Successful Resolution Applicant Can Be Directed To Make Upfront Payment To Dissenting Financial Creditors If Resolution Plan Includes Such Provision: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Barun Mitra (Technical Member) has held that the Successful Resolution Applicant(SRA) can be directed to make an upfront payment to the dissenting financial creditors under the Resolution Plan when there is a clause in the Plan itself providing for such payment. Brief Facts: Corporate Insolvency Resolution Process (CIRP) against the corporate debtor MBL Infrastructures Limited commenced on 30.03.2017. Resolution plan was submitted by the appellant, which came to be approved by Committee of Creditors (CoC) with 78.50% vote. The resolution plan was approved by Adjudicating Authority on 18.04.2018. Respondent Nos. 1 to 5 are dissenting financial creditors who did not approve the Resolution Plan. A letter dated August 22, 2024 was sent to IDBI Bank stating that their payment would be prioritized before assenting creditors. The dissenting financial creditors aggrieved by action of the SRA in not correctly implementing the resolution plan filed an I.A. No.29/2024, pleading that dissenting financial creditors were entitled to receive their full payment before any recovery is made by the assenting financial creditor. Adjudicating Authority after hearing both the parties had allowed the application by the impugned order dated 20.12.2024. Adjudicating Authority directed that the dissenting financial creditor be paid before any payment is made to the assenting financial creditor. Aggrieved by the said order, the SRA has filed this appeal. Contentions: The Appellant submitted that resolution plan does not provide for any upfront payment to any creditors, including assenting and dissenting. The claim of the dissenting financial creditor that they should be paid entire amount as upfront is not reflected in the resolution plan. The NCLAT in 'Puro Natural Sugars JV' Vs. 'Shree Warana Sahakari Bank Ltd. & Ors.', 2023 held that dissenting financial creditor is required by law the payment which is in priority over the financial creditor who voted in favour of the plan “be it upfront payment or payment by instalment”. Per contra, the Respondent submitted that the assenting financial creditors are being paid their 100% percent of exposure although within 10 years, but dissenting financial creditors has dissented since they did not agree for receiving the payment in 10 years. Hence, they dissented it so that they may receive the liquidation value before payment is made to the assenting financial creditors. Lastly, it was submitted that the plan clearly contemplated that dissenting financial creditor will receive their liquidation value before any recoveries are made. Thus, before any recovery is permitted to made to assenting financial creditor, entire liquidation value is to be paid by to the dissenting financial creditor. Observations: The Tribunal observed that the plan clearly contemplated that the liquidation value to the dissenting financial creditor shall be made over before any recovery are made by the financial creditor who voted in favour of the resolution plan. The Tribunal noted that the NCLAT in Puro Natural Sugars JV (supra) held that “the submission advanced on behalf of learned Counsel for Respondent Nos.1 and 2 that dissenting Financial Creditors are entitled to upfront payment is not in line with the statutory scheme as contained in the IBC and the CIRP Regulations. There is no provision which can be pointed out, which requires Successful Resolution Applicant to make upfront payment to the dissenting Financial Creditors. What is required by law is the payment “in priority over the Financial Creditors who voted in favour of the plan”.” The Tribunal observed that in the present case, clause 21 of the Resolution Plan includes provision for payment to both assenting and dissenting financial creditors. Liquidation value of the dissenting financial creditors is to be paid in priority to the assenting financial creditors. It further added that hence there is no indication in the resolution plan that the dissenting financial creditor has to be paid as per instalment i.e., for period of 10 years. Based on the above, the Tribunal observed that the judgment in 'Puro Natural Sugars JV' (Supra), cannot come to the aid of the Appellant as Clause 21 of the Resolution Plan clearly provided for the payment to be made to the dissenting financial creditors. The Tribunal concluded that the Adjudicating Authority has passed the impugned order after correctly interpreting Clause 21 of the resolution plan and no error has been committed by the Adjudicating Authority in directing for payment to the dissenting financial creditor prior to any recoveries are made by assenting financial creditor. Accordingly, the present appeal was dismissed. Case...

Successful Resolution Applicant Can Be Directed To Make Upfront Payment To Dissenting Financial Creditors If Resolution Plan Includes Such Provision: NCLAT

Mohd Malik Chauhan

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