Small Industries Development Bank of India (SIDBI) Vs. Sumit Sharma and Anr. - Learned counsel for the appellant submits that ‘Amit Metaliks’ (supra) is under consideration by the Hon’ble Supreme Court in ‘DBS Bank Ltd. Singapore’ Vs. ‘Ruchi Soya Industries Ltd. & Anr.’ in [Civil Appeal No. 9133/2019]. In event, any judgment is delivered by the Hon’ble Supreme Court, it shall be always open for the appellant to take such remedy as available in the law.

 NCLAT (2025.09.08) in Small Industries Development Bank of India (SIDBI) Vs. Sumit Sharma and Anr.  [(2025) ibclaw.in 714 NCLAT, Company Appeal (AT) (Insolvency) No. 1359 of 2025 & I.A. No. 5309 of 2025] held that;

• Learned counsel for the appellant submits that ‘Amit Metaliks’ (supra) is under consideration by the Hon’ble Supreme Court in ‘DBS Bank Ltd. Singapore’ Vs. ‘Ruchi Soya Industries Ltd. & Anr.’ in [Civil Appeal No. 9133/2019]. In event, any judgment is delivered by the Hon’ble Supreme Court, it shall be always open for the appellant to take such remedy as available in the law.

Excerpts of the order;

08.09.2025 : Heard counsel for the appellant as well as learned counsel appearing on behalf of the respondent No. 1.

# 2. This appeal has ben filed against an order dated 30.06.2025 passed by the adjudicating authority (National Company Law, Tribunal, Jaipur Bench) by which I.A. 637/JPR/2023 filed by the appellant has been rejected.

# 3. The appellant is a secured financial creditor who has 3.22% voting shares in the CoC, another financial creditor is Punjab National Bank (PNB) having 96.68% voting shares. The resolution plan came to be approved by the adjudicating authority on 12.03.2024 of the corporate debtor. The Committee of Creditors (CoC) has also vide resolution decided on distribution mechanism and CoC decided for distribution on the basis of vote shares of the creditors. Appellant filed an I.A.637/JPR/2023 praying for following reliefs:

• “i) Allow the present application 

• ii) Pass an order listing the present application along with CP (IB) No. 36/9/JPR/2022 pending before this Hon’ble Tribunal which is already scheduled to be listed on 06.12.2023

• iii) Pass an order thereby declaring the resolutions No. 5A and 5B contained in the minutes of the 8th CDC meeting (Adjourned) held on 20.11.2023 as non-est and not maintainable in the eyes of law 

• iv) Pass any such other or further order(s) which this Hon’ble Tribunal may deem fit in the interest of justice.”

# 4. The application came to be dismissed by the impugned order against which order this appeal has been filed.

# 5. Counsel for the appellant submits that appellant has successful security interest on the plant and machinery and hence the distribution ought to have been on the basis of the security interest of the appellant.

# 6. An application was filed three months before the approval of the resolution plan which was not decided and there is no consideration of the claim raised by the appellant.

# 7. Counsel for the RP submits that distribution mechanism was already decided by the CoC on the basis of vote shares and thereafter the plan was approved which has now been implemented fully and the adjudicating authority did not commit any error in rejecting the application.

# 8. We have considered the submissions of counsel for the parties and perused the records.

# 9. It is not disputed that CoC has already taken a position to adopt voting shares for the distribution of the debt between the creditors, although the said was objected by the appellant in the application but application remain pending and resolution plan also stood approved on 12.03.2024.

# 10. The judgment of this Tribunal in [Comp. App. (AT) (Ins.) No. 321/2024] in ‘State Bank of India’ Vs. IDBI Bank Limited & Anr.’ decided on 28.01.2025 also fully supports the proposition for distribution on the basis of pro-rata basis. In paragraphs 19 to 21 of the judgment, following has been laid down:

• “19. In view of the forgoing discussions and our conclusions, we are of the view that Adjudicating Authority has not committed any error in directing distribution of sale proceeds as per the admitted claim of the Financial Creditor pro-rata basis and the directions issued by the Adjudicating Authority is in accordance with law as declared by the Hon’ble Supreme Court in ‘Amit Metaliks Limited’ (Supra).

• 20. We, thus do not find any good ground to interfere with the Impugned Order. Both the Appeals are dismissed. The amount as per re-distribution in pursuance of the Impugned Order shall be made over to the Secured Creditors, including the IDBI Bank Ltd., along with the interest as directed on 29.02.2024. Both the Appeals are dismissed accordingly.

• 21. We make it clear that any distribution as directed by the Order of the Adjudicating Authority and affirmed in this Appeal shall always be subject to any Order passed by the Hon’ble Supreme Court and as per the law declared by the Hon’ble Supreme Court in Civil Appeal Diary No. 11060/2021.

• Parties shall bear their own costs.”

# 11. Admittedly, the appellant has vote shares of only 3.22 vote shares and the another creditor – PNB has 96.68% vote shares, the CoC having taken its decision by resolution regarding distribution which remains unaltered. We do not find any substance in the submission of the appellant that distribution should be on the basis of the security interest.

