Equitable treatment of Operational Creditors with Financial Creditors is a question under IBC – Let’s examine

[2021] 132 taxmann.com 163 (Article)

The stated object and purpose of the IBC is to balance the interest of all stakeholders. Any law provides for equitable treatment. However, in IBC it appears to be a question. Lets examine, based on the analysis of the Hon’ble Supreme Court decision in the matter of Pratap Technocrats (P.) Ltd. v. Monitoring Committee of Reliance Infratel Ltd.

Meaning of Operational Creditors

In brief, when any amount due to the vendors, service providers, workmen and employees, they are considered as operational creditors.

They cannot vote in the resolution plan.

Meaning of Financial Creditors

It means to whom a financial debt is owed. Financial debt is generally mean when money is borrowed from banks, financial institutions or any other lenders with the terms that it will be paid within a certain period of time with specified terms and conditions.

In the instant case, Reliance Infratel Limited has borrowed certain amount from banks. Hence, banks are the financial creditors.

Resolution process

It appears that Reliance Infratel Limited has failed to make payment to the financial creditors as well as the operational creditors, hence, resolution process was initiated under the IBC Code.

Impugned Order

The order of the NCLAT dated 4th January 2021 was challenged before the Hon’ble Supreme Court.

Vide this order, the NCLAT has upheld the order dated 3rd December 2021 of the NCLT, Mumbai whereby a resolution plan was approved in the course of the insolvency resolution process.

Brief facts

Reliance Infratel Limited was the Corporate Debtor, as it fails to make payment to the financial and operational creditors.

Resolution plans were received from the following applicants –

i. Bharti Airtel Ltd.;

ii. Reliance Digital Platform & Project Services Limited, through its division Infrastructure Projects;

iii. VFSI Holdings Pte. Ltd.; and

iv. UV Asset Construction Company Ltd.

Out of the above, the resolution plan submitted by Reliance Digital Platform & Project Services Limited was approved by the Committee of Creditors.

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