The National Company Law Appellate Tribunal (NCLAT) held that dissenting financial creditors cannot be discriminated against in a resolution plan.
In the instant case titled Hero Fincorp Limited v. Rave Scans Private Limited and Other, the issue that was raised before the NCLAT was:
Whether the revised resolution plan submitted discriminatory in nature against Hero Fincorp?
The NCLAT examined the statement of settlement of the stakeholders' dues and found that Hero Fincorp received 32.34% of its claim, ostensibly as a result of its disagreement with the revised resolution plan. Other secured financial creditors have also received a higher percentage of their claims, according to the findings. To illustrate, Tata Capital Financial Services Limited has received 75.63% of its admitted claim, while other financial creditors such as Indian Overseas Bank have received 45% of its admitted claim, Bank of Baroda has received 45% of its admitted claim, and Punjab National Bank has received 45% of its admitted claim.
The provisions of Regulation 38 of the Insolvency and Bankruptcy Board of India (Corporate Insolvency Process of Corporate Persons) Regulations, 2016 ("CIRP Regulations") were amended by the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process of Corporate Persons) (Fourth Amendment) Regulations, 2016. Regulation 38(1)(c) of the CIRP Regulations stated that the resolution plan must identify specific sources of funds that will be used to pay the liquidation value due to dissenting financial creditors and that such payment must be made before any recoveries are made by the financial creditors who voted in favour of the resolution plan.
The court categorically held that:
“It was then observed that Insolvency and Bankruptcy Board of India has not provided for separate treatment to dissenting secured financial creditors who do not vote in favour of the resolution plan and that the amended Regulation 38 of the CIRP Regulations does not discriminate against similarly situated creditors on basis of their affirmative/ dissenting vote on the resolution plan”.
Hence, it was held by the NCLAT that the revised resolution plan in its current form was discriminatory in nature and is violative of Section 30(2)(e) of the Insolvency and Bankruptcy Code, 2016. However, the NCLAT did not set aside the approved plan but gave the successful resolution applicant the opportunity to remove the discriminatory provisions of the revised resolution plan and provide for payment of 45% of Hero Fincorp’s claim. It was also stated that if the successful resolution applicant does not make the above-mentioned change, within one month of this order of the NCLAT, the order of the NCLT dated October 17, 2018, approving the resolution plan shall be set aside.