Recently, the National Company Law Appellate Tribunal (“NCLAT“), in the case of Dharmindra Constructions Private Limited and Anr. vs. Rajendra Kumar Jain Resolution Professional of Kudos Chemie Limited and Ors.1 held that the operational creditors are only entitled for minimum of the liquidation value and in the absence of breach of any provisions of the Insolvency and Bankruptcy Code, 2016 (“IBC“), the Apex Court was unable to interfere with the order passed by the adjudicating authority, i.e., the National Company Law Tribunal (“NCLT“). ‘Operational Creditor’ has been defined in the IBC as any person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred.

In the said case, Kudos Chemie Limited & Ors. (“Corporate Debtor“) was admitted into corporate insolvency resolution process (“CIRP“). Dharmindra Constructions Private Limited (“Operational Creditor/Appellant“) was an operational creditor of the Corporate Debtor.

It was the Appellant’s contention that as an Operational Creditor, it was not allotted any amount in the resolution plan and hence, the plan was not in accordance with the provisions of the IBC.

The Appellant’s claims were refuted by the resolution professional and it was contended that the liquidation value of the appellant was NIL and therefore, no amount was allocated to it in the resolution plan. It was also submitted that the claims of all stakeholders were dealt with in the resolution plan.

The NCLAT delved into the matter and observed that the Appellant was an operational creditor whose claim was admitted by the resolution professional. The resolution plan did not allocate any amount to the Appellant. The NCLAT referred to Paragraph 30(ii) of the NCLT order which dealt with the claim of the Operational Creditor, in the following manner: the operational creditors were segregated into three categories. The first category being operational creditors being workmen and employees, the next category being, operational creditors relating to government dues and the third category being operational creditors (other than workmen and employees and government dues). It is also pertinent to note that the resolution plan also stated that the amount due to the operational creditor shall be paid in compliance with the IBC and the applicable regulations.

The Appellant had relied on Hammond Power Solutions Private Limited vs. Mr. Sanjit Kumar Nayak, Resolution Professional and Ors.2 which was distinguished by the NCLAT in the judgment in S. Chandriah vs. Sunil Kumar Agarwal3. It was held in S. Chandriah that “the law thus obliges the Resolution Plan to make statement as to how it has dealt with the interest of all the stakeholders. We in the present case are concerned with the claim of Appellant who was classified as other creditors. The resolution plan envisages as noticed above that amount for other creditors is NIL. Thus, the submissions that all stakeholders have not been dealt with in the plan cannot be accepted. CoC in its commercial decision has decided not to allocate any amount to the other creditors which cannot be questioned since Appellant has not been able to prove violation of any provision of code in the resolution plan. We thus are of the view that the resolution plan which has been approved by the adjudicating authority on 27th May, 2020 does not require any interference.” The Tribunal then referred to the NCLAT’s judgment in Hammond Power Solutions Private Limited vs. Mr. Sanjit Kumar Nayak, Resolution Professional and Ors. and clarified that in the said case, it could be hardly said that there were any reasons given by the committee to demonstrate that the interests of all stakeholders were taken care of. Therefore, it is vital to see the reasons given by the Committee of Creditors (“CoC“) while approving a resolution plan. In this case, the reasons for giving NIL to operational creditors were not reflected from record. It was noted that many of the operational creditors were left high and dry giving them NIL value, which the Supreme Court has held that giving NIL to operational creditors “would certainly not balance the interests of all stakeholders or maximise the value of assets of the corporate debtor if it becomes impossible to continue running its business as a going concern.” Therefore, the order accepting the resolution plan was not upheld as the resolution plan did not appear to have taken care of all stakeholders, including the operational creditors.

In view of the above, it is clear that there is no requirement in the IBC that all stakeholders have to be necessarily made payment in the resolution plan. Therefore, there is no doubt that the ultimate discretion of what to pay and how much to pay each class or subclass of creditors is with the CoC, but the decision of the CoC must reflect the fact that it has taken into account maximising the value of the assets of the corporate debtor and the fact that it has adequately balanced the interests of all stakeholders, including operational creditors. If the adjudicating authority finds, on a given set of facts, that the aforesaid parameters have not been kept in view, it may send a resolution plan back to the CoC to resubmit such plan after satisfying the aforesaid parameters.

The judicial review by the adjudicating authority as well as appellate tribunal must confine as to whether the requirement referred to in the IBC has been met or not. They may not interfere with the commercial decision of the CoC.

In light of the above and there being no breach of any provision of the IBC, the NCLAT was unable to interfere with the NCLT’s order challenged by the Appellant.

Company Appeal (AT) (Insolvency) No.1477 of 2022 & I.A. No.4658, 4610 of 2022

2 Company Appeal (AT) (Ins) No.606 of 2019

3 C/SCA/4783/2020