13 May 2121

If a valid security interest is held by the dissenting financial creditor the entitlement to receive the amount would be satisfied by allowing him to enforce the security interest to the extent of value receivable by him - Supreme Court of India

Case : India Resurgence Arc Private Limited v. M/S Amit Metaliks Limited & Anr. Civil Appeal No. 1700 of 2021

Court : Supreme Court of India

Bench : Justice Vineet Saran and Justice Dinesh Maheshwari

Decided on : 13 May 2121

Relevant Statutes

 

Section 61 and 66 of Insolvency & Bankruptcy Code, 2016

Brief Facts and Procedural History

1. Appellant, India Resurgence ARC Private Limited is the assignee of rights, title and interest carried by Religare Finvest Limited as secured financial creditor of the corporate debtor with a voting share of 3.9% in the committee of creditors. When respondent 1 submitted the resolution plan for consideration by the Committee of Creditors, the appellant expressed reservation especially on the value of security interest which is held by it and decided to remain a Dissentient Financial Creditor. This dissention of the appellant and was noted in the meeting of the Committee of Creditors dated 31-7-2020.

2. But the majority was in favour of the resolution plan and the resolution plan was approved with the voting share of 95.35% of the financial creditors. This resolution plan was submitted for approval to the Adjudicating authority. After being properly examined, the adjudication authority found the resolution plan totally feasible and viable with respect to the judiciary distribution of financial bids to the stakeholder as per their entitlements and Adjudicating Authority by its order dated 20-10-2020.

3. There was no objection to the resolution before the Adjudicating Authority and the appeal was preferred under section 66(1) read with 61(3)  of the Insolvency and Bankruptcy Code, 2016 and contended that being a Dissenting Financial Creditor, the approved resolution plan has failed the test of feasible and viable with respect to the value of secured assets and also contended that after the amendment to subsection 4 of section 30 of Insolvency and Bankruptcy Code, 2016 the Committee of Creditors was to ensure the manner of distribution and the order of priority among the creditors which Committee of Creditors failed to considered and also the approval of adjudicating authority was not in accordance with the law.

4. The Appellate Authorities, National Company Law Appellate Tribunal referred to the decision of Supreme Court in Committee of Creditors of Essar Steel India limited v. Satish Kumar Gupta & Ors, (2020) 8 SCC 531, and referred to the concept of equitable treatment of creditors and noted down that, “equitable treatment of creditors meant equitable treatment only within the same class protection of creditor is general but it is also imperative that creditors should be protected from each other.”

5. National Company Law Appellate Tribunal rejected the contentions made by the appellant and noted down that section 53 of Insolvency and Bankruptcy Code, 2016 is very much clear with respect to the consideration regarding feasibility and viability of resolution plan, distribution proposed with reference to the order of priority among creditors are those matters which fall within the exclusive domain of committee of creditors for consideration and with respect to the amendment made to section 30(4),  it vest discretion to the Committee of Creditors to take into account the value of security, the interest of secured creditors in approving the plan of resolution. Thus Appellate authority, National Company Law Appellate Tribunal, rejected the appeal. Against which appellant preferred an appeal before the Honorable Supreme Court of India.

The Issue of the Case

Whether Committee of Creditors have failed to consider priority and value of security interest of creditors, while approval Resolution Plan?

The Observations of the Court

1. The Honourable Supreme Court on hearing the contentions of the learned counsel referred to section 30 of the Insolvency and Bankruptcy Code, 2016 which deals with the process related to submission of resolution plan, its contents, consideration and approvals by Committee of Creditors and pointed out that with respect to the process of consideration and approval of resolution plans there is no doubt that it is commercial wisdom of Committee of Creditors and the power of judicial review remains limited within the four corners of section 30(4) for the adjudicating authority and section 30(2) read with section 61(3) of Insolvency and Bankruptcy Code, 2016 for Appellate authority.

2. The Honourable Supreme Court referred to its previous judgments of Jaypee Kensington Biulevard Apartments Welfare Association and Ors. V. NBCC (India) Ltd. And Ors., 2021 SCC OnLine SC 25, Committee of Creditors of Essar Steel India limited v. Satish Kumar Gupta & Ors, (2020) 8 SCC 531, K Sashidhar versus Indian Overseas Bank and Ors, (2019) 12 SCC 150 and Maharashtra Seamless limited v. Padmanabhan Venkatesh and Ors., (2020) 11 SCC 467 wherein court summarized the principle as;

a. In the scheme of Insolvency and Bankruptcy Code, the exclusive domain of commercial wisdom of Committee of Creditors is the approval of resolution plans and judicial review under section 31 with regards to approval of Adjudicating authority and 30(2) read with 61, as regards appeal against the order of approval and power of judicial review is very limited which has been highlighted by this Court in previous the judgments that adjudicating authority dealing with resolution plans do not have the power to examine the correctness or otherwise the commercial wisdom exercised by Committee of Creditors.

