10 Aug 2121

If the requirements of Section 30(2)(b) of the Insolvency and Bankruptcy Code 2016 are fulfilled then the distribution shall be treated as fair and equitable to the operational creditors - Supreme Court of India

Case : Pratap Technocrats (P) Ltd v. Monitoring Committee of Reliance Infratel Limited & Anr. Civil Appeal No. 676 of 2021

Court : Supreme Court of India

Bench : Justice Dr Dhananjaya Y Chandrachud

Decided on : 10 Aug 2121

Relevant Statutes

Section 30, 53 and 61 of the Insolvency and Bankruptcy Code, 2016 

Brief Facts and Procedural History

1. The Corporate Resolution Insolvency Process of the Corporate Debtor was initiated by an order of NCLT on 15th May 2018. The interim resolution professional issued a public announcement on 21 May 2018 which invites the claims from the creditors of the Corporate Debtor and the above order admits the corporate debtor to the Corporate Resolution Insolvency Process was challenged in the appeal which was stayed on 30 May 2018. The NCLAT vacated the stay on the Corporate Resolution Insolvency Process on 30 April 2019 and the appeal was withdrawn. The Corporate Resolution Insolvency Process was resumed on 7 May 2019 and a fresh public announcement was also issued for inviting claims from creditors. 

2. Afterwards, The Committee of Creditors was constituted on 24 May 2019. During the course of the process. On 21 August 2019, a request for a resolution plan was issued to the prospective resolution applicants and with the consent of the Committee of Creditors. The Resolution Professional received resolution plans from the four prospective resolution applicants i.e.  Bharti Airtel Ltd,  Reliance Digital Platform & Project Services Limited, VFSI Holdings Pte. Ltd and UV Asset Construction Company Ltd.  The Committee of  Creditors was engaged with the prospective resolution applicants and the resolution plan submitted by Reliance Digital Platform and Project Services Limited was taken forward as a preferred resolution plan on the basis of feasibility, viability and implementability which was further approved with a 100 per cent voting share of the Committee of Creditors.

3. An application was submitted under Section 30(6) of the Insolvency and Bankruptcy Code 2016 by the Resolution Professional and seeks the approval of the resolution plan by the NCLT. After this, the NCLT noted that Doha  Bank (one of the financial creditors of the Corporate Debtor) had instituted proceedings and challenged the admission of the claims of a few other creditors and to impugn the decision of the Resolution Professional to recognize the indirect lenders of the Corporate Debtor as financial creditors. The NCLT approved the resolution plan by order dated 3rd December 2020.

4. Further, the appellants challenged the decision of the NCLT approving the resolution plan in appeal before the NCLAT. Afterwards, The NCLAT by its judgment dated 4 January 2021 rejected the appeal. 

The Issue of the Case

Whether the decision of the NCLT approving the resolution is invalid?

The Observations of the Court

1. The Honourable Supreme Court observed that realisable value for Corporate Debtor on account of any proceeds realised from the preference share held by its subsidiary (Reliance Bhutan Limited) is included in the determination of the liquidation value of the Corporate Debtor and this is supported by the relevant excerpts in the affidavit. The Honourable Supreme Court observed that if the liquidation value of the realisable value of the preference shares were to be considered in the isolation for distribution amongst all the operational creditors as per Section 53(1) of the Insolvency and Bankruptcy Code 2016 then the liquidation value due to the appellants would still remain nil.

2. The Honourable Supreme Court observed that the application filed by the Doha Bank Proceedings has no practical implication on the status of the approval of the resolution plan for the residence as it received a unanimous approval with 100 per cent voting share in COC even after the exclusion. The order of the NCLT in Doha Bank proceedings did not provide for the inclusion of new financial creditors and also has no consequence for the operational creditors.  The Honourable Supreme Court observed that the jurisdiction of the Adjudicating Authority is to determine whether the resolution plan which is approved by COC is according with the Section 30(2) of the Insolvency and Bankruptcy Code, 2016  if the requirements of Section 30(2) (b) are fulfilled the distribution shall be treated as fair and equitable to the operational creditors.

3. The Honourable Supreme Court referred to one judgment i.e. K. Sashidhar vs. Indian Overseas Bank, 2019(12) SCC 150, the Court observed that the jurisdiction of the appellate authority to entertain an appeal against an approved resolution plan is defined by section 61(3) of the Insolvency and Bankruptcy Code 2016 and they have limited jurisdiction means not to act as a Court of equity or exercise plenary powers. It was also held that the commercial or business decisions of the financial creditors are not open to judicial review by the adjudicating or appellate authority.

4. The Honourable Supreme Court stated that there was no concrete material before the court that there was a failure to maximize the value of the assets. The Honourable Supreme Court refereed another judgment i.e. Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta, 2020 (8) SCC 531, It was held that the equitable treatment of creditors is equitable treatment only within the same class and also financial creditors belong to class distinct from operational creditors.

Decision Held by the Court

The Appeal was dismissed and it was observed that as the resolution plan was approved under Section 30(4) of the Insolvency and Bankruptcy Code 2016 and once the requirements of the statute have been fulfilled, the decision of the Appellate Authority and the Adjudicatory Authority is in conformity with the law.

Click here to view/download the judgement >