Introduction
In a significant ruling that reshapes the understanding of creditor rights under the Insolvency and Bankruptcy Code (IBC), the National Company Law Appellate Tribunal (NCLAT), Chennai Bench has clarified the entitlements of dissenting financial creditors in resolution proceedings. The judgment in RBL Bank Limited vs. Sical Logistics Limited delivers crucial guidance on payment priorities and the distribution of resolution proceeds.
Case Background
The case centered around RBL Bank’s challenge to orders passed by the Adjudicating Authority that directed the bank and other Committee of Creditors (CoC) members to release title documents of corporate debtor assets to facilitate asset sales under an approved Resolution Plan. The key controversy revolved around the correct interpretation of Section 30(2)(b) of the IBC regarding the entitlements of dissenting financial creditors.
Key Holdings
The NCLAT’s judgment established several critical principles:
- Pro-rata Entitlement to Resolution Value: Dissenting financial creditors are entitled to a pro-rata share of the enhanced resolution value, not merely the liquidation value as previously interpreted.
- Priority Payment in Each Installment: Dissenting creditors must receive priority payment in every installment disbursed under the Resolution Plan, not just at the end of the payment cycle.
- CoC Cooperation Obligations: Financial creditors who approved the Resolution Plan are obligated to cooperate by releasing necessary documents and assisting with regulatory compliance for implementing the plan.
Practical Implications
This ruling significantly strengthens the position of dissenting financial creditors in resolution proceedings. Financial institutions considering whether to approve resolution plans now have more leverage and protection if they choose to dissent. The judgment also ensures that dissenting creditors receive priority treatment throughout the payment schedule, not just in terms of the final amount.
For Resolution Applicants, this means carefully structuring payment schedules to accommodate priority payments to dissenting creditors in each installment, which may impact cash flow planning.
Conclusion
The NCLAT’s decision represents a balanced approach that respects both the text and spirit of the IBC. By clarifying that dissenting financial creditors are entitled to a proportionate share of the resolution value with priority in each payment cycle, the Tribunal has enhanced predictability in resolution proceedings while protecting creditor interests.
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