Related party financial, operational creditors cannot be discriminated against in resolution plan

The Chennai Bench of the National Company Law Appellate Tribunal (NCLAT) has said that the related Party financial or operational creditor cannot be discriminated against under the Resolution Plan, denying their right to get payments under the resolution Plan only on being a related party.

The tribunal also made it clear that by getting only payment under the Resolution Plan, related party creditors could in no way sabotage the corporate insolvency resolution plan (CIRP).

Hearing an appeal by Dr Periasamy Palani Gounder, ex-promoter and director of corporate debtor Appu Hotels, the tribunal observed that IBC treats related parties as a separate category for specified purposes, excluding from the CoC under Section 21 and disqualifying them from being Resolution Applicants under Section 29A. However, the IBC does not treat Related Party as a separate class for any other purpose.

Therefore, a rationale nexus must exist for any classification between the object sought to achieve the classification and subclassification.

Gounder had in his appeal objected to the resolution professional’s rejection of its two claims – one as financial creditor and another as operational creditor — on the ground that it is a related party.

The appellant argued at NCLAT that the current resolution plan is discriminatory as it denies payments to the Appellant because of it being a related party.

Arguing against the Gounder’s plea, the resolution applicant had argued that the claim of a related party, whether in the nature of loan or otherwise, should rank subordinate to the claim of the Operational Creditors and should be treated at par with equity shareholders.

The NCLAT observed that the Interim Resolution Professional had received claims from a large set of Unsecured Financial Creditors. Still, the IRP/RP did not proceed to accept or reject the Unsecured Financial Creditors’ claims, which resulted in excluding the said unsecured creditors from the entire decision-making process.

It further said that the approved resolution plan discriminates between the related party unsecured financial creditors with other unsecured financial creditors.

The tribunal, therefore, maintains that the approved Resolution Plan was in contravention of Section 30 (2) of the Insolvency and Bankruptcy Code 2016, which contravenes the provision of law.

Also See: NCLAT asks CoC to reconsider avoidance transaction terms of DHFL resolution plan