The NCLT, Ahmedabad Bench opined that the quantum of performance security lies in the domain of the Committee of Creditors. Hence, the NCLT cannot sit in judgement over the sufficiency or otherwise.
It was held that the requirement of performance security, its sufficiency and receipt before approval of the resolution plan are subject to the commercial wisdom of the committee of creditors.
Further, it was ruled that financial creditors have precedence over operational creditors. If the financial creditors are not paid in full, a higher amount cannot be claimed by the operational creditors.
Brief Facts:
The present application has been preferred for seeking rejection of the resolution plan submitted by the Resolution Applicant and for directing the Resolution Professional (Respondent No.1) to issue a public announcement for the submission of a fresh resolution plan.
Contentions of the Applicant:
It was argued that the resolution plan was violative of Section 30(2)(b) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”). Further, the plan undermines the interest of the Operational creditors. It was contended that Respondent No.3 failed to provide sufficient performance security and there was no evidence provided for receipt of performance security as envisaged under Regulations 39(4) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as “Regulations, 2016”).
Observations of the Tribunal:
It was observed that Sections 30 and 53 of IBC lay out the order of priority. The Tribunal opined that financial creditors have precedence over operational creditors. If the financial creditors are not paid in full, a higher amount cannot be claimed by the operational creditors.
Regarding
performance security, the Adjudicating Authority was of the view that
the quantum of performance security lies in the domain of the Committee
of Creditors and hence, the NCLT cannot sit in judgement over the
sufficiency or otherwise. Noting
that the resolution plan was approved with a majority of 99.732% votes
and the requirement of performance security, its sufficiency and receipt
before approval of the resolution plan being subject to the commercial
wisdom of the committee of creditors, the Bench did not find any
irregularity in the resolution plan.
The decision of the Tribunal:
Based on the aforementioned reasons, the NCLT rejected the application accordingly.
Case Title: Pani Logistics v. Vikash G Jain RP of Sona Alloys Pvt. Ltd. & Ors. In the matter of Noble Resource International Pvt. Ltd. V. Sona Alloys Pvt. Ltd.
Coram: Dr. Deepti Mukesh (Judicial Member), Ajai Das Mehrotra (Technical Member)
Case No.: IA No. 431 of 2021 in CP(IB) No. 586 of 2019
Advocate for Applicant: Adv. Mr. Karan Sanghani
Advocate for Respondent: Advs. Mr. Jaimin Dave, Mr. Mihir Thakore, Mr. Krishnendu Dutta
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