Related-party voting share and the operational creditor floor under Section 30(2)(b)
Sunrise Steel Ltd is in CIRP. The CoC has five financial creditors with admitted claims of ₹300 crore: Bank P ₹150 crore, Bank Q ₹54 crore, NBFC R ₹30 crore, Debenture Trustee T ₹18 crore and Fund S ₹48 crore. Fund S is a wholly owned subsidiary of the holding company of Sunrise Steel and shares a common director with the corporate debtor. The resolution professional put the revised plan to vote. P and S voted in favour, Q and R voted against, and T abstained. The plan offers operational creditors, whose admitted claims are ₹40 crore, 6% of their claims. The registered valuer's liquidation report puts the operational creditors' liquidation entitlement at 11%, and the RP's own computation shows that if the ₹180 crore plan outlay were distributed in the Section 53 order of priority, operational creditors would receive 13%. The CoC minutes record that the plan is feasible and viable.
1. Compute the voting outcome. Has the plan been approved by the requisite majority?
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Exclude the related party first. The proviso to Section 21(2) strips a financial creditor that is a related party of the corporate debtor of the right to representation, participation or voting in the CoC. Section 5(24) treats a holding company, a subsidiary, and a subsidiary of a holding company as related parties. Fund S is a wholly owned subsidiary of the corporate debtor's holding company - a fellow subsidiary - and the common director reinforces the classification. Its ₹48 crore carries no voting share.
Arithmetic on eligible votes. Eligible voting share = ₹300 crore − ₹48 crore = ₹252 crore. Votes cast in favour = Bank P only (₹150 crore); an abstention is not a vote in favour. 150 / 252 = 59.52%. The Section 30(4) threshold is not less than 66% of the voting share of the financial creditors, i.e. ₹166.32 crore.
Why the exclusion is decisive. Had Fund S been counted, the in-favour share would have been ₹198 crore of ₹300 crore - exactly 66% - and the plan would have crossed the line. The related-party bar therefore changes the outcome, not just the presentation.
Conclusion. The plan has not been approved. The RP must record the result and place the matter before the CoC, which may consider a revised plan at a fresh meeting or resolve to liquidate under Section 33. There is no power to recount including an ineligible voter.
2. Does the 6% offer to operational creditors make the plan vulnerable under Section 30(2)(b), despite the CoC's finding of feasibility and viability?
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The statutory floor. Section 30(2)(b), as amended in 2019, requires that operational creditors receive not less than the higher of (i) what they would be paid in liquidation under Section 53, and (ii) what they would be paid if the plan amount itself were distributed in the Section 53 order of priority.
Applying both limbs. Limb (i) is 11% of ₹40 crore = ₹4.4 crore. Limb (ii) is 13% = ₹5.2 crore. The floor is therefore 13%, or ₹5.2 crore. The plan offers 6%, roughly ₹2.4 crore - less than half the floor.
Why the CoC's view cannot cure it. Feasibility and viability are the CoC's commercial judgment, but the minimum payment to operational creditors is a statutory condition. Section 31 approval requires the Adjudicating Authority to be satisfied that the plan meets Section 30(2). A plan that underpays operational creditors fails on a pure question of compliance, however commercially attractive the outlay.
What the RP should do. Reopen the plan with the valuer's figures before the CoC, and either raise the operational creditor payout to at least ₹5.2 crore or document a fresh waterfall showing a lower lawful floor. The deficiency should be addressed inside the CIRP period, not left for the Authority to fix.
3. The RP asks the NCLT to approve the plan but to direct that operational creditors be paid 11% instead of 6%. Is that a permissible order?
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No. Under K. Sashidhar v. Indian Overseas Bank (SC, 2019) and Committee of Creditors of Essar Steel v. Satish Kumar Gupta (SC, 2020), the Adjudicating Authority's role under Sections 30 and 31 is supervisory and limited to checking compliance with Section 30(2) and with the law. It cannot rewrite the commercial terms of a plan, reallocate the outlay between creditor classes, or substitute its own view of what a class ought to receive.
Correct course. The Authority should decline approval, record the specific non-compliance with Section 30(2)(b) and the correct floor amount, and permit the CoC and RP to revise and resubmit. A revised plan must again be voted on under Section 30(4); the earlier 59.52% cannot be carried forward.
Watch the clock. Section 12 caps CIRP at 330 days including exclusions. Revision, re-voting and re-examination by the Authority must fit inside that window; if it cannot, liquidation under Section 33 follows, and the operational creditors' liquidation entitlement of 11% becomes their actual recovery. The RP should also consider whether the shortfall arose from a valuation error that needs correction before any fresh vote.