SC sets aside NCLAT order that dissenting financial creditor should not be discriminated
[ By Kavita Krishnan ]The Supreme Court set aside an order of the National Company Law Appellate Tribunal (NCLAT) which had held that the dissenting financial creditor should not be discriminated against while approving the resolution plan.A Corporate Insolvency Resolution Process (CIRP) was initiated in 2017 against Rave Scans Private Limited (Corporate Debtor) under Section 10 of the...
The Supreme Court set aside an order of the National Company Law Appellate Tribunal (NCLAT) which had held that the dissenting financial creditor should not be discriminated against while approving the resolution plan.
A Corporate Insolvency Resolution Process (CIRP) was initiated in 2017 against Rave Scans Private Limited (Corporate Debtor) under Section 10 of the Insolvency and Bankruptcy Code, 2016 (IBC). The appellant was the resolution applicant of the Corporate Debtor, whose liquidation value was ascertained at Rs. 36 crores. Against the said amount, the appellant offered Rs. 54 crores to revive the Corporate Debtor in terms of the resolution plan. Later a resolution plan was submitted by the appellant and the Principle Bench of the National Company Law Tribunal (NCLT) approved it.
Hero Fincorp Ltd. (second respondent in the present appeal) challenged the resolution plan before the NCLAT as being discriminatory alleging that the secured financial creditors were provided with a higher percentage of their claim amounts (45%) whereas Hero Fincorp Ltd. (Hero) had been allowed a lesser percentage of its admitted claim (32.34%).
The resolution plan was based on Maintained liquidation value (LV) under Regulation 38 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
The NCLAT set aside the NCLT’s directions and required the appellant to increase the liquidation value of the offer to Hero. Consequently, an amendment was brought about on 5th October, 2018, and the provision in Regulation 38(1)(c) on liquidation value payable to financial creditors was deleted.
The NCLAT held that the order of the NCLT had failed to notice that no resolution plan could be approved discriminating against the dissenting financial creditor, in terms of the amended Regulation 38. It further held that the adjudicating authority failed to notice that the NCLAT had declared the un-amended Regulation 38(1)(c), which stipulated the liquidation value for dissenting financial creditors as illegal.
NCLAT further held that the resolution plan in this instance, which had been approved by the impugned order of the NCLT, did not conform to the test in Section 30(2)(e) of the IBC, and was discriminatory against similarly situated ‘Secured Creditors’.
The resolution applicant (appellant), aggrieved by the decision of the NCLAT in regard to its directions modifying a resolution plan to Hero which was the dissenting financial creditor appealed to the Supreme Court of India.
The counsel for Hero Fincorp Ltd. Amit Sibal maintained that the Supreme Court should not interfere with the impugned order of the NCLAT. He relied on the observations in Swiss Ribbons and Section 30 of the IBC, which held that creditors falling within one description or class cannot be discriminated against.
The Supreme Court observed that Hero was provided with 32.34% of its admitted claim as it had dissented with the resolution plan. On the other hand, Tata Capital Financial Services Ltd. was provided with 75.63% of its admitted claim and the other financial creditors (Indian Overseas Bank, Bank of Baroda and Punjab National Bank) were provided with 45% of their admitted claims.
Further, the Supreme Court ruled that given that the resolution process began even before the amended regulation came into force (in January, 2017) and the resolution plan was prepared and approved before that event, the wide observations of the NCLAT, requiring the appellant to match the payout (offered to other financial creditors) to Hero, was not justified.
The Apex Court noticed that the liquidation value of the corporate debtor was ascertained at Rs. 36 crores. Against the said amount, the appellant offered Rs. 54 crores. The plan was approved and, except the objections of the dissenting creditor (i.e Hero), the plan had attained finality. Having regard to these factors and circumstances, it was held that the NCLAT’s order and directions were not justified and was therefore set aside.
The Supreme Court restored the order of the NCLT.
A bench of Justices Arun Mishra and S. Ravindra Bhat presided over the case.