Imp. Rulings - Distribution of Plan Funds under Section 30.
Index;
SCI (2024.01.03) in DBS Bank Ltd. Singapore Vs. Ruchi Soya Industries Ltd. and Anr. [Civil Appeal No. 9133 of 2019 with Civil Appeal No. 787 of 2020 ] [Value of Security Interest Section 30(2)]
NCLAT (13.07.2023) In Akashganga Processors Pvt. Ltd. Vs. Shri Ravindra Kumar Goyal & Ors. [Company Appeal (AT) (Insolvency) No.1148 of 2022] [Differential payment to different classes of Creditors]
SCI (03.05.2023) in M.K. Rajagopalan Vs. Dr. Periasamy Palani Gounder & Anr. [Civil Appeal Nos. 1682-1683, 1756, 1759, 1757, 1807, 1810 and 1827 of 2022] [Differential payment to Related Parties]
NCLT Hyderabad (13.03.2023) In Canara Bank Vs. Sri. Nitin Vishwanath Panchal RP [I.A. No.520 /2021 with I.A. No.663/2021 in CP(IB) No.384/7/HDB/2018] [Section 30(4) - Value of Security Interest]
NCLAT (22.12.2022) in Paramvir Singh Tiwana Vs. Puma Realtors Pvt. Ltd.. [Comp. App. (AT) (Ins.) Nos. 554, 564, 664/2021] [Payment to non claimant]
NCLAT (24.11.2022) in Greater Noida Industrial Development Authority Vs. Mr. Prabhjit Singh Soni & Anr. [Company Appeal (AT)(Insolvency) No.867 of 2021 & I.A. No. 2315 of 2021] [Sub-classes between Operational Creditors]
NCLAT (21.10.2022) in Jet Aircraft Maintenance Engineers Welfare Association Vs. Ashish Chhawchharia RP of Jet Airways (India) Ltd. & Ors. [Company Appeal (AT) (Insolvency) Nos. 752, 643, 792, 801 915 of 2021, 361, 771 & 987 of 2022] [PF Dues - Compliance of Section 30(2)(e)]
NCLAT (20.07.2022) in Union Bank of India Vs. Mr. Rajender Kumar Jain, RP of M/S Kudos Chemie Ltd. & Ors.[Comp. App. (AT) (Ins.) No. 665 of 2022] [Sub- classes of Creditors]
NCLAT (04.10.2021) In Gail India Ltd. Vs. Ajay Joshi (RP of Alok Industries Ltd. & Ors.) [Company Appeal (AT) (Ins.) 492 of 2019] [Sub-classes of Creditors & Collective Commercial Wisdom of CoC]
SCI (10.08.2021) in Pratap Technocrats (P) Ltd. & Ors. vs. Monitoring Committee of Reliance Infratel Limited & Anr.. [Civil Appeal No 676 of 2021] [Equity based jurisdiction of NCLT]
SCI (13.05.2021) in India Resurgence ARC Private Limited Vs Amit Metaliks Limited & Anr. [Civil Appeal No. 1700 of 2021] [Dissenting Financial Creditor]
NCLAT (18.11.2019) in DBS Bank Ltd., Singapore Vs. Mr. Shailendra Ajmera & [Anr.[Company Appeal (AT) (Insolvency) No. 788 of 2019] [Dissenting Financial Creditor]
SCI (15.11.2019) in CoC of Essar Steel India Limited vs. Satish Kumar Gupta & Ors. (Civil Appeal No. 8766-67 OF 2019) [ Sub-classes of Creditors]
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1). SCI (2024.01.03) in DBS Bank Ltd. Singapore Vs. Ruchi Soya Industries Ltd. and Anr. [Civil Appeal No. 9133 of 2019 with Civil Appeal No. 787 of 2020 ] held that;
Section 30(2) refers only to the sum of money and nothing else, that is, it does not permit the dissenting financial creditor to enforce the security and sell the same. This would be counterproductive and may nullify the resolution plan.
What the dissenting financial creditor is entitled to is the payment, which should not be less than the amount/value of the security interest held by them.
The security interest gets converted from the asset to the value of the asset, which is to be paid in the form of money.
A dissenting financial creditor is entitled to not partake the proceeds in the resolution plan, unless a higher amount in congruence with its security interest is approved in the resolution plan. The “amount” to be paid to the dissenting financial creditor should be in accordance with Section 53(1) in the event of liquidation of the corporate debtor.
