Distribution During CIRP Must Conform To Section 30(2) Of IBC: NCLT Mumbai

The Mumbai Bench of the National Company Law Tribunal (NCLT) on 6 April held that it cannot use its inherent powers under Rule 11 of the NCLT Rules, 2016 to allow distribution of sale proceeds during the Corporate Insolvency Resolution Process (CIRP) without complying with Section 30(2) of the Insolvency and Bankruptcy Code (IBC).

A Bench comprising Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar rejected the Resolution Professional's plea in the CIRP of Arshiya Limited to distribute proceeds from sale of non-core assets to secured financial creditors before completion of CIRP. It observed:

“It is trite that the CoC commercial wisdom is supreme, accordingly, it is for the CoC to decide as to how in what manner the distribution of the sale proceeds has to take place if such distribution is otherwise permissible in terms of Section 30(2), which in our considered view is the only provision providing for distribution of proceeds of resolution in CIRP. However, in our considered view, the inherent powers vested in this Tribunal in terms of Rule 11 of NCLT Rules, 2016 cannot be exercised to allow distribution during CIRP process in accordance with the Section 53 of the IBC without following the mandate of Section 30(2) of the IBC.”

The Resolution Professional filed the application under Section 60(5) of the IBC seeking permission to distribute proceeds from the sale of two non-core land parcels measuring about 42 acres.

He submitted that the Committee of Creditors (CoC) had approved the sale and proposed distribution to secured financial creditors, relying on KSK Mahanadi Power Company Limited, where interim distribution during CIRP was allowed.

The Tribunal rejected the plea and held that neither the IBC nor the CIRP Regulations permit distribution of sale proceeds during CIRP, and any distribution must comply with Section 30(2) of the IBC.

It observed that although the Supreme Court in India Resurgence ARC Pvt. Ltd. v. Amit Metaliks Ltd., (2021) ibclaw.in 87 SC, and that although DBS Bank Ltd. Singapore v. Ruchi Soya Industries Ltd. and Anr., (2024) ibclaw.in 01, adopted a different interpretation of Section 30(2)(b)(ii), it has referred the question to a larger Bench, where it remains pending.

Accordingly, the NCLT dismissed the application.