The National Company Law Appellate Tribunal (NCLAT) has recently dismissed an appeal by Bank of Baroda in the Reliance Communications Infrastructure Ltd insolvency case. The NCLAT held that while the Committee of Creditors (CoC) has the commercial wisdom in approving a plan, it cannot later alter the distribution mechanism, especially affecting dissenting creditors. This decision by the NCLAT is a significant step towards protecting the rights of creditors in insolvency cases.
The case in question involved Reliance Communications Infrastructure Ltd, a subsidiary of Reliance Communications Ltd, which had filed for insolvency in 2017. The CoC had approved a resolution plan submitted by UV Asset Reconstruction Company Ltd, which proposed to pay the financial creditors only 30% of their dues. However, Bank of Baroda, one of the financial creditors, had opposed the plan and had argued that it was unfair and discriminatory towards dissenting creditors.
The NCLAT, in its judgement, observed that the CoC has the commercial wisdom to approve a resolution plan, but it cannot later change the distribution mechanism to the detriment of dissenting creditors. The NCLAT also noted that the CoC had not provided any valid reasons for reducing the amount to be paid to dissenting creditors. The NCLAT further stated that the CoC cannot use its voting power to impose a resolution plan that is unfair and discriminatory towards certain creditors.
This decision by the NCLAT is a significant step towards ensuring that the rights of creditors are protected in insolvency cases. In the past, there have been instances where dissenting creditors have been forced to accept a resolution plan that is not in their best interest. This has led to a lack of confidence among creditors in the insolvency process. However, with this judgement, the NCLAT has sent a clear message that the CoC cannot misuse its powers to benefit certain creditors at the expense of others.
The NCLAT’s decision also highlights the importance of transparency and fairness in the insolvency process. The CoC is responsible for approving a resolution plan that is fair and equitable to all creditors. It cannot favour certain creditors over others, and any decision must be based on valid reasons and not just on the voting power of the CoC. This will not only protect the rights of creditors but also ensure a smooth and efficient insolvency process.
Moreover, this decision by the NCLAT is in line with the objectives of the Insolvency and Bankruptcy Code (IBC), which aims to balance the interests of all stakeholders involved in the insolvency process. The IBC provides for a time-bound and transparent process for the resolution of stressed assets. It also gives equal importance to the interests of all creditors, including dissenting creditors. The NCLAT’s decision reaffirms the commitment of the IBC towards protecting the rights of creditors.
In conclusion, the NCLAT’s decision to dismiss the appeal by Bank of Baroda in the Reliance Communications Infrastructure Ltd insolvency case is a significant step towards protecting the rights of creditors. It highlights the importance of transparency and fairness in the insolvency process and sends a strong message that the CoC cannot misuse its powers to favour certain creditors over others. This decision will not only boost the confidence of creditors but also strengthen the insolvency process in the country.
