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TMI Blog2025 (2) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... proval of a plan. Section 30(2)(b) also provided that the Financial Creditor who do not vote in favour of the Resolution Plan shall be paid an amount not less than the amount to be paid to such creditors in accordance with sub-section (1) of Section 53 in the event of a liquidation of the corporate debtor takes place. In the present case, the Resolution Plan was submitted by the SRA which contains provision for pertaining to mechanism for payment amongst the Financial Creditors and payment to the dissenting financial creditor. Judgment of the Hon'ble Supreme Court in India Resurgence ARC (P) Ltd. [2021 (6) TMI 684 - SUPREME COURT] which has been relied by both the parties clearly has laid down the law on the subject. In case before the Hon'ble Supreme Court, the CoC has approved the Resolution Plan approving the distribution as per the vote share of the financial creditor. The Appellant who was a financial creditor with vote share of 3.94% expressed reservations on the distribution mechanism. The CoC, however, approved the Resolution Plan with 95.35% vote shares which decision was challenged by the Appellant. The Adjudicating Authority approved the Resolution Plan and rejected th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional Company Law Tribunal), Kolkata Bench, Kolkata in IA No.1648 of 2023. By the impugned order, IA No.1648 of 2023 filed by the Appellant has been rejected. Aggrieved by the said order, this Appeal has been filed. 2. Brief facts of the case necessary to be noticed for deciding the Appeal are:- 2.1. Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor- 'Birla Tyres Limited' commenced vide an order dated 05.05.2022 passed by the Adjudicating Authority. In pursuance of publication made by the IRP, the Appellant as Financial Creditor filed its claim of Rs.21,55,00,138/-. Appellant was made part of the CoC with a voting share of 1.90%. In pursuance of the Form G issued by the Resolution Professional, two Resolution Applicants have submitted their plans. Revised financial offer received from PRA were discussed in the 13th and 14th CoC meetings. The Resolution Professional placed calculation with regard to distribution to be made to the Financial Creditors. Distribution mechanism by the Resolution Professional was as per security interest of respective Financial Creditors and as per voting percentage of respective Financial Creditors were shared with members of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmercial wisdom approved the distribution of plan value based on the value of the security held by the CoC members, which is in line with Section 30(4) of the IBC. By the impugned order dated 19.10.2023, the Adjudicating Authority rejected the IA No. 1648 of 2023. By an order of the same date passed in IA No.1527 of 2023, Resolution Plan submitted by the Successful Resolution Applicant was also approved by the Adjudicating Authority. Aggrieved by the order rejecting IA No.1648 of 2023 filed by the Appellant, this Appeal has been filed. 3. We have heard Shri Ramesh Singh, Learned Senior Counsel for the Appellant and Shri Abhijeet Sinha, Learned Senior Counsel for the Respondent. We have also heard Counsel appearing for other Financial Creditors opposing the Appeal. 4. Counsel for the Appellant challenging the impugned order submits that as per the vote shares, the Appellant was entitled for amount of Rs.6.19 Crores and as per value of security interest, an amount of Rs.1.05 Crores have been paid. It is submitted that under Section 53(1)(b)(ii), the distribution among lenders has to be as per vote share and which provision does not contemplate distribution as per security interest. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Financial Creditor and not approving the distribution mechanism on the basis of vote share of the financial creditors. Section 30(4) has been amended by Act 26 of 2019 w.e.f. 16.08.2019. Amended Section 30(4) is as follows:- "30. Submission of resolution plan. -[(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, 3 [the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (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: Provided that the committee of creditors shall not approve a resolution plan, submitted before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 (Ord. 7 of 2017), where the resolution applicant is ineligible under section 29A and may require the resolution professional to invite a fresh resolution plan where no other resolution plan is available with it: Provided further that where the resoluti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of section 53 in the event of a liquidation of the corporate debtor. Explanation 1. -- For removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors. Explanation 2. -- For the purpose of this clause, it is hereby declared that on and from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, the provisions of this clause shall also apply to the corporate insolvency resolution process of a corporate debtor- (i) where 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 Adjudicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Creditors shall neither be entitled to, nor shall they receive any amounts other than the amounts due to them in the nature of liquidation value as stipulated hereinabove i.e., the DFC Payout. The Resolution Applicant submits that such treatment of Dissenting Financial Creditors is fair and equitable, and in compliance with Section 30(2), 53 of the Code and Regulation 38(1) of the CIRP Regulations." 