The Hon’ble NCLAT, New Delhi Bench expounded that the Resolution Plan providing for extinguishment of personal guarantee as approved by the CoC, did not contravene any provisions of Section 30(2)(e) of the IBC.
It was further noted that as per IBC, in the event of liquidation of the Corporate Debtor, the payment to which a Financial Creditor, who does not vote in favour of the Resolution Plan is entitled for payment in accordance with Section 53(1).
It was ruled that no provision in IBC mandated the Successful Resolution Applicant to make upfront payment to the dissenting Financial Creditors. The payment to dissenting Financial Creditors was given priority and whether payment was upfront or in instalment did not make any difference.
Brief Facts:
The present appeals arose out of applications filed by Resolution Professional ("RP") for approval of Resolution Plan submitted by Puro Naturals JV and applications filed by Respondent Nos.1 and 2 objecting to the Resolution Plan.
The NCLT rejected the application for approval of Resolution Plan and approved the applications filed opposing the resolution plans.
Brief Background:
Corporate Insolvency Resolution Process ("CIRP") was initiated against the Corporate Debtor on an Application filed by ASREC (India) Limited (Financial Creditor) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "IBC").
The Resolution Plan was filed on the basis of inputs of the CoC and approved with majority.
The Successful Resolution Applicant during the proceedings before NCLT offered to make full payment to the dissenting Resolution Applicant within 90 days of the approval of the Resolution Plan.
The resolution plan however was rejected on the ground that Plan extinguished the rights of the dissenting Financial Creditors to proceed against the Personal Guarantor.
Contentions of the Appellant:
It was argued that in the Resolution Plan the securities and the personal guarantees in favour of the Financial Creditors can also be very well dealt and extinguished. It was further argued that the dissenting Financial Creditors have been proposed to be paid the amount, which would have been available to them under Section 53 of the IBC in priority to the payment to assenting Financial Creditor.
Contentions of the Respondents:
It was urged that the payment was not in accordance with Section 30 of the IBC. As per the resolution plan the payment to dissenting financial creditor was being paid in three years which was in violation of the provisions of the IBC.
Observations of the Court:
The issue was whether Resolution Plan providing for extinguishment of security interest and the guarantees of the Financial Creditors including dissenting Financial Creditors and payment proposes were contrary to the provision of Section 30(2) and the CIRP Regulations?
It was noted that the resolution plan did envisage the extinguishment of security interest and the guarantees.
It was opined that the plan was approved by majority CoC and hence, could not have been rejected by the NCLT.
It was expounded that the Resolution Plan providing for extinguishment of personal guarantee as approved by the CoC, did not contravene any provisions of Section 30(2)(e) of the IBC.
It was further noted that as per IBC, in the event of liquidation of the Corporate Debtor, the payment to which a Financial Creditor, who does not vote in favour of the Resolution Plan is entitled for payment in accordance with Section 53(1).
It was ruled that no provision in IBC mandated the Successful Resolution Applicant to make upfront payment to the dissenting Financial Creditors. The payment to dissenting Financial Creditors was given priority and whether payment was upfront or in instalment did not make any difference.
The decision of the Court:
Based on the aforementioned reasons, the appeals were accordingly allowed.
Case Title: Puro Naturals JV v. Warana Sahakari Bank & Ors. with other connected matters
Case No.: Company Appeal (AT) (Insolvency) Nos.661-663 of 2023. with other connected matters
Coram: Ashok Bhushan (Chairperson), Barun Mitra (Technical Member)
Advocates for Appellant: Advs. Mr. Siddharth S. Chapalgaonkar, Ms. Sneha Botwe, Mr. Gajanan Tirthkar
Advocates for Respondents: Advs. Mr. Sumant Batra, Ms. Apoorva Chowdhary
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