Case Note & Summary
The case involves an appeal by Rahul Jain, the resolution applicant, against the order of the National Company Law Appellate Tribunal (NCLAT) modifying a resolution plan approved by the National Company Law Tribunal (NCLT) for the corporate debtor Rave Scans Pvt. Ltd. The Corporate Insolvency Resolution Process (CIRP) was initiated under Section 10 of the Insolvency and Bankruptcy Code, 2016 (IBC). The appellant submitted a resolution plan offering ₹54 crores against the liquidation value of ₹36 crores, which was approved by the NCLT on 17th October 2018. The second respondent, Hero Fincorp Ltd., a financial creditor, appealed to the NCLAT alleging discrimination because it received only 32.34% of its admitted claim as a dissenting creditor, while other financial creditors received 45%. The NCLAT, relying on its earlier decisions and the amended Regulation 38 (effective 5th October 2018), held the plan discriminatory and directed the appellant to provide similar treatment to Hero. The appellant challenged this before the Supreme Court. The Supreme Court considered the arguments: the appellant argued that the differential treatment was based on the unamended Regulation 38 and the committee of creditors' decision, and that the plan had been fully implemented. The respondent argued that discrimination between similarly situated financial creditors is impermissible under Section 30(2)(e) and the principles in Swiss Ribbons. The Court analyzed Section 30 and Regulation 38, noting that the resolution plan was approved after the amendment but was based on the unamended regulation. The Court held that the NCLAT's modification was not justified as the discrimination was not established, and the dissenting creditor had voluntarily chosen to dissent. The appeal was allowed, setting aside the NCLAT's order and restoring the NCLT's approval.
Headnote
A) Insolvency Law - Resolution Plan - Discrimination - Section 30(2)(e) IBC - The issue was whether a resolution plan that provided 45% of admitted claims to assenting financial creditors but only 32.34% to a dissenting financial creditor was discriminatory. The Supreme Court held that the NCLAT erred in modifying the plan without considering that the differential treatment was based on the unamended Regulation 38 and the dissenting creditor's choice. The Court allowed the appeal and set aside the NCLAT's order. (Paras 1-11) B) Insolvency Law - Regulation 38 - Amendment - Applicability - The resolution plan was approved on 17th October 2018, after the amendment of Regulation 38 on 5th October 2018. The NCLAT held that the amended regulation applied, but the Supreme Court noted that the plan was based on the unamended regulation and the amendment did not automatically invalidate the plan. (Paras 3-5) C) Insolvency Law - Section 30(2)(b)(ii) - Differential Treatment - The provision allows separate treatment for dissenting financial creditors. The Court emphasized that the resolution plan must not contravene any law and must be fair, but the NCLAT's finding of discrimination was not justified given the circumstances. (Paras 5, 10-11)
Issue of Consideration
Whether the NCLAT was justified in modifying the resolution plan approved by the NCLT on the ground of discrimination against a dissenting financial creditor, and whether the resolution applicant can be burdened with additional financial obligations.
Final Decision
The Supreme Court allowed the appeal, set aside the NCLAT's order, and restored the NCLT's approval of the resolution plan.
Law Points
- Discrimination between financial creditors in resolution plan
- Applicability of amended Regulation 38
- Section 30(2)(e) IBC
- Fair and equitable treatment of creditors
