NCLAT Directs Modification Of Resolution Plan On Ground Of Discrimination Between Similarly Situated Financial Creditors

The NCLAT Bench, headed by S J Mukhopadhay, took this view while hearing an appeal Hero Fincorp against the NCLT's approval of the resolution plan for the corporate debtor 'Rave Scans Pvt. Ltd.'. The successful resolution applicant was one of the directors of the corporate debtor, Rahul Jain.

It was Hero Fincorp's contention that while it was allowed a lesser percentage of its admitted claim, the other 'secured financial creditors' have been provided with a higher percentage of their claim amount.

Hero Fincorp was allowed 32.34% of its admitted claim as it dissented with the plan. Tata Capital Financial Services Ltd., another secured financial creditor, was provided with 75.63% of its admitted claim, while other Financial Creditors viz. Indian Overseas Bank (IOB), Bank of Baroda (BOB) and the Punjab National Bank (PNB), were allowed 45% of their admitted claims.

The Resolution Applicant gave a 'Statement of Settlement of Dues with Stakeholders till 29th November, 2018', in a tabulated chart form. As per this chart, the secured public sector banks were put in one category (category A), while Tata Capital and Hero Fincorp were shown as 'Secured NBFCs' in Category-B. Thus, Hero Fincorp was identified as a secured financial creditor as per the chart.

The description of 'secured financial creditors' in the chart showed that Hero Fincorp had dissented with the plan. The Plan was made as per the old Regulation 38 of the 'Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (IBBI Regulations, 2016).

In a previous judgment [Central Bank of India v. Resolution Professional of the Sirpur Paper Mills Ltd.], the NCLAT held the sub-clauses (b) and (c) of regulation 38(1) were discriminatory and hence, inconsistent with the provisions of I&B Code. The Appellate Authority had observed that, the Regulation could not have mandated for the Resolution Plan to provide liquidation value to the 'Operational Creditors' or the dissenting Financial Creditors, as the legislators have not made any discrimination between financial creditors and operational creditors.

Post NCLAT's decision, the IBBI had amended the regulation to the extent that it strengthened the rights of operational creditors by implementing the principle of 'fair and equitable dealing of operational creditors' rights through statutory incorporation, as well as giving priority in payment over financial creditors.

The NCLAT Bench after considering the aforesaid facts, was of the view that the NCLT, Principal Bench could not have approved the resolution plan in this case. The Bench remarked that NCLT had failed to consider the amended Regulation 38, while allowing the resolution plan that discriminated against the dissenting financial Creditor Hero Fincorp.

The Bench opined that Regulation 38 does not discriminate between 'similarly situated secured financial creditors' on the ground of dissenting vote, and therefore, the resolution applicant in this case could not have taken advantage of old Regulation 38(1) (c), which anyway stood repealed.

Although the Appellate Tribunal found the resolution plan to be in contravention of provisions of the IBC, it did not set aside the plan. An opportunity was given to the resolution applicant to remove the discrimination by providing similar treatment as provided to other similarly situated financial creditors.

The Bench directed modification of the resolution plan to the extent that resolution applicant admitted 45% of Hero Fincorp's claim, thereby equating it with all other similarly situated secured financial creditors. In addition, the Bench also said that if the discrimination was not removed within a month, then the resolution plan will be set aside.

To Download the Judgment, Click Here.