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TMI Blog2024 (1) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... application of the Amendment Act, whether proceedings are pending before the adjudicating authority, the appellate authority, or before any court in a proceeding against an order of the adjudicating authority in respect of a resolution plan. Only when the resolution plan, as approved, has attained finality as no proceedings are pending, that the amendments will not apply to re-write the settled matter. A three Judge Bench of this Court in COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LIMITED THROUGH AUTHORISED SIGNATORY VERSUS SATISH KUMAR GUPTA OTHERS [ 2019 (11) TMI 731 - SUPREME COURT] , has observed that Explanation 2 applies to the substituted Section 30(2)(b) to pending proceedings either at the level of the adjudicating authority, appellate authority or in a writ or civil court. Referring to several decisions, it is observed that no vested right inheres in any resolution applicant who has plans approved under the Code. Interpretation of Section 30(2)(b)(ii) of the Code - HELD THAT:- As per Section 30(2)(b)(ii), the dissenting financial creditor is entitled to payment, which should not be less than the amount payable under Section 53(1), in the event of the liquidation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... >SANJIV KHANNA And S.V.N. BHATTI , JJ. For the Appellant : Ms. Anindita Roy Chowdhury, Adv. Ms. Vatsala Rai, aDv. Mr. Raghav Chadda, Adv. Mr. Bharat Makkar, Adv. Mr. Sushrut Garg, Adv. Ms. Anannya Ghosh, AOR For the Respondent : Mr. Krishnan Venugopal, Sr. Adv. Mr. Nakul Sachdeva, Adv. Mr. Aakarshan Sahay, Adv. Mr. Sagar Arora, Adv. Mr. Abhinandan Sharma, Adv. Mr. Krishnan Agarwal, Adv. Mr. Faisal Sherwani, AOR M/S. Cyril Amarchand Mangaldas Aor, AOR Mr. Gaurav Varma, AOR JUDGMENT SANJIV KHANNA, J. The issue that arises for consideration in the present appeals is : Whether Section 30(2)(b)(ii) of the Insolvency and Bankruptcy Code, 2016 For short, "IBC" or "the Code", as the case may be., as amended in 2019, entitles the dissenting financial creditor to be paid the minimum value of its security interest? 2. Appellant - DBS Bank Limited Singapore had extended financial debt of around USD 50,000,000 (fifty million dollars only) or Rs. 243,00,00,000 (rupees two hundred forty three crore only) to M/s. Ruchi Soya Industries Limited For short, "Corporate Debtor", the corporate debtor. 3. The financial debt was secured by: (i) a sole and exclusive first charge over certain i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the NCLT, Mumbai. 11. On 24.07.2019, the NCLT granted provisional/conditional approval to the resolution plan. By the same order dated 24.07.2019, the NCLT dismissed the appellant's application challenging the distribution mechanism of the resolution plan proceeds. 12. On 31.07.2019, the appellant challenged the dismissal of its application before the National Company Law Appellate Tribunal For short, "NCLAT". 13. During pendency of the appeal, Section 6 of the Insolvency and Bankruptcy Code (Amendment) Act, 2019 For short, "Amendment Act", was notified by way of a gazette notification dated 16.08.2019. It amended Section 30(2)(b) of the Code. Amended Section 30(2)(b)(ii) of the Code provides that operational and dissenting financial creditors shall not be paid an amount lesser than the amount to be paid to creditors in the event of liquidation of the Corporate Debtor under Section 53(1) of the Code. Explanation 2 added thereby makes the amended Section 30(2)(b) applicable to pending proceedings. Section 30(4) was also amended to state the CoC shall take into account "the order of priority" amongst creditors as laid down in Section 53(1) of the Code. 14. On 30.08.2019, at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees one hundred nineteen crore only) as against the liquidation value of the security interest of Rs. 217,86,00,000 (rupees two hundred seventeen crore eighty six lakh only). The admitted claim of the appellant is Rs. 242,96,00,000 (rupees two hundred forty two crore ninety six lakh only). Thus, the appellant, notwithstanding the amendments to Section 30 of the Code, has been deprived of its due share given its superior security assets. Equating the appellant with financial creditors having inferior security interest has resulted in unjust enrichment and windfall benefits to the dissimilarly placed creditors to the detriment of the appellant. 21. To appreciate the legal question, which requires an answer, we would like to reproduce Section 30(2) and Section 30(4) of the Code, with the amendments made vide the IBC (Amendment) Act, 2019, which for clarity have been highlighted in italics and bold. Relevant portions of the two sections read: "30. Submission of resolution plan.-- xx xx xx (2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan-- (a) provides for the payment of insolvency resolution process cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 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. xx xx xx (4) The committee of creditors may approve a resolution plan by a vote of not less than sixty-six per cent of voting share of the financial creditors, after considering its feasibility and viability the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in subsection (1) of Section 53, including the priority and value of the security interest of a secured creditor, and such other requirements as may be specified by the Board: xx xx xx 22. The first issue that arises for consideration in these appeals is whether the amendments made in the substantive portion of Section 30(2), in terms of Explanation 2 will be applicable when the first appeal was heard by the