NCLT Ahmedabad Rejects Resolution Plan Selectively Favoured Creditors

Background Facts

M/s. Sansar Texturisers Pvt. Ltd. ("Applicant/Financial Creditor") had filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("IBC"), seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against M/s. Polycoat India Pvt. Ltd. ("Corporate Debtor"). The petition was admitted and CIRP was initiated on 02.12.2020. The Interim Resolution Professional ("IRP"

) had received claims from six Financial Creditors and four Operational Creditors. The Financial Creditors were Punjab National Bank, M/s. Sansar Texturisers Pvt. Ltd., Sunil Textile, Anamika Syntex Pvt. Ltd., Gupta Tex Prints Pvt. Ltd., Sharp Synthetics Pvt. Ltd. While the Operational Creditors were State Tax (Government of Gujarat), Central Excise (Government of India), Gujarat Industrial Development Corporation and Surat Municipal Corporation.

The IRP constituted the Committee of Creditors ("CoC") which comprised of Punjab National Bank having 99.84% voting shares and the Applicant having 0.16% voting shares. Other four Financial Creditors were excluded for being related party of the Corporate Debtor.

CoC in its meeting dated 06.08.2021 had approved the resolution plan submitted by M/s. Akashganga Processor Pvt. Ltd. ("Successful Resolution Applicant/SRA") with 99.84% voting share and the Applicant had dissented from the Plan. Subsequently, the Resolution Professional had filed an application before the NCLT under Section 30(6) of IBC for approval of the Plan. Simultaneously, the Applicant filed an application before NCLT opposing the approved Resolution Plan.

Relevant Law

Section 30(2) of IBC

Section 30. Submission of resolution plan. –

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30(2). The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan –

(a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the 4 [payment] of other debts of the corporate debtor;

(b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than-xxxx

(c) provides for the management of the affairs of the Corporate debtor after approval of the resolution plan;

(d) the implementation and supervision of the resolution plan;

(e) does not contravene any of the provisions of the law for the time being in force

(f) conforms to such other requirements as may be specified by the Board.

Decision Of The NCLT

The Bench analyzed the Resolution Plan to see if its compliant of Section 30(2) of IBC r.w. Regulation 38 IBBI (Corporate Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

The Bench held that the Plan was compliant of Section 30(2)(a) of the IBC. Further, out of four Operational Creditors only two are paid in full i.e Gujarat Industrial Development Corporation (GIDC), Surat Municipal Corporation. For the remaining two Operational Creditors i.e State Tax, (Government of Gujarat), Central Excise, (Government of India), the resolution plan had no provision to pay their dues.

Punjab National Bank being the Financial Creditor which approved the resolution plan, was being paid Rs. 7,52,00,000/- out of its total admitted claim of Rs. 111,29,36,166/-. Whereas, the Applicant being dissenting creditor, was offered only 1% of its debt, i.e. Rs. 18,012/- against a claim of Rs. 18,01,219/-.

The total amount earmarked in the Resolution Plan for stakeholders was Rs.7,85,00,000/-, out of which 95% amount was paid to Punjab National Bank alone, leaving balance of Rs. 33,00,000/- approximately for payment to other stakeholders. Moreover, Rs. 32,78,102/- was earmarked for to two Operational Creditors i.e G.I.D.C and Surat Municipal Corporation, leaving meager amount of Rs. 18,012/- for payment to the Applicant who is an unsecured financial creditor.

"On going through the proposal of payment of dues in the resolution plan, we hold that Resolution Applicant has changed entire payment pattern ignoring the list of priority of payments as stated under Section 53 of IBC."

The Bench observed that only two out of four Operational Creditors were proposed to be paid by the Resolution Applicant without assigning any reason. It was observed that the Resolution Plan was in breach of sequence of priority in payment of the dues to the stakeholders as stated under Section 53 of IBC and also it does not comply mandatory requirement under Regulation 38 and more particularly Regulation 38(1)A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulation,2016, which states that " A resolution plan shall include a statement as to how it has dealt with the interests of all stakeholders, including financial creditors and operational creditors, of the corporate debtor."

The Bench held that the Resolution Plan does not effectively deal with the interests of all stakeholders of the company, the resolution plan is non-compliant of Sections 30(2)(e) and Section 30(2)(f) of IBC. Accordingly the Resolution Plan was rejected.

"The Resolution plan of M/s. Akashganga Processor Pvt. Ltd. for the Corporate Debtor-M/s. Polycoat India Pvt. Ltd. submitted for our approval is rejected for the reason that it does not comply with the provision of Section 30(2)(e) & Section 30(2)(f) of the IBC."

Case Title: M/s. Sansar Texturisers Pvt. Ltd. v M/s. Polycoat India Pvt. Ltd.

Case No.: CP (IB) No. 295/7/NCLT/AHM/2019

Counsel: Mr. Nipun Singhvi, Advocate for the Applicant, Mr. Ravi Pahwa, Advocate for the Resolution Applicant.

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