Reduction In Value Of Asset In Resolution Plan Cannot be Construed Violative Under Insolvency and Bankruptcy Code: NCLAT

Reduction In Value Of Asset In Resolution Plan Cannot be Construed Violative Under Insolvency and Bankruptcy Code: NCLAT

The appellants claimed that the payment of interest was deducted unfairly from their principal amount

The New Delhi Bench of the National Company Law Appellate Tribunal (NCLAT) has held that a haircut (reduction in the value of an asset) in Resolution Plan (RP) cannot be construed as being violative of Section 30(2)(E) of the Insolvency and Bankruptcy Code (IBC), 2016.

The Coram of Justice Ashok Bhushan (Chairperson), Barun Mitra (Technical Member), and Arun Baroka (Technical Member) stated that the minority homebuyers must necessarily sail with the majority within the class.

The appellants are a clutch of 25 homebuyers of residential flats in a project developed by Today Homes and Infrastructure Pvt. Ltd. (corporate debtor) with Rs.14 crore claims. This was against a total of Rs.1110.20 crores claim of approximately 1,500 homebuyers in the project. The RP was approved by the Committee of Creditors (CoC) with a 96.93 percent vote share.

The appellants objected to the authorized representative on certain clauses contained in the RP, particularly Clause 9. The issue was that the RP deducted payment of compensation/interest from their principal amount unfairly. Also, differential treatment was given to them against homebuyers having possession, who were deriving a benefit of more than 65 percent.

They contended that the RP was also conditional and contingent proving that payments to the appellants would be made only post-completion and on selling the housing units. The CoC’s approval was prejudicial and discriminatory to the appellant’s interests and contrary to Section 30(2)(e) of the IBC.

However, the NCLAT held that merely because there was a reduction in the claim of a creditor did not make the RP illegal. Any clause that required creditors to take a haircut could not be construed as being violative of Section 30(2)(e).

It highlighted that the Resolution Professional did not fail in discharging his duty, as the appellants were given adequate opportunity to raise objections before him and the authorized representative of the homebuyers. The Resolution Professional also gave them a window to discuss their issues.

The tribunal observed that once the CoC approved the RP by a requisite majority in consonance with the applicable provisions of law, it was not subject to judicial review and modification.

It added that the contention of the appellant that the RP was contingent and conditional, was misconceived since Clause 9 dealt with the compensation amounts received by the appellants as ordered by the NCDRC. It included the legal costs incurred by them and the RP made adequate provisions for consideration of the appellants’ claims.

Thus, the NCLAT held that the RP provided treatment to the appellants in case the units were not resold, and due care was taken by the National Company Law Tribunal (NCLT) on the Clause 9 provisions of the RP for the appellants’ concerns.