Distribution value attributable to each secured creditor approved of by CoC not to be interfered: NCLAT

Case Details: Indian Bank v. Charu Desai - [2022] 142 taxmann.com 302 (NCLAT-New Delhi)

Judiciary and Counsel Details

• • Justice Ashok Bhushan, Chairperson, Dr Alok Srivastava & Shreesha Merla, Technical Member
  • Abhijeet Sinha, Sovi Bipneet Singh & Ms Honey Satpal, Advs. for the Appellant.
  • Ms Pooja Mahajan, Ms Mahima Singh, Ms Srishti Kapoor, Advs., Ramji Srinivasan, Sr. Adv., Piyush Swami, Dhaval Savla, Rony O John, Deep Roy, Advs., Gopal Jain, Sr. Adv., Bishwajit Dubey, Madhav Kanoria, Prafful Goyal, Ashutosh Singh & Ms Surabhi Khattar, Advs. for the Respondent.

Facts of the Case

In the instant case, the CIRP was initiated against the corporate debtor and a liquidation value was obtained of Rs. 307.07 crores. The resolution plan of one Formation Textiles LLC’ (FTL) was approved and FTL took over management of the corporate debtor. However, the resolution plan couldn’t be implemented by FTL.

The Adjudicating Authority (NCLT) passed an order directing the FTL to hand over the possession of the corporate debtor to CoC and RP. Thereafter, the RP obtained a fresh valuation report under which the liquidation value of the corporate debtor came at Rs. 184.93 crores.

The resolution plan submitted by R2 was put to e-voting for the distribution mechanism and the same was approved by a 67.10% voting share of CoC. However, the appellant-bank had cast a dissenting vote on the said resolution plan. Pursuant to approval by CoC, the said resolution plan was also approved by the NCLT.

Aggrieved by the value assigned to the appellant, dissenting financial creditor in the resolution plan, the appellant filed an instant appeal to the National Company Law Appellate Tribunal (NCLAT) against the order passed by the Adjudicating Authority (NCLT).

The appellant alleged that there was no provision in the IBC which empowered RP to carry out a fresh valuation process, on basis of which liquidation value attributable to the appellant was reduced. Further, the distribution of the amount was neither fair nor equitable to dissenting financial creditors.

It was noted that in all CoC meetings, no objection was ever raised by the appellant regarding fresh valuation. Further, all the dissenting creditors had been allotted an amount of 19% of their admitted amount without any discrimination.

NCLAT Held

The NCLAT observed that since there was a significant fall in book value of the corporate debtor in the previous year, the decision of CoC to obtain a fresh valuation of the corporate debtor couldn’t be faulted nor it could be said to have contravened any provisions of the Code and Regulations.

The NCLAT, further observed that when distribution was ultimately approved by CoC, the approved distribution value to each lender including the dissenting financial creditors was taken by CoC in commercial wisdom, the same couldn’t be interfered with by NCLT or by NCLAT.

The NCLAT held that since there was no bar under IBC provisions for CoC to call for a fresh valuation report, the contention of the appellant that fresh liquidation value could not have been obtained by CoC couldn’t be accepted.

Further, the NCLAT held that since it was not pleaded that the resolution plan approved by CoC and NCLT violated any statutory provision, allocation to the appellant was not in contravention of section 30(2)(b) of the IBC.

In view of the above, there was no merit in the instant appeal. Accordingly, the appeal was to be dismissed.

List of Cases Reviewed

• • Order of NCLT (Mumbai) Charu Desai, Resolution Professional GB Global Ltd., In re [IA No. 19 of 2021 in CP [IB] No. 1399/MB/2017, dated 19-5-2021] (para 33) affirmed
  • India Resurgence ARC (P.) Ltd. v. Amit Metaliks Ltd. [2021] 127 taxmann.com 610/167 SCL 223 (SC) (para 33) followed.

List of Cases Referred to

• • Rana Saria Poly Pack (P.) Ltd. v. Uniworld Sugars (P.) Ltd. [2022] 138 taxmann.com 403 (NCLAT – New Delhi) (para 16)
  • Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta [2019] 111 taxmann.com 234 (SC) (para 19)
  • K. Sashidhar v. Indian Overseas Bank [2019] 102 taxmann.com 139/152 SCL 312 (SC) (para 22)
  • India Resurgence ARC (P.) Ltd. v. Amit Metaliks Ltd. [2021] 127 taxmann.com 610/167 SCL 223 (SC) (para 23)
  • Jaypee Kensington Boulevard Apartments Welfare Association v. NBCC (India) Ltd. [2021] 125 taxmann.com 360/166 SCL 678 (SC) (para 24).