NCLAT Affirms Upfront Full Payment of Liquidation Value to Dissenting Financial Creditors Under Approved Resolution Plan
- REEDLAW
- Aug 26
- 4 min read
REEDLAW Legal News Network reports: In a key ruling, the National Company Law Appellate Tribunal (NCLAT) affirmed that dissenting financial creditors must receive their entire liquidation value in full and with priority over assenting financial creditors when the approved resolution plan expressly provides for such treatment. This decision reinforces the statutory protection available to dissenting creditors under the Insolvency and Bankruptcy Code (IBC).
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating a Company Appeal, held that dissenting financial creditors are entitled to receive their entire liquidation value upfront and in priority before any payment to assenting financial creditors, provided the approved resolution plan expressly stipulates this provision. The Tribunal clarified that such an arrangement is consistent with the terms of the IBC and the sanctity of an approved resolution plan.
The appeal was filed by a Successful Resolution Applicant (SRA) challenging the order dated 20.12.2024 passed by the National Company Law Tribunal, Kolkata Bench, in an application filed by dissenting financial creditors. The Corporate Insolvency Resolution Process (CIRP) against the corporate debtor, MBL Infrastructures Limited, commenced on 30.03.2017, and the resolution plan submitted by the appellant was approved by the Committee of Creditors (CoC) with a 78.50% vote and later by the Adjudicating Authority on 18.04.2018. After subsequent litigation, the Hon’ble Supreme Court affirmed the plan’s approval on 05.09.2023.
The dissenting financial creditors, who had not voted in favour of the resolution plan, moved an application before the Adjudicating Authority alleging non-compliance with the terms of the plan by the SRA. They contended that they were entitled to receive their entire liquidation value in priority before any payment was made to the assenting financial creditors. The NCLT accepted their contention and directed that the dissenting financial creditors be paid in full before any recovery could be made by the assenting financial creditors.
The appellant argued that under the resolution plan, payments to all financial creditors, whether assenting or dissenting, were to be made as per the approved schedule spread over 10 years. It was submitted that the dissenting financial creditors were entitled only to receive payment in priority, not as an upfront lump sum. The appellant relied on the NCLAT’s decision in Puro Naturals JV v. Warana Sahakari Bank and Others, REEDLAW 2023 NCLAT Del 11545, asserting that priority could be satisfied through instalment payments, provided they were made before payments to assenting creditors. Conversely, the dissenting financial creditors maintained that Clause 21 of the resolution plan required payment of their liquidation value before any recovery was made by the assenting creditors, which implied full upfront payment.
The NCLAT examined Clause 21 of the resolution plan and observed that it expressly stipulated that the liquidation value payable to dissenting financial creditors was to be made before any recoveries by financial creditors who voted in favour of the plan. The Tribunal held that the approved plan bound all stakeholders and that the dissenting creditors had dissented specifically to secure immediate liquidation value rather than wait for long-term payments. The Tribunal distinguished the Puro Naturals JV v. Warana Sahakari Bank and Others, REEDLAW 2023 NCLAT Del 11545 decision, noting that, unlike the present case, that plan did not include an express clause like Clause 21.
Concluding that the Adjudicating Authority had correctly interpreted Clause 21 and that the appellant’s arguments were unsustainable, the NCLAT dismissed the appeal and affirmed that dissenting financial creditors must be paid their liquidation value in priority and in full before any payment is made to assenting creditors.
Ms. Anusuya Salwan and Mr. Rachit Wadhwa, Advocates, represented the Appellant.
Mr. Krishnendu Datta, Sr. Advocate, with Mr. Santosh Kumar Ray, Mr. Ishaan Roy Chaudhury, Ms. Zeba Khan and Ms. Niharika Sharma, Advocates, appeared for Respondent No. 1 to Respondent No. 5.
Mr. Abhijeet Sinha, Sr. Advocate, with Ms. Shweta Dubey, Ms. Kanishka Prasad and Mr. Auritro Mukherjee, Advocates, appeared for the Respondent No. 6 (SBI).
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