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TMI Blog2021 (3) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.1 (Successful Resolution Applicant) in terms of order dated 20th October, 2020 which has been assailed by India Resurgence ARC Pvt. Ltd. - the dissenting Secured Financial Creditor having a vote share of 3.94% and a COC Member, through the medium of instant appeal primarily on the ground 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. 2. It is contended on behalf of Appellant that while approving the Resolution Plan value and quality of security interest of the Appellant was not considered by the Successful Resolution Applicant and the Committee of Creditors. It is contended that the manner of distribution and priority of share based on the value of security interest of a Secured Financial Creditor pursuant to Amendment in Section 30(4) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as I B Code ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of a Resolution Plan. It is accordingly submitted that only a discretion is vested in the Committee of Creditors to take into account value of security interest of a Creditor in approving a Resolution Plan, it being only a guideline and the discretionary consideration being a business decision. Such discretion itself is a commercial consideration reserved for the Committee of Creditors and as such beyond the purview of review in appeal under I B Code. It is lastly submitted that an appeal on account of purported non-compliance under Section 30(4) of I B Code is not maintainable. 4. Heard learned counsel for the parties and perused the record. 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) SCC OnLine SC 1478, observed that reorganization is a collective remedy designed to find an optimum s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s working capital, and often get paid for goods and services provided by them to the corporate debtor, out of such working capital. On the other hand, market research carried out by India Brand Equity Foundation, a trust established by the Ministry of Commerce and Industry, as regards the oil and gas sector, has stated that the business risk of operational creditors who operate with higher profit margins and shorter cyclical repayments must needs be higher. Also, operational creditors have an immediate exit option, by stopping supply to the corporate debtor, once corporate debtors start defaulting in payment. Financial creditors may exit on their long-term loans, either upon repayment of the full amount or upon default, by recalling the entire loan facility and/or enforcing the security interest which is a time consuming and lengthy process which usually involves litigation. Financial creditors are also part of a regulated banking system which involves not merely declaring defaulters as non-performing assets but also involves restructuring such loans which often results in foregoing unpaid amounts of interest either wholly or partially. 87. All these differences between financial a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d defaults made are easily verifiable. 51. Most importantly, financial creditors are, from the very beginning, involved with assessing the viability of the corporate debtor. They can, and therefore do, engage in restructuring of the loan as well as reorganisation of the corporate debtor's business when there is financial stress, which are things operational creditors do not and cannot do. Thus, preserving the corporate debtor as a going concern, while ensuring maximum recovery for all creditors being the objective of the Code, financial creditors are clearly different from operational creditors and therefore, there is obviously an intelligible differentia between the two which has a direct relation to the objects sought to be achieved by the Code. *** 75. Since the financial creditors are in the business of moneylending, banks and financial institutions are best equipped to assess viability and feasibility of the business of the corporate debtor. Even at the time of granting loans, these banks and financial institutions undertake a detailed market study which includes a techno-economic valuation report, evaluation of business, financial projection, etc. Since this detailed stud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atment of creditors can be avoided. 5. Again, dealing with equitable treatment to similarly situated creditors the Hon ble Apex Court observed:- 88. By reading para 77 (of Swiss Ribbons [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17]) de hors the earlier paragraphs, the Appellate Tribunal has fallen into grave error. Para 76 clearly refers to the UNCITRAL Legislative Guide which makes it clear beyond any doubt that equitable treatment is only of similarly situated creditors. This being so, the observation in para 77 cannot be read to mean that financial and operational creditors must be paid the same amounts in any resolution plan before it can pass muster. On the contrary, para 77 itself makes it clear that there is a difference in payment of the debts of financial and operational creditors, operational creditors having to receive a minimum payment, being not less than liquidation value, which does not apply to financial creditors. The amended Regulation 38 set out in para 77 again does not lead to the conclusion that financial and operational creditors, or secured and unsecured creditors, must be paid the same amounts, percentage wise, under the resolution plan before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a list of creditors and the amounts claimed by them in the information memorandum (which is to be submitted to prospective resolution applicants), also provides for the amount of claims admitted and security interest in respect of such claims. 6. Section 30(4) of the I B Code provides that the Committee of Creditors may approve a Resolution Plan by a vote which shall not be less than 66% of voting share of Financial Creditors. Such approval is to be done after considering the feasibility and viability of the Resolution Plan, the manner of distribution proposed therein having regard to the order of priority amongst the creditors in terms of the waterfall mechanism laid down in Section 53 of the I B Code including the priority and value of security interest of Secured Creditor besides other requirements specified by IBBI. On a plain reading of this provision 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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