Nil Payment To Operational Creditors Is Permissible Under The Resolution Plan: NCLAT Chennai

Two operational creditors M/s Genus Security and Allied Services and M/s RCC Mix approached NCLAT under Section 61 of the Insolvency & Bankruptcy Code, 2016 against the order dated 29.01.2021 passed by the NCLT Bengaluru wherein it has approved the resolution plan of the Fortuna Urbanscape Pvt. Ltd. on the ground that the approved resolution plan provides nil payment to the operational creditors.

Brief Background

The Committee of Creditors of Fortuna approved the resolution plan on 30.07.2020 and the same was approved by NCLT Bengaluru on 29.01.2021. The approved resolution plan provides for a payment of INR 8 Crores for financial creditors as against a claim of INR 123 Crores and provision was also made for homebuyers who form the part of the financial creditors.

NIL payment was provided in the resolution plan as against the verified claims of Operational Creditors amounting to INR 99.50 Lakhs. The appellants provide housekeeping and security services to the Corporate Debtor but no payment was provided for them under the resolution plan.

Contentions Of Operational Creditors

It was contended by the operational creditor that their claim of INR 8.77 lakhs and INR 1.08 Crores was duly admitted by the Resolution Professional and the issue of payment to resolution plan was also raised in the 8th COC meeting but not a single payment is provided towards the claim of the operational creditor.

It was further contended by the operational creditors that approved resolution plan is discriminatory in nature as the approved resolution plan provides for payment to financial creditor but no payment is provided for the operational creditors under the very same approved resolution plan.

Contentions Of Resolution Professional

It was contended by the Resolution Professional that the resolution plan of the corporate debtor is approved by 96% majority of the committee of creditors and all provisions of the code have been duly complied during the Corporate Insolvency Resolution Process of Corporate Debtor.

It was further contended that as per the provisions of Section 30(2) (b) of the I & B Code, 2016 which mandates that the payment of debts to the Operational Creditors as provided for in the Resolution Plan shall not be less than (a) the amount to be paid to them in the event of a liquidation under Section 53 or (b) the amount that would have been paid to them if the amount to be distributed under the Resolution Plan had been distributed in accordance with the order of priority in Sub- Section 1 of Section 53, whichever is higher.

Resolution Professional further contended that it is well settled that in either of these two circumstances, if no sum would have been payable to the Operational Creditors, no sum needs to be earmarked in the Resolution Plan to be paid to the Operational Creditors.

Contentions Of Successful Resolution Applicant (M/S Koncept Shelters)

Koncept Shelters contended that the liquidation value of the assets of the Corporate Debtor is between INR 17.58 and 18.55 Crores which evidently far lower than the total admitted claims made against the Corporate Debtor and in light of the waterfall mechanism set out in Section 53 of the Code no payment would be paid to Operational Creditors in the event of liquidation of the Corporate Debtor.

It was further contended that Resolution Plan dated 03.08.2020 contemplated to invest a sum of INR 8.80 Crores inclusive of CIRP Cost and these sums were to be distributed in accordance with the waterfall mechanism set out in Section 53, no amount would be payable to the Operational Creditor.

Decision/Analysis Of NCLAT

NCLAT observed that that the resolution Plan has been approved by a majority vote of 95.07% of the COC and it is a well settled law that the commercial wisdom of the CoC cannot be interfered with by NCLT/NCLAT.

NCLAT negated the contention of Operational Creditor regarding the discrimination under the resolution plan by observing that the question of discrimination will only arise when some of the operational creditors paid some monies under the resolution plan to the exclusion of other operational creditors and in the present case, no money is paid to any operational creditor and therefore, there is no discrimination.

NCLAT held that there is no infirmity and illegality in the resolution plan and the approval of the resolution plan is valid and legal and hence, the resolution plan will be binding on all stakeholders of the Corporate Debtor including the appellant operational creditors.

Case Details: Genus Security and Allied Service versus Mr. Shivadutt Bannanje & Anr, CA(AT)(CH)(Ins) No. 110/2021

Counsel for Appellants: Ms. Ankita Paul

Counsel for Resolution: Professional: Mr. Raghuram CadambI

Counsel for SRA: Mr. Naman Jhabakh and Ms. Abita Banu.

Click Here To Read/Download Order