In a recent judgment in Rajat Metal Polychem Pvt. Ltd. vs. Mr. Neeraj Bhatia RP Vinayak Rathi Steels Rolling Mills Pvt. Ltd. and Another, the NCLAT New Delhi noted that operational creditors often receive no payment during the Resolution Process when the amount owed to them is zero. The courts are unable to provide assistance unless the legislation is amended to support operational creditors.
The appeal in this case involves an operational creditor contesting the National Company Law Tribunal (NCLT)'s approval of a resolution plan that offered no compensation to operational creditors. The corporate debtor in question, Vinayak Rathi Steels Rolling Pvt. Ltd., was undergoing the Corporate Insolvency Resolution Process (CIRP).
The appellant's claim was partially denied, and a resolution plan was subsequently approved that favored financial creditors while excluding operational creditors. The appellant contended that this breached Section 30(2) of the Insolvency and Bankruptcy Code (IBC), which requires the consideration of all creditors. However, the NCLT found no fault in the plan, noting that operational creditors would receive no payout even in liquidation.
The Court noted that Section 30(2)(b) of the Insolvency and Bankruptcy Code (IBC), 2016 ensures that operational creditors receive at least the liquidation value of the corporate debtor. The Supreme Court, in the case of Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta & Ors., clarified that while operational and financial creditors are treated differently, operational creditors must be compensated at least to the extent they would receive in liquidation. The Court also emphasized that the commercial judgment of the Committee of Creditors (CoC) in approving a resolution plan with differing payments to creditors should not be interfered with, provided the plan adheres to the provisions of the IBC. In the latter part of the judgment, the tribunal also referenced the Supreme Court's decision in the case of Damodar Valley Corporation v. Dimension Steel and Alloys Pvt. Ltd. & Ors.
In conclusion, the Appellate tribunal while dismissing the appeal stated that if the liquidation value for operational creditors is zero, they are entitled to no compensation under the law. Consequently, consistent with the Damodar Valley case, unless legislative amendments are made, the judiciary's current stance on operational creditors remains unchanged.
Thus, the NCLAT upheld the NCLT's decision, affirming that there was no error in the Adjudicating Authority's approval of the Resolution Plan as sanctioned by the Committee of Creditors (CoC).
Rajat Metaal Polychem Pvt. Ltd. Vs. Mr. Neeraj Bhatia RP Vinayak Rathi Steels Rolling Mills Pvt. Ltd. and Anr.
Company Appeal (AT) (Insolvency) No. 1063 of 2022
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