NCLT-approved RP Offering 2.16% Payment to OC, Rest via Preference Shares Was Violative of Sec. 30 | NCLAT

Case Details: Gupta Textiles v. Darshan Patel - [2024] 161 taxmann.com 503 (NCLAT-New Delhi)

Judiciary and Counsel Details

• • Ashok Bhushan, Chairperson, Barun Mitra & Arun Baroka, Technical Member
  • Nipun Gautam, Adv. for the Appellant.
  • Navin Pahwa, Sr. Adv. & Karan Valecha, Adv. for the Respondent.
  • Kamil Lokhandwala, Ld. Counsel Darshan Patel, Nausher Kohli, Rakesh Gupta & Deeraj Garg, Ld. Counsel for the Applicant.

Facts of the Case

In the instant case, the CIRP against the corporate debtor was commenced. The appellant (i.e. operational creditor) filed its claim for an amount of Rs.1.41 crores and the same was admitted to the extent of Rs.1.24 crores. Subsequently, the resolution plan submitted by respondent No.2 was approved and the resolution professional (RP) submitted an application for the approval of the resolution plan. The Adjudicating Authority (NCLT) approved the resolution plan.

The appellant challenged the NCLT’s order on the ground that the total claim of the operational creditor was admitted as Rs. 16.36 crores, however, the amount proposed to the operational creditor was Rs.35.34 lacs i.e., 2.16% as a cash payment. Therefore, the resolution plan submitted by respondent No.2 was not in compliance with section 30, sub-section (2) (b) of the IBC.

NCLAT Held

The NCLAT noted that the amount of the resolution plan was to be distributed on a pro-rata basis to operational creditors, whereas the cash amount offered to the operational creditor was only 2.16%. The rest amount, which was payable to the operational creditor as per section 30(2) (b) was to be subsumed by offering an option of partly paid redeemable preference shares.

The NCLAT, further noted that the amount to be paid to the financial creditor had to be paid in priority only by way of cash payment and not by way of issuing equity. Hence, the payment offered to the operational creditor was not in accordance with section 30 (2)(b) (ii) of the IBC.

The NCLAT held that the NCLT had failed to advert to section 30(2)(b)(ii) and failed to notice that the amount proposed to the operational creditor was clearly contrary to section 30(2)(b)(ii) of the IBC. Thus, the impugned order passed by the NCLT approving the resolution plan could not be sustained.

The NCLAT, further held that section 30 of the IBC provides that the operational creditor has to be paid a higher amount out of the amount as provided in sections 30(2)(b)(i) and 30(2)(b)(ii) of the IBC.

List of Cases Reviewed

• • NCLT (MUMBAI), in IA No.3908/2023in C.P. (IB)/4002(MB)2019, dated 09.11.2023
  • Jaypee Kenisington and Ors. (para 8) v. NBCC (India) Ltd. & Ors. – (2022) 1 SCC 401 (para 8) followed