2019 (9) TMI 1442 - Tri - Insolvency and Bankruptcy

Validity of Revised Resolution Plan - change in the amount of the financial debt owed to a Financial Creditor - HELD THAT - The contentions of the Applicants that they are not aware of change of the claim of Canara Bank with respect to first charge of term loan in question is baseless and not tenable. The Resolution Applicant has rightly taken into consideration of the term loan of Canara Bank in question while distributing the earmarked amount for Financial Creditors. The reliance placed by the Applicants on the amendment IBC Act 2019 issued vide the Gazette Notification dated 06.08.2019 is misconceived and the same is liable to be rejected. It is to be held that the opinion expressed by the Resolution Professional concurring the contention of the dissent Financial Creditors (the Applicants herein) that giving priority to Canara Bank on term loan in question is not correct and the same is uncalled for. Moreover the Resolution Professional has finally certified that the Resolution Plan in question is in accordance with extant provisions of the Code and the Rules made thereunder as per the Compliance Certificate Form-H dated 31.07.2019. Ultimately the CoC has discussed the objections raised by the Applicants with regard to the additional claim allowed in respect of Canara Bank. Therefore the reliance placed by the Applicants on the observation made by the Resolution Professional is not tenable and the same is baseless. The Applicants herein are well aware of the change with respect to the impugned claim of term loan and it was given proper opportunity to raise its objection. It is also not in dispute that the Resolution Plan in question was approved with a requisite majority as per law. As per law the minimum requirement is 66% of the voting power whereas the Resolution Plan got a majority of 75.4%. Therefore the Application is liable to be rejected. Application dismissed.

Summary

Issues Involved:
1. Validity of the Revised Resolution Plan.
2. Alleged preferential treatment within the same class of Financial Creditors.
3. Compliance with the Insolvency and Bankruptcy Code (IBC) and related regulations.
4. Voting shares and their impact on the Resolution Plan.
5. Objections raised by dissenting Financial Creditors.
6. Adherence to procedural requirements and timelines.

Detailed Analysis:

1. Validity of the Revised Resolution Plan:
The Revised Resolution Plan submitted by Linen Art Pvt. Ltd. was contested by the Applicants (State Bank of India and another) on grounds that it was not discussed or approved in earlier meetings of the Committee of Creditors (CoC). The Applicants argued that the plan reduced their payment entitlements without proper basis or discussion, thereby violating the principles of the IBC.

2. Alleged Preferential Treatment within the Same Class of Financial Creditors:
The Applicants contended that the Revised Resolution Plan provided preferential treatment to Canara Bank by allocating additional payments due to its first charge on a term loan. They argued that this preferential treatment was against the scheme of the IBC and the Regulations, which mandate equal treatment within the same class of Financial Creditors.

3. Compliance with the IBC and Related Regulations:
The Resolution Professional (RP) acknowledged the objections raised by the Applicants but did not reject the plan due to time constraints and the potential adverse impact on the livelihood of employees. The RP stated that the Revised Resolution Plan complied with Section 30(2) and Regulations 38 and 39 of the IBC, and left the final decision to the CoC.

4. Voting Shares and Their Impact on the Resolution Plan:
The Applicants argued that any change in the financial debt owed to a Financial Creditor should directly affect their voting share. They claimed that their voting shares remained unchanged despite the reduction in their payment entitlements. The RP and Canara Bank countered that the voting shares were correctly determined based on the financial debt owed and that the allocation of funds was a commercial decision by the Resolution Applicant.

5. Objections Raised by Dissenting Financial Creditors:
The Applicants raised objections during the 13th CoC meeting, arguing against the preferential treatment given to Canara Bank. The RP recorded these objections but allowed the plan to be put to vote, emphasizing that the CoC should decide on the distribution of proceeds. The Revised Resolution Plan was ultimately approved with a 75.4% majority vote.

6. Adherence to Procedural Requirements and Timelines:
The Tribunal noted that the Applicants were aware of the changes in the Revised Resolution Plan and had the opportunity to raise objections. The RP certified that the plan complied with the extant provisions of the IBC and related rules. The Tribunal held that the approval of the plan with a 75.4% majority vote met the legal requirement of a minimum 66% voting power.

Conclusion:
The Tribunal rejected the Application (IA No. 412 of 2019) filed by the Applicants, stating that there was no illegality, discrimination, or violation of the IBC or related rules. The Tribunal found that the Revised Resolution Plan was validly approved by the CoC with the requisite majority and that the Applicants had not demonstrated any prejudice caused by the plan. The objections raised by the Applicants were deemed baseless, and the Application was dismissed with no order as to costs.