Resolution Plan Approved By CoC Binds All Stakeholders Including Dissenting Financial Creditor: NCLAT

The NCLAT New Delhi bench of Justice Ashok Bhushan (Judicial Member) and Barun Mitra (Technical Member) has held that the Resolution Plan which is approved in commercial wisdom of the CoC binds all stakeholders including the dissenting financial creditor. The commercial wisdom of the CoC approving the Resolution Plan is binding on all Brief Facts The present appeal has been filed against an order passed by the NCLT on July 9, 2020 by which an interlocutory application filed by the Union Bank of India was dismissed. The corporate debtor was admitted into insolvency on July 24, 2017 on an application filed by the bank. The appellant filed a claim a claim of Rs. 876.42 crore, including Rs. 39.61 crore under a Non-Fund Based Facility (Letter of Credit/Bank Guarantee) which was not admitted by the RP on the ground that the claim had not crystallised on the insolvency commencement date. The appellant provided the Non Fund Based facility to the RP during the CIRP of the corporate debtor for business continuity. Thereafter, a Resolution Plan was approved by the CoC and the CoC decided to deduct the Rs. 33.34 crore recovered by the appellant during the CIRP from the payment under the plan. The appellant sent an email objecting to the deductions and argued that the deduction was improper. Thereafter, an IA filed by the appellant was rejected by the Adjudicating Authority on the ground that no objection was raised by the appellant when the plan was approved by the CoC. Contentions: The appellant submitted that all payments were made directly to the supplier/ vendor/ beneficiary of NCB Facility by debiting the cash credit account of the corporate debtor and there has been no amount which has been credited towards the loan account of the corporate debtor. It was further argued that the decision to deduct Rs.34 Crores amount by the CoC cannot be treated to be in exercise of commercial wisdom of the CoC. Wrongful deduction of the amount of Rs.34 Crores was beyond the jurisdiction of the CoC. Counsel for the CoC submitted that the amount Rs.33.34 Crores which has been deducted from the account of the corporate debtor was towards LCs/BGs which relates to pre-CIRP period. For BGs/ LCs issued pre-CRIP period, Appellant was not entitled to recover any amount directly from the amount deducted by the Appellant, which was thus, amounts to recovery of its dues. It was also argued that the Appellant being financial creditor having 6.64% voting share had no right or jurisdiction to challenge the decision of the CoC taken in exercise of commercial wisdom. Dissenting Financial Creditor and all other stakeholders are fully bound by the decision taken by the CoC. It was further argued that when only an amount of LCs of Rs.1,49,66,13,386/- has been issued during the CIRP period by the Appellant, it had no jurisdiction to deduct an amount of Rs.1,83,00,47,429/- and that the decision taken by the CoC regarding distribution of the amount to different financial creditors is a commercial decision which cannot be challenged by the Appellant. Appellant is bound by the decision of the CoC. Counsel for the RP submitted that on 11.02.2020 the plan was approved and for the first time on 20.02.2020 an e-mail was raised by the Appellant. Amount of Rs.34 Crores has never been approved as CIRP costs by the CoC on for interim finance. There has to be approval of the CoC as per Section 28 of the IBC. The CoC did not approve the amount as interim finance and decided to deduct it from payouts of the Appellant. Observations: The tribunal after perusing the minutes of the CoC, observed that two options for CoC were proposed. On 31st CoC meeting held on 07.02.2020, the CoC under the heading 'LC recovery by Corporation Bank', it is minuted that Option 1 proposing to be interim finance cannot be approved and Rs. 34 Cr be deducted from the total amount to be distributed to corporation bank and be made available to the entire CoC in excess of the current resolution proceeds. It further added that the CoC approved the Option 2 which was to deduct Rs.34 Crores from the total amount to be distributed to Corporation Bank and Option 1 to treat the same as interim finance was not approved. It is further relevant to notice that the distribution sheet to the CoC was placed and approved. Distribution clearly provided for distribution by deduction of Rs.34 Crores from pay outs of the Appellant. “The Resolution Plan which is approved in commercial wisdom of the CoC binds all stakeholders including the dissenting financial creditor. The commercial wisdom of the CoC approving the Resolution Plan is binding on all, which is law laid down by the Supreme Court in K. Sashidhar vs. Indian Overseas Bank & Ors.- (2019) and Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta and Ors.- (2020) the tribunal noted. It opined that “Appellant- Dissenting...

Resolution Plan Approved By CoC Binds All Stakeholders Including Dissenting Financial Creditor: NCLAT

Mohd Malik Chauhan

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