Allocation Of Meagre Amount Cant Be A Ground To Question The Resolution Plan: NCLAT Delhi

The NCLAT Bench has upheld the NCLT’s order, wherein it was held that the Operational Creditors cannot claim a higher amount when Financial Creditors have not been paid in full in the Resolution Plan.

Background Facts

Sona Alloys Pvt. Ltd. (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”). M/s MTC Business Private Limited (“Successful Resolution Applicant/SRA”) submitted a Resolution Plan for the Corporate Debtor, which was approved by the Committee of Creditors (“CoC”) with 99.732% votes. The Resolution Plan proposed to pay Rs.365.85 Crores to the secured Financial Creditors as against an admitted claim of Rs.1696.82 Crores. The Operational Creditors were proposed to be paid Rs. 19 Lakhs as against an admitted claim of Rs.114.7 Crores.

M/s Pani Logistics, being an Operational Creditor of the Corporate Debtor, filed an application seeking rejection of the Resolution Plan. It was argued that the Resolution Plan undermines the interest of the Operational Creditors. The Operational Creditors are being paid a meagre amount of 0.096% of their total claim, while the Financial Creditors are being paid 21.56% of their claims in the resolution plan.

Proceedings Before NCLT

The NCLT Bench observed that a conjoint reading of Section 30 and Section 53 of IBC shows that the Financial Creditors are placed at a higher priority than Operational Creditors. The Secured Financial Creditors are covered by Section 53(1)(b)(ii), the Unsecured Financial Creditors are covered by Section 53(1)(d). The Operational Creditors are to be considered thereafter having lower priority and are covered by Section 53(1)(f). Since the Financial Creditors have not been paid in full, the Operational Creditors cannot claim a higher amount.

The NCLT dismissed the application and the Operational Creditor preferred an appeal before the NCLAT.

NCLAT Verdict

The NCLAT Bench observed that it has not been contended that payment to the other creditors/ Operational Creditors is less than the liquidation value. The Bench held that allocation in the resolution plan to the creditors can be questioned when the plan value earmarked for them is less than the liquidation value. Mere allocation of meagre amount cannot be a ground to question the resolution plan.

Accordingly, the Bench dismissed the appeal and upheld the NCLT’s order.

Case Title: Pani Logistics v Vikas G. Jain & Ors.

Case No.: Company Appeal (AT) (Insolvency) No. 205 of 2023

Counsel For the Appellant: Mrs. Lakshmy Iyengar, Sr. Advocate with Ms. Vishakha Gupta and Mr. Kshitij Maheshwari, Advocates.

Counsel For the Respondent: Mr. Sumit Shukla, Advocate for R-1 (RP). Mr. Krishnendu Datta, Sr. Advocate with Mr. Mohd. Shahan Ulla, Mr. Nikunj Mahajan and Mr. Krishan Kumar, Advocates for R-3.

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