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2020 ] ULTRA TECH NATHDWARA CEMENT LTD. v. UNION OF INDIA 299
ry resolution plan provides for payment of at least the liquidation
value to all operational creditors. Regulation 38(1)(b) of the CIRP
Regulations provides that liquidation value must be paid to opera-
tional creditors prior in time to all financial creditors and within thir-
ty days of approval of resolution plan by the NCLT. The BLRC Re-
port states that the guarantee of liquidation value has been provided
to operational creditors since they are not allowed to be part of the
CoC which determines the fate of the corporate debtor. (BLRC Re-
port, 2015)
18.2 However, certain public comments received by the Committee
stated that, in practice, the liquidation value which is guaranteed to
the operational creditors may be negligible as they fall under the re-
sidual category of creditors Under Section 53 of the Code. Particular-
ly, in the case of unsecured operational creditors, it was argued that
they will have no incentive to continue supplying goods or services to
the corporate debtor for it to remain a ‘going concern’ given that their
chances of recovery are abysmally low.
18.3 The Committee deliberated on the status of operational credi-
tors and their role in the CIRP. It considered the viability of using ‘fair
value’ as the floor to determine the value to be given to operational
creditors. Fair value is defined under Regulation 2(1)(hb) of the CIRP
Regulations to mean “the estimated realizable value of the assets of
the corporate debtor, if they were to be exchanged on the insolvency
commencement date between a willing buyer and a willing seller in
an arm’s length transaction, after proper marketing and where the
parties had acted knowledgeably, prudently and without compul-
sion.” However, it was felt that assessment and payment of the fair
value upfront, may be difficult. The Committee also discussed the
possibility of using ‘resolution value’ or ‘bid value’ as the floor to be
guaranteed to operational creditors but neither of these were deemed
suitable.
18.4 It was stated to the Committee that liquidation value has been
provided as a floor and in practice, many operational creditors may
get payments above this value. The Committee appreciated the need
to protect interests of operational creditors and particularly Micro,
Small and Medium Enterprises (“MSMEs”). In this regard, the Commit-
tee observed that in practice most of the operational creditors that are critical
to the business of the corporate debtor are paid out as part of the resolution
plan as they have the power to choke the corporate debtor by cutting off sup-
plies. Illustratively, in the case of Synergies-Dooray Automative Ltd.
(Company Appeal No. 123/2017, NCLT Hyderabad, Date of decision-
2 August, 2017), the original resolution plan provided for payment to
operational creditors above the liquidation value but contemplated
that it would be made in a staggered manner after payment to finan-
cial creditors, easing the burden of the 30-day mandate provided un-
der Regulation 38 of the CIRP Regulations. However, the same was
modified by the NCLT and operational creditors were required to be
paid prior in time, due to the quantum of debt and nature of the cred-
itors. Similarly, the approved resolution plan in the case of Hotel
Gaudavan Pvt. Ltd. (Company Appeal No. 37/2017, NCLT Principal
Bench, Date of decision-13 December, 2017) provided for payment of
all existing dues of the operational creditors without any write-off.

GST LAW TIMES  18th June 2020  85