Consistently receiving plans where Operational Creditors are not paid any amount towards their claim: NCLAT

The National Company Law Appellate Tribunal (NCLAT) on Monday urged the Central government and the Insolvency and Bankruptcy Board of India (IBBI) to consider making changes to the legislative scheme in order to facilitate equitable distribution of payments to operational creditors in the insolvency process [Damodar Valley Corporations v. Dimension Steel and Alloys & Ors]..The Bench of Justice Ashok Bhushan and Shreesha Merla stated in its order,"We are consistently receiving the Plans, where Operational Creditors either not paid any amount towards their claim or paid negligible amount, sometime even less than 1%. In the present case, the Operational Creditors have been given only miniscule of their admitted claim to the extent of only 0.19%. As the law stand today, no exception can be taken to such Plans, which provide payment to Operational Creditor in accordance with Section 30(2)(b) of the Code. However, the time has come when it should be examined by the Government and the Board to find out as to whether there are any grounds for considering change in the legislative scheme towards the payment to the Operational Creditors...".The Bench also pointed out that the question of payment to operational creditors and the manner of distribution of money routed through Resolution Plans has time and again been raised before various platforms. It was noted that the Insolvency Law Committee Report 2018 had also deliberated upon the objection to Section 30(2)(b) of the Insolvency and Bankruptcy Code, insofar as it provides for the minimum payment of liquidation value. However, the Committee decided against any amendment to be made in the Code, thereby retaining the minimum value to be paid to operational creditors..Bound by the legislative scheme in force, the Bench dismissed appeal filed by an operational creditor challenging the Resolution Plan approved by a Committee of Creditors (CoC) on the ground that it did not receive a fair or equitable amount pursuant to the Plan..The appellant challenged the whole process of entertaining the Resolution Plan, including its approval, on the ground that the Plan was received after expiry of 330 days, which is the maximum time allowed under Section 12 of the Code. In addition, the appellant also contended that before the Corporate Insolvency Resolution Process (CIRP), the corporate debtor owed an electricity bill due of over ₹36 crore, whereas the amount it received by way of the Resolution Plan was ₹7.45 lakh. The third objection raised by Senior Counsel Maninder Acharya on behalf of the appellant was that the Plan does not comply with Section 30(2) of the Code insofar as the operational creditor is concerned, as neither fair nor equitable amount has been allowed.Senior Advocate Joy Saha, appearing for the respondents, submitted that on approval of the Resolution Plan, the claims raised by the appellants before initiation of the CIRP stands extinguished. In addition, the distribution does not violate any provisions of Section 30 of the Code, he contended..The Bench, relying on the judgment of the Supreme Court in Committee of Creditors of Essar Steel India Ltd v. Satish Kumar Gupta and Ors, held that the timeline to approved the Resolution Plan provided in Section 12 is not mandatory and in certain cases, the timeline can be extended. It thus dismissed the argument that the Plan should be rejected since it was received after the expiry of 330 days.On the argument that the distribution under the Resolution Plan should be fair and equitable, NCLAT, relying on the judgment in Essar Steel, held, “...mere fact that Operational Creditors and Financial Creditors are not paid same amount and same percentage, cannot be said to be inequitable. It is settled that the Code and the Regulations does not contemplates that there could be equal treatment to all creditors…. the equitable treatment of creditors is equitable treatment only within the same class.".The Bench thus found no reason to intervene in the order of the National Company Tribunal (NCLT) order approving the Resolution Plan. It directed that a copy of the judgment be communicated to the Ministry of Corporate Affairs as well as to IBBI so that they may take steps to ensure fair and equitable distribution..[Read the Judgment]