India Resurgence ARC Private Limited Vs Amit Metaliks Limited & Anr. - Rights of Dissenting Financial Creditor under Section 30(2).

SCI (13.05.2021) in India Resurgence ARC Private Limited  Vs Amit Metaliks Limited & Anr. [Civil Appeal No. 1700 of 2021] held that;

• # 11. . . .Once it is found that all the mandatory requirements 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.

• # 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 wisdom of the Committee of Creditors; and a dissenting secured creditor like the appellant cannot suggest a higher amount to be paid to it with reference to the value of the security interest.

• 14.1. 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.

• # 15. It has not been the intent of the legislature that a security interest available to a dissenting financial creditor over the assets of the corporate debtor gives him some right over and above other financial creditors so as to enforce the entire of the security interest and thereby bring about an inequitable scenario, by receiving excess amount, beyond the receivable liquidation value proposed for the same class of creditors.

• # 16. .  . . .We may profitably refer to the relevant observations in this regard by this Court in Essar Steel as follows:- “85. Indeed, if an "equality for all" approach recognising the rights 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.”

 

Excerpts of the order;

# 1. By way of this appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016, the appellant India Resurgence ARC Private Limited seeks to question the order dated 02.03.2021 passed by the National Company Law Appellate Tribunal, New Delhi in CA(AT) (Insolvency) No. 1061 of 2020, whereby the Appellate Authority rejected its challenge to the order dated 20.10.2020 passed by the National Company Law Tribunal, Kolkata Bench, Kolkata in approval of the resolution plan in the corporate insolvency resolution process concerning the corporate debtor VSP Udyog Private Limited (respondent No. 2 herein), as submitted by the resolution applicant Amit Metaliks Limited (respondent No. 1 herein).

 

# 3. When the resolution plan submitted by the respondent No. 1 was taken up for consideration by the CoC, the appellant expressed reservations on the share being proposed, particularly with reference to the value of the security interest held by it; and chose to remain a dissentient financial creditor. The dissention on the part of the appellant and response thereto by the resolution professional as also by other members of CoC was noted in the 14th meeting of CoC dated 31.07.2020 in the following words: -

• “Representative from Religare Finvest/India Resurgence ARC, Mr Shakti inquired about the lower share they are getting as per Resolution Plan whereas the security interest held by them is far more. He also raised question about the fair market value and liquidation value of the CD. On this the RP informed him that the valuation exercise has been done by registered valuers of IBBI who were appointed by the erstwhile IRP and he do not find any inconsistency in the same. Other members also agreed on the same. Mr Shakti then raised the point that in the present scenario it will be better for them if the company goes into 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.”

 

# 5. It does not appear if any objection to the resolution plan was placed before the Adjudicating Authority for consideration. Be that as it may, against the order so passed by the Adjudicating Authority, the appellant preferred an appeal under Section 61(1) read with Section 61(3) of 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 5316to stress upon the principles governing various classes of creditors in the insolvency resolution process. The Appellate Authority particularly referred to the passages in Essar Steel explaining the meaning and contours of the concept of equitable treatment of creditors, including the observations that equitable treatment of creditors meant equitable treatment only within the same class; and that protection of creditors in general was important but it was also imperative that the creditors be protected from each other; and further that the Code should not be read so as to imbue the creditors with greater rights in a bankruptcy proceeding than they would enjoy under the general law, unless it is to serve some bankruptcy purpose.

# 6.1. Having taken note of the principles expounded in Essar Steel (supra), the Appellate Authority proceeded to reject the contentions urged on behalf of the appellant with the following observations and findings: -

• XXXXX

• . .  . . In this regard the observations of Hon’ble Apex Court in ‘Committee of Creditors of Essar Steel India LimitedVs. 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 the Committee of Creditors in arriving at a business decision as to acceptance or rejection of are solution plan. For all these reasons, therefore, it is difficult to hold that any of these provisions is constitutionally infirm.”

 

# 7. Seeking to question the decision of the Appellate Authority, the main plank of submissions of learned counsel for the appellant before us again revolves around Section 30(4) of Code. It is contended that the CoC could not have approved the resolution plan which failed to consider the priority and value of security interest of the creditors while deciding the manner of distribution to each creditor even though the legislature in its wisdom has amended Section 30(4) of the Code, requiring the CoC to take into account the order of priority amongst creditors as laid down in Section 53(1) of the Code, 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 24.03.20217. 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 the view that this appeal remains totally bereft of substance and does not merit admission.

 

# 10. 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 Authority. In the case of Jaypee Kensington (supra), this Court, after taking note of the previous decisions in Essar 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 being in force, it conforms to such other requirements as may be specified by the Board, and it provides for: 

• (a) payment of insolvency resolution process costs in priority; (b) payment of debts of operational creditors; 

• (c) payment of debts of dissenting financial creditors; 

• (d) for management of affairs of corporate debtor after approval of the resolution plan; and 

• (e) implementation and supervision of the resolution plan.

• 77.2. The limitations on the scope of judicial review are reinforced by the limited ground provided for an appeal against an order approving a resolution plan, namely, if the plan is in contravention of the provisions of any law for the time being in force; or there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period; or the debts owed to the operational creditors have not been provided for; or the insolvency resolution process costs have not been provided for repayment in priority; or the resolution plan does not comply with any other criteria specified by the Board.

• 77.3. The material propositions laid down in Essar Steel (supra) 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 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 resubmission after satisfying the parameters. Then, as observed in Maharashtra Seamless Ltd. (supra), 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.”

 

# 11. 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 mandatory requirements 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.

 

# 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 feasibility of resolution plan, with fairness of distribution amongst similarly situated creditors; and the business decision taken in 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.

 

# 12.1. In regard to the question of fair and equitable treatment, though the Adjudicating Authority as also the Appellate Authority have returned concurrent findings in favour of the resolution plan yet, to satisfy ourselves, we have gone through the financial proposal in the resolution plan. What we find is that the proposal for payment to all the secured financial creditors (all of them ought to be carrying security interest with them) is equitable and the proposal for payment to the appellant is at par with the percentage of payment proposed for other secured financial creditors. No case of denial of fair and equitable treatment or disregard of priority is made out

 

# 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 wisdom of the Committee of Creditors; and a dissenting secured creditor like the appellant cannot suggest a higher amount to be paid to it with reference to the value of the security interest.

 

# 14.1. In Jaypee Kensington(supra), this Court repeatedly made it clear 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.

 

# 14.2. 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. 

 

# 15. The limitation on the extent of the amount receivable by a dissenting financial creditor is innate in Section 30(2)(b) of the Code and has been further exposited in the decisions aforesaid. It has not been the intent of the legislature that a security interest available to a dissenting financial creditor over the assets of the corporate debtor gives him some right over and above other financial creditors so as to enforce the entire of the security interest and thereby bring about an inequitable scenario, by receiving excess amount, beyond the receivable liquidation value proposed for the same class of creditors.

 

# 16. 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. We may profitably refer to the relevant observations in this regard by this Court in Essar Steel as follows:-

• “85. Indeed, if an "equality for all" approach recognising the rights 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

 

----------------------------------------