2019 (11) TMI 449 - SC - Insolvency and Bankruptcy

Whether the finding that the financial creditor was discriminated against leading the NCLAT to modify the adjudicating authority s directions and consequently imposing greater financial burdens on the resolution applicant is justified? HELD THAT - Section 30 lays out the duties of the resolution professional and the various steps that she or he has to take as well as the considerations that are to weigh in examining a resolution plan. The principle of fairness engrafted in the provision is that the plan should make a provision for repayment of debts of operational creditors having regard to the value which shall not be less than what is prescribed by the Board (i.e. the Insolvency Board) repayable in the event of liquidation spelt out in Section 53. Section 30(3) requires the resolution professional to present the resolution plan to the committee of creditors and Section 30(4) stipulates that approval shall be by a vote not less than 75% of the voting share of the financial creditors. Given that the resolution process began well before the amended regulation came into force (in fact January 2017) and the resolution plan was prepared and approved before that event the wide observations of the NCLAT requiring the appellant to match the payout (offered to other financial creditors) to Hero was not justified. The court notices that the liquidation value of the corporate debtor was ascertained at 36 Rs. crores. Against the said amount the appellant offered Rs.54 crores. The plan was approved and except the objections of the dissenting creditor (i.e Hero) the plan has attained finality. The order of the NCLT is hereby restored - Appeal allowed.

Summary

Issues:
1. Discrimination between financial creditors in a resolution plan approved by NCLT.
2. Interpretation of Regulation 38 of the Insolvency and Bankruptcy Board of India Regulations.
3. Application of Section 30 of the Insolvency and Bankruptcy Code.
4. Justifiability of NCLAT's order modifying the resolution plan.

Issue 1: Discrimination between financial creditors
The appellant, a resolution applicant, challenged NCLAT's decision modifying a resolution plan approved by NCLT due to alleged discrimination against financial creditors. The plan offered dissenting financial creditor Hero Fincorp Ltd. a lower percentage of its admitted claim compared to other financial creditors. NCLAT relied on precedents to assert that the plan was discriminatory under Section 30(2)(e) of the IBC. The appellant failed to update the plan post-amendment of Regulation 38, leading to the NCLAT's directive to remove discrimination.

Issue 2: Interpretation of Regulation 38
NCLAT's order was based on the amended Regulation 38 prioritizing operational creditors over financial creditors. The appellant's failure to align the plan with the amended regulation was deemed discriminatory. The NCLAT emphasized the importance of fair treatment for operational creditors and the need for resolution plans to adhere to statutory requirements post-amendment.

Issue 3: Application of Section 30 of the IBC
Section 30 outlines the duties of a resolution professional and the criteria for examining resolution plans. The provision mandates fair repayment to operational creditors, ensuring it is not less than liquidation value payable in case of insolvency. The NCLAT's decision was in line with Section 30's requirement to prevent discrimination among creditors of the same class.

Issue 4: Justifiability of NCLAT's order
The Supreme Court found NCLAT's order unjustified as the resolution plan was approved before the amendment to Regulation 38. The appellant's offer exceeded the liquidation value, and the plan had been implemented, except for Hero's dissent. Considering these factors, the Court set aside NCLAT's order, restoring NCLT's decision. The appeal succeeded, with no costs awarded.

This detailed analysis of the judgment addresses the issues of discrimination between financial creditors, the interpretation of Regulation 38, the application of Section 30 of the IBC, and the justifiability of NCLAT's order, providing a comprehensive understanding of the legal complexities involved in the case.