AI Structured Summary
Not yet generated for this judgment
Judgment
O R D E R
31.03.2022: Heard Shri Srijan Sinha, learned counsel for the Appellant and Shri P. Ramesh Babu, learned counsel for the Respondent. This Appeal has been filed against the order passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench, Court No. IV dated 28.10.2021 by which the Resolution Plan has been approved. The Appellant, an Operational Creditor aggrieved by the order has come up in this Appeal.
Shri Srijan Sinha, learned counsel for the Appellant submits that there is great disparity between the amount offered to the Operational Creditors as compared to payment of dues offered to the Financial Creditors. It is submitted that the Financial Creditors have been offered 25.74% whereas Operational Creditors have been offered only 1.24%, which is clear inequality and arbitrariness. He submits that there has to be equality in the payment of dues which is to be made between the different stakeholders and present is the case of clear inequality and arbitrariness where the Operational Creditors have been provided with only paltry sum of 1.24%.
Shri P. Ramesh Babu, learned counsel for the Respondent submits that submission regarding arbitrariness is wholly misconceived. He submits that in the CoC there are 95% Unsecured Financial Creditors and only 5% of the Voting share is of the Secured Financial Creditors still the Unsecured Financial Creditors has accepted less than 1% payment. Therefore, there is neither any inequality nor any arbitrariness. It is further submitted that there is no case of the Appellant that Appellant is receiving less than the liquidation value to which it is entitled under Section 53.
We have heard learned counsel for the parties and perused the record.
In the present case, there is payment of different percentages to the Financial Creditors and the Operational Creditors. The Appellant’s case is not that they are getting payment which is less than the liquidation value to which they are entitled under Section 53 r/w Section 32. The Hon’ble Supreme Court in (2020) 8 SCC 531, ‘Essar Steel India Ltd. Committee of Creditors vs. Satish Kumar Gupta’ has occasion to consider this very issue and held that equality should be looked into with regard to same class of creditors. It is also held that there cannot be equality between class of Operational Creditors and class of Financial Creditors. In para 88 and 89 of the Judgment following principles have been laid down.
“88.By reading paragraph 77 de hors the earlier paragraphs, the Appellate Tribunal has fallen into grave error. Paragraph 76 clearly refers to the UNCITRAL Legislative Guide which makes it clear beyond any doubt that equitable treatment is only of similarly situated creditors. This being so, the observation in paragraph 77 cannot be read to mean that financial and operational creditors must be paid the same amounts in any resolution plan before it can pass muster. On the contrary, paragraph 77 itself makes it clear that there is a difference in payment of the debts of financial and operational creditors, operational creditors having to receive a minimum payment, being not less than liquidation value, which does not apply to financial creditors. The amended Regulation 38 set out in paragraph 77 again does not lead to the conclusion that financial and operational creditors, or secured and unsecured creditors, must be paid the same amounts, percentage wise, under the resolution plan before it can pass muster. Fair and equitable dealing of operational creditors' rights under the said Regulation involves the resolution plan stating as to how it has dealt with the interests of operational creditors, which is not the same thing as saying that they must be paid the same amount of their debt proportionately. Also, the fact that the operational creditors are given priority in payment over all financial creditors does not lead to the conclusion that such payment must necessarily be the same recovery percentage as financial creditors. So long as the provisions of the Code and the Regulations have been met, it is the commercial wisdom of the requisite majority of the Committee of Creditors which is to negotiate and accept a resolution plan, which may involve differential payment to different classes of creditors, together with negotiating with a prospective resolution Applicant for better or different terms which may also involve differences in distribution of amounts between different classes of creditors.
89.Indeed, by vesting the Committee of Creditors with the discretion of accepting resolution plans only with financial creditors, operational creditors having no vote, the Code itself differentiates between the two types of creditors for the reasons given above. Further, as has been reflected in Swiss Ribbons (supra), most financial creditors are secured creditors, whose security interests must be protected in order that they do not go ahead and realise their security in legal proceedings, but instead are incentivised to act within the framework of the Code as persons who will resolve stressed assets and bring a corporate debtor back to its feet. Shri Sibal's argument that the expression "secured creditor" does not find mention in Chapter II of the Code, which deals with the resolution process, and is only found in Chapter III, which deals with liquidation, is for the reason that secured creditors as a class are subsumed in the class of financial creditors, as has been held in Swiss Ribbons (supra). Indeed, Regulation 13(1) of the 2016 Regulations mandates that when the resolution professional verifies claims, the security interest of secured creditors is also looked at and gets taken care of. Similarly, Regulation 36(2)(d) when it provides for a list of creditors and the amounts claimed by them in the information memorandum (which is to be submitted to prospective resolution applicants), also provides for the amount of claims admitted and security interest in respect of such claims.”
The Appellant cannot claim any parity in payment offered to the Financial Creditors. As submitted by learned counsel for the Respondent, even Unsecured Creditors, who dominate the Committee of Creditors has agreed to take only 1% for payment. We do not find that there is any arbitrariness and inequality vitiating the order passed by the Adjudicating Authority. We do not find any ground to interfere with the Resolution Plan. We dismiss the Appeal.