In other words, in our opinion, the dissenting financial creditor is entitled to a minimum value in monetary terms equivalent to the value of the security interest.
The dissenting financial creditor has to statutorily forgo and relinquish his security interest on the resolution plan being accepted, and his position is same and no different from that of a secured creditor who has voluntarily relinquished security and is to be paid under Section 53(1)(b)(ii) of the Code.
We wish to clarify that Section 53(1) is referred to in Section 30(2)(b)(ii) with the purpose and objective that the dissenting financial creditor is not denied the amount which is payable to it being equal to the amount of value of the security interest. The entire Section 53 is not made applicable.
The dissenting financial creditor cannot object to the resolution plan, but can object to the distribution of the proceeds under the resolution plan, when the proceeds are less than what the dissenting financial creditor would be entitled to in terms of Section 53(1) if the corporate debtor had gone into liquidation. This is the statutory option or choice given by law to the dissenting financial creditor. The option/choice should be respected.
In view of the aforesaid discussion, and as we are taking a different view and ratio from India Resurgence ARC Private Limited (supra) on interpretation of Section 30(2)(b)(ii) of the IBC, we feel that it would be appropriate and proper if the question framed at the beginning of this judgment is referred to a larger Bench.
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2). NCLAT (13.07.2023) In Akashganga Processors Pvt. Ltd. Vs. Shri Ravindra Kumar Goyal & Ors. [Company Appeal (AT) (Insolvency) No.1148 of 2022] held that;
Fair and equitable dealing of operational creditors’ rights under the said Regulation involves the resolution plan stating as to how it has dealt with the interests of operational creditors, which is not the same thing as saying that they must be paid the same amount of their debt proportionately.
Also, the fact that the operational creditors are given priority in payment over all financial creditors does not lead to the conclusion that such payment must necessarily be the same recovery percentage as financial creditors.
So long as the provisions of the Code and the Regulations have been met, it is the commercial wisdom of the requisite majority of the Committee of Creditors which is to negotiate and accept a resolution plan, which may involve differential payment to different classes of creditors.
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3). SCI (03.05.2023) in M.K. Rajagopalan Vs. Dr. Periasamy Palani Gounder & Anr. [Civil Appeal Nos. 1682-1683, 1756, 1759, 1757, 1807, 1810 and 1827 of 2022] held that;
It has rightly been argued on behalf of the appellants and had rightly been observed by the Adjudicating Authority (vide extraction in paragraph 15.4.1 hereinabove) that there was no provision in the Code which mandates that the related party should be paid in parity with the unrelated party.
So long as the provisions of Code and CIRP Regulations are met, any proposition of differential payment to different class of creditors in the resolution plan is, ultimately, subject to the commercial wisdom of CoC and no fault can be attached to the resolution plan merely for not making the provisions for related party.
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4). NCLT Hyderabad (13.03.2023) In Canara Bank Vs. Sri. Nitin Vishwanath Panchal RP [I.A. No.520 /2021 with I.A. No.663/2021 in CP(IB) No.384/7/HDB/2018] held that;
The word used being “may”,[in section 30(4)] the same is directory and not mandatory. That apart, the said provisions is only an enabling provision and does not impose any mandate on the COC to distribute payments to creditors based on the value of security held by them.
What amount is to be paid to different cases or subclasses of creditors in accordance with the provisions of the IB Code, 2016 and the related Regulations, is essentially the commercial wisdom of the Committee of Creditors, and a dissenting secured creditor like the Appellant therein cannot suggest a higher amount to be paid to it with reference to the value of the Security Interest.
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5). NCLAT (22.12.2022) in Paramvir Singh Tiwana Vs. Puma Realtors Pvt. Ltd.. [Comp. App. (AT) (Ins.) Nos. 554, 564, 664/2021] held that;
Fair and equitable dealing of operational creditors’ rights under the said regulation involves the resolution plan stating as to how it has dealt with the interests of operational creditors, which is not the same thing as saying that they must be paid the same amount of their debt proportionately.
It is clear that so long as the provisions of the Code and the regulations have been met, it is the Commercial Wisdom of the requisite majority of the CoC which is to negotiate and accept the Resolution Plan, which may involve differential payments to different classes of Creditor, together with negotiating with a Prospective Resolution Applicant for better or different terms which may also involve differences in amounts of distribution between the different classes of Creditors.
