No Interference with Resolution Plan if Operational Creditors’ Claims Properly Dealt With: NCLAT

No Interference with Resolution Plan if Operational Creditors’ Claims Properly Dealt With: NCLAT

Introduction

The National Company Law Appellate Tribunal (NCLAT) has held that approval of a resolution plan cannot be interfered with merely because it provides 'NIL' payment to operational creditors, if their claims have been duly considered. The Tribunal emphasized that the current legislative scheme under the Insolvency and Bankruptcy Code (IBC) does not mandate any payment to operational creditors in the event of liquidation.

Factual Background

Three appeals were filed by operational creditors against an order of the National Company Law Tribunal (NCLT), Mumbai, which approved the resolution plan of Vadraj Cement Ltd. The operational creditors argued that the plan failed to adequately address their claims.

Procedural Background

The NCLT had approved the resolution plan, which was earlier cleared by the Committee of Creditors (CoC) with 100% voting share. Dissatisfied, the operational creditors challenged the order before the NCLAT.

Issues

1. Whether the approval of a resolution plan can be interfered with on account of 'NIL' payment to operational creditors?

2. Whether the claims of operational creditors were properly dealt with under the plan?

Contentions of the Parties

• Operational Creditors’ Contention: They argued that the plan did not make any genuine provision for their dues, despite operational creditors being entitled to consideration of claims on priority.
• Respondents’ Contention: The respondents contended that since the liquidation value attributable to operational creditors was NIL after satisfying financial creditors, no payment was due under Section 30(2)(b) of the IBC.

Reasoning and Analysis

The Bench comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) observed that while Regulation 38 of the CIRP Regulations requires that interests of all stakeholders, including operational creditors, be considered in a resolution plan, the legislative scheme does not guarantee payment to operational creditors upon liquidation.

The Tribunal further clarified that once a resolution plan is approved by the CoC with 100% voting and operational creditors’ claims are properly dealt with, the Adjudicating Authority cannot interfere merely because no monetary payout is proposed.

The NCLAT distinguished its earlier ruling in Hammond Power Solutions, noting that unlike in that case, the claims of operational creditors in this matter had been specifically addressed. It also relied on the Supreme Court’s ruling in Essar Steel, which held that the Adjudicating Authority should interfere only when a resolution plan violates provisions of the IBC.

Implications

This judgment underscores the limited scope of judicial review in resolution plan approvals and clarifies that operational creditors cannot insist on payments where liquidation value entitles them to none. It reaffirms that commercial wisdom of the CoC remains paramount under the IBC framework.

Outcome

Accordingly, the appeals were dismissed. The NCLAT held that the resolution plan approved with 100% CoC voting and providing NIL payment to operational creditors was legally valid, as their claims had been duly considered.

In this case the appellant was represented by Mr. Kunal Tandon, Sr. Advocate with Mr. Yashvardhan, Mr. Kunal Godhwani, Ms. Kinjal Chadha, Ms. Kritika Nagpal and Ms. Natasha Singh, Advocates. Meanwhile the respondent was represented by Mr. Rishabh Parikh, Mr. Gaurav Mathur and Ms. Niyati Kohli, Advocates for SRA. Mr. Viraj Parikh, Mr. Vivek Shetty, Mr. Akhilesh Menzez, Mr. Nishant Upadhyay, Ms. Alankrita Sinha and Mr. Naveet R., Advocates for RP.