EXTINGUISHING SECURITY INTEREST AND PERSONALGUARANTEES OF DISSENTING FINANCIAL CREDITORS

Facts of the case

• The NCLAT, New Delhi Bench, rendered a verdict on Puro Naturals JV’s resolution plan for Shivaji
  Cane Processors Limited, addressing critical issues related to extinguishing security interest and
  personal guarantees of dissenting financial creditors under Section 30(2) of the Indian Bankruptcy
  Code, 2016.
• Shivaji Cane Processors Limited, a prominent player in the sugar industry, entered Corporate
  Insolvency Resolution Process on February 18, 2021. Puro Naturals JV, the successful resolution
  applicant, secured a substantial 78.03% majority vote from the Committee of Creditors (CoC).
• Despite CoC approval, dissenting creditors, Shree Warana Sahakari Bank Limited and Kolhapur
  Urban Co-operative Bank, holding a combined vote share of 21.97%, opposed the resolution plan,
  prompting the NCLAT’s examination and pronouncement on the matter.

Concern:

The primary question brought before the tribunal centered on the compliance of a resolution
plan. This plan, which involves the cancellation of security interest and guarantees of financial creditors,
including dissenting ones, was under scrutiny to determine its alignment with the provisions outlined in
Section 30(2) of the Insolvency and Bankruptcy Code (IBC) and the Corporate Insolvency Resolution
Process (CIRP) Regulations.

Judgements&ground:

The NCLAT analyzed the NCLT order, citing the Naveen Kumar Sood case. It overturned the decision,
highlighting that resolving dissenting financial creditors’ rights can be appropriately managed within a
resolution plan.

• The group pointed out that relying on the NCLT Indore Bench decision was a mistake because the
  NCLAT had already dismissed it. They highlighted that the Committee of Creditors (CoC) thought
  carefully and made changes to the plan, which dealt well with security and personal guarantees.
• The NCLAT firmly stated that a resolution plan, which cancels security interest and personal
  guarantees of financial creditors, including those who disagree, does not violate Section 30(2) of IBC
  and CIRP Regulations. The verdict highlighted that these plan clauses follow the relevant legal rules.

Conclusions:

To sum up, the case of Puro Naturals JV vs. Warana Sahakari Bank & Others clarifies the legality of resolution plans that cancel the interests of financial creditors who disagree. The NCLAT’s approval emphasizes that careful consideration by the CoC and following the rules are crucial for validating such resolutions.

Muskan Rawat, Audit Associate, SW India