Rplan-Payment to Secured Creditors-Distribution u/s 53 to Secured Creditor as per Security Value or Claim amount

Whether distribution to Secured Creditor has to be made as per the admitted claim/debt or on the basis of security interest over assets of the Corporate Debtor – ICICI Bank Limited Vs. BKM Industries Ltd. – NCLAT New Delhi

In this case, Resolution Applicant had proposed that amount for payment towards secured creditors shall be distributed amongst them based on proportion of their admitted claim. The Appellant raised objection and claimed distribution as per security interest.

In this important decision, Hon’ble NCLAT held that:

(i) As per Section 53(1)(b), debt owed to a secured creditor has to be distributed equally between and amongst workmen’s dues and debts owed to a secured creditors. The debt owed to the secured creditor is a debt as admitted in the CIRP.
(ii) The distribution of the debt has to be as per the debt of the Financial Creditors.
(iii) The scheme of Section 53(1), clearly indicates distribution as per the debt and in the legislative scheme there is no scope of distribution of assets among the Financial Creditors as per security interest.
(iv) Vistra ITCL (India) (2023) ibclaw.in 62 SC judgment on Article 142 of the Constitution, which jurisdiction was exercised and ultimately the Hon’ble Supreme Court has held Vistra to be a secured creditor.
(v) Upheld the decision of the NCLT Kolkata Bench.

Whether distribution to Secured Creditor has to be made as per the admitted claim/debt or on the basis of security interest over assets of the Corporate Debtor – ICICI Bank Limited Vs. BKM Industries Ltd. – NCLAT New Delhi Read Post »

Both the distribution methods for Secured Creditors, one based on ‘value of security’ and the other based on ‘voting share’ are legal and not in violation of Section 30(2)(b) of IBC as along as the Committee of Creditors in its commercial wisdom approve one of the methods – Manav Investment & Trading Company Ltd. Vs. Sri Pratim Bayal, RP of Birla Tyres Ltd. – NCLT Kolkata Bench

In this case, NCLT Kolkata Bench held that:
(i) No provision in the Code or Regulations which provides the bid of any Resolution Applicant has to match liquidation value.
(ii) If the CoC chooses to approve the distribution based on value of security held as provided in Section 30(4) of the I&B Code, even that would be legal and cannot be faulted.
(iii) Both the distribution methods, one based on value of security and the other based on voting share is legal and not in violation of Section 30(2)(b) as along as the Committee of Creditors in its commercial wisdom approve one of the methods.
(iv) Whether excess cash if any and proceeds if any receivable on account of avoidance proceedings under PUFE provisions to be shared only to assenting shareholders.
(v) Whether interest amount would be clubbed with the principal amount to admit the Applicant’s claim in full in case of MSMED.
(vii) Approved the Resolution Plan offered jointly by Dalmia Bharat and Himadri Specialty Chemical.

Both the distribution methods for Secured Creditors, one based on ‘value of security’ and the other based on ‘voting share’ are legal and not in violation of Section 30(2)(b) of IBC as along as the Committee of Creditors in its commercial wisdom approve one of the methods – Manav Investment & Trading Company Ltd. Vs. Sri Pratim Bayal, RP of Birla Tyres Ltd. – NCLT Kolkata Bench Read Post »

Whether inter se ranking of the charges among Secured Financial Creditors existing before initiation of CIRP will be recognized while distributing the sale proceeds in liquidation under Section 53(1) of IBC, 2016 – PTC India Financial Services Ltd. Vs. Vikas Prakash Gupta RP of Varam Bioenergy Pvt. Ltd. – NCLT Hyderabad Bench

The Adjudicating Authority held that Section 53(1) of IBC does not recognize any inter se ranking of charges among financial creditors existing before initiation of CIRP for distribution of sale proceeds under liquidation. Section 53(2) also further clarifies that liquidator shall dis regard any contractual arrangement between recipient under Sub-Section 53(1) with equal ranking if disrupting the order of priority. Also, Section 53(1) very clearly defines the classes and order of water fall mechanism and has no scope for adding other sub-classes.

Whether inter se ranking of the charges among Secured Financial Creditors existing before initiation of CIRP will be recognized while distributing the sale proceeds in liquidation under Section 53(1) of IBC, 2016 – PTC India Financial Services Ltd. Vs. Vikas Prakash Gupta RP of Varam Bioenergy Pvt. Ltd. – NCLT Hyderabad Bench Read Post »

The word “may” used in Section 30(4) of IBC is directory and not mandatory and it is only an enabling provision and does not impose any mandate on the CoC to distribute payments to creditors based on the value of security held by them – Canara Bank Vs. Sri. Nitin Vishwanath Panchal RP of M/s. Galada Power and Telecommunication Ltd. – NCLT Hyderabad Bench

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The word “may” used in Section 30(4) of IBC is directory and not mandatory and it is only an enabling provision and does not impose any mandate on the CoC to distribute payments to creditors based on the value of security held by them – Canara Bank Vs. Sri. Nitin Vishwanath Panchal RP of M/s. Galada Power and Telecommunication Ltd. – NCLT Hyderabad Bench Read Post »

