Differential Payments Can Be Made To Assenting And Dissenting Unsecured Financial Creditors: NCLAT Delhi

Background Facts

Sharon Bio-Medicine Limited (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (“IBC”) by the NCLT.

The Committee of Creditors approved a Resolution Plan for the Corporate Debtor with 79.28% voting share. Peter Beck and Partner Vermoegensverwaltung GMBH (“Dissenting Financial Creditor/Appellant”) is an unsecured financial creditor of the Corporate Debtor who abstained from voting for the approval of the Resolution Plan. The Adjudicating Authority approved the Resolution Plan on 17.05.2023.

On 21.06.2023, the Dissenting Financial Creditor received an email mentioning the computation for distribution of funds to Financial Creditors and it was allocated NIL amount. The Liquidation value of the Dissenting Financial Creditor is also NIL. The Dissenting Financial Creditor filed an appeal before NCLAT against the order dated 17.05.2023.

It was argued that there cannot be any discrimination in the payment to the unsecured Financial Creditors on the basis of their ‘assent’ and ‘dissent’. The Resolution Plan proposed to pay Rs. 1.48 Crores to another unsecured Financial Creditor solely based on the assent given by such creditor to the plan. Whereas, the Dissenting Financial Creditor being similarly placed was allocated NIL amount. Further, the legislative history of the IBC and the amendments made thereafter indicate that legislature never intended any discrimination between one class of Financial Creditor.

NCLAT Verdict

The Bench placed reliance on Section 30(2)(b) of IBC and observed that the financial creditors who do not vote in favour of the Resolution Plan, the amount payable towards their debts shall not be less than the amount to be paid to such creditors as per Section 53(1) in the event of liquidation of Corporate Debtor. “Thus, the statute clearly contemplates that minimum payment to such creditor who do not vote in favour of the Resolution Plan as payable to such creditor in accordance with sub-section (1) of Section 53 in the event of a liquidation of the Corporate Debtor.”

Further, Regulation 38 (a) & (b) of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”), provides that the financial creditors who didn’t vote in favour of the Resolution Plan, shall be paid in priority over financial creditors who voted in favour of the plan.

It was opined that priority in payment is a different aspect than the amount to which the creditor who does not vote in favour of the plan is entitled. As per Section 240 of IBC, the IBBI is empowered to make regulations consistent with the IBC. Therefore, Regulation 38 has to be read in consonance with the provisions of the IBC. A dissenting financial creditor is entitled for payment as contemplated by IBC.

The Bench also perused the contents of Form-H of CIRP Regulations, which under Clause 7 provides the amount allocated to stakeholders under the Resolution Plan. Under clause 7, ‘unsecured financial creditors’ are at Item 2 where there are two separate categories i.e. (i) and (ii). The Form-H clearly indicates that there are two different categories, one who did not vote in favour of the resolution plan and other those who voted in favour of the resolution plan. Form-H also clearly indicate that there can be different payment to above two categories.

The Bench rejected the contention that there cannot be any discrimination in respect of the amount being paid to unsecured financial creditors who did not vote in favour of the plan and those who voted in favour of the plan.

It has been held

“From the above discussions, we are of the view that assenting financial creditors entitled for payment as proposed in the plan and dissenting financial creditor is entitled as per the minimum entitlement as per Section 30(2)(b). There is no dispute that liquidation value of the Appellant in the present case is nil. The submission of the Appellant that there is a discrimination between the payment of assenting unsecured financial creditor and dissenting unsecured financial creditor cannot be accepted and on the ground, as urged by the Appellant in this Appeal, the Resolution Plan approved by the Adjudicating Authority cannot be held to be discriminatory.”

The appeal has been dismissed.

Case Title: Peter Beck and Partner Vermoegensverwaltung GMBH v Sharon Bio-medicine Limited & Ors.

Case No.: Company Appeal (AT) (Insolvency) No. 912 of 2023

Counsel for Appellant: Mr. Ankur Kashyap, Mr. Ajith S. Ranganathan, Mr. Rohit Rajershi, Mr. Aman Bajaj and Ms. Gloria Gomies, Advocates.

Counsel For Respondent: Mr. Prateek Kumar, Mr. Siddharth Srivastava, Ms. Raveena Rai, Ms. Apeksha Dhananjay, Advocates for R-1. Ms. Srideep Bhatttacharya and Ms. Neha Shivhare, Advocates for R-5. Mr. Gopal Jain, Sr. Advocate for R-5.

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