The National Company Law Tribunal (NCLT), Kochi bench, on 28.11.2019, in an application filed by a creditor of Hindustan Newsprint Limited (HNL), directed for initiation of Corporate Insolvency Resolution Process (CIRP) under Insolvency & Bankruptcy Code (IBC), 2016 and appointed an Interim Resolution Professional (IRP) for HNL. Hindustan Paper Corporation Limited (HPC), the parent company of HNL, was under liquidation as per the orders of the National Company Law Tribunal (NCLT), New Delhi Bench and the National Company Law Appellate Tribunal (NCLAT). On 25.11.2019, the NCLT, New Delhi, granted permission to the Liquidator, HPC, to sell the 100% shareholding of HPC in HNL to the Government of Kerala. The Resolution Plan for the revival of Hindustan News Print Limited (HNL), submitted by the Government of Kerala, was voted on by the Committee of Creditors with 97.02% votes in favour of it, and the National Company Law Tribunal further approved the same on 29th January 2021. Further to the approval, the Government of Kerala took over the control of Hindustan Newsprint Limited and renamed it Kerala Paper Products Limited, and the revival of the same is in progress. The said matter was in the news again when the Kerala State Electricity Board (KSEB) challenged the Resolution Plan as their dues were not paid under the terms of the Resolution Plan.
As per Insolvency law, there are different breeds of creditors. Operational creditors are one such breed, which consists mainly of suppliers of goods and service providers. As per insolvency law, the dues to operational creditors are to be paid only after settling the liabilities of financial institutions, employees and workmen. If there is no amount left after settling the dues of financial institutions, employees and workmen, then there is no legal compulsion to pay any amount to operational creditors other than a minimum amount mentioned in the Code. Kerala State Electricity Board is an operational creditor within the meaning of the Insolvency and Bankruptcy Code.
A Resolution Process commences with an order of the NCLT based on an application filed by any unpaid creditors. An operational creditor has to submit their due amount in a specified claim form within specified time limits to become eligible to participate in the Resolution Process. Even if the claim is admitted, the settlement of the same is only based on the terms of a scheme approved by the Committee of Creditors. The scheme is mainly to revive the ailing company and not to repay the total dues of the creditors. The scheme is submitted by a bidder interested in taking over the struggling company and then reviving it by infusing fresh funds. The revival scheme proposed by the bidder shall be placed before the Financial Creditors for scrutiny and approval. During the approval process, all the creditors, including banks, workmen, employees, suppliers, service providers, etc., may have to reduce their claim amount and settle it at a lower amount to make the takeover commercially viable. If the takeover is not commercially viable, then the bidder will not be interested in proceeding further. The amount to be paid to each type of creditor is determined by a specific mechanism mentioned in the insolvency law. Once the Committee approves the scheme, it will be placed before the Court for its final approval. After the approval of the scheme by the NCLT, the bidder will take over the company and start the revival process per the terms of the approved plan.
Resolution Plan is a scheme approving the revival of the Corporate Debtor, and the terms of the said plan are binding on all the creditors, stakeholders, central government, state government etc. Payment to the creditors under a Resolution Plan is determined by the Committee of Creditors, which consists mainly of financial institutions, using its commercial wisdom. It is a settled legal position that the Courts shall not interfere in the commercial wisdom of the Committee of Creditors if the requisite majority of the Committee of Creditors approves the same.
Hon’ble Supreme Court of India, in the case of Kalpraj Dharamshi and Anr. vs Kotak Investment Advisors Ltd. and Anr. (supra) has, in detail, considered the provisions of Sections 30 and 31 of the I&B Code, the Bankruptcy Law Reforms Committee (BLRC) Report of 2015 and the judgments of this Court in the case K. Sashidhar (supra), Committee of Creditors of Essar Steel India Limited through Authorised Signatory v. Satish Kumar Gupta & Ors. (supra) and Maharashtra Seamless Limited vs Padmanabhan Venkatesh and Ors. (supra) and observed thus:
It is thus clear that the Committee was of the view that for deciding key economic questions in the bankruptcy process, the only correct forum for evaluating such possibilities and making a decision was a creditors committee, wherein all financial creditors have votes in proportion to the magnitude of debt that they hold. The BLRC has observed that laws in India in the past have brought arms of the Government (legislature, executive or judiciary) into the question of the bankruptcy process. This has been strictly avoided by the Committee, and it has been provided that the decision with regard to the appropriate disposition of a defaulting firm, which is a business decision, should only be made by the creditors. It has been observed that the evaluation of proposals to keep the entity as a going concern, including decisions about the sale of business or units, restructuring of debt, etc., are required to be taken by the Committee of the Financial Creditors. It has been provided that the solution to keep the entity as a going concern will be voted upon by CoC, and there are no constraints on the proposals that the resolution professional can present to CoC.
If any of the creditors are not satisfied with the terms of the scheme approved by the NCLT, they have the option to file an appeal before the NCLAT within specified time limits. As per the records available, the National Company Law Tribunal (NCLT), Kochi bench, had approved the Resolution Plan of HNL, submitted by the Government of Kerala, on 28.11.2019. If KSEB was aggrieved by the terms of the said Resolution Plan, they should have approached the NCLAT within 30 days from the date of the order. Whatever it may be, as the Resolution Plan was approved by 97.02% votes, the same is binding on all stakeholders, including KSEB. It cannot be ignored that the `Commercial Wisdom’ of the `Committee of Creditors’ is not be interfered with, except in the limited ambit, as contemplated under Section 30 (2) of the I & B Code, 2016, in respect of an `Adjudicating Authority’, and as per Section 61 (3) of the Code, in regard to an `Appellate Tribunal’. Besides these, in `Law’, it is not open to an `Adjudicating Authority’ (`Tribunal’) or an `Appellate Authority’ (`Appellate Tribunal’) to consider `any other feature than the one’ mentioned in `Section 30 (2) or Section 61 (3) of the I & B Code, 2016’.
As the requisite majority of Creditors approved the Resolution Plan, there is no legal grievance for KSEB, and hence the claim of non-payment of dues at this stage may not withstand.
Bijoy P Pulipra LLM, FCS Advocate