under IBC.

He also contended that before the Corporate Insolvency Resolution Process (CIRP), the corporate debtor owed an electricity bill of over Rs.36 crore, whereas the amount it received by way of the RP was Rs.7.45 lakh.

On behalf of the appellant, Senior Counsel Maninder Acharya objected that the Plan did not comply with IBC, as the appellant had not received an equitable amount.

Appearing for the respondents, Senior Advocate Joy Saha submitted that the claims raised by the appellants before the initiation of the CIRP stood extinguished. Also, the distribution did not violate any provisions of IBC.

Relying on the judgment of the Supreme Court in an earlier case, the bench dismissed the argument. It held that the timeline to approve the RP was not mandatory. And in certain cases, it could even be extended.

Citing another case and the judgment, the bench held, "The mere fact that Operational Creditors and Financial Creditors are not paid the same amount and the same percentage, cannot be said to be inequitable. It is settled that IBC Regulations do not contemplate that there could be equal treatment for all creditors. The equitable treatment of creditors is equitable treatment only within the same class."

Refusing to intervene in the National Company Law Tribunal (NCLT) order, it directed that a copy of the judgment be communicated to the Ministry of Corporate Affairs and the IBBI to take necessary steps.