Once stipulation u/s 30(2)(b) of IBC stands fulfilled, distribution in accordance with its provisions is fair to operational creditors: Supreme Court

Read judgment: Pratap Technocrats vs. Monitering Committe of Reliance Infratel Ltd

Pankaj Bajpai

New Delhi, August 11, 2021: The Supreme Court has ruled that once requirements of Section 30(2)(b) of the Insolvency & Bankruptcy Code (IBC) stand fulfilled, then distribution in accordance with its provisions is to be treated as fair and equitable to operational creditors. 

The Division Bench of Justices Dr Dhananjaya Y Chandrachud & M R Shah observed that whether or not some of the financial creditors are required to be excluded from the Committee of Creditors (CoC) is of no consequence once a plan is approved by a 100 % voting share of CoC. 

These observations came pursuant to an appeal filed by operational creditors u/s 62 of IBC, against a judgment of the National Company Law Appellate Tribunal (NCLAT) whereby the decision of National Company Law Tribunal (NCLT) to approve the resolution plan formulated in the course of the insolvency resolution process (CIRP) of the Corporate Debtor (Reliance Infratel Limited) was upheld by the NCLAT.

The Supreme Court dismissed the appeal.

The appellants (operational creditors) had challenged the decision of the NCLT approving the resolution plan in appeal before the NCLAT on the grounds that the appellants were kept unaware of the CIRP and no details were provided by the Resolution Professional (RP) as regards the disposal of the fund towards their claims and claims of the appellants had not received a fair and equitable treatment. 

It was further alleged that fair market value and the liquidation value of the Corporate Debtor had not been taken into account and an amount of Rs 800 crores, being the value of certain preference shares, did not form a part of the corpus of payments to the operational creditors. These grievances went in vain before the NCLAT, which rejected the appeal. 

The Apex Court after considering the arguments and relevant provisions, clarified that even if the liquidation value of the realisable value of the preference shares were to be considered in isolation for distribution amongst all the operational creditors, in terms of the priority contained in Section 53(1) of IBC, the liquidation value due to the appellants would still remain at nil. 

The Bench said that 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, added the Division Bench. 

The Top Court stated that whether the interest of all stakeholders, including the operational creditors, has been adequately balanced or not, has to be determined within the four corners of the statutory provisions of the IBC. 

“It must be borne in mind that the jurisdiction of the Adjudicating Authority is circumscribed by the terms of the provisions conferring the jurisdiction. In the present case, the approved resolution plan has in fact provided for the payments to operational creditors, the percentage of recovery being 19.62 per cent. On the other hand, the payment to financial creditors is 10.32 per cent,” observed Justice Chandrachud. 

The Top Court also said that the IBC is a complete code in itself and once the requirements of IBC stands fulfilled, then the Adjudicating Authority and the Appellate Authority are duty bound to abide by the discipline of the statutory provisions. 

Justice Chandrachud found that in the present case, the resolution plan has been duly approved by a requisite majority of the CoC in conformity with Section 30(4). Whether or not some of the financial creditors were required to be excluded from the CoC is of no consequence, once the plan is approved by a 100 per cent voting share of the CoC. 

The Top Court reiterated that the jurisdiction of the Adjudicating Authority was confined by the provisions of Section 31(1) to determining whether the requirements of Section 30(2) have been fulfilled in the plan as approved by the CoC. 

As such, once the requirements of the statute have been duly fulfilled, the decisions of the Adjudicating Authority and the Appellate Authority are in conformity with law, concluded the Top Court.