No Provision In IBC For Upfront Payment To Dissenting Financial Creditors On Resolution: NCLAT Delhi
The National Company Law Appellate Tribunal (“NCLAT”), New Delhi Bench, comprising of Justice Ashok Bhushan (Chairperson) and Shri Barun Mitra (Technical Member), has held that there is no provision under IBC which requires the Successful Resolution Applicant to make upfront payment to Financial Creditors who dissented to the resolution plan. The resolution plan proposed to...
The National Company Law Appellate Tribunal (“NCLAT”), New Delhi Bench, comprising of Justice Ashok Bhushan (Chairperson) and Shri Barun Mitra (Technical Member), has held that there is no provision under IBC which requires the Successful Resolution Applicant to make upfront payment to Financial Creditors who dissented to the resolution plan.
The resolution plan proposed to make upfront payment to assenting Financial Creditors within 90 days, whereas the payment to dissenting Financial Creditors was to be made in three years. The dissenting Financial Creditor contended that they should be paid upfront. The Bench held as under:
“There is no provision which can be pointed out, which requires Successful Resolution Applicant to make upfront payment to the dissenting Financial Creditors. What is required by law is the payment “in priority over the Financial Creditors who voted in favour of the plan”.”
Background Facts
Shivaji Cane Processors Limited (“Corporate Debtor”) is engaged in the business of sugar industry and cane processing.
On 18.02.2021, the NCLT admitted the Corporate Debtor into Corporate Insolvency Resolution Process (“CIRP”).
Puro Naturals JV (“Successful Resolution Applicant/SRA”) submitted a Resolution Plan for the Corporate Debtor, which was approved by the Committee of Creditors (“CoC”) with a majority voting share of 78.03%.
Shree Warana Sahakari Bank Limited and Kolhapur Urban Co-operative Bank (“Dissenting Creditors”) having the vote share of 11.13% and 10.84% respectively, dissented with the Resolution Plan. Under the Resolution Plan, the payment to the Financial Creditors was to be made upfront within 90 days, whereas the payment to dissenting Financial Creditors shall be made in three years. The Dissenting Creditors contended that such payment scheme is contrary to the scheme of the IBC.
The Resolution Professional filed an application under Section 30(6) of IBC before the NCLT, seeking approval of the Resolution Plan. The Dissenting Creditors filed objection to the Resolution Plan.
On 01.05.2023, the NCLT rejected the resolution plan on the premise that the same seeks to extinguish the personal guarantees and securities without the consent of dissenting Financial Creditors.
The SRA filed an appeal before the NCLAT against the NCLT Order.
Issue
Whether the payment proposed to the dissenting Financial Creditors in the Resolution Plan, is contrary to the provisions of Section 30(2) and CIRP Regulations?
NCLAT Verdict
The Bench noted that under IBC, a Financial Creditor who does not vote in favour of the Resolution Plan is entitled for payment in accordance with Section 53(1) in the event of liquidation of the Corporate Debtor. Further, the dissenting Financial Creditor has to be paid in priority to the Financial Creditors who vote in favour of such Resolution Plan.
It was observed that the scheme of IBC and CIRP Regulations does not provide for upfront payment to dissenting Financial Creditors. Rather, IBC merely provides that payment to dissenting Financial Creditors should be made in priority to assenting Financial Creditors.
“There is no provision which can be pointed out, which requires Successful Resolution Applicant to make upfront payment to the dissenting Financial Creditors. What is required by law is the payment “in priority over the Financial Creditors who voted in favour of the plan”.”
Reliance was placed on the Supreme Court judgment in Jaypee Kensington Boulevard Apartments Welfare Assocaition & Ors. vs. NBCC (India) Limited and Ors., wherein it was held that by virtue of Section 30(2) as well as Regulation 38, the priority for the amount payable came to be specified, not only to the operational creditors but also to the dissenting financial creditors over their assenting counterparts.
The Bench observed that the Resolution Plan provided for payment to dissenting Financial Creditor in priority, since the payment to dissenting Financial Creditor has to be made priority to the assenting creditors, be it upfront payment or payment by installments. Hence, the payment to dissenting Financial Creditors has been made in accordance with the priority given to the same under IBC.
“In the present case, it not the case of Respondent Nos.1 and 2 that they are not receiving the payment, which they could have been entitled under Section 53, sub-section (1). What have been contended is that payment to them is not in priority as compared to the payment to assenting Financial Creditors. We have already noticed and considered this submission and found that payment as provided in Resolution Plan is in accordance with the priority to the dissenting Financial Creditors, hence, we do not find any substance in the above submission.”
The Resolution Plan submitted by the SRA has been approved.
Case Title: Puro Naturals JV v Warana Sahakari Bank & Ors.
Case No.: Company Appeal (AT) (Insolvency) Nos.661-663 of 2023
Counsel for Appellant: Mr. Amar Dave, Mr. Abhinav Agrawal, Mr. Kartik Sharma, Advocates. Mr. Abhijit Naik, SRA (in-person). Mr. Krishnendu Datta, Sr. Advocate, Mr. Ramachandra Madan, Ms. Neha Agarwal, Mr. Agam, Advocates for RP. Mr. Siddharth S. Chapalgaonkar, Ms. Sneha Botwe, Mr. Gajanan Tirthkar, Advocates.
Counsel for Respondents: Mr. Sumant Batra, Ms. Apoorva Chowdhary, Advocates for R-1 and R-2. PCA Udayraj Patwardhan.