In the instant case, what has to be kept in mind is that the ‘Corporate Debtor’ is a Real Estate Company involved in construction of Housing and Commercial Units and the land on which the construction is to be completed belongs to GMADA. As the nature of the activity of the ‘Corporate Debtor’ is dependent on the land owned by GMADA, the commercial decision taken by the CoC to make a provision in the Resolution Plan with respect to the Statutory Dues owed to GMADA, cannot be faulted with, though GMADA has failed to make the requisite claim, as provided for under the Code, but has been in communication with the RP.
“Though we do not appreciate the act of GMADA not having filed their claim, the fact remains that the ‘Real Estate Project’ is being constructed on GMADA land and all approvals, permits and licences involves GMADA, which is a ‘Secured Creditor’.
“Further, the nature of business and the ground realities were kept in mind by the CoC before taking a commercial decision. In approval of the Resolution Plan, the CoC takes a business decision ‘based on ground realities, by a majority which binds all stakeholders including dissenting Creditors’.
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6). NCLAT (24.11.2022) in Greater Noida Industrial Development Authority Vs. Mr. Prabhjit Singh Soni & Anr. [Company Appeal (AT)(Insolvency) No.867 of 2021 & I.A. No. 2315 of 2021] held that;
“The definition of ‘Financial Debt’ in section 5(8) of IB Code then goes on to state that a debt must be disbursed against the consideration for the time value of money….”
There is no embargo on creating subclasses between the ‘Operational Creditors’ for deciding the manner in which the ‘Resolution Amount’ is to be distributed.
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7). NCLAT (21.10.2022) in Jet Aircraft Maintenance Engineers Welfare Association Vs. Ashish Chhawchharia RP of Jet Airways (India) Ltd. & Ors. [Company Appeal (AT) (Insolvency) Nos. 752, 643, 792, 801 915 of 2021, 361, 771 & 987 of 2022] held that;
The workmen are entitled to full payment of provident fund and gratuity, hence, the balance of above dues are to be paid by the Successful Resolution Applicant, to satisfy statutory obligations. Non-payment of full provident fund and gratuity shall lead to violation of Section 30(2)(e), hence, to save the plan the above payments have to be made.
We, thus, do not find any substance in the submission of the learned Counsel that payment to the Secured Financial Creditors under Section 53(1)(b) has to be made as per their value of the security interest and the Resolution Plan did not take into consideration their debt, which is the debt of the Financial Creditors while allocating the amount.
We have already held that the employees were also entitled to receive their full amount of provident fund to which they were entitled under 1952 Act and gratuity due till commencement of insolvency under the Payment of Gratuity Act, 1972, which they were entitled as per Section 30(2)(e) of the Code.
We hold that provident fund dues were entitled to be paid in full. In view of the judgment of Supreme Court in “Maharashtra State Cooperative Bank Limited vs. Assistant Provident Fund Commissioner & Others” (Supra), the claim of Appellant was to be satisfied in full, otherwise breach of provision of Section 30(2)(e) would have occurred. We, thus, are inclined to issue direction to the Successful Resolution Applicant to make payment of the admitted claim of the Appellant towards provident fund dues to save the plan from invalidity.
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8). NCLAT (20.07.2022) in Union Bank of India Vs. Mr. Rajender Kumar Jain, RP of M/S Kudos Chemie Ltd. & Ors.[Comp. App. (AT) (Ins.) No. 665 of 2022] held that;
“ Thus, what amount is to be paid to different classes or sub-classes of creditors in accordance with provisions of the Code and the related Regulations, is essentially the commercial wisdom of the Committee of Creditors and a dissenting secured creditor like the appellant cannot suggest a higher amount to be paid to it with reference to the value of the security interest.”
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9). NCLAT (04.10.2021) In Gail India Ltd. Vs. Ajay Joshi (RP of Alok Industries Ltd. & Ors.) [Company Appeal (AT) (Ins.) 492 of 2019] held that;
this Tribunal, is of the considered opinion that the ‘Operational Creditors’ were paid as per Section 30(2) (b) of the I&B Code, 2016, and coupled with Regulation 38 of the ‘CIRP Regulations’ the ‘Operational Creditors’ are entitled to receive only such money that are payable to them as per Section 53 of Code.
