India – Operational Creditors Can Be Classified Into Different Classes For Deciding The Way In Which The Money Is To Be Distributed To Them.

Order Dated: 04 October 2021
 

In the present case, the order of the NCLT, Ahmedabad Bench, which had approved the resolution plan in which only operational creditors of Alok Industries Ltd. having dues less than INR 300,000 were paid in full, while the remainder got no payment, was challenged before the NCLAT. Gail India Ltd., an operational creditor with a claim of INR 5.07 billion, challenged the order claiming that the entire resolution plan is unreasonable and arbitrary as it fails to treat equals as equal, and is not as per the provisions of the Code.
 

The NCLAT noted that the average liquidation value of Alok Industries Ltd. was around INR 44.3 billion, the total admitted financial claim was INR 295.2 billion and the total financial outlay in terms of the resolution plan was INR 62.5 billion. So, the liquidation value will be exhausted for the payment of the insolvency resolution process costs, workmen dues and the dues to be paid to the financial creditors, which are to be paid in priority to operational creditors. Although operational creditors were entitled to no payment, the resolution applicant had provided for the full payment of INR 483 million for three hundred and fifty-seven operational creditors with admitted claims up to INR 300,000.
 

The NCLAT opined that there is no embargo under the Code on classification of operational creditors into separate/ different classes for deciding the way in which the money is to be distributed to them by the CoC. The NCLAT also opined that the CoC has the final discretion in relation to the amount to be paid and quantum of money to be paid to a certain category or the incidental category of creditors, and that the NCLAT or NCLT has no jurisdiction to gauge the ‘commercial wisdom’ of the CoC. Consequently, the NCLAT dismissed the appeal and upheld the order passed by NCLT while observing that classification of operational creditors is allowed under the Code.
 

al@acuitylaw.co.in