2025 (6) TMI 200 - AT - IBC

Locus standi of suspended board members of the Corporate Debtor to challenge the approval of the Resolution Plan under Section 61 of the Insolvency and Bankruptcy Code 2016 - Resolution Plan fails to address provident fund dues - specific amount and the manner of distribution has not been provided in the approved Resolution Plan - discretion has been given to the Respondent No. 4 to distribute the such funds to the employees - HELD THAT - The liquidation value of the Corporate Debtor has been stated to be Rs. 294 Crores whereas the claims of the Secured Financial Creditor having first charge on the assets of the Corporate Debtor is Rs. 567.93 crores and other Secured Financial Creditor s having residual charge was the assets of the Corporate Debtor is Rs. 60.37 crores. Thus after satisfying the claims of these Secured Financial Creditors no amount remains in the kitty based on the liquidation value of the Corporate Debtor which could have been allocated to other Operational Creditors like workers/ employee as well as Unsecured Financial Creditor. It is important to understand that the Resolution Plan cannot be approved by the Adjudicating Authority under Section 30 (2) (b) r/w Section 31 of the Code unless a minimum payment is made to the Operational Creditor dissenting Financial Creditors which cannot be less than as per Section 53 i.e. related to liquidation value - This Appellate Tribunal in earlier case of Central Bank of India Vs Resolution Professional Of the Sirpur Paper Mills Ltd. Ors. 2018 (9) TMI 1771 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI has clarified that as long as two or more Financial Creditor s or two or more financial and operational Creditors are not similarly situated then there is no discrimination between them under a Resolution Plan. This makes it clear that the amount provided in the Resolution Plan to Operational Creditor or dissenting Financial Creditors cannot be less than liquidation value of Corporate Debtor. There is no scope for the Adjudicating Authority or this Appellate Authority to proceed on any equitable assumptions and presumptions to assess the resolution plan on the basis of quantitative analysis. We understand that the power of judicial review in Section 31 of the Code is not akin to the power of a supervision jurisdiction to deal with the merits of the decision of any lower judicial authority. The jurisdiction to decide as to what ought to be the terms of the resolution plan is vested on the CoC alone who has to take such a decision in its commercial wisdom while keeping in view the applicable provisions and the specified parameters. Conclusion - i) The suspended board members do not qualify as persons aggrieved under Section 61 of the Code to challenge the Resolution Plan approval. ii) The Resolution Plan s allocation to employees/workmen though less than admitted claims was a valid commercial decision exceeding minimum liquidation entitlements and that discretionary distribution within that class does not violate statutory provisions. iii) The commercial wisdom of the CoC is sacrosanct and not subject to re-assessment by courts or tribunals. iv) The Impugned Order dated 18.12.2023 upheld dismissing the appeal for lack of merit and locus standi of the Appellants. There are no error in the Impugned Order. The Appeal devoid of any merit stand rejected.

Summary

The core legal questions considered by the Tribunal include: (1) Whether the suspended board members of the Corporate Debtor have locus standi to challenge the approval of the Resolution Plan under Section 61 of the Insolvency and Bankruptcy Code, 2016 (Code); (2) Whether the Resolution Plan complies with the provisions of the Code, particularly Sections 30(2), 30(4), and 53, regarding the treatment and distribution of payments to employees/workmen and unsecured financial creditors; (3) Whether the Resolution Professional fulfilled his duties under the Code, including preservation of asset value and proper conduct during the Corporate Insolvency Resolution Process (CIRP); (4) Whether the allocation of 'Nil' payment to an unsecured financial creditor violates the Code; and (5) Whether the discretion granted to the Successful Resolution Applicant (SRA) regarding distribution among employees/workmen violates principles of equitable treatment and statutory provisions such as the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act).

Issue 1: Locus Standi of Suspended Board Members to Challenge Resolution Plan

The legal framework involves Section 61 of the Code, which permits "persons aggrieved" to file appeals against orders of the Adjudicating Authority. Precedents including the Hon'ble Supreme Court's rulings and the Tribunal's own prior decisions, such as in Jaydip Ghosh & Ors v. Niraj Agarwal & Ors., clarify that suspended board members, being neither financial creditors nor operational creditors, do not qualify as "persons aggrieved" for challenging a Resolution Plan approved by the Committee of Creditors (CoC) and the Adjudicating Authority.

The Tribunal noted that the Appellants participated in CoC meetings without raising objections during the CIRP and only challenged the plan post-approval, indicating an attempt to derail the process. The Adjudicating Authority's finding that the Appellants lacked locus standi was upheld, emphasizing that mere disappointment without a legally recognized grievance does not confer standing. The Tribunal further cited binding Supreme Court decisions confirming that erstwhile promoters or suspended directors lack locus to question the commercial wisdom of the CoC.

This issue was dispositive, leading to dismissal of the appeal on grounds of non-maintainability.

Issue 2: Compliance of Resolution Plan with the Code Regarding Payments to Employees/Workmen and Unsecured Financial Creditors

The relevant statutory provisions include Sections 30(2)(b), 30(2)(e), 30(4), and Section 53 of the Code, which prescribe the minimum payments to operational creditors and financial creditors, and the waterfall mechanism for distribution of proceeds.

