The NCLAT observed that the payment offered to the Operational Creditor through partly paid Redeemable Preference shares is not as per Section 30(2)(b)(ii) of the Insolvency and Bankruptcy Code, 2016.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench of Justice Ashok Bhushan (Chairperson) and Barun Mitra & Arun Baroka (Technical Members) was hearing an appeal and held that the payment offered to the Operational Creditor through partly paid Redeemable Preference shares is not in accordance with Section 30(2)(b)(ii) of the Insolvency and Bankruptcy Code, 2016 and is also contrary to the law laid down by the Hon’ble Supreme Court in the case of Jaypee Kensington Boulevard Apartments Welfare Association and Others v. NBCC (India) Limited and Others, REED 2021 SC 03527.
The National Company Law Appellate Tribunal (NCLAT) heard an appeal by an Operational Creditor against the order dated 09.11.2023 passed by the National Company Law Tribunal, Mumbai Bench, Court-IV in IA No.3908 of 2023, approving the Resolution Plan submitted by Respondent No.2.
The Corporate Insolvency Resolution Process (CIRP) against Television Home Shopping Network Limited commenced on 03.03.2023. The Appellant, an Operational Creditor, filed its claim for Rs.1,41,16,647/-, which was partially admitted for Rs.1,24,73,281/-. The Financial Creditor, Centre for Economic and Social Inclusion Private Ltd., held 100% voting share in the Committee of Creditors (CoC) and approved the Resolution Plan by Respondent No.2 on 06.08.2023.
The Resolution Plan proposed various payments to creditors, including Operational Creditors. However, the Operational Creditor, aggrieved by the order, argued non-compliance with Section 30(2)(b)(ii) regarding the distribution of the Plan amount. The NCLAT observed that the proposed payment to Operational Creditors did not adhere to statutory provisions and Supreme Court precedents.
The Appellate Authority noted that the resolution plan approved by the National Company Law Tribunal (NCLT) was not in compliance with Section 30(2)(b)(ii) of the Insolvency and Bankruptcy Code. The plan failed to ensure that operational creditors receive an amount not less than the liquidation value of their debt or the amount that would have been received under the plan's distribution.
The NCLAT emphasized that payment to operational creditors should be made primarily in cash, rather than through equity issuance. As a result, the NCLAT deemed the distribution to operational creditors under the plan as non-compliant and ordered modification of the NCLT's approval accordingly.