Distribution Among Financial Creditors Should Be Based On Pro Rata Basis As Per Vote Share: NCLAT New Delhi

The NCLAT, Principal Bench, New Delhi, comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Member-Technical), has held that the distribution among financial creditors should be based on security interest or on a pro rata basis as per voting shares. The appeal was filed against the decision of the NCLT, Jaipur, wherein the Adjudicating Authority, by its impugned order, has rejected the I.A. 637/JPR/2023 filed by the appellant. The appellant is a secured financial creditor having a 3.22% vote share in the committee of creditors (CoC), and another creditor, Punjab National Bank, has a vote share of 96.68%. The adjudicating authority, vide its order dated 12.03.2024, approved the resolution plan of the corporate debtor. Thereafter, the CoC passed a resolution for the distribution on the basis of the vote share in the CoC. The appellant filed the I.A., praying for setting aside the resolution of the CoC and declaring that it was non-est for being non-maintainable in law. However, the adjudicating authority dismissed the application, aggrieved by which the present appeal was preferred. Contention of the Parties The appellant argued that it has a successful security interest in the resources of the corporate debtor, and hence the distribution should be on the basis of the security interest. Further, it submitted that it filed an application raising its claim three months prior to the approval of the plan, but the application was not decided by the adjudicating authority. Per contra, the counsel for the resolution professional submitted that the distribution mechanism was decided by the CoC, and thereafter, the plan was approved. Observations of the NCLAT The bench observed that there is no dispute with regard to the fact that CoC has passed the resolution plan adopting the voting share as the distribution mechanism of the debt. Also, the appellant's objection was pending before the adjudicating authority, and the resolution plan was approved. Further, the bench discussed the ruling of the State Bank of India v. IDBI Bank Limited & Anr., Comp. App. (AT) (Ins.) No. 321/2024, and upheld the distribution based on the pro-rata basis. Furthermore, discussing the ruling of the Supreme Court in the case of India Resurgence ARC Pvt. Ltd. v. Amit Metalinks Ltd. & Anr., (2021) 19 SCC 672, the bench observed that the distribution should be on the basis of the decision of the CoC. With the above observations, the bench dismissed the appeal. Case Name: Small Industries Development Bank of India v. Sumit Sharma, Erstwhile RP & Anr Case No.: Company Appeal (AT) (Insolvency) No. 1359 of 2025 & I.A. No. 5309 of 2025 Order Date: 08.09.2025 Click Here To Read/Download The Order

Distribution Among Financial Creditors Should Be Based On Pro Rata Basis As Per Vote Share: NCLAT New Delhi

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Mohd.Rehan Ali

Distribution Among Financial Creditors Should Be Based On Pro Rata Basis As Per Vote Share: NCLAT New Delhi

Mohd.Rehan Ali

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Mohd.Rehan Ali

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