NCLAT Directs Modification of Resolution Plan: There Cannot be Any Discrimination Between Payment of One Class of Creditors

NCLAT Directs Modification of Resolution Plan: There Cannot be Any Discrimination Between Payment of One Class of Creditors

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson) and Shri Barun Mitra (Technical Member) while adjudicating an appeal has directed the Successful Resolution Applicant to allocate funds to Operational Creditors in the Resolution Plan, who were left unpaid while other Operational Creditors were proposed to be paid.

The Tribunal in the present case had observed that when the Successful Resolution Applicant was making payment to other two Operation Creditors, there cannot be any discrimination between payment of one class of creditors.

In the instant matter, the Corporate Debtor was admitted into Corporate Insolvency Resolution Process (CIRP). The State Tax (Government of Gujrat) and Central Excise (Government of India), being Operational Creditors of the Corporate Debtor, submitted their claims before the Resolution Professional. There were statutory dues of Gujarat Industrial Development Corporation and Surat Municipal Corporation in the capacity of Operational Creditors as well.

A Resolution Plan was submitted by the Successful Resolution Applicant (SRA) for the Corporate Debtor, which was approved by the Committee of Creditors with 99.84% voting share.

The Resolution Plan proposed to pay Rs. 32,78,102 to Gujarat Industrial Development Corporation and Surat Municipal Corporation, to keep the Corporate Debtor as a going concern. However, no sums were allocated for State Tax (Government of Gujrat) and Central Excise (Government of India).

The Resolution Professional filed an application under Section 30(6) before National Company Law Tribunal (NCLT), seeking approval of the Resolution Plan. The NCLT refused to approve the plan on the premise that it violated Section 30(2)(e) and 30(2)(f) of Insolvency and bankruptcy Code, 2016 (IBC).

The NCLAT from the facts brought on the record, noted that the Resolution Professional claims were received from two Operational Creditors i.e., State Tax, Government of Gujrat and Central Excise, Government of India.

There were statutory dues of also Gujarat Industrial Development Corporation and Surat Municipal Corporation. Claims of the statutory dues were reflected in the Information Memorandum. Under the Resolution Plan payment to Gujarat Industrial Development Corporation and Surat Municipal Corporation to keep the Corporate Debtor as a going concern.

Therefore, the bench placed reliance on the Supreme Court judgment in Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta & Ors., (2020), where it was held that there can be differential payment in payment of debts of Financial Creditors and Operational Creditors, however, there can be no difference in inter se payment within a class of creditors.

The bench was of the view that the Resolution Applicant was at liberty to not allocate any amount to any of the Operational Creditor in view of Section 53 of IBC. However, when the Successful Resolution Applicant was making payment to other two Operation Creditors, there cannot be any discrimination between payment of one class of creditors, stated the NCLAT.

“We, thus, are of the view that the Adjudicating Authority having found that there is discrimination in payment of Operational Creditors could have directed for compliance of provision of the Code by distribution of Rs.32,78,102/- without affecting the other terms and conditions of the plan. By this modification the plan shall be able to sail and implemented, which is approved by CoC with 99.84% vote share. The plan needs to be implemented with modification,” the NCLAT discerned.

Moreover, the NCLAT remarked that instead of rejecting the Resolution Plan, the NCLT could have directed for compliance of IBC provisions by distributing the amount of Rs. 32,78,102 amongst the remaining Operational Creditors. This would have ensured compliance without affecting terms and conditions of the Plan, opined the bench.

Therefore, the NCLAT ordered the distribution of Rs.32,78,102 to all the four Operational Creditors on pro rata basis, in order to save the plan from being invalidated.

Accordingly, the appeal was disposed of.