11. The Appellant has brought on the record the report of the result of e-voting on the resolution put to vote in the 16th meeting of the CoC held on 31.07.2023. The copy of Annexure 19 to the Appeal is the voting result. The distribution mechanism as per security interest as well as voting percentage has been both separately noticed in Scenario 1 and Scenario 2 in the result and Scenario 1 which provided distribution as per security interest has been approved with 75.67% vote share and Scenario 2 which provided for payment as per voting percentage has not been approved with 75.65% vote share. It is useful to extract both the resolutions and result as brought on record:- "RESOLUTION AS DISCUSSED IN SIXTEENTH MEETING OF THE COC OF THE COMPANY ALONG WITH RESULT THEREOF Scenario No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res (in Crs.) Result declared for the above Resolution/ Scenerio No.1 Votes cast in Favour 4 75.67% Resolution/ Scenerio approved (75.67% as per requirement) Votes cast Against 5 16.09% Votes cast Abstained 1 5.41% TOTAL 10 97.17% Resolution/Scenario No. 2 To approve the distribution mechanism of the resolution plan - As per voting percentage of the respective financial creditors. Resolution: "RESOLVED THAT the consent of the Committee of Creditors be and is hereby accorded to the distribution mechanism of the resolution plan amount to the financial creditors of Birla Tyres Limited based on the voting percentage of the respective financial creditors which is mentioned below: S. No. Name of CoC Members Nature Amount of each lender as per COC voting share (in INR Cr.) 1 Axis Bank Limited Secured 162.84 2 Asset Reconstruction Company (India) Limited Secured 57.01 3 State Bank of India Secured 34.71 4 DBS Bank India Ltd. (Erstwhile: The Lakshmi Vilas Bank Ltd.) Secured 17.74 5 West Bengal Infrastructure Development Finance Corporation Limited (WBIDFC Ltd.) Secured 17.55 6 The Karur Vysya Bank Ltd. Secured 11.80 7 Punjab National B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2)(b) gives operational creditors something more than was given earlier as it is the higher of the figures mentioned in sub-clauses (i) and (ii) of sub-clause (b) that is now to be paid as a minimum amount to operational creditors. The same goes for the latter part of sub-clause (b) which refers to dissentient financial creditors. Ms Madhavi Divan is correct in her argument that Section 30(2)(b) is in fact a beneficial provision in favour of operational creditors and dissentient financial creditors as they are now to be paid a certain minimum amount, the minimum in the case of operational creditors being the higher of the two figures calculated under sub-clauses (i) and (ii) of clause (b), and the minimum in the case of dissentient financial creditor being a minimum amount that was not earlier payable. As a matter of fact, pre-amendment, secured financial creditors may 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- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenged by the Appellant. The Adjudicating Authority approved the Resolution Plan and rejected the objection and Appeal filed by Appellant was also dismissed by this Tribunal against which the matter was taken by the Appellant before the Hon'ble Supreme Court. It was contended by the Appellant- "India Resurgence ARC (P) Ltd." (supra) that Appellant was entitled to receive the distribution as per security interest which argument was noticed and rejected by the Hon'ble Supreme Court. The Hon'ble Supreme Court has noticed the amendments made in Section 30(2) as well as Section 30(4) and has held that the approval of the Resolution Plan is in the commercial wisdom of the CoC and scope of judicial review remains limited. In paragraphs 13 and 14 of the judgment, following was laid down:- "13. As regards the process of consideration and approval of resolution plan, it is now beyond a shadow of doubt that the matter is essentially that of the commercial wisdom of Committee of Creditors and the scope of judicial review remains limited within the four corners of Section 30(2) of the Code for the adjudicating authority; and Section 30(2) read with Section 61(3) for the appellate authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Essar Steel on the extent of judicial review are that the adjudicating authority would see if CoC has taken into account the fact that the corporate debtor needs to keep going as a going concern during the insolvency resolution process; that it needs to maximise the value of its assets; and that the interests of all stakeholders including the operational creditors have been taken care of. And, if the adjudicating authority would find on a given set of facts that the requisite parameters have not been kept in view, it may send the resolution plan back to the Committee of Creditors for re-submission after satisfying the parameters. Then, as observed in Maharashtra Seamless Ltd., there is no scope for the adjudicating authority or the appellate authority to proceed on any equitable perception or to assess the resolution plan on the basis of quantitative analysis. Thus, the treatment of any debt or asset is essentially required to be left to the collective commercial wisdom of the financial creditors." 14. It needs hardly any elaboration that financial proposal in the resolution plan forms the core of the business decision of Committee of Creditors. Once it is found that all the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact a beneficial provision in favour of the operational creditors and dissentient financial creditors as they are now to be paid a certain minimum amount, the minimum in the case of the operational creditors being the higher of the two figures calculated under sub-clauses (i) and (ii) of clause (b), and the minimum in the case of dissentient financial creditor being a minimum amount that was not earlier payable. As a matter of fact, pre-amendment, secured financial creditors may 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount not less than the liquidation value of their debt. The decision of the CoC to distribute the proceed as per the voting share was upheld. In paragraphs 20, 24 and 25 following was held:- "20. When we look into above statement of objects and reasons, it is made clear that 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 before us. 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 before us. 24. The Judgment of this Tribunal in Company Appeal (AT) Ins. No. 547 of 2022 in "Oriental Bank of Commerce v. Anil Anchalia" decided on 26th May, 2022 also does not suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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