NCLAT held that the related parties do not have a legal right to be treated on par with unrelated financial creditors in a resolution plan.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench comprising Justice Rakesh Kumar Jain (Judicial Member) and Naresh Salecha & Indevar Panday (Technical Members) was hearing an appeal and observed that under the Insolvency and Bankruptcy Code, related parties do not have a legal right to be treated on par with unrelated financial creditors in a resolution plan, and the plan’s exclusion of the appellant’s claim, consistent with the Supreme Court's ruling in M.K. Rajagopalan, did not constitute discrimination.
The appeal was filed under Section 61(3) of the Insolvency and Bankruptcy Code (IBC) challenging the order of the National Company Law Tribunal (NCLT), Kolkata Bench, dated 27th September 2019. This order had rejected the Appellant's claim for equal treatment with other financial creditors in the resolution plan for Fort Gloster Industries Ltd. The appeal was initiated by West Coast Paper Mills Ltd., which argued that their claim of ₹89,20,02,003.54 should have been treated equally with other financial creditors, rather than being excluded as was done in the approved resolution plan.
The Corporate Insolvency Resolution Process (CIRP) for Fort Gloster Industries Ltd. was initiated by Jayanta Kumar Panja, an ex-employee, on 9th August 2018 due to unpaid gratuity. Manish Jain initially served as the Interim Resolution Professional (IRP) but was succeeded by Bijay Murmuria as the Resolution Professional (RP) on 4th December 2018. The RP invited Expressions of Interest (EOIs) for the resolution plan and received submissions from Prudent ARC Limited, Gloster Limited, and M/s Hooghly Infrastructure Pvt. Ltd. The resolution plan from Gloster Limited was approved with 73.21% votes, despite objections from the Stressed Assets Stabilization Fund.
The RP sought approval for Gloster Limited’s plan, which was sanctioned by the NCLT on 27th September 2019. West Coast Paper Mills Ltd. contended that the plan's exclusion of their claim was inconsistent with the IBC provisions and argued that they were improperly equated with equity shareholders rather than treated as financial creditors, contrary to the Supreme Court’s ruling in M.K. Rajagopalan v. Dr. Periasamy Palani Gounder and Another, REEDLAW 2023 SC 05512.
The Respondents argued that West Coast Paper Mills Ltd., being a related party, was not entitled to payment under the resolution plan, which was structured to pay secured creditors and did not differentiate between related and unrelated financial creditors. They contended that the resolution plan's treatment of related parties was in line with the Supreme Court’s ruling, which allowed such differentiation.
The NCLAT, reviewing the case in light of the Supreme Court’s judgment in M.K. Rajagopalan v. Dr. Periasamy Palani Gounder and Another, REEDLAW 2023 SC 05512, concluded that there was no legal requirement for related parties to be treated on par with unrelated parties in the resolution plan. The Tribunal found no merit in the appellant’s claim of discrimination. It upheld the Adjudicating Authority’s decision and dismissed the appeal, affirming that the resolution plan was compliant with the IBC provisions and the Supreme Court's guidelines. No costs were awarded, and the appeal was concluded accordingly.
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