NCLAT sets aside Srei resolution plan for Deccan Chronicle Holdings
The National Company Law Appellate Tribunal (NCLAT) has set aside an order of the Hyderabad bench of the National Company Law Tribunal (NCLT), which had approved a resolution plan for debt-ridden Deccan Chronicle Holdings submitted by Srei Multiple Asset Investment Trust (Vision India Fund).
Earlier, IDBI Bank had moved the NCLAT against a 2019 order of the Hyderabad bench of the NCLT, dismissing the private sector lender and state-owned Indian Overseas Bank’s appeals to declare Srei Multiple Asset Investment Trust’s resolution plan, dated December 11, 2018, saying it was “discriminatory” and “contrary” to the Insolvency and Bankruptcy Code (IBC) and applicable law.
In an order passed on May 9, 2019, the NCLT had dismissed the two banks’ appeals, stating that “it cannot be said there is discrimination in the allocation of share (among the financial creditors to Deccan Chronicle Holdings) from the resolution fund”. The tribunal on June 3, 2019, approved the resolution plan, which was approved by the members of the committee of creditors (CoC) having 81.39% voting share.
“We are of the view that there is discrimination in allocation of resolution fund. Thus, the approval of resolution plan by the CoC and subsequently approval of resolution plan by the adjudicating authority vide order dated 03.06.2019 is not sustainable in law. The appellant was not required to challenge the subsequent order dated 03.06.2019. Thus, the impugned order as well as the order dated 03.06.2019 are hereby set aside,” a two-member NCLAT bench of Jarat Kumar Jain and Ashok Kumar Mishra said in the order passed on January 21. “The matter is remitted back to the CoC with the direction to distribute the resolution amount in conformity with the Section 30(4) r/w Regulation 38 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016,” the appellate tribunal said in the order.
The counsel for IDBI Bank submitted before the NCLAT that the corporate debtor and its promoters created exclusive security over the trademarks in favour of the bank by way of deed of hypothecation. “Clause 2.8 of the resolution plan provided that the security interest created by third party (including ex-promoter) shall not extinguish under the plan. However, clause 4.3 seeks to extinguish the security created over the trademark by the corporate debtor and the ex-promoters in favour of the appellant. A resolution plan can only contain provisions in relation to the assets and liabilities of the corporate debtor and not other third persons. Therefore, the clause 4.3 is illegal and needs to be severed,” the counsel contended.
The counsel also submitted that “plan has arbitrarily categorise Financial Creditors into category A and B. The plan classifies certain category A Financial Creditors and also being category B, being those who have charged on assets which are admittedly considered as a not being critical for running the Corporate Debtor as a going concern. Contrary to all logic and reasons, in addition to what they are entitled to as Financial Creditors category A i.e. participation in cash payment to be made to the Financial Creditors in the amount prescribed and the entitlement to receive certain equity as prescribed in the plan, all such Financial Creditors who are category B and have security on admittedly non-critical assets have been provided with benefit over and above that proposed for category A. In addition to their entitlement as category A and B Financial Creditors also get to retain the benefits of assets exclusively secured in their favour”. According to the NCLAT order copy, as per the resolution plan, the upfront cash revolution amount offered to the financial creditors is Rs 350 crore and the amount offered to the appellant (IDBI Bank) is Rs 13.5 crore, which comprises merely 4.11% of the total upfront cash resolution amount offered by the resolution applicant.