NCLAT Upholds Coc's Decision To Distribute Proceeds Based On Voting Share Rather Than Security Interest

2025-09-16 02:19:00

(MENAFN- KNN India) New Delhi, Sep 16 (KNN) The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has ruled that the distribution of amounts among financial creditors should be based on their security interest or on a pro-rata basis according to their voting share in the committee of creditors (CoC).

The bench, comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Member-Technical), dismissed an appeal challenging the CoC's decision to distribute proceeds as per voting shares rather than security interest.

The judgment came in the case of Small Industries Development Bank of India v. Sumit Sharma, Erstwhile RP & Anr. (Company Appeal (AT) (Insolvency) No. 1359 of 2025 & I.A. No. 5309 of 2025).

The appellant, holding a 3.22% vote share in the CoC, contended that it was a secured financial creditor and therefore entitled to distribution based on its security interest.

In contrast, Punjab National Bank, which held 96.68% of the voting share, supported the CoC's resolution for distribution on the basis of voting share.

Earlier, the National Company Law Tribunal (NCLT), Jaipur, had approved the resolution plan of the corporate debtor on 12 March 2024. Following this, the CoC passed a resolution on distribution based on vote share.

The appellant filed I.A. 637/JPR/2023 seeking to set aside this CoC resolution, but the NCLT dismissed the plea. The appellant then approached the NCLAT.

While rejecting the appeal, the NCLAT observed that the CoC had duly adopted the voting share mechanism and that the appellant's objection was pending even as the resolution plan was approved.

The bench also cited the rulings in State Bank of India v. IDBI Bank Limited & Anr. (Comp. App. (AT) (Ins.) No. 321/2024) and India Resurgence ARC Pvt. Ltd. v. Amit Metalinks Ltd. & Anr. (2021) 19 SCC 672, affirming that distribution must follow the CoC's commercial decision.

With these observations, the NCLAT upheld the CoC's distribution mechanism and dismissed the appeal.

(KNN Bureau)

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