Judicial review of the CoC decision is available only within the ambit of Section 30(2)
The National Company Law Tribunal (NCLT), Mumbai Bench, in the matter of Shree Vindhya Paper Mills Limited I.A. No. 784 of 2020, rejected the Application to direct the Resolution Applicant to revise the Resolution Plan to the extent of revising and improving the settlement of claim amount to be offered to the Applicant and the 2nd charge holders as the offer of 0.5% on principal outstanding envisaged under the proposed Resolution Plan is very low.
The Applicant (Financial Creditor) submitted that the Resolution Plan approved by the Committee of Creditors (CoC) provides payment of only 0.5% of the principal outstanding of the Applicant who had a second charge on the immovable property of the Corporate Debtor. Since the Applicant is the second charge holder, the Applicant had to compromise almost the entire outstanding dues and the Corporate Insolvency Resolution Process (CIRP) had not ensured any benefit to the Applicant. It was also contended that the Resolution Plan is afflicted with vices of manifest arbitrariness and unfairness.
On behalf of the respondent (Corporate Debtor which was put under Corporate Insolvency Resolution Process) it was contended that the Corporate Debtor was non-functional since 2005; the Resolution Applicants have not made any improvement in the offer of 0.5% proposed to the second charge holders; the Plan has been approved with more than requisite majority of 66% as provided under Section 30(4) of The Insolvency and Bankruptcy Code, 2016 and in the 6th CoC meeting, the request for improvement in the offer of 0.5% to the second charge holders was made by one Ms Jyoti Sharma of M/s Aircel and not by the Applicant. The other two respondents (R2 and R3) have contested the application by stating that the CoC in its commercial wisdom decided to provide 0.5% to the second charge holders and the same is within the purview of the commercial wisdom of the CoC. The payment offered to the second charge holders is considerably better than the liquidation value payable to the creditors.
The NCLT referring to the judgment of Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta &Ors., affirmed that the commercial wisdom of the CoC will always prevail. The feasibility and viability of the Resolution Plan takes into account all the aspects of the Plan including the manner of distribution among the creditors. Judicial review of the CoC decision is available only within the ambit of Section 30(2).
According to the NCLT, the ultimate decision of what to pay and how much to pay toeach class/sub-class of creditors is with the CoC. The CoC has the authority to make payment based on the realisable value of the security to each creditor/class of creditors.
The Tribunal also observed that the claim that the Operational Creditors are getting more than the second chargeholders, cannot be a cause for complaint when the liquidation value attributable to both them is zero. The Tribunal has also discussed various provisions of the Code and stated that Section 30(4) of the Code provides that the CoC may approve the Resolution Plan by vote of not less than 66% of CoC after considering its feasibility and viability, the manner of proposed distribution which may take into account the order of priority among the creditors as laid down in Section 53(1) including the priority and value of security interest of a secured creditor.