In reality, there is no embargo for the classification of Operational creditor(s) into separate/different classes for deciding the way in which the money is to be distributed to them by the ‘Committee of Creditors’ because of the fact, undoubtedly, they do have the subjective final discretion of ‘Collective Commercial Wisdom’ in relation to
(1) The amount to be paid
(2) The quantum of money to be paid, to a certain category or the incidental category of creditors, of course, nicely balancing the interests of the ‘Stakeholders’ and the ‘Operational Creditors’, as the case may be.
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10).. SCI (10.08.2021) in Pratap Technocrats (P) Ltd. & Ors. vs. Monitoring Committee of Reliance Infratel Limited & Anr.. [Civil Appeal No 676 of 2021] held that;
# 22. . . .The jurisdiction of the Adjudicating Authority under Section 31(1) is to determine whether the resolution plan, as approved by the CoC, complies with the requirements of Section 30(2). The NCLT is within its jurisdiction in approving a resolution plan which accords with the IBC. There is no equity-based jurisdiction with the NCLT, under the provisions of the IBC.
# 29. . . . . Fair and equitable treatment, in other words, is what is fair and equitable between the operational creditors as a class, and not between different classes of creditors. The statute has indicated that once the requirements of Section 30(2)(b) are fulfilled, the distribution in accordance with its provisions is to be treated as fair and equitable to the operational creditors.
# 39. . . . .The jurisdiction of the Adjudicating Authority and the Appellate Authority cannot extend into entering upon merits of a business decision made by a requisite majority of the CoC in its commercial wisdom. Nor is there a residual equity based jurisdiction in the Adjudicating Authority or the Appellate Authority to interfere in this decision, so long as it is otherwise in conformity with the provisions of the IBC and the Regulations under the enactment.
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11). SCI (13.05.2021) in India Resurgence ARC Private Limited Vs Amit Metaliks Limited & Anr. [Civil Appeal No. 1700 of 2021] held that;
# 11. . . .Once it is found that all the mandatory requirements have been duly complied with and taken care of, the process of judicial review cannot be stretched to carry out quantitative analysis qua a particular creditor or any stakeholder, who may carry his own dissatisfaction.
# 13.1. Thus, what amount is to be paid to different classes or subclasses of creditors in accordance with provisions of the Code and the related Regulations, is essentially the commercial wisdom of the Committee of Creditors; and a dissenting secured creditor like the appellant cannot suggest a higher amount to be paid to it with reference to the value of the security interest.
14.1. That a dissenting financial creditor would be receiving the payment of the amount as per his entitlement; and that entitlement could also be satisfied by allowing him to enforce the security interest, to the extent of the value receivable by him.
It has never been laid down that if a dissenting financial creditor is having a security available with him, he would be entitled to enforce the entire of security interest or to receive the entire value of the security available with him.
It is but obvious that his dealing with the security interest, if occasion so arise, would be conditioned by the extent of value receivable by him.
# 15. It has not been the intent of the legislature that a security interest available to a dissenting financial creditor over the assets of the corporate debtor gives him some right over and above other financial creditors so as to enforce the entire of the security interest and thereby bring about an inequitable scenario, by receiving excess amount, beyond the receivable liquidation value proposed for the same class of creditors.
# 16. . . . .We may profitably refer to the relevant observations in this regard by this Court in Essar Steel as follows:- “85. Indeed, if an "equality for all" approach recognising the rights of different classes of creditors as part of an insolvency resolution process is adopted, secured financial creditors will, in many cases, be incentivised to vote for liquidation rather than resolution, as they would have better rights if the corporate debtor was to be liquidated rather than a resolution plan being approved. This would defeat the entire objective of the Code which is to first ensure that resolution of distressed assets takes place and only if the same is not possible should liquidation follow.”
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12). NCLAT (18.11.2019) in DBS Bank Ltd., Singapore Vs. Mr. Shailendra Ajmera & Anr.[Company Appeal (AT) (Insolvency) No. 788 of 2019] held that;
# 9. . . . . . . .As per amended Section 30(2)(b)(ii), the distribution is to be made in the manner as prescribed under Section 53(1) giving preference to the secured creditor. However, even at that stage no discrimination can be made between two similarly situated ‘secured creditor’.
