Plea of Uttam Value Steel operational creditors for fair treatment dismissed by NCLT
It is no secret that the operational creditors have got a raw deal when it comes to getting their outstanding dues from a company under insolvency. This story played out again when a plea of Uttam Value Steel operational creditors for fair treatment got dismissed by the adjudicating authority.
The resolution plan of Uttam Value Steel, which was bought by a consortium of Carval Investors and Nithiya Capital Resources Advisors, both alternative funds focused on distressed assets, had given a very raw deal to operational creditor.
As per the resolution plan of Carval, which got approval from the CoC, operational creditors received just Rs 1 crore against total claims made by them of Rs 585 crore. The resolution professional in this case — Rajiv chakraborty – even admitted Rs 535 crore of the claims made by the operational creditors.
Of the total admitted claims of Rs 535 crore, Jatia Group alone accounted for 82% or Rs 423 crore. As per the plan, Jatia Group was to receive only Rs 82 lakh or 0.19% of the total admitted claims of Rs 423 crore.
The Jatia Group objected to the resolution plan saying ‘their realization from this plan is inequitable to the proportion coming to the share of the Financial Creditors’.
However, the counsel of the Committee of Creditors (CoC) argued that Jatia Group as an Operational Creditor was not deprived of getting its share under section 53 of IBC, which talks about distribution of assets.
The Principal bench of NCLT also made the observation that in this case, the operational creditor does not get any share under the waterfall mechanism as per section 53 of the IBC. It said that the financial creditors themselves were getting less than half of their claims admitted by the resolution professional. Even under such circumstances, if the operational creditor is getting some of its dues, it cannot have any grievance saying that they are not equitably treated, says the NCLT bench.
The financial creditors managed to recover Rs 637 crore against their admitted claims of Rs 2,470 crore.
It further cites judgements of Supreme Court in the K Sasidhar vs. Indian Overseas Bank, Swiss Ribbons Private vs. Union of India and CoC of Essar Steel India Limited vs Satish Kumar Gupta to reiterate the fact that the commercial decision with regard to approval of the plan is within the domain of the Committee of Creditor, and that the Adjudicating Authority is not expected to transgress into the commercial wisdom of the CoC in approving the plans.
Citing all these reasons, the NCLT dismissed Jatia Group’s plea of inequitable treatment meted out to them in the resolution plan.
Another operational creditor Noble Resources International Pte Limited (Noble) also raised objections to the approval of the resolution plans, on the premise that the plans approved by the CoC are contrary to the scheme of the IBC and the CoC has taken an undue advantage of its voting rights to undercut the payout to the Operational Creditors.
On Noble’s question, the NCLT said that an operational creditor will only get their share as per the IBC rules. It further said that a resolution plan cannot be judged based whether operational creditors are receiving money equivalent to the money financial creditors are getting because operational creditors as a class cannot equate themselves with the financial creditors and ask for more than what they are entitled under the code
Meanwhile, both Jatia Group and Noble Resources have moved the NCLAT against NCLT’s decision.
