NCLAT Delhi: Distribution To Secured Creditor Must Be Made As Per Admitted Claim And Not As Per Security Interest Over Assets Of Corporate Debtor
The National Company Law Appellate Tribunal (“NCLAT”), Delhi Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr Barun Mitra and Mr Arun Baroka (Technical Members) has dismissed an appeal and held that distribution to Secured Creditor must be made as per admitted claim and not as per Security interest over assets of the Corporate Debtor. The Bench further observed that...
The National Company Law Appellate Tribunal (“NCLAT”), Delhi Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr Barun Mitra and Mr Arun Baroka (Technical Members) has dismissed an appeal and held that distribution to Secured Creditor must be made as per admitted claim and not as per Security interest over assets of the Corporate Debtor. The Bench further observed that a dissenting financial creditor is entitled to the liquidation value of his debt and the distribution among creditors is determined by the commercial wisdom of the Committee of Creditors (“CoC”).
Background Facts
On 30.12.2020, the Corporate Insolvency Resolution Process (“CIRP”) against BKM Industries Limited (“Corporate Debtor”) was initiated in an Application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) by M/s Trimurti Associates Private Limited.
The Appellant submitted its claim in Form-C for an amount of Rs.15.52 Crores and the same was admitted by the Resolution Professional. Following this, the Appellant became a member of the CoC.
A Resolution Plan was submitted by Uniglobal Papers Private Limited (“Resolution Applicant”). In the Resolution Plan submitted by the Resolution Applicant, the amount proposed for distribution of payment towards the secured creditors was on the proportion of their admitted claim.
In the 14th CoC Meeting held on 02.05.2022, Members of the CoC had a discussion on the distribution of proceeds under the received Resolution Plan, wherein the Appellant mentioned that any distribution to be made to secured creditors must be done keeping in mind the security interest.
On 06.05.2022, the RP addressed all the Financial Creditors of the Corporate Debtor, providing the calculation methodology and the lender-wise proportional share in the liquidation value of the Corporate Debtor for the purposes of distribution as well as proportionate share as per security interest.
The Appellant raised an objection to the distribution methodology circulated by RP and claimed distribution as per security interest.
On 10.05.2022, in the 15th CoC Meeting RP proposed the Agenda for distribution of the amount offered to secured creditors either on the basis of outstanding debt or on the basis of security interest available with the respective secured lenders.
The Appellant objected to the methodology of the calculation however on 17.05.2022, the CoC approved the Resolution Plan. The Appellant filed an application in the National Company Law Tribunal (“NCLT”) however the same was dismissed.
Contentions of Appellant
The Appellant argued that the first charge on the assets of the Corporate Debtor is of the Appellant and therefore the Appellant is entitled to receive the liquidation value as per security interest.
The Appellant further argued that being a dissenting Financial Creditor he is entitled to receive liquidation value by virtue of Section 30, sub-section (2) (b) of the IBC and the same cannot be curtailed by the exercise of commercial wisdom by the CoC.
Contentions of Respondent
The Respondent opposed the submissions of the Appellant and argued that the distribution methodology has been approved by the CoC on 10.05.2022.
The Respondent further pointed out that the Resolution Plan submitted by Uniglobal Papers Private Limited has been approved and the Appellant has no right to challenge the decision of the CoC approving the distribution methodology.
The Respondent referred to the judgment of the Supreme Court Resurgence ARC Pvt. Ltd.
NCLAT Verdict
NCLAT dismissed the appeal and held that distribution to a Secured Creditor must be made as per the admitted claim and not as per Security interest over the assets of the Corporate Debtor.
NCLAT referred to the Supreme Court judgements in India Resurgence ARC Private Ltd. (supra) and Jaypee Kensington Boulevard Apartments Welfare Association v. NBCC (India) Ltd.
“From the Minutes of the 14th and 15th CoC, it is clear that specific Agenda Item was placed before the CoC for consideration as to whether distribution has to be made as per the admitted claim of the secured lenders or on the basis of security interest over assets of the Corporate Debtor. When the CoC approved the voting at Agenda Item No.1, i.e., distribution based on the proportion of admitted claim of the respective secured lenders, which was also in accordance with the Resolution Plan submitted by the Resolution Applicant, no challenge by the Appellant can be entertained.”
NCLAT concluded that dissenting financial creditors are entitled to the liquidation value of their debt. The distribution among creditors is determined by the CoC's commercial wisdom.
Case Title: ICICI Bank Limited vs BKM Industries Limited
Case No.: Company Appeal (AT) (Insolvency) No.405 of 2023
Counsel For Appellant: Mr Krishnendu Datta, Sr. Advocate with Mr Udit Mendiratta, Ms Niharika Sharma, Mr Shivkrit Rai, Mr Rajat Sinha, Mr. Tejas D. Jha, Advocates
Counsel For Respondents: Mr Avrojyoti Chatterjee, Mr Rajiv S. Roy, Mr Siddharth Dhingra, Mr Zoyeb Khan, Ms Jayasree Saha, Mr Shankar Mali, Advocates for R-2/CoC Mr Rishav Banerjee, Mr Rajarshi Banerjee, Mr Shambo Nandy, Advocates for R-1/RP