# 10. . . . . . .Section 30(2)(b)(ii) cannot be interpreted in a manner to give advantage to a ‘dissenting secured financial creditor’. In fact Section 30(2)(b)(ii) has been amended only to ensure that ‘dissenting financial creditor’ should not get anything ‘less than liquidation value’ but not for ‘getting maximum of the secured assets’.
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13). SCI (15.11.2019) in CoC of Essar Steel India Limited vs. Satish Kumar Gupta & Ors. (Civil Appeal No. 8766-67 OF 2019) besides ruling on various aspects held that;
"# 40. The importance of the majority decision of the Committee of Creditors is then stated in Section 31(1) of the Code which is set out as follows:
“31. Approval of resolution plan
(1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.”
Thus, what is left to the majority decision of the Committee of Creditors is the “feasibility and viability” of a resolution plan, which obviously takes into account all aspects of the plan, including the manner of distribution of funds among the various classes of creditors. As an example, take the case of a resolution plan which does not provide for payment of electricity dues. It is certainly open to the Committee of Creditors to suggest a modification to the prospective resolution applicant to the effect that such dues ought to be paid in full, so that the carrying on of the business of the corporate debtor does not become impossible for want of a most basic and essential element for the carrying on of such business, namely, electricity. This may, in turn, be accepted by the resolution applicant with a consequent modification as to distribution of funds, payment being provided to a certain type of operational creditor, namely, the electricity distribution company, out of upfront payment offered by the proposed resolution applicant which may also result in a consequent reduction of amounts payable to other financial and operational creditors. What is important is that it is the commercial wisdom of this majority of creditors which is to determine, through negotiation with the prospective resolution applicant, as to how and in what manner the corporate resolution process is to take place.
# 56. By reading paragraph 77 de hors the earlier paragraphs, the Appellate Tribunal has fallen into grave error. Paragraph 76 clearly refers to the UNCITRAL Legislative Guide which makes it clear beyond any doubt that equitable treatment is only of similarly situated creditors. This being so, the observation in paragraph 77 cannot be read to mean that financial and operational creditors must be paid the same amounts in any resolution plan before it can pass muster. On the contrary, paragraph 77 itself makes it clear that there is a difference in payment of the debts of financial and operational creditors, operational creditors having to receive a minimum payment, being not less than liquidation value, which does not apply to financial creditors. The amended Regulation 38 set out in paragraph 77 again does not lead to the conclusion that financial and operational creditors, or secured and unsecured creditors, must be paid the same amounts, percentage wise, under the resolution plan before it can pass muster. Fair and equitable dealing of operational creditors’ rights under the said Regulation involves the resolution plan stating as to how it has dealt with the interests of operational creditors, which is not the same thing as saying that they must be paid the same amount of their debt proportionately. Also, the fact that the operational creditors are given priority in payment over all financial creditors does not lead to the conclusion that such payment must necessarily be the same recovery percentage as financial creditors. So long as the provisions of the Code and the Regulations have been met, it is the commercial wisdom of the requisite majority of the Committee of Creditors which is to negotiate and accept a resolution plan, which may involve differential payment to different classes of creditors, together with negotiating with a prospective resolution applicant for better or different terms which may also involve differences in distribution of amounts between different classes of creditors.
# 80. When it comes to the validity of the substitution of Section 30(2) (b) by Section 6 of the Amending Act of 2019, it is clear that the substituted Section 30(2)(b) gives operational creditors something more than was given earlier as it is the higher of the figures mentioned in sub-clauses (i) and (ii) of sub-clause (b) that is now to be paid as a minimum amount to operational creditors. The same goes for the latter part of sub-clause (b) which refers to dissentient financial creditors. Mrs. Madhavi Divan is correct in her argument that Section 30(2)(b) is in fact a beneficial provision in favour of operational creditors and dissentient financial creditors as they are now to be paid a certain minimum amount, the minimum in the case of operational creditors being the higher of the two figures calculated under sub-clauses (i) and (ii) of clause (b), and the minimum in the case of dissentient financial creditor being a minimum amount that was not earlier payable. As a matter of fact, pre-amendment, secured financial creditors may cram down unsecured financial creditors who are dissentient, the majority vote of 66% voting to give them nothing or next to nothing for their dues. In the earlier regime it may have been possible to have done this but after the amendment such financial creditors are now to be paid the minimum amount mentioned in sub-section (2). Mrs. Madhavi Divan is also correct in stating that the order of priority of payment of creditors mentioned in Section 53 is not engrafted in sub-section (2)(b) as amended. Section 53 is only referred to in order that a certain minimum figure be paid to different classes of operational and financial creditors. It is only for this purpose that Section 53(1) is to be looked at as it is clear that it is the commercial wisdom of the Committee of Creditors that is free to determine what amounts be paid to different classes and sub-classes of creditors in accordance with the provisions of the Code and the Regulations made thereunder."
