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TMI Blog2021 (6) TMI 684X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise of the commercial wisdom of CoC does not call for interference unless creditors belonging to a class being similarly situated are denied fair and equitable treatment. The extent of value receivable by the appellant is distinctly given out in the resolution plan i.e., a sum of INR 2.026 crores which is in the same proportion and percentage as provided to the other secured financial creditors with reference to their respective admitted claims. Repeated reference on behalf of the appellant to the value of security at about INR 12 crores is wholly inapt and is rather ill-conceived - It needs hardly any emphasis that if the propositions suggested on behalf of the appellant were to be accepted, the result would be that rather than insolvency resolution and maximisation of the value of assets of the corporate debtor, the processes would lead to more liquidations, with every secured financial creditor opting to stand on dissent. Such a result would be defeating the very purpose envisaged by the Code; and cannot be countenanced. Appeal dismissed. - CIVIL APPEAL NO. 1700 OF 2021 - - - Dated:- 13-5-2021 - HON'BLE MR. JUSTICE VINEET SARAN AND HON'BLE MR. JUSTICE DIN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto Liquidation and they will realize their security interest by exercising option u/s 52(1)(b). The RP then replied that Liquidation option may be beneficial to one creditor but is definitely detrimental to other secured lenders who are having majority stake of around 96%. Further the RP also said that the objective of IBC is resolution and revival of a distressed company and is not a recovery procedure. 3.1. However, a substantial majority of other financial creditors voted in favour of the resolution plan and, therefore, the resolution plan got the approval of 95.35% of voting share of the financial creditors. 4. The said resolution plan, as approved by the vast majority of voting share in the CoC, was submitted for approval by the resolution professional to the Adjudicating Authority. The Adjudicating Authority examined, inter alia, the salient features of resolution plan, particularly those concerning financial proposals; and found the plan to be feasible and viable with judicious distribution of financial bids by CoC to the stakeholders according to their entitlements as also being compliant of all the mandatory requirements. The Adjudicating Authority stated its com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Code. It was contended on behalf of the appellant, in its capacity as a dissenting financial creditor, that the approved resolution plan failed the test of being feasible and viable inasmuch as the value of the secured asset, on which security interest was created by the corporate debtor in its favour, was not taken into consideration. It was contended by the appellant that after the amendment to sub-section (4) of Section 30 of IBC, which came into effect from 16.08.2019, the CoC was to ensure that the manner of distribution takes into account the order of priority among the creditors as also the priority and value of the security interest of a secured creditor; and the resolution applicant and the CoC having failed to consider the existing security interest in its favour, approval of the Adjudicating Authority was not in accordance with law. 6. The Appellate Authority took note of the submissions made on behalf of the appellant and referred to the decision of this Court in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Ors.: (2020) 8 SCC 531 Hereinafter referred to as the case of Essar Steel ., to stress upon the principles governing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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. In this regard the observations of Hon ble Apex Court in Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta and Others (Supra) are significant. The Hon ble Apex Court observed as under:- 131. The challenge to sub-clause (b) of Section 6 of the Amending Act of 2019, again goes to the flexibility that the Code gives to the Committee of Creditors to approve or not to approve a resolution plan and which may take into account different classes of creditors as is mentioned in Section 53, and different priorities and values of security interests of a secured creditor. This flexibility is referred to in the BLRC Report, 2015(see para 56 of this judgment). Also, the discretion given to the Committee of Creditors by the word may again makes it clear that this is only a guideline which is set out by this sub-section which may be applied by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ode, including the priority and value of the security interest of a secured creditor. Learned counsel would submit that the primary reason for appellant s dissent to the resolution plan was that, as against total admitted claim of over INR 13.38 crores, the resolution applicant had offered the appellant a meagre amount of about INR 2.026 crores without even considering the valuation of the security held by the appellant, which admittedly had the valuation of more than INR 12 crores. Learned counsel has referred to the decision in Essar Steel (supra) as also the recent decision of this Court in the case of Jaypee Kensington Boulevard Apartments Welfare Association and Ors. v. NBCC (India) Ltd. and Ors., rendered on 24.03.2021. Learned counsel would submit that the consideration of NCLAT that the amendment to Section 30(4) of the Code was merely a guideline fails to take into account the fact that CoC does not have an unfettered and arbitrary right to exercise its commercial wisdom and to approve the plan which does not stand in conformity with the provisions of the Code. 8. Having heard the learned counsel and having perused the material placed on record, we are clearly of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a resolution plan has not been approved or rejected by the Adjudicating Authority; (ii) where an appeal has been preferred under section 61 or section 62 or such an appeal is not time barred under any provision of law for the time being in force; or (iii) where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan;] (c) provides for the management of the affairs of the Corporate debtor after approval of the resolution plan; (d) the implementation and supervision of the resolution plan; (e) does not contravene any of the provisions of the law for the time being in force; (f) conforms to such other requirements as may be specified by the Board. 