The Appellants challenged the Resolution Plan on grounds that it allocated only Rs. 73 Lakhs against admitted employee dues of Rs. 1.53 Crores, and that the distribution mechanism gave the SRA discretionary power, potentially leading to discriminatory treatment among employees and workmen. They also contended that the plan proposed 'Nil' payment to an unsecured financial creditor, Hari Vitthal Mission (HVM), despite an admitted claim exceeding Rs. 60 crores, violating the statutory priority and equitable treatment principles.

The Tribunal analyzed the liquidation value of the Corporate Debtor (Rs. 294 Crores) vis-`a-vis the secured creditors' claims (over Rs. 600 Crores combined), concluding that no residual funds remained for unsecured financial creditors or operational creditors beyond the amounts allocated. The Rs. 73 Lakhs allocation to employees/workmen was seen as an exercise of the CoC's commercial wisdom to make the plan implementable, exceeding the minimum liquidation entitlement.

Regarding the 'Nil' allocation to HVM, the Tribunal held that unsecured financial creditors are entitled only to the liquidation value under Section 30(2)(b), which in this case was 'Nil' due to the priority of secured creditors. The Tribunal noted that HVM had separately challenged this allocation in connected appeals and that the CoC subsequently allocated Rs. 10 Lakhs to HVM, which was disbursed, rendering the Appellants' challenge infructuous.

The Tribunal further clarified that differential treatment among creditor classes is permissible and non-justiciable as long as it complies with the Code and is approved by the CoC in its commercial wisdom, citing the Supreme Court's decisions in Committee of Creditors of Essar Steel India Limited and India Resurgence ARC (P) Ltd. v. Amit Metaliks Ltd.

On the discretionary distribution among employees/workmen, the Tribunal observed that neither the Code nor CIRP Regulations mandate a specific distribution method within a class of creditors, and no employee or workmen body had challenged the plan. The provision prioritizing payment of any unremitted provident fund dues over financial creditors was found compliant with the EPF Act, especially as no claim had been filed by the Employees Provident Fund Organisation (EPFO).

Issue 3: Alleged Failure of the Resolution Professional to Preserve Asset Value

The Appellants alleged that the Resolution Professional shut down the Corporate Debtor's hospital operations during CIRP, undervaluing assets to favour the SRA, thereby violating Section 25(1) of the Code, which mandates preservation of asset value and ongoing operations.

The Tribunal found no evidence supporting these allegations. It noted that the Resolution Professional had appointed registered valuers who assessed liquidation and fair market values, presented to and approved by the CoC. The Tribunal observed that the hospital's closure did not per se amount to violation of the Code or Regulations, and that the Resolution Professional had maintained asset value through repairs and maintenance, ensuring a commercially viable plan. The Appellants' contentions on this ground were rejected as baseless.

Issue 4: Alleged Violation of the EPF Act by Conditioning Provident Fund Payments

The Appellants contended that clause 2.2(c)(iii)(d) of the Resolution Plan violated Section 17B of the EPF Act by conditioning provident fund payments on EPFO's determination within a short timeframe.

The Respondents clarified that the clause prioritizes payment of any unremitted provident fund dues over financial creditors, subject to EPFO quantifying dues within stipulated timelines, and that no claim had been filed by EPFO. The Tribunal accepted that this provision ensured compliance with the EPF Act and prevented uncertainty from unquantified claims, dismissing the Appellants' objection as meritless.

Issue 5: Validity of CoC's Commercial Wisdom and Judicial Review Limits

The Tribunal emphasized that the power to approve a Resolution Plan lies with the CoC, which exercises commercial wisdom within the framework of the Code. Judicial review under Section 31 is limited to ensuring compliance with mandatory provisions and does not extend to re-assessing commercial decisions or quantitative allocations.

The Tribunal cited precedents establishing that differential treatment of creditors and allocation decisions are non-justiciable if compliant with the Code and approved by the CoC. The Tribunal rejected the Appellants' attempt to substitute their judgment for that of the CoC, noting that the Code's objective is to maximize value and ensure timely resolution, which would be undermined by such challenges.

Conclusions and Significant Holdings

The Tribunal upheld the Impugned Order dated 18.12.2023, dismissing the appeal for lack of merit and locus standi of the Appellants. It held:

"One who feels disappointed with the order is not the person aggrieved. He must be disappointed by a benefit that he would have received if the order (plan in this case) had gone the other way..."

The Tribunal confirmed that suspended board members do not qualify as persons aggrieved under Section 61 of the Code to challenge the Resolution Plan approval.

It established that differential treatment among creditor classes, including 'Nil' payment to unsecured financial creditors, is permissible if aligned with the liquidation value and approved by the CoC in its commercial wisdom.

The Tribunal affirmed that the Resolution Plan's allocation to employees/workmen, though less than admitted claims, was a valid commercial decision exceeding minimum liquidation entitlements and that discretionary distribution within that class does not violate statutory provisions.

The Tribunal rejected allegations of collusion, fraud, or failure to preserve asset value by the Resolution Professional due to lack of evidence.

Finally, the Tribunal underscored the limited scope of judicial review under the Code, emphasizing that the commercial wisdom of the CoC is sacrosanct and not subject to re-assessment by courts or tribunals.