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Provisions of the Code;
# Section 30. Submission of resolution plan. -
(1) A resolution applicant may submit a resolution plan along with an affidavit stating that he is eligible under section 29A to the resolution professional prepared on the basis of the information memorandum.
(2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan -
(a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the 3[payment] of other debts of the corporate debtor;
(b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than
(i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under section 53; or
(ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53, whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of section 53 in the event of a liquidation of the corporate debtor.
Explanation 1. — For removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors.
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(3) The resolution professional shall present to the committee of creditors for its approval such resolution plans which confirm the conditions referred to in sub-section (2).
(4) The committee of creditors may approve a resolution plan by a vote of not less than sixty-six per cent. of voting share of the financial creditors, after considering its feasibility and viability, the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor and such other requirements as may be specified by the Board:
Provided that the committee of creditors shall not approve a resolution plan, submitted before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 (Ord. 7 of 2017), where the resolution applicant is ineligible under section 29A and may require the resolution professional to invite a fresh resolution plan where no other resolution plan is available with it:
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CIRP Regulations
# Regulation 37. Resolution plan.
A resolution plan shall provide for the measures, as may be necessary, for insolvency resolution of the corporate debtor for maximization of value of its assets, including but not limited to the following: -
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# Regulation 38. Mandatory contents of the resolution plan.
(1) The amount payable under a resolution plan -
(a) to the operational creditors shall be paid in priority over financial creditors; and
(b) to the financial creditors, who have a right to vote under sub-section (2) of section 21 and did not vote in favour of the resolution plan, shall be paid in priority over financial creditors who voted in favour of the plan.
(1A). A resolution plan shall include a statement as to how it has dealt with the interests of all stakeholders, including financial creditors and operational creditors, of the corporate debtor.]
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From the above it can be observed that;
1. Section 30(2) provides for minimum payment to be made to the operational creditor and dissenting financial creditor, i.e. which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of section 53 in the event of a liquidation of the corporate debtor.
2. Subject to the provisions of section 30(2), complete flexibility has been provided to the resolution applicant to propose distribution of funds, in a differential manner, amongst different creditors of the CD, keeping in view the viability and future exigencies of the business. The complete flexibility of resolution applicant, subject to section 30(2), in distribution of funds has been recognised by Hon’ble Supreme Court in CoC of Essar Steel India Limited vs. Satish Kumar Gupta & Ors. (Civil Appeal No. 8766-67 OF 2019.
3. Concept of differential payments in a class of creditors is inherent in the Code, as evident from the provisions of section 53.
Operational Creditors;
4. As per section 30(4) CoC may approve a resolution plan by a vote of not less than sixty-six per cent. of voting share of the financial creditors, after considering its feasibility and viability, the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor and such other requirements as may be specified by the Board.
Here it is quite important to note that under sub section 4 of section 30, the word may has been used, whereas in the proviso to sub section 4 of section 30, the word shall has been used. This clearly emphasises that the provisions of section 53(1) are directory during CIRP process and are not mandatory.;
Section 30(4) . . . . . . the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor and such other requirements as may be specified by the Board:
Provisions of Section 53 are mandatory during Liquidation process & are only directory during the Corporate Insolvency Resolution Process, and non compliance of the provisions of section 53 during CIRP cannot be construed as contravention of any of the provisions of the law for the time being in force (section 30(2)(e).
5. Regulation 38(1) provides that operational creditors & dissenting financial creditors, as per the provisions of section 30(2), shall be paid their share of the resolution plan, in priority over financial creditors who voted in favour of the plan. It nowhere specifies the quantum of share of operational creditors & dissenting financial creditors in the resolution plan is required to be paid.
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