NCLAT Upholds NCLT Order on Distribution of Funds from Resolution Plan

NCLAT Rejects Banks' Petition Challenging Distribution of Funds to Dissenting Creditors

On Wednesday, the National Company Law Appellate Tribunal (NCLAT) rejected a joint petition filed by five banks - Indian Bank, UCO Bank, Bank of Baroda, ICICI Bank, and Union Bank of India - challenging the distribution of funds to dissenting financial creditors State Bank of India (SBI) and Punjab National Bank.

A two-member NCLAT bench, comprising Chairperson Justice Ashok Bhushan and Member (Technical) Indevar Pandey, upheld the distribution mechanism for funds received from the resolution plan approved by the lenders' body Committee of Creditors (CoC). The bench stated that the distribution mechanism is valid, lawful, and binding.

The NCLAT bench observed that the 'Monitoring Committee' formed after the bidding process was over could not alter the distribution mechanism. The bench further stated that the payment directed to SBI is strictly in accordance with Section 30(2)(b), read with Section 53(1) of the Code, which has been duly approved by the CoC and the Adjudicating Authority (AA) under Section 30(4).

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The matter relates to the insolvency proceedings of OCL Iron and Steel, for which the Cuttack Bench of the National Company Law Tribunal (NCLT) has approved the bids filed by Indrani Patnaik. The Corporate Insolvency Resolution Process against OCL Iron and Steel was initiated in September 2021.

The Committee of Creditors was constituted comprising nine financial creditors with voting shares: Asia Opportunities (III) Mauritius Limited (36.22 per cent), ICICI Bank (12.68 per cent), State Bank of India (10.39 per cent), Indian Bank (10.32 per cent), UCO Bank (9.82 per cent), Bank of Baroda (7.87 per cent), Union Bank of India (7.11 per cent), Punjab National Bank (0.63 per cent), and Ganesh Ores (4.98 per cent).

The Resolution Plan submitted by Indrani Patnaik was approved by the CoC through an 88.98 per cent majority vote, and the NCLT approved it on March 20, 2023. Following this, a Monitoring Committee was constituted to oversee the implementation of the resolution plan.

However, in the third and fourth meetings of the Monitoring Committee, there was a lack of consensus regarding distribution to dissenting financial creditors. Calculations regarding the distribution of Resolution Plan proceeds were placed before the members.

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Indrani Patnaik, the Successful Resolution bidder, transferred an amount of Rs 35.20 crores on May 15, 2023, to State Bank of India as a dissenting financial creditor. Aggrieved by this, State Bank of India filed an application before the NCLT, seeking to set aside the distribution decided in the fourth Monitoring Committee meeting.

Passing an order on February 5, 2024, the NCLT directed that distribution to State Bank of India, being the dissenting financial creditor, be made in accordance with Section 30(2)(b) of the Code as computed by the Evaluation Advisor. The NCLT also directed that the computation of liquidation value be re-checked and payment be made accordingly.

Aggrieved by this NCLT order, the five banks - Indian Bank, UCO Bank, Bank of Baroda, ICICI Bank, and Union Bank of India - filed an appeal before the NCLAT. However, the NCLAT said the NCLT order does not confer any undue or additional benefit upon SBI, but merely enforces the liquidation value already determined and approved.