2020 (2) TMI 388 - AT - Insolvency and Bankruptcy

Approval of distribution of amounts - approved resolution plan - sub-section (4) of Section 30 of I B Code - HELD THAT - Amended sub-Section (4) of Section 30 came into force since 16th August, 2019. It has not been given retrospective effect but is prospective. Therefore, if the distribution is to be made by the 'Committee of Creditors', it is not necessary to follow the amended sub-section (4) of Section 30, though it was open to the 'Committee of Creditors' to follow the same principle. Therefore, the distribution cannot be alleged to be in violation of the amended sub-section (4) of Section 30 - As per amended Section 30(2)(b)(ii), the distribution is to be made in the manner as prescribed under Section 53(1) giving preference to the secured creditor. However, even at that stage no discrimination can be made between two similarly situated 'secured creditor'. If the 'Financial Creditor' do not accept the 'feasibility' and 'viability' of the plan and holds that the 'resolution plan' is discriminatory or against the provision of law, it has right to dissent during the voting and can be treated as a 'dissenting financial creditor' - a 'secured creditor' cannot claim preference over the other 'secured creditor' at the stage of distribution out of the 'resolution plan on the ground of 'dissenting' or 'assenting', 'secured financial creditor' otherwise the distribution would be held to be arbitrary and discriminatory. Section 30(2)(b)(ii) cannot be interpreted in a manner to give advantage to a 'dissenting secured financial creditor'. In fact Section 30(2)(b)(ii) has been amended only to ensure that 'dissenting financial creditor' should not get anything 'less than liquidation value' but not for 'getting maximum of the secured assets'. Appeal dismissed - decided against appellant.

Summary

Issues:
1. Approval of the Resolution Plan by the Committee of Creditors and the Adjudicating Authority.
2. Concerns raised by the Appellant regarding the distribution of proceeds from the Resolution Plan.
3. Interpretation and application of the amended Section 30(2)(b)(ii) of the Insolvency and Bankruptcy Code.
4. Legal rights and preferences of dissenting secured creditors in the distribution of proceeds from the Resolution Plan.

Analysis:
1. The judgment revolves around the approval of the Resolution Plan for 'Ruchi Soya Industries Limited' by the Committee of Creditors and the subsequent validation by the Adjudicating Authority. The Resolution Plan submitted by 'Patanjali Ayurved Limited' was approved by the majority decision of the Committee of Creditors and deemed in accordance with Section 30(2) by the Adjudicating Authority on 24th July, 2019.

2. The Appellant, a financial creditor, raised concerns about the distribution of proceeds from the Resolution Plan. The Appellant highlighted its high-value security interest covering a significant portion of its exposure and requested the Committee of Creditors to consider this while distributing proceeds. The Appellant voted against the Resolution Plan due to perceived unfair distribution, invoking the amended Section 30(2)(b)(ii) to claim entitlement to a minimum amount close to 90% of its exposure in case of liquidation.

3. The interpretation and application of the amended Section 30(2)(b)(ii) were crucial in determining the rights of dissenting secured creditors in the distribution process. The Committee of Creditors argued that the amended provision applies only to specific scenarios where the Resolution Plan approval is challenged, not in cases challenging the distribution post-approval. The judgment clarified that the Appellant's challenge was focused on distribution, not the Resolution Plan itself, hence the amended provision did not directly apply.

4. The judgment emphasized that dissenting secured creditors cannot claim preference over others based on dissent alone during the distribution process. The rights of dissenting financial creditors are protected to ensure they receive at least the liquidation value, but not to gain an advantage over other secured creditors. Section 30(2)(b)(ii) was amended to prevent dissenting creditors from receiving less than the liquidation value, not to prioritize dissenting secured creditors over others in distribution.

In conclusion, the judgment dismissed the appeal, upholding the impugned order dated 24th July, 2019, as no interference was deemed necessary. The judgment clarified the legal rights and limitations of dissenting secured creditors in the distribution of proceeds from a Resolution Plan, emphasizing fair treatment and non-discrimination among secured creditors.