The Article has been drafted by Suman Kumar Jha (Founder & Managing Partner), Afnaan Siddiqui (Co-Founder & Partner), Visakha Raghuram (Associate) and Vaibhav Khurana (Associate)
The Corporate Debtor (CD) had defaulted on loans availed from a Consortium of Lenders, including State Bank of India (SBI), IDBI Bank, and Bank of Baroda. SBI and IDBI Bank had approved a One-Time Settlement (OTS), while Bank of Baroda dissented and filed a Section 7 application on 18.04.2022 for initiating CIRP. The CD, claiming MSME status, applied for Pre- Packaged Insolvency Resolution Process (PPIRP) under Section 54C on 25.07.2022, which was more than 14 days after the filing of the Section 7 application.
The NCLT admitted the Section 54C application and rejected the Section 7 application, leading to the present appeal by Bank of Baroda before the NCLAT.
Key Issues and Decisions
I. Whether the period of 14 days as mentioned in Section 11A (3) of IBC is mandatory or directory?
Decision:
The Tribunal held that the 14-day period prescribed under Section 11A (3) of IBC is mandatory and not directory.
The judgment relied on the Literal interpretation of Section 11A (3), which explicitly states that where a Section 54C application is filed after 14 days of a pending Section 7, 9, or 10 applications, the Adjudicating Authority must first decide the pending Corporate Insolvency Resolution Process (CIRP) application and the Parliamentary intent, as evidenced in the Insolvency Law Committee Report (2021), which stressed that the 14-day time limit should be strictly followed. Thus, the Tribunal overruled the NCLT’s interpretation and declared that the CIRP application should have been considered first.
II. Whether a Section 54C application or a Section 7, 9, or 10 applications should be disposed of first in terms of Section 11A?
Decision:
The Tribunal clarified that under Section 11A of the Insolvency and Bankruptcy Code (IBC), the disposal of applications follows a strict priority order: if a Section 54C application is filed before a Section 7, 9, or 10 application, the Section 54C application must be decided first [Section 11A(1)]; if it is filed within 14 days of a pending Section 7, 9, or 10 application, the Section 54C application still takes precedence [Section 11A(2)]; and if it is filed after 14 days of a pending Section 7, 9, or 10 application, the latter must be decided first [Section 11A(3)]. In this case, since the Section 54C application was filed after 14 days of the Section 7 application, the NCLT was obligated to first decide the Section 7 application filed by Bank of Baroda, which it failed to do.
iii. Whether in a plan under Section 54K of IBC (PPIRP), a dissenting Financial Creditor has to be paid the amount in accordance with Section 30(2)(b) of the IBC?
Decision:
The Tribunal ruled that Section 30(2)(b) of IBC applies equally to PPIRP under Section 54K, meaning that a dissenting Financial Creditor must be paid at least the liquidation value of its claims.
The judgment emphasized that Section 30(2)(b) of IBC mandates that a dissenting Financial Creditor shall receive at least the liquidation value and that the same principle applies under PPIRP [Section 54K (4)], ensuring that dissenting creditors are not unfairly treated in pre-pack resolution plans. It also highlighted that the Base Resolution Plan in the present case did not differentiate between assenting and dissenting Financial Creditors, which is inconsistent with Section 30(2)(b).
Thus, the Tribunal held that the Resolution Plan was non-compliant with IBC and required modification to ensure that dissenting Financial Creditors receive at least the liquidation value. Therefore, in interest of Justice SRA was directed to pay the differential payment in terms of Section 30 (2) (b).