When a property has been sold in an auction sale on ‘as is where is’ basis in liquidation under IBC, Auction Purchaser is not liable to pay pre-CIRP outstanding dues of electricity connection before getting a new electricity connection – Rashidhan Sales Pvt. Ltd. and another Vs. Damodar Valley Corporation and others – Calcutta High Court

Hon’ble High Court held that the auction purchaser did not purchase the company or its goodwill as a whole. At the time of sale, the company was decimated and its assets sold separately. Hence, in the strict connotation of the term, it cannot be said that the erstwhile company “continued” its existence. The auction purchaser, a different entity altogether, now seeks to re-start afresh the business of the borrower in its independent capacity. As per the settled law, within the contemplation of the IBC, the auction purchaser is entitled to commence with a ‘clean slate’. The expression “as is where is” basis can only signify the exact position of the property as on the date of sale. The proceeding before the Tribunal falls within the scope of the IBC and only in respect of liabilities arising out of the CIRP. Even when the NCLT held that the claim did not arise out of the CIRP, the same issue was under consideration. The challenge before the NCLAT also revolves around the question as to whether the claims are related to the CIRP.

When a property has been sold in an auction sale on ‘as is where is’ basis in liquidation under IBC, Auction Purchaser is not liable to pay pre-CIRP outstanding dues of electricity connection before getting a new electricity connection – Rashidhan Sales Pvt. Ltd. and another Vs. Damodar Valley Corporation and others – Calcutta High Court Read Post »

Distribution under Section 53(1) of IBC on basis of value of security of Financial Creditor or on basis of debt owed to Secured Creditor? – Small Industries Development Bank of India (SIDBI) Vs. Vivek Raheja, RP, M/s. Gupta Exim (India) Pvt. Ltd. – NCLAT New Delhi

In this case NCLAT after analyses various judgments on payment to dissenting secured creditors under resolution plan. NCLAT held that submission of the Appellant that he is entitled to distribution of the proceeds of the plan value as per value of security possessed by him is not in accord with the legislative scheme as delineated in Section 53(1) of the Code. The Committee in its report (February, 2020) nowhere even suggested that secured financial creditor is entitled to distribution as per value of security. It affirmed decision of NCLT and held that the decision of the Committee of Creditors and the Adjudicating Authority deciding to distribute the proceeds of the plan value as per voting share of the secured creditor in no manner contravenes the provisions of Section 30(2)(b) of the Code.

Distribution under Section 53(1) of IBC on basis of value of security of Financial Creditor or on basis of debt owed to Secured Creditor? – Small Industries Development Bank of India (SIDBI) Vs. Vivek Raheja, RP, M/s. Gupta Exim (India) Pvt. Ltd. – NCLAT New Delhi Read Post »

The considerations including priority in scheme of distribution and the value of security are matters falling within the realm of Committee of Creditors – India Resurgence ARC Private Limited Vs. M/s. Amit Metaliks Limited – NCLAT New Delhi

NCLAT holds that the considerations including priority in scheme of distribution and the value of security are matters falling within the realm of Committee of Creditors. Such considerations, being relevant only for purposes for arriving at a business decision in exercise of commercial wisdom of the Committee of Creditors, cannot be the subject of judicial review in appeal within the parameters of Section 61(3) of I&B Code. While it is true that prior to amendment of Section 30(4) the Committee of Creditors was not required to consider the value of security interest obtaining in favour of a Secured Creditor while arriving at a decision in regard to feasibility and viability of a Resolution Plan, legislature brought in the amendment to amplify the scope of considerations which may be taken into consideration by the Committee of Creditors while exercising their commercial wisdom in taking the business decision to approve or reject the Resolution Plan. Such consideration is only aimed at arming the Committee of Creditors with more teeth so as to take an informed decision in regard to viability and feasibility of a Resolution Plan, fairness of distribution amongst similarly situated creditors being the bottom line. However, such business decision taken in exercise of commercial wisdom of Committee of creditors would not warrant judicial intervention unless creditors belonging to a class being similarly situated are not given a fair and equitable treatment. The appeal is dismissed. (p7-8)

The considerations including priority in scheme of distribution and the value of security are matters falling within the realm of Committee of Creditors – India Resurgence ARC Private Limited Vs. M/s. Amit Metaliks Limited – NCLAT New Delhi Read Post »

Landmark judgment of Supreme Court in Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta & Ors. – Supreme Court

Landmark judgment of Supreme Court on various issues such Role of the Resolution Professional, Role of the Prospective Resolution
Applicant, Role of CoC in CIRP, Jurisdiction of the AA and NCLAT, Secured and Unsecured Creditors, The constitution of sub-committee by the CoC, Extinguishing of rights of creditors against guarantors, Claims, Utilisation of profits of the CD during CIRP, Constitutional validity of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, Constitutional validity of amendment in section 12 of the Code, Constitutional validity of amendment in section 30 of the Code., The resolution plan of ArcelorMittal.

Landmark judgment of Supreme Court in Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta & Ors. – Supreme Court Read Post »

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