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2021 (3) TMI 303 - AT - IBCValidity of Resolution Plan - allegation is that the approved Resolution Plan failed to deal with the interests of the all the stakeholders including the Appellant who was offered a meagre amount of slightly over ₹ 2 Crores as against its admitted claim of an amount exceeding ₹ 13 Crores without even considering the valuation of the security held by the Appellant in its Resolution Plan which had a valuation of approximately ₹ 12 Crores - HELD THAT - Section 3(10) of the I B Code provides that the Creditor means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree holder. Holding that the equitable treatment of creditors is equitable treatment only within the same class, the Hon ble Apex Court in Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta and Others , 2019 (11) TMI 731 - SUPREME COURT , observed that reorganization is a collective remedy designed to find an optimum solution for all parties connected with a business in the manner provided by the Code. Protecting creditors in general is, no doubt, an important objective but protecting creditors from each other is also important which means that the I B Code should not be read so as to imbue creditors with greater rights in a bankruptcy proceeding than they would enjoy under the general law, unless it is to serve some bankruptcy purpose. On a plain reading of Section 53 of the I B Code, it is manifestly clear that the considerations regarding feasibility and viability of the Resolution Plan, distribution proposed with reference to the order of priority amongst creditors as per statutory distribution mechanism including priority and value of security interest of Secured Creditor are matters which fall within the exclusive domain of Committee of Creditors for consideration. These considerations must be present to the mind of the Committee of Creditors while taking a decision in regard to approval of a Resolution Plan with vote share of requisite majority. As regards amendment introduced in Section 30(4), be it seen that the amendment that it, introduced vide Section 6 (b) of Amending Act of 2019 vests discretion in the Committee of Creditors to take into account the value of security interest of a Secured Creditor in approving of a Resolution Plan. It s a guideline and not imperative in terms, which may be taken into account by the Committee of Creditors in arriving at a decision as regards approval or rejection of a Resolution Plan, such decision being essentially a business decision based on commercial wisdom of the Committee of Creditors. While it is true that prior to amendment of Section 30(4) the Committee of Creditors was not required to consider the value of security interest obtaining in favour of a Secured Creditor while arriving at a decision in regard to feasibility and viability of a Resolution Plan, legislature brought in the amendment to amplify the scope of considerations which may be taken into consideration by the Committee of Creditors while exercising their commercial wisdom in taking the business decision to approve or reject the Resolution Plan. Such consideration is only aimed at arming the Committee of Creditors with more teeth so as to take an informed decision in regard to viability and feasibility of a Resolution Plan, fairness of distribution amongst similarly situated creditors being the bottomline - Appeal dismissed.
Issues Involved:
1. Consideration of the value and quality of security interest in the Resolution Plan. 2. Distribution and priority of share based on the value of security interest. 3. Interpretation of Section 30(4) of the Insolvency and Bankruptcy Code, 2016. 4. Judicial review of the commercial wisdom of the Committee of Creditors. Issue-wise Detailed Analysis: 1. Consideration of the Value and Quality of Security Interest in the Resolution Plan: The appellant contended that the value and quality of their security interest were not considered by the Successful Resolution Applicant and the Committee of Creditors (COC) while approving the Resolution Plan. The appellant was offered a meager amount of slightly over ?2 Crores against its admitted claim exceeding ?13 Crores, without considering the valuation of the security held by the appellant, which was approximately ?12 Crores. 2. Distribution and Priority of Share Based on the Value of Security Interest: The appellant argued that the manner of distribution and priority of share based on the value of security interest of a Secured Financial Creditor, pursuant to the amendment in Section 30(4) of the Insolvency and Bankruptcy Code, 2016 (I&B Code), was overlooked. The appellant relied on the judgment of the Hon’ble Apex Court in ‘Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta and Others’ to assert that the fairness of distribution must consider the underlying security value and the quality of security. 3. Interpretation of Section 30(4) of the Insolvency and Bankruptcy Code, 2016: The respondent countered that the interpretation sought by the appellant regarding Section 30(4) of the I&B Code had already been addressed by the Hon’ble Apex Court in the Essar Steel case. The Court held that the I&B Code gives the COC flexibility to approve or not to approve a Resolution Plan, which may consider different classes of creditors specified in Section 53 and different priorities and values of security interests of a secured creditor. The discretion vested in the COC to consider the value of security interest is a guideline and a business decision, beyond the purview of review in appeal under the I&B Code. 4. Judicial Review of the Commercial Wisdom of the Committee of Creditors: The judgment emphasized that considerations regarding the feasibility and viability of the Resolution Plan, distribution proposed with reference to the statutory distribution mechanism, including the priority and value of the security interest of Secured Creditors, fall within the exclusive domain of the COC. The amendment to Section 30(4) vests discretion in the COC to consider the value of security interest, which is a guideline and not imperative. This business decision, based on the commercial wisdom of the COC, is not subject to judicial review unless similarly situated creditors are not given fair and equitable treatment. Conclusion: The appellate tribunal found no merit in the appeal and dismissed it, upholding the commercial wisdom of the COC and the approved Resolution Plan. The considerations regarding the priority and value of security interest are within the realm of the COC and cannot be the subject of judicial review under Section 61(3) of the I&B Code.
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