3 [ Explanation .-For the purposes of clause (e), if any approval of shareholders is required under the Companies Act, 2013 (18 of 2013) or any other law for the time being in force for the implementation of actions under the resolution plan, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law.] (3) xxx xxx xxx 4 [(4) The committee of creditors may approve a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Steel(supra) as also in K. Sashidhar v. Indian Overseas Bank and Ors.: (2019) 12 SCC 150 and Maharashtra Seamless Limited v. Padmanabhan Venkatesh and Ors.: (2020) 11 SCC 467, summarised the principles as follows:- 77. In the scheme of IBC, where approval of resolution plan is exclusively in the domain of the commercial wisdom of CoC, the scope of judicial review is correspondingly circumscribed by the provisions contained in Section 31 as regards approval of the Adjudicating Authority and in Section 32 read with Section 61 as regards the scope of appeal against the order of approval. 77.1. Such limitations on judicial review have been duly underscored by this Court in the decisions above-referred, where it has been laid down in explicit terms that the powers of the Adjudicating Authority dealing with the resolution plan do not extend to examine the correctness or otherwise of the commercial wisdom exercised by the CoC. The limited judicial review available to Adjudicating Authority lies within the four corners of Section 30(2) of the Code, which would essentially be to examine that the resolution plan does not contravene any of the provisions of law for the time bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts have been duly complied with and taken care of, the process of judicial review cannot be stretched to carry out quantitative analysis qua a particular creditor or any stakeholder, who may carry his own dissatisfaction. In other words, in the scheme of IBC, every dissatisfaction does not partake the character of a legal grievance and cannot be taken up as a ground of appeal. 8 12. The provisions of amended sub-section (4) of Section 30 of the Code, on which excessive reliance is placed on behalf of the appellant, in our view, do not make out any case for interference with the resolution plan at the instance of the appellant. The purport and effect of the amendment to sub-section (4) of Section 30 of the Code, by way of subclause (b) of Section 6 of the Amending Act of 2019, was also explained by this Court in Essar Steel(supra), as duly taken note of by the Appellate Authority (vide the extraction hereinbefore).The NCLAT was, therefore, right in observing that such amendment to sub-section (4) of Section 30 only amplified the considerations for the Committee of Creditors while exercising its commercial wisdom so as to take an informed decision in regard to the viability and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y cramdown unsecured financial creditors who are dissentient, the majority vote of 66% voting to give them nothing or next to nothing for their dues. In the earlier regime it may have been possible to have done this but after the amendment such financial creditors are now to be paid the minimum amount mentioned in sub-section (2). Ms Madhavi Divan is also correct in stating that the order of priority of payment of creditors mentioned in Section 53 is not engrafted in sub-section (2)(b) as amended. Section 53 is only referred to in order that a certain minimum figure be paid to different classes of operational and financial creditors. It is only for this purpose that Section 53(1) is to be looked at as it is clear that it is the commercial wisdom of the Committee of Creditors that is free to determine what amounts be paid to different classes and subclasses of creditors in accordance with the provisions of the Code and the Regulations made thereunder. (underlining supplied for emphasis) 13.1. Thus, what amount is to be paid to different classes or subclasses of creditors in accordance with provisions of the Code and the related Regulations, is essentially the commercial wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rring only to the sum of money and not anything else. In the frame and purport of the provision and also the scheme of the Code, the expression payment is clearly descriptive of the action of discharge of obligation and at the same time, is also prescriptive of the mode of undertaking such an action. And, that action could only be of handing over the quantum of money, or allowing the recovery of such money by enforcement of security interest, as per the entitlement of the dissenting financial creditor. 121.2. We would hasten to observe that in case a dissenting financial creditor is a secured creditor and a valid security interest is created in his favour and is existing, the entitlement of such a dissenting financial creditor to receive the amount payable could also be satisfied by allowing him to enforce the security interest, to the extent of the value receivable by him and in the order of priority available to him. Obviously, by enforcing such a security interest, a dissenting financial creditor would receive payment to the extent of his entitlement and that would satisfy the requirement of Section 30(2)(b) of the Code . (underlining supplied for emphasis) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghts of different classes of creditors as part of an insolvency resolution process is adopted, secured financial creditors will, in many cases, be incentivised to vote for liquidation rather than resolution, as they would have better rights if the corporate debtor was to be liquidated rather than a resolution plan being approved. This would defeat the entire objective of the Code which is to first ensure that resolution of distressed assets takes place and only if the same is not possible should liquidation follow. 17. Viewed from any angle, the submissions made on behalf of the appellant do not merit acceptance and are required to be rejected. 18. For what has been discussed hereinabove, this appeal fails and stands dismissed. ------------------- Notes: 1. Substituted by Act 26 of 2018, sec. 23 (ii)(A), for repayment (w.r.e.f. 06.06.2018). 2. Substituted by Act 26 of 2019, sec. 6(a), for clause (b) (w.e.f. 16.08.2019). Earlier clause (b) was amended by Act 26 of 2018, sec. 23(ii)(A) (w.r.e.f. 06.06.2018). Clause (b), before substitution, stood as under: (b) provides for the payment of the debts of operational creditors in such man ..... X X X X Extracts X X X X X X X X Extracts X X X X
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