NCLAT. The Amendment Act was notified and came into effect on 16.08.2019. The appellant had preferred the first appeal before the NCLAT on 31.07.2019, which appeal was directed against the provisional approval order passed by the NCLT on 24.07.2019. In our opinion, Explanation 2(ii) clearly states that an appeal pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of the appellant, but we need not firmly decide this issue, for we are of the opinion that the Amendment Act was certainly applicable when the appeals were heard and decided by the NCLAT on 18.11.2019 and 09.12.2019, which was post the enforcement of the Amendment Act. 25. The second question relates to the interpretation of Section 30(2)(b)(ii) of the Code. As we read Section 30(2)(b)(ii), the dissenting financial creditor is entitled to payment, which should not be less than the amount payable under Section 53(1), in the event of the liquidation of the corporate debtor. The provision recognises that all financial creditors need not be similarly situated. Secured financial creditors may have distinct sets of securities. There are a number of decisions of this Court, viz. Committee of Creditors of Essar Steel India Limited (supra), Swiss Ribbons Private Limited and Another v. Union of India and Others (2019) 4 SCC 17, and Vallal RCK v. Siva Industries and Holdings Limited and Others (2022) 9 SCC 803, which have held that the commercial wisdom of the CoC must be respected. Therefore, the resolution plan accepted by the requisite creditors/members of the CoC upon voting, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. NBCC (India) Limited & Others. (2022) 1 SCC 401, to observe and hold: "18. In the case of Jaypee Kensington (supra), the proposal in the resolution plan was to the effect that if the dissenting financial creditors would be entitled to some amount in the nature of liquidation value in terms of Sections 30 and 53 of IBC read with Regulation 38 of the CIRP Regulations, they would be provided such liquidation value in the form of proportionate share in the equity of a special purpose vehicle proposed to be set up and with transfer of certain land parcels belonging to corporate debtor. Such method of meeting with the liability towards dissenting financial creditors in the resolution plan was disapproved by the Adjudicating Authority; and this part of the order of the Adjudicating Authority was upheld by this Court with the finding that the proposal in the resolution plan was not in accord with the requirement of 'payment' as envisaged by clause (b) of Section 30(2) of the Code. In that context, this Court held that such action of 'payment' could only be by handing over the quantum of money or allowing the recovery of such money by enforcement of security interest, as per the entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a dissenting financial creditor would be receiving the payment of the amount as per his entitlement; and that entitlement could also be satisfied by allowing him to enforce the security interest, to the extent of the value receivable by him. It has never been laid down that if a dissenting financial creditor is having a security available with him, he would be entitled to enforce the entire of security interest or to receive the entire value of the security available with him. It is but obvious that his dealing with the security interest, if occasion so arise, would be conditioned by the extent of value receivable by him. 20. 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. 21. The limitation on the extent of the amount receivable by a dissenting financial creditor is innate in Section 30(2)(b) of the Code an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scord with the ratio decidendi of the decisions of the three Judge Bench in Committee of Creditors of Essar Steel India Limited (supra) and Jaypee Kensington (supra). 32. In Committee of Creditors of Essar Steel India Limited (supra), this Court had referred to the UNCITRAL Legislative Guide on the treatment of dissenting creditors to observe that it is essential to provide a way of imposing a plan agreed upon by a majority of a class upon the dissenting minority to increase the chances of success of the reorganisation. However, it is also necessary depending upon the mechanism that is chosen for voting on the plan and whether the creditors vote in class, to consider whether the plan can be made binding upon dissenting classes of creditors and other affected parties. To the extent that the plan can be approved and enforced upon the dissenting parties, there is a need to ensure that the plan provides appropriate protection for the dissenting parties and, in particular, the rights may not be unfairly affected. Thereupon, the UNCITRAL Legislative Guide states: "…The law might provide, for example, that dissenting creditors cannot be bound unless assured of certain treatment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioned 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 sub-classes of creditors in accordance with the provisions of the Code and the Regulations made thereunder." 35. The reasoning and the ratio in Jaypee Kensington (supra) is also the same: "164.2. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 53(1), redundant and meaningless. 