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2022 (9) TMI 752 - AT - Insolvency and BankruptcyDistribution of proceeds of Resolution Plan - Appellant-dissenting Financial Creditor is entitled to claim distribution of proceeds of the plan as per value of the security interest of the Appellant or as per the debt of the Appellant (voting share) or not - whether distribution as approved by the CoC to the Appellant as per voting share of the Appellant contravenes the Section 30(2)(b) as contended by Learned Counsel for the Appellant? - HELD THAT - The financial creditors who do not vote in favour of the resolution plan shall receive an amount that is not less than the liquidation value of their debt. The above statement of objects and reasons also makes it clear that the entitlement of dissenting financial creditor is to receive liquidation value of their debt and not the distribution as per their security value as is sought to be contended by the Learned Counsel for the Appellant. The statement of objects and reasons by which amendments in Section 30(2)(b) has been made, makes it clear that entitlement of dissenting financial creditor is the liquidation value of their debt which also clearly negate the submissions raised by the Learned Counsel for the Appellant. The conclusion of the committee is that the priority under Section 53(1)(b)(ii) shall be only to the extent of security interest of the secured creditor. The secured creditor cannot claim priority under Section 53(1)(b)(ii) of the whole debt where only part of the debt is secured, the above report of the Committee in no manner helps the appellant to support the submission. The decision of the Committee of Creditors and the Adjudicating Authority deciding to distribute the proceeds of the plan value as per voting share of the secured creditor in no manner contravenes the provisions of Section 30(2)(b) of the Code - appeal dismissed.
Issues Involved:
1. Entitlement of dissenting financial creditor for distribution of proceeds under the Resolution Plan. 2. Compliance of the Resolution Plan with Section 30(2)(b) of the Insolvency and Bankruptcy Code (IBC). 3. Interpretation of "debt" and its implications on distribution under Section 53 of the IBC. 4. Judicial review of the commercial wisdom of the Committee of Creditors (CoC). Issue-wise Detailed Analysis: 1. Entitlement of Dissenting Financial Creditor for Distribution of Proceeds: The main contention raised by the appellant was that as a dissenting financial creditor, it should receive distribution based on the value of its security interest rather than its voting share. The appellant argued that it had a first charge on two properties of the Corporate Debtor, with a liquidation value of Rs. 5.64 Crores, equating to 6.93% of the liquidation value of the assets. However, the CoC approved a distribution based on voting shares, allocating the appellant only 2.03% of the proceeds, amounting to Rs. 1,65,47,078/-. The appellant claimed this was contrary to Section 30(2)(b) of the IBC. 2. Compliance of the Resolution Plan with Section 30(2)(b) of the IBC: The appellant argued that the Resolution Plan did not comply with Section 30(2)(b) of the IBC, which mandates the distribution to dissenting financial creditors. The appellant cited the Supreme Court's judgment in "Jaypee Kensington Boulevard Apartments Welfare Association & Ors. Vs. NBCC (India) Ltd. & Ors." to support its claim that the judicial review should ensure compliance with Section 30(2)(b). However, the tribunal noted that the plan's compliance with Section 30(2)(b) is within the commercial wisdom of the CoC and that judicial review is limited to ensuring that the plan does not contravene statutory provisions. 3. Interpretation of "Debt" and its Implications on Distribution under Section 53 of the IBC: The tribunal clarified that "debt" as defined in Section 3(11) of the IBC refers to the liability or obligation in respect of a claim due from any person. Under Section 53(1)(b)(ii), the distribution of proceeds is based on the debt owed to a secured creditor, not the value of the security interest. The tribunal emphasized that the value of the security interest is not equivalent to the debt owed. This interpretation was supported by previous judgments, including "India Resurgence Arc Private Limited Vs. M/s. Amit Metaliks Limited & Anr." and "Union Bank of India Vs. Resolution Professional of M/s Kudos Chemie Ltd. & Ors." 4. Judicial Review of the Commercial Wisdom of the CoC: The tribunal reiterated that the commercial wisdom of the CoC in approving the distribution of proceeds is paramount and cannot be questioned by dissenting financial creditors. The tribunal referred to the Supreme Court's judgment in "India Resurgence Arc Private Limited Vs. M/s. Amit Metaliks Limited & Anr." which upheld that the amount to be paid to different classes of creditors is determined by the CoC's commercial wisdom. The tribunal also noted that the report of the Insolvency Law Committee (March 2018) and the Statement of Objects and Reasons of the Insolvency and Bankruptcy Code (Amendment Bill), 2019, support this view. Conclusion: The tribunal found no error in the Adjudicating Authority's order rejecting the appellant's application. It upheld the CoC's decision to distribute the proceeds based on voting shares, finding it compliant with Section 30(2)(b) of the IBC. The appellant's arguments were deemed unsubstantial, and the appeal was dismissed.
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