The reported claim of Kerala State Electricity Board (KSEB) for bills due from Hindustan Newsprint Limited (HNL), which is slated to undergo a corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code (IBC), may not stand scrutiny of law, according to an expert.
On November 25, 2019, NCLT-New Delhi had granted permission to liquidator and parent company HPC to sell 100 per cent shareholding in HNL to the Government of Kerala. The Resolution Plan for revival of HNL submitted by the Kerala Government was voted on by the Committee of Creditors (CoC) with a 97.02 per cent majority, and the NCLT approved the same on January 29, 2021.
Resolution Plan terns binding
In response to an application filed by a creditor of HNL, the Kochi Bench of the NCLT had on November 28, 2019, directed that a CIRP may be initiated, and appointed an Interim Resolution Professional. Parent company Hindustan Paper Corporation (HPC),was under liquidation as per orders of the NCLT-New Delhi and the National Company Law Appellate Tribunal (NCLAT).
Bijoy Pulipra, leading corporate and insolvency lawyer, told businessline the Resolution Plan is a scheme approving the revival of the corporate debtor. Its terms are binding on all the creditors, stakeholders, the Central and State governments, among others. Payment to creditors under the plan is determined by the CoC comprising mainly of financial institutions.
Commercial wisdom of CoC
There are different types of creditors. Operational creditors are one, consisting mainly of suppliers of goods and service providers. Dues to these creditors are to be paid only after settling the liabilities of financial institutions, employees and workmen. If there is no amount left after settling the dues of financial institutions, employees and workmen, then there is no legal compulsion to pay any amount to operational creditors other than a minimum amount. KSEB is an operational creditor within the meaning of the IBC, Pulipra pointed out.
It is a settled legal position that the courts shall not interfere in the commercial wisdom of the CoC if a requisite majority approves the same, Pulipra said. In the instant case, the Kerala Government took over control of HNL and renamed it Kerala Paper Products Limited, and the revival process is now in progress. The KSEB has reportedly challenged the Resolution Plan on grounds of its dues having not been paid under the terms of the Plan.
No legal grievance
“If KSEB was aggrieved by the terms of the Resolution Plan, they should have approached the NCLAT within 30 days from the date of the order. As the Plan was approved by 97.02 per cent votes, the same is binding on all stakeholders, including KSEB,” Pulipra said. It may be recalled the `commercial wisdom’ of the CoC cannot be interfered with, except in limited ambit, as contemplated under Section 30(2) of the IBC in respect of an adjudicating authority, and as per Section 61(3), in regard to an `Appellate Tribunal’.
Besides, it is not open to an adjudicating authority’ (Tribunal) or an appellate authority (Appellate Tribunal) to consider ‘any other feature than the one mentioned in Section 30(2) or Section 61 (3) of the IBC. As the requisite majority of creditors had approved the Plan, there is no legal grievance for KSEB, and hence the claim of non-payment of dues at may not hold at this stage, Pulipra said.