NCLAT upheld the validity of approving a Resolution Plan under Section 30(2)(b) of the IBC, even when Operational Creditors receive no payment due to a nil liquidation value.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench led by Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka reviewed an appeal and observed that the approval of a Resolution Plan by the Committee of Creditors and the Adjudicating Authority is valid under Section 30(2)(b) of the IBC if it meets the legal requirement of providing at least the liquidation value to Operational Creditors, even if their payout is zero when the liquidation value is nil.
The Appeal was lodged by an Operational Creditor challenging the Order dated April 21, 2022, issued by the National Company Law Tribunal (NCLT) in New Delhi, which had approved the Resolution Plan for Vinayak Rathi Steels Rolling Private Limited. This Corporate Debtor entered into the Corporate Insolvency Resolution Process (CIRP) on June 16, 2020, following an application by Jammu and Kashmir Bank, a Financial Creditor. The Appellant submitted its claim as an Operational Creditor on August 1, 2020, for ₹1,54,64,626, but only ₹93,00,564 was admitted by the Resolution Professional (RP). Despite the dismissal of its application challenging the claim rejection on September 23, 2021, the Appellant’s subsequent appeal was allowed, directing reconsideration of its claim during the review of the Resolution Plan.
The Resolution Plan proposed by the Resolution Applicant was approved by the Committee of Creditors (CoC) and the Adjudicating Authority, which involved a payment of ₹23,12,50,000 to the Financial Creditor and 100% coverage of CIRP costs amounting to ₹30,50,206. Notably, no amount was allocated to the Operational Creditor, a fact which prompted the Appellant to file I.A. No. 4103/2021 seeking rejection of the Resolution Plan, a request that was also dismissed.
The Tribunal’s review highlighted that under Section 30(2)(b) of the Insolvency and Bankruptcy Code (IBC), Operational Creditors must receive at least the liquidation value. In this instance, the liquidation value for the Operational Creditor was determined to be NIL because the sole Financial Creditor could not recover its full claim. The Tribunal emphasized that the approval of the Resolution Plan by the CoC was compliant with Section 30(2)(b), as it met the legal requirement despite the differential treatment among creditor classes.
The Appellant's Counsel relied heavily on the Tribunal’s ruling in Hammond Power Solutions Private Limited v. Sanjit Kumar Nayak and Others, REEDLAW 2020 NCLAT Del 02568, arguing that the Resolution Plan should have provided for the Operational Creditor’s claim, as the decision did not reflect the interests of all stakeholders. However, the Tribunal in Hammond Power Solutions Private Limited v. Sanjit Kumar Nayak and Others, REEDLAW 2020 NCLAT Del 02568, had set aside the order and remanded the matter for further consideration, noting discrepancies in proposed payments and emphasizing fair treatment of all stakeholders.
In this case, the Tribunal noted that the legal requirement was strictly about the liquidation value, which was NIL for the Operational Creditor. The Court acknowledged the harshness of this outcome but indicated that any legislative changes to address this issue were outside its purview. Thus, the Adjudicating Authority's approval of the Resolution Plan, which was consistent with the provisions laid out by the CoC and the IBC, was deemed correct. The Appeal was consequently dismissed for lack of merit.
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