38. Our reasoning finds resonance in the reasoning given in Jaypee Kensington (supra), which states that for the purpose of discharge of obligation mentioned in the second part of Section 30(2)(b) of the Code, the dissenting financial creditors are to be paid an amount quantified in terms of the proceeds of assets receivable under Section 53 of the Code. This amount payable is to be paid on priority over the dissenting counterparts. However, Section 30(2) refers only to the sum of money and nothing else, that is, it does not permit the dissenting financial creditor to enforce the security and sell the same. This would be counterproductive and may nullify the resolution plan. What the dissenting financial creditor is entitled to is the payment, which should not be less than the amount/value of the security interest held by them. The security interest gets converted from the asset to the value of the asset, which is to be paid in the form of money. This is clear from the relevant portions of paragraphs 164.1, 164.2, 166.4, and 167 in Jaypee Kensington (supra), which read as under: "164.1. Therefore, when, for the purpose of discharge of obl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dissenting sect stands at 34% or less of the voting share of CoC. Even when the financial creditors having a say of not less than 2/3rd in the Committee of Creditors choose to sail with the resolution plan, the law provides a right to the remainder (who would be having not more than 34% of voting share) not to take this voyage but to disembark, while seeking payment of their outstanding dues. Even this disembarkment does not guarantee them the time value for money of the entire investment in the corporate debtor; what they get is only the liquidation value in terms of Section 53 of the Code. Of course, in the scheme of CIRP under the Code, the dissenting financial creditors get, whatever is available to them, in priority over their assenting counterparts. In the given scheme of the statutory provisions, there is no scope for comparing the treatment to be assigned to these two divergent sects of financial creditors. The submissions made on behalf of assenting financial creditors cannot be accepted. xx xx xx 167. To sum up, in our view, for a proper and meaningful implementation of the approved resolution plan, the payment as envisaged by the second part of clause (b) of sub-se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordance with this clause shall be fair and equitable to such creditors. xx xx xx 41.2. The second option is to treat Appellant 1-Vistra as a secured creditor in terms of Section 52 read with Section 53 of the Code. In other words, we give the option to the successful resolution applicant -- DVI (Deccan Value Investors) to treat Appellant 1-Vistra as a secured creditor, who will be entitled to retain the security interest in the pledged shares, and in terms thereof, would be entitled to retain the security proceeds on the sale of the said pledged shares under Section 52 of the Code read with Rule 21-A of the Liquidation Process Regulations. The second recourse available, would be almost equivalent in monetary terms for Appellant 1-Vistra, who is treated as a secured creditor and is held entitled to all rights and obligations as applicable to a secured creditor under Sections 52 and 53 of the Code. This to our mind would be a fair and just solution to the legal conundrum and issue highlighted before us. 42. We wish to clarify that the directions given by us would not be a ground for the successful resolution applicant -- DVI to withdraw the resolution plan which has already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial creditor loses the security interest, that is, it relinquishes the security interest. Dissenting financial creditor, therefore, cannot enforce the security interest. It is necessary to clearly state this position, as in case a dissenting financial creditor enforces the security interest, the resolution plan itself may fail and become unworkable. The dissenting financial creditor has to statutorily forgo and relinquish his security interest on the resolution plan being accepted, and his position is same and no different from that of a secured creditor who has voluntarily relinquished security and is to be paid under Section 53(1)(b)(ii) of the Code. 43. The reasoning also takes care of the argument that the Explanation to Section 53 incorporates the principle of pari passu distribution into Section 53(1) with each class of creditors mentioned therein. We wish to clarify that Section 53(1) is referred to in Section 30(2)(b)(ii) with the purpose and objective that the dissenting financial creditor is not denied the amount which is payable to it being equal to the amount of value of the security interest. The entire Section 53 is not made applicable. 44. We would, for the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion, the contention that the appellant is not the dissenting financial creditor is to be rejected. 48. The contention on behalf of the respondent that there is conflict between sub-section (4), as amended in 2019, and the amended clause (b) to sub-section (2) to Section 30 of the Code does not merit a different ratio and conclusion. Section 30(4) states that the CoC may approve the resolution plan by a vote not less than 66% of the voting share of the financial creditor. It states that the CoC shall consider the feasibility and viability, the manner of distribution proposed, which may take into account the order of priority amongst creditors under sub-section (1) to Section 53, including the priority and value of the security interest of the secured creditors, and other requirements as may be specified by the Board. These are the aspects that the CoC has to consider. It is not necessary for the CoC to provide each assenting party with liquidation value. However, a secured creditor not satisfied with the proposed payout can vote against the resolution plan or the distribution of proceeds, in which case it is entitled to full liquidation value of the security payable in terms of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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