b. The limited scope of judicial review is reinforced by the limited grounds, number one. if the plan is in contravention of provisions of any law for the time being in force or there has been any material irregularity in exercising the power of resolution or debt owed to the operational creditor have not been provided or the resolution plan does not comply with any other criteria specified by the board. Only power given to Adjudicating authority is that, if it finds that only given set of facts, the requisite parameter has not been complied with then it may send the resolution back to the committee of creditors for resubmission and there is no scope for the Appellate Authority or Adjudicating authority to assess resolution on the basis of quantitative analysis.

3. The Honourable Supreme Court observed that National Company Law Appellate Tribunal is right in observing that amendment to sub-section 4 to section 30 only amplifies the consideration for Committee of Creditors in regard to viability and feasibility of resolution plan unless credit is belonging to a class are denied fair and equitable treatment otherwise decisions of Committee of Creditor cannot be interfered with.

4. The Honourable Supreme Court on the question of Fair and equitable treatment finds that the proposal for payment of all the secured financial creditors is equitable and it is at par with the percentage of payment proposed for other secured creditors and hence no case of denial of Fair and equitable treatment has been made out. With respect to the entitlement of Dissenting financial Creditor under sub-section (2)(b) of Section 30 of the Insolvency and Bankruptcy Code referred to his previous judgment of Committee of Creditors of Essar Steel India limited v. Satish Kumar Gupta & Ors, (2020) 8 SCC 531, wherein it has observed that, “With respect to the validity of substitution of section 30(2)  by section 6 of amending the Act of 2019, it is clear that the former gives something more to the operational creditor and what is now to be paid is a minimal minimum amount to the operational creditor as mentioned by Ms. Madhavi Diwan, that section 30 is a beneficial provision in favour of operational creditor and Dissentient Financial Creditors, now have to be paid certain minimum under section 53 which  mentions that certain minimum figure is to be paid to a different class of operational and financial creditor and for this purpose, it is to be looked that it is the commercial wisdom of committee of creditor that they are free to determine what amount to be paid two different class in accordance with the code .”

5. Thus, The Honourable Supreme Court noted down that what amount to be paid to different classes is also the commercial wisdom of the committee of creditors and further The Honourable Supreme Court also referred to the judgment of Jaypee Kensington Biulevard Apartments Welfare Association and Ors. V. NBCC (India) Ltd. And Ors., 2021 SCC OnLine SC 253, where the proposal of resolution plan was related to fact that every dissenting financial creditor would be entitled to some amount in the terms of sections 30 and 53 of Indian Insolvency and Bankruptcy Code, 2016 read with Regulation 38 of CIRP regulations. And the Honourable Supreme Court further held that if a valid security interest is held by the dissenting financial creditor the entitlement to receive the amount would be satisfied by allowing him to enforce the security interest to the extent of value receivable by him.

6. Thus, The Honourable Supreme Court made it clear that the dissenting financial creditor would be receiving the payment of amount according to their entitlement and that entitlement would be satisfied by allowing them to enforce the security interest to the extent of value receivable by him and the further The Honourable Supreme Court noted down that the extent of value receivable by the appellant in the resolution plan is a sum of rupees 2.026 Crore which is in the same proportion as is provided to other financial creditors and the repeated inference to the value of the security of rupees 12 crore is ill-conceived, as the legislature never intended that security interest available to dissenting financial creditors over the asset of the corporate debtor and give him some right over and above the financial creditors by receiving excess amount which is beyond the receivable liquidation value proposed for the same class of creditors.

7. Finally, The Honourable Supreme Court referred to Committee of Creditors of Essar Steel India limited v. Satish Kumar Gupta & Ors, (2020) 8 SCC 531, and observe that the approach of equality for all recognizes the right of a different classes of creditors and is not followed this would defeat the entire objective of the code which is to obtain sure that resolution of distressed assets takes place and only if the same is not possible should liquidation follow.

The Decision Held by the Court

The Honourable Supreme held that the Committee of Creditors rightly takes into account the order of priority and amount receivable by creditors is in the same proportion and percentage.

The Honourable Supreme held that the Appellate Authority, National Company Law Appellate Tribunal, was right in rejecting the Appeal. Thus, the Honourable Supreme dismissed the appeal.

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