Dissenting Financial Creditors Are Entitled To Receive Payments On Pro-Rata Basis Of Resolution Plan Value Rather Than Liquidation Value: NCLAT

The National Company Law Appellate Tribunal (NCLAT) Chennai bench of Justice Sharad Kumar Sharma (Judicial Member) and Mr. Jatindranath Swain (Technical Member) has held that dissenting financial creditors are entitled to receive payments on a pro-rata basis of the Resolution Plan rather than the liquidation value. Further, it was held that priority in payment means that whenever the Successful Resolution Applicant remits the amount in installments, the dissenting financial creditors shall be paid on a pro-rata basis. However, if the entire Resolution Plan amount is remitted at once, they shall be paid in full and in priority over the assenting financial creditors. Brief Facts: The Resolution Plan submitted by the Sical Logistics Limited (Successful Resolution Applicant/SRA) was approved by Committee of Creditors (CoC) on 29.02.2022, and later on, affirmed by National Company Law Tribunal (NCLT) on 08.12.2022. As per the Resolution Plan, RBL Bank (Appellant) was entitled to Rs. 42.09 Crores, constituting 9.88% of the total Resolution Plan payout of Rs. 425.93 Crores. However, it received only Rs. 9.38 Crores, calculated as 9.88% of the available Rs.94.93 Crores. The Appellant argued that it should receive full payment before Assenting Financial Creditors (FCs) as per the plan and the provisions of the Code. Consequently, the Appellant filed IA (IBC) No. 250/2023 in CP(IB) No. 73/2020. However, the Adjudicating Authority held that the Dissenting Creditor is entitled only to the amount in accordance with Section 53(1) of the Code, as provided in Clause 1.2.9(b) of the Resolution Plan. Against the above order, this appeal has been filed. Contentions: The Appellant submitted that he is a Dissenting Financial Creditor, that he is entitled a share of 9.88% of the Resolution Plan value of Rs. 425 Crores and therefore he should be given Rs. 42.09 Crores being 9.88% of 425 Crores. It was further contended that as a dissenting Creditor he should get priority in payment and therefore as Rs. 54.32 Crores has been remitted by the SRA as the 1st tranche of the Resolution amount he should have been paid Rs. 42.09 Crores in full, but instead he has been paid Rs. 9.38 Crores only. Lastly, it was submitted that his share has been reduced to Rs. 34.78 Crores being 9.88% of the estimated liquidation value of Rs. 351.88 Crores, that thus the Resolution Plan has violated Section 30(2) of the Code and hence he is not bound to return the title deeds as envisaged in the approved Resolution Plan Observations: The Tribunal observed that the Adjudicating Authority committed a mistake in holding that a dissenting financial creditor is entitled only to the minimum amount prescribed under section 30(2) of the code based on the liquidation value under section 53 of the code. It further added that 30(2)(b)(ii) of the code mandates that the amount must not be less than the liquidation value and the amount should also be fair and equitable. Since the resolution value exceeds the liquidation value in the present case, the dissenting financial creditor should receive a pro rate share of the resolution plan. Accordingly, it was held that RBL Bank's dues should be Rs. 42.09 crore (9.88% of Rs. 425.93 crore) rather than Rs.34.78 crore (9.88% of Rs. 351.88 crore). The Tribunal observed that although the Adjudicating Authority in the impugned order has held that the dissenting creditor shall be paid in priority but has not specified exactly as to how the payment shall be made. While further clarifying the above order, the Tribunal said that priority in payment means that whenever the Successful Resolution Applicant (SRA) releases funds to Financial Creditors (FCs), the Dissenting Creditor must be paid first and that too on a pro-rata basis. It further directed that if the SRA pays the full resolution plan amount upfront, the Dissenting Creditor must be paid first, followed by other FCs. However, when payments are made by the SRA in installments, disbursements will also occur in stages. In such cases, full payment to the Dissenting Creditor before others may not always be possible, but they must receive priority in every distribution. The Tribunal concluded that Respondent No. 1 shall remit the amount determined under the Resolution Plan to the RP in accordance with section 30(20(b) of the code read with Regulation 38. The SRA shall distribute the amount among the financial creditors as specified in the Resolution Plan and in the manner as discussed in this judgment. Upon full payment by SRA, the financial creditor shall hand over title deeds of the assets of the corporate debtor to the Resolution Professional who will in turn give them to the SRA. Accordingly, the present appeals were allowed. Case Title:RBL Bank Limited Vs Sical Logistics Limited and Ors. Case Number: Company Appeal (AT) (CH) (Ins) No.36/2024 (IA Nos. ...

Dissenting Financial Creditors Are Entitled To Receive Payments On Pro-Rata Basis Of Resolution Plan Value Rather Than Liquidation Value: NCLAT

Mohd Malik Chauhan

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