Secured financial creditors should not be discriminated on the ground of dissenting vote: NCLAT
Allowing the appeal of Hero Fincorp Ltd, the appellate tribunal said that the amended regulations of the Insolvency & Bankruptcy Code (I & B Code) does not discriminate between similarly situated “secured financial creditors” on the ground of dissenting vote.The National Company Law Appellate Tribunal (NCLAT) held that “secured financial creditors” should not be discriminated on...
Allowing the appeal of Hero Fincorp Ltd, the appellate tribunal said that the amended regulations of the Insolvency & Bankruptcy Code (I & B Code) does not discriminate between similarly situated “secured financial creditors” on the ground of dissenting vote.
The National Company Law Appellate Tribunal (NCLAT) held that “secured financial creditors” should not be discriminated on the ground of dissenting vote, and given separate treatment in the settlement of claims.
A Corporate Insolvency Resolution Process was initiated against M/s. Rave Scans Private Limited (Corporate Debtor) under Section 10 of the Insolvency and Bankruptcy Code, 2016 (I & B Code). The Appellant-Hero Fincorp Limited challenged the approved plan as discriminatory. According to the appellant, Hero Fincorp Limited is a Secured Financial Creditor, but it has been discriminated with similarly situated Financial Creditors.
A Revised Resolution Plan was prepared according to which Hero Fincorp Limited was provided with 32.34% of its admitted claim as it dissented with the plan. On the contrary, other creditors were provided higher percentage of claims.
The NCLAT held that according to the provisions of the I & B Code it is clear that the Board may make regulation but it should be consistent with the I & B Code and rules made therein (by Central Government) to carry out the provisions of the Code. Therefore, the provisions made by the Board cannot override the provisions of I & B Code nor it can be inconsistent.
The NCLAT relied on Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors. in which it was held that “The NCLAT has, while looking into viability and feasibility of resolution plans that are approved by the committee of creditors, always gone into whether operational creditors are given roughly the same treatment as Financial Creditors, and if they are not, such plans are either rejected or modified so that the operational creditors’ rights are safeguarded.”
It was further held that the Adjudicating Authority failed to notice that no Resolution Plan can be approved discriminating the dissenting Financial Creditor. Moreover, the Resolution Plan approved by the Committee of Creditors do not confirm the test of Section 30(2) (e) of the I & B Code, being discriminatory, as having discriminated the similarly situated Secured Creditors.
NCLAT also observed that as per Section 30 (2) (b) (ii) of the I & B Code, the Resolution Plan allows to treat the Financial Creditor, who do not vote in favour of the Resolution Plan separately. However, such treatment can be given in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with section 53 (1) of the I & B Code in the event of a liquidation of the Corporate Debtor.
In the tribunal’s view, the fact that the Secured Financial Creditor has been discriminated with other Secured Financial Creditors, the Resolution Plan is violative of Section 30(2) (e) of the I & B Code.
The Corporate Debtor – Rave Scans Pvt. Ltd. was directed by the NCLAT to provide the appellant Hero Fincorp 45% of its admitted claim in place of 32.34% as shown in the ‘Resolution Plan’ and thereby equate it with all other similarly situated Secured Financial Creditors.