Court Upholds Resolution Plan Despite No Payment to Operational Creditor

Background

In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) dismissed an appeal by an Operational Creditor against the approval of a Resolution Plan for Vinayak Rathi Steels Rolling Private Limited. The appeal challenged the Adjudicating Authority's decision, which had allowed the Resolution Plan despite it not proposing any payment to the Operational Creditor, who claimed ₹1,54,64,626.

Arguments

The Appellant argued that the Adjudicating Authority erred in approving the Resolution Plan, as it failed to consider the claims of all stakeholders, particularly the Operational Creditor. They cited Section 30(2) of the Insolvency and Bankruptcy Code (IBC), which mandates that the Resolution Plan must address the claims of all creditors. The Respondent, representing the Resolution Professional, contended that since the liquidation value for the Operational Creditor was NIL, the approval of the Plan was justified under the provisions of the IBC.

Court's Analysis and Reasoning

The NCLAT analyzed the arguments presented by both sides, emphasizing the provisions of Section 30(2)(b) of the IBC, which stipulates that Operational Creditors must receive at least the amount they would have received in the event of liquidation. The court noted that since the sole Financial Creditor was not receiving its full claim, the liquidation value for the Operational Creditor was also NIL. Therefore, the court concluded that the Resolution Plan did not violate any provisions of the IBC, as it was within the commercial wisdom of the Committee of Creditors (CoC) to approve the Plan.

Decision

The NCLAT upheld the Adjudicating Authority's decision to approve the Resolution Plan, stating that there was no error in the approval process. The court highlighted that the current legal framework allows for such outcomes, even if they appear harsh to Operational Creditors. The ruling underscores the need for potential legislative changes to better protect the interests of Operational Creditors in future insolvency proceedings.