Pranav B Prem

In a significant decision impacting the treatment of dissenting financial creditors under insolvency resolution, the National Company Law Appellate Tribunal (NCLAT), Chennai Bench, comprising Justice Sharad Kumar Sharma (Judicial Member) and Mr. Jatindranath Swain (Technical Member), held that dissenting financial creditors are entitled to receive payments on a pro-rata basis of the Resolution Plan value, rather than the liquidation value. The ruling came in Company Appeal (AT) (CH)(Ins) No. 89 of 2023, filed by RBL Bank Ltd. against the order of the Adjudicating Authority (NCLT, Chennai).

Background: Dispute Over Pro-Rata Share

The appeal pertained to the resolution process of M/s. Sical Logistics Limited, where RBL Bank, a secured financial creditor, had dissented from the approved Resolution Plan. The plan, submitted by the Successful Resolution Applicant (SRA), was approved by the Committee of Creditors (CoC) on 29.02.2022 and later by the NCLT on 08.12.2022.

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Under the approved plan, the total payout to financial creditors was Rs. 425.93 crores, and RBL Bank was allocated Rs. 42.09 crores as its pro-rata share of 9.88%. However, only Rs. 9.38 crores was disbursed to the bank in the first tranche of Rs. 94.93 crores released by the SRA.

RBL Bank filed IA (IBC)/250(CHE)/2023 before the Adjudicating Authority, which ruled that as a dissenting financial creditor, RBL Bank was entitled to payment only under Section 53 of the IBC, i.e., to the extent of its liquidation value share, which was determined to be Rs. 34.78 crores (9.88% of Rs. 351.88 crores). Aggrieved by this interpretation, the bank appealed.

Appellant’s Contentions

RBL Bank, represented by senior counsel, argued the following: The appellant emphasized that under the approved Resolution Plan, its rightful entitlement was Rs. 42.09 crores, based on its 9.88% share in the total payout of Rs. 425.93 crores. It contended that as a dissenting financial creditor, it was entitled to priority in payment over assenting financial creditors. Thus, the full amount of Rs. 42.09 crores should have been disbursed from the first tranche of Rs. 54.32 crores paid by the SRA. The appellant submitted that by reducing its entitlement to the liquidation value, the Resolution Plan violated Section 30(2)(b) of the Code, which mandates that a dissenting financial creditor must not receive less than its liquidation value, but does not restrict payment to only liquidation value. It also argued that since the full dues were not paid as per the approved Resolution Plan, it was not obligated to hand over title deeds of secured assets.

Tribunal’s Analysis and Findings

The NCLAT held that the Adjudicating Authority had erred in interpreting Section 30(2)(b) of the Insolvency and Bankruptcy Code. It clarified that the provision merely sets a minimum threshold—that the amount payable to a dissenting financial creditor under a resolution plan must not be less than the amount it would have received in the event of liquidation under Section 53. However, the Tribunal emphasized that this does not mean that the creditor is only entitled to the liquidation value and nothing more. If the resolution plan proposes a higher value, the dissenting creditor is entitled to a pro-rata share of that higher value, subject to being fair and equitable.

The Tribunal observed that the Adjudicating Authority had further erred by not clearly explaining the mechanism of "priority" in payment to dissenting creditors. In clarifying this, the NCLAT stated that if the entire resolution plan amount is paid in a single installment, the dissenting financial creditor should receive the full amount before payments are made to the assenting creditors. However, when the payment is made in tranches—as in the present case—the dissenting creditor should receive its pro-rata share in each tranche, prior to distribution among the assenting creditors. The Tribunal noted that "priority" in such a scenario does not imply full payment upfront in every case but mandates that the dissenting creditor must be paid first and in proportion to its entitlement in each round of distribution.

The Tribunal further relied on the provisions of Regulation 38 of the CIRP Regulations, which require that the resolution plan must be fair and equitable to all financial creditors, including dissenting ones. It held that the reduction of the appellant’s share from Rs. 42.09 crores to Rs. 34.78 crores solely on the basis of liquidation value was contrary to both the spirit and text of the Code and regulations. Therefore, the Tribunal concluded that the appellant was indeed entitled to Rs. 42.09 crores, being 9.88% of the total resolution plan value.

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Finally, the NCLAT directed that upon full payment being made to RBL Bank in accordance with the clarified interpretation of the resolution plan, the appellant must hand over the title deeds of the secured assets to the Resolution Professional (RP), who will then transfer them to the Successful Resolution Applicant. The order of the Adjudicating Authority was thus found to be unsustainable in law and set aside.

Verdict

The NCLAT allowed the appeal filed by RBL Bank, setting aside the impugned order passed by the NCLT Chennai Bench. It held that RBL Bank, as a dissenting financial creditor, was entitled to receive Rs. 42.09 crores, representing its 9.88% share of the total Resolution Plan value of Rs. 425.93 crores. The Tribunal further directed that the bank must be paid this amount on a pro-rata basis in every tranche of payment made under the Resolution Plan, with priority over assenting creditors. The Respondent (Successful Resolution Applicant) was ordered to remit the resolution amount to the Resolution Professional, who would distribute the funds as per the clarified directions of the Tribunal. Only after receiving the full entitled amount, RBL Bank shall hand over the title deeds to the RP. The appeal was allowed, and the Resolution Plan was directed to be implemented in accordance with the NCLAT’s interpretation of the Code and the Plan.

Appearance

For Appellant: Mr. Krishna Srinivasan, Senior Advocate For Ms. Pavitra Venkateswaran, Advocate

For Respondents: Mr. R. Sankaranarayanan, Senior Advocate For Mr. Aditya Reddy, Mr. Abhishek Swaroop, Mr. Palash Agarwal and Ms. Bhawana Sharma, Advocates for R1 Mr. Pradeep Joy and Ms. Dharmya M S, Advocates for R2 Mr. Srinath Sridevan, Senior Advocate For Mr. Rama Subramaniam Raja, Advocate for R3 Mr. N. Somasundar, Advocate for R10 Mr. H Arunachalam, Advocate for R21

Cause Title: RBL Bank Limited V. Sical Logistics Limited and Ors.

Case No: Company Appeal (AT) (CH) (Ins) No.36/2024 (IA Nos. 106, 107 & 779/2024)

Coram: Justice Sharad Kumar Sharma [Member (Judicial)], Jatindranath Swain [Member (Technical)]

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