Operational Creditor cannot be Paid through Partly Paid 'Redeemable Preference Shares': NCLAT
Operational Creditor cannot be paid through partly paid 'Redeemable Preference Shares', rules NCLAT
NCLAT – Preference Shares – Redeemable Preference Shares – Operational Creditor – taxscan
NCLAT – Preference Shares – Redeemable Preference Shares – Operational Creditor – taxscan
The New Delhi Bench of the National Company Law Appellate Tribunal ( NCLAT ) observed that the Operational Creditor cannot be paid through partly paid 'Redeemable Preference Shares'.
The Appeal has been filed by the Operational Creditor challenging the order dated 09.11.2023 passed by National Company Law Tribunal, by which order Resolution Plan submitted by Respondent No.2 has been approved.
The counsel for the appellant submitted that instead of making the payment of the amount to the Operational Creditor as is envisaged under Section 30(2)(b)(ii), the Operational Creditor are being paid only a meager amount of 2.16% and the Resolution Applicant has offered to pay redeemable preference shares of the CD at the option of the Operational Creditor, which is not in accordance with law laid down by the Supreme Court in Jaypee Kenisington Boulevard Apartments Welfare Association & Ors. v NBCC & Ors. The Resolution Plan, ought not to have been approved.
The Senior Counsel for the Respondent refuting the submission of the Counsel for the Appellant submitted that Resolution Plan has been approved by 100% vote share of the CoC and the commercial wisdom of the CoC cannot be challenged by the Appellant. It is submitted that total Resolution Plan amount of Rs.9.05 crores and liquidation value being only Rs.5,74,822/-, out of which only upfront cash payment of Rs.1.05 crores has been offered. The Operational Creditor having been given option of partly paid redeemable preference shares 1,60,00,000 having paid value of INR 10 wherein the amount proposed is INR 8 crores.
A Three Member Bench comprising Justice Ashok Bhushan, Chairperson, Barun Mitra, Member ( Technical ) and Arun Baroka, Member ( Technical ) observed that “We, thus, are of the view that distribution of the amount to the Operational Creditor ( other than Government Departments ) is clearly contrary to provisions of Section 30 (2)(b)(ii). The Adjudicating Authority has failed to advert to Section 30, sub-section (2) (b) (ii) and failed to notice that amount proposed to the Operational Creditor is clearly contrary to Section 30(2)(b)(ii).”
“We, thus, are of the view that order of Adjudicating Authority approving the Resolution Plan cannot be sustained. However, we make it clear that the Appeal has been filed by the Operational Creditor questioning only part of the Resolution Plan by which distribution to the Operational Creditor has been made under the Plan, no other part of the Resolution Plan is being sought to be challenged. In the facts of the present case, we are of the view that order passed by Adjudicating Authority dated 09.11.2023 requires to be modified” the Tribunal concluded.
To Read the full text of the Order CLICK HERE
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