S. Ravindra Bhat, J. - (1.)The resolution applicant (hereafter "the appellant") is aggrieved by the decision of the National Company Law Appellate Board (hereafter "NCLAT") in regard to its directions modifying a resolution plan accepted by the adjudicating authority (i.e. National Company Law Tribunal, hereafter "NCLT" or "the adjudicating authority"). The Corporate Insolvency Resolution Process (CIRP) was initiated against M/s. Rave Scans Private Limited (hereafter the "Corporate Debtor") under Section 10 of the Insolvency and Bankruptcy Code, 2016 ("IBC" or "the Code" for short). The revised resolution plan submitted by the appellant was approved by the NCLT on 17th October, 2018. The second respondent, M/s Hero Fincorp Ltd. (hereafter the "Financial Creditor" or "Hero") appealed against the NCLT's order on grounds of discrimination between financial creditors, which resulted in the NCLAT modifying the NCLT's final order. The question urged by the appellant is whether the finding that the financial creditor was discriminated against, leading the NCLAT to modify the adjudicating authority's directions, and consequently imposing greater financial burdens on the resolution applicant, is justified in the circumstances.
(2.)The facts of the case are as follows. The CIRP was initiated on 25th January, 2017 against the Corporate Debtor under Section 10 of the IBC. The appellant was the resolution applicant of the Corporate Debtor, whose liquidation value was ascertained as 36 crores. Against the said amount, the ? appellant offered 54 crores to revive the Corporate Debtor in ? terms of the resolution plan. The resolution plan was then revised and the revised resolution plan submitted by the appellant was approved by the adjudicating authority, i.e., the Principal Bench of the NCLT. This resolution plan was challenged before the NCLAT by the second respondent in the present appeal, Hero Fincorp Ltd. as being discriminatory. Discrimination was alleged on the ground that the secured financial creditors were provided with a higher percentage of their claim amounts; however, Hero had been allowed a lesser percentage of its admitted claim. Hero, who had dissented with the resolution plan, had been provided with 32.34% of its admitted claim, whereas other financial creditors had been provided with 45% of their admitted claims. The remarks column in the resolution plan showed that the plan was based on 'Maintained liquidation value (LV) under Regulation 38 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The reference herein was to the unamended Regulation 38, pertaining to the mandatory contents of a resolution plan.
(3.)The NCLAT in its impugned order which set aside the NCLT's directions and required the appellant to increase the liquidation value of the offer to Hero, relied on Central Bank of India v. Resolution Professional of the Sirpur Paper Mills Ltd. & Ors., Company Appeal (AT) (Insolvency) No. 526 of 2018 and Binani Industries Ltd. v. Bank of Baroda & Anr., Company Appeal (AT) (Insolvency) No. 82 of 2018, and noticed that Regulation 38 had been held to be discriminatory in these cases. Accordingly, an amendment was made on 5th October, 2018, and the provision in Regulation 38(1)(c) on liquidation value payable to financial creditors was deleted. The amended regulation was also considered by the Supreme Court in Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India,2019 SCCOnline(SC) 73, which noticed that the amendment strengthens the rights of operational creditors by statutorily incorporating the principle of fair and equitable dealing of operational creditors' rights, together with priority in payment over financial creditors. Swiss Ribbons (supra) also observed that the NCLAT, while looking into the viability and feasibility of resolution plans approved by the committee of creditors, has always gone into the question of whether operational creditors are given roughly the same treatment as financial creditors, and if not, such plans have been rejected or modified so that the rights of operational creditors are safeguarded.