NCLAT Approves Sugar Farmers As Separate Creditors Group In The Sugar Industry Resolution Plan

Background Facts

New Phaltan Sugar Works Ltd. ("Corporate Debtor") was admitted into Corporate Insolvency Resolution Process ("CIRP"). The Resolution Professional had filed an application under Section 30 of the Insolvency and Bankruptcy Code, 2016 ("IBC"), seeking approval of Resolution Plan submitted by Shri Dutt India Pvt. Ltd. ("Successful Resolution Applicant"). The Adjudicating Authority approved the Resolution Plan vide an order dated 11.11.2019 and the Plan was thereafter implemented.

The Operational Creditors ("Appellants") of the Corporate Debtor filed an appeal before NCLAT challenging the order dated 11.11.2019.

Contentions Of Appellants

The Operational Creditors contended that total amount of the 'Operational Debt' from 'Operational Creditors' other than Employees, Workmen and Farmers is Rs.63,45,09,539/- as against the total debt of Rs.193,58,53,515/-, which is 32.78% of the total debt. It was argued that the approved Resolution Plan was discriminatory as it paid 100% to Farmers as against mere 1% of the total admitted Claim of the Appellants, which is discriminatory. The Farmers do not form a class by themselves under the IBC.

Decision Of NCLAT

The Bench observed that the Corporate Debtor is a Sugar Industry and the Farmers are an integral part of the Sugar Industry. More than 4500 Farmers and their families are dependent on the Corporate Debtor's factory for their survival. The Resolution Plan would not be implementable without making payments to the Farmers as the dues have been pending for the last two years. The Secured Financial Creditors accepted that 100% payment should be made to the Farmers who are the backbone of the Sugar Industry.

It was observed that Section 53 of IBC provides different priorities of payments for Employees, Statutory Dues and other Operational Creditors. Such a classification would depend upon the facts and circumstances and the nature of the industry, and the Modus Operandi of the functioning of the Corporate Debtor.

The Bench held that there is no embargo for the classification of the 'Operational Creditors' into separate/different classes for deciding the way in which the money is to be distributed to them by the Committee of Creditors.

"We are conscious of the fact that the Plan was approved by 100% Voting Share way back on 11.11.2019 almost three years ago and has also been implemented. This Tribunal is of the considered opinion that the 'Operational Creditors' were paid as per Section 30(2)(b) of the Code and read together with Regulation 38 of the CIRP Regulations, the 'Operational Creditors' are entitled to receive only such money that are payable to them as per Section 53 of the Code. It is the final discretion of the 'Collective Commercial Wisdom' in relation to (1) The amount to be paid (2) The quantum of money to be paid, to a certain category or the incidental category of Creditors, balancing the interests of the 'Stakeholders' and the 'Operational Creditors', as the case may be. The limited judicial review available to Adjudicating Authority lies within the four corners of Section 30(2) of the Code."

Further, the Bench also urged the Government and the Insolvency and Bankruptcy Board of India ("IBBI") to examine some minimum entitlement to Operational Creditors.

"We are of the earnest view that some minimum entitlement to the 'Operational Creditors' may be examined by the Government and the IBBI, based on the amount realised in the Resolution Plan over and above the liquidation value."

The appeal was dismissed.

Case Title: Excel Engineering & Ors. v Mr. Vivek Murlidhar Dabhade & Anr.

Case No.: Comp. App. (AT) (Ins.) No. 85-86 of 2020

Counsel for Appellant: Mr. R.K. Ruhil & Mr. Abhijit Sinha, Advocates.

Counsel for Respondent: Mr. Agam H Maloo, Advocate for R-1/RP, Mr. Krishnendu Datta, Sr. Advocate along with Mr. Arshit Anand, Ms. Geetika Sharma, Ms. Mansi Taneja & Mr. Shivam Shukla, Advocates for R-2.

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