NCLT rejects resolution plan for ignoring operational creditors’ dues

The Kolkata Bench of the NCLT has rejected the resolution plan submitted by Elite Enterprises for acquisition of corporate debtor Indian Mining Works Pvt Ltd citing grave irregularities in the approval of the resolution plan by the committee of creditors (Coc). The tribunal in its order noted that the plan violates Section 30(2)(b) of the I&B Code with regard to allocation to the operational creditors.

“…providing NIL amount in the plan to the operational creditors towards their total admitted claim of Rs. 96.52 crore breaches the mandate as enshrined under Article 300A read with Article 21 of the Constitution of India, as observed by the Hon’ble Madras High Court in the case of The National Sewing Thread (Supra),” reads the order of the NCLT.

The resolution plan submitted by Elite Enterprises made provisions of payment of Rs 1 crore to lenders against the total admitted claims of Rs 105 crore. The resolution plan had no provision of payment to operational creditors against their total claims of Rs 96.52 crore. Of the total operational creditors’ dues, Rs 96 crore was claimed by the GST department. As far as financial creditors are concerned, the resolution plan offers Rs 68 lakh against the total admitted claims of Rs 8.2 crore.

The NCLT noted that operational creditors including the governmental Authority (CGST) against their Rs. 96.52 crore admitted claim has been allocated NIL payment merely because at the time of submission of the resolution plan before the CoC, there was no admitted claim of the operational creditors, and the liquidation value is NIL for those creditors.

The resolution professional – Sandip Kumar Kejriwal – had submitted that as on the date of preparation of the information memorandum on 20 November 2020, the admitted claim of the Operational Creditor was Rs 11.62 lakh, and subsequently additional claimed were received and accordingly captured in the Form H.

To this the NCLT said: “We are in a dismay that if any additional claim was admitted albeit belatedly, then why it was not communicated to the Resolution Applicant for raising its plan value and accordingly not allocated a minimum amount to such operational creditors.”

While rejecting the resolution plan, the NCLT said that the resolution plan does not inspire any confidence in regard to the entire process conducted with regard to transparency, valuation and equitable distribution etc and consequently, violates the mandatory statutory provisions envisaged in Explanation I to Section 30(2)(b) of the I&B Code.

It further said, no purpose would be served in sending the resolution plan back to the CoC, to come back to us once again for approval. This will only further delay the resolution of the corporate debtor, it said.

It added that a rejection of the resolution plan by the Adjudicating Authority would follow by a direction of mandatory liquidation under Section 33 of the I&B Code, but it leaves it to the wisdom of the CoC to take a pragmatic view whether to initiate the liquidation process of the corporate debtor or seek a revised proposal.

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