[NCLAT] – the Resolution Plan Cannot Discriminate among the Same Class of Creditors

Introduction

In the case of Akashganga Processors Pvt. Ltd. v. Shri Ravindra Kumar Goyal & Ors.[i]*, *the National Company Law Appellate Tribunal (‘NCLAT’), modified the order passed by the National Company Law Tribunal (‘NCLT’) with respect to the rejection of the resolution plan (‘Plan’)  for being violative of ss. 30(2)(e) and 30(2)(f) of the IBC. The NCLAT directed the payment to all four operational creditors and modified the Plan.

Brief Facts

• The Akashganga Processors Pvt. Ltd. (‘Appellant’), being the resolution applicant filed an appeal against NCLT’s decision dated 23.08.2022, wherein the application filed by the resolution professional (‘RP’) for Plan approval was dismissed on the ground of being violative of ss. 30(2)(e) and 30(2)(f) of the Insolvency and Bankruptcy Code, 2016 (‘IBC’).

• The NCLT observed that the Plan envisaged the payment to two out of the four operational creditors (‘OCs’) of the corporate debtor (‘CD’), thus, the OC who was not allocated any amount in the Plan was violative of ss. 30(2)(e) and (f) of the IBC.

• Further, the Appellant contended that the OC to whom no allocation was made did not challenge or object to the Plan. Additionally, the amount was paid to only two of the OCs to keep the CD a going concern.

• The RP agreed with the submission of the Appellant regarding the application filed for the approval of the Plan and contented that, claims were received from two OCs i.e., state tax, the government of Gujarat and central excise, the government of India.

• Further, the Respondent submitted that there should not be any discrimination in the payment to the OC inter se. 

Held

• The Hon’ble NCLAT referred to the decision of the Hon’ble Supreme Court in the case of Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors[ii]*., *where it was held that the payment amount can vary during payment of debts of financial creditors and OC of a CD, however, there cannot be distinction/ discrimination in the payment within the same class of creditors. 

• The NCLAT further, held that the RP had the option to not allocate any amount to any of the OC under s. 53 of the IBC, but since the payment was made to two of the OCs of the CD, there cannot be any discrimination of payment for one class of creditor.

• The NCLAT accordingly modified the NCLT’s order and directed for the distribution of the amount amongst all the four OCs of the CD on a pro-rata basis.

Conclusion

NCLAT's decision affirms that there cannot be discrimination in payment in relation to one class of creditors. The decision clarifies and analyses that the RP has the option to not allocate any funds to OC. However, if payments are made to any OC in such cases, denying payments to other creditors of the same class is not permissible. The Plan cannot be biased towards specific OC to keep the CD operations as a going concern.

Consequently, to prevent such biases and to preserve the validity of the Plan, the NCLAT altered the Plan by directing the distribution of the amount meant for some OC to be distributed amongst all the OC.

End Notes

[i] Company Appeal (AT) (Insolvency) No. 1148 of 2022, NCLAT, New Delhi (13.07.2023).

[ii] (2020) 8 SCC 531.

Authored by Purvi Garg, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.