# 12. Judgment of the Hon’ble Supreme Court in ‘India Resurgence ARC Pvt. Ltd.’ Vs. ‘Amit Metaliks Ltd. & Anr.’ reported in [(2021) 19 SCC 672] has already laid down the proposition with respect to distribution which has to be as per the decision of the CoC.

# 13. Learned counsel for the appellant submits that ‘Amit Metaliks’ (supra) is under consideration by the Hon’ble Supreme Court in ‘DBS Bank Ltd. Singapore’ Vs. ‘Ruchi Soya Industries Ltd. & Anr.’ in [Civil Appeal No. 9133/2019]. In event, any judgment is delivered by the Hon’ble Supreme Court, it shall be always open for the appellant to take such remedy as available in the law.

We thus do not find any error in the order of the adjudicating authority. Appeal is dismissed.

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

 

 

Home Kraft Avenues Vs. Jayesh Sanghrajka, RP - Section 3(4) of IBC defines charge and Section 3(31) of IBC states secured interest means and includes “Charge”. Thus, combine reading of all the section clarifies only a Liquidator will not consider a claim without registration, however, the RP is bound to consider a “Charge” and a Creditor having charge is a Secured Creditor.

 NCLAT (2025.02.14) in Home Kraft Avenues Vs. Jayesh Sanghrajka, RP [(2025) ibclaw.in 122 NCLAT, Company Appeal (AT)(INS) No.756/2023], held that; 

• In addition, the `non-registration of the Mortgage', as per Section 77 of the Companies Act, 2013, is not a sufficient / enough ground, to come to an `opinion', that the `Appellant', is not a `Secured Creditor'. In reality, the 'rights' of a `Mortgagee', under the `Transfer of Property Act', 1882 and the 'SARFAESI Act', are not to be diluted, in terms of Regulation 21 of IBBI (Liquidation process) Regulations, 2016.

• Section 3(4) of IBC defines charge and Section 3(31) of IBC states secured interest means and includes “Charge”. Thus, combine reading of all the section clarifies only a Liquidator will not consider a claim without registration, however, the RP is bound to consider a “Charge” and a Creditor having charge is a Secured Creditor.

Blogger’s Comments; With all humility, I have a different point of view. Section 77(1) & 77(3) of The Companies Act, 2013 reads as under;

• 77. Duty to register charges, etc.—

• (1) XXXX

• Provided also that any subsequent registration of a charge shall not prejudice any right acquired in respect of any property before the charge is actually registered.

• 77(3) Notwithstanding anything contained in any other law for the time being in force, no charge created by a company shall be taken into account by the liquidator or any other creditor unless it is duly registered under sub-section (1) and a certificate of registration of such charge is given by the Registrar under sub-section (2).

RP, recognizing the unregistered charge in CIRP, will adversely affect the rights (priority of charge) of other secured creditors, in case distribution is decided by CoC on the basis of value of security interest, as permitted by the Appellate Authority in the following case

NCLAT (2025.01.30) in HDFC Bank Ltd. Vs Pratim Bayal, RP of Birla Tyres Ltd. & Ors. [Company Appeal (AT) (Insolvency) No. 1472 of 2023] held that;.

• The use of expression "may" in Section 30(4) clearly indicate the discretion vested in the CoC to take into account of the matter of security interest of the secured creditors in approving the Resolution Plan.

• The decision of the CoC approving the Resolution Plan as per security interest was in accordance with Section 30(4) and has rightly been not interfered with by the Adjudicating Authority in the impugned order.

Excerpts of the order;

This appeal is filed against an impugned order dated 02.05.2023. The appellant is aggrieved of the fact it has been kept in the category of an unsecured creditor instead of being a secured creditor. 

# 2. The learned counsel for the Appellant has referred to Loan Agreement dated 29.10.2015 to show the Appellant had granted a loan of Rs.11 crores to the Corporate Debtor on 29.10.2015, initially payable after three years, but the date was later extended from time to time. Two options were given qua interest payable on such loan (a) the interest @ 18% or (b) four flats bearing No.1501, 1502, 1504 and 1601 could be transferred in favour of the appellant towards interest in its full and final payment. It was one of the clauses of the agreement that in case the Corporate Debtor fails to pay the principal amount of Rs.11 crore then also four apartments bearing No.1901, 1902, 1904 and 2001 would be transferred in favour of the appellant. Admittedly the Corporate Debtor could not pay the principal amount of Rs.11 crore and the cheques given were dishonoured due to insufficient funds. 

# 3. On 29.06.2020 the Corporate Debtor was admitted to CIRP. The appellant filed two claims, one in Form C for Rs.11 crore as a secured financial creditor and another in Form CA as the holder of four flats towards the interest payable. 

# 4. The RP had admitted the claim of the appellant as home buyer qua four flats allotted in lieu of interest and the appellant has no grievance qua the same. However, he is aggrieved as the four flats to be given to him towards non-payment of principal amount Rs.11 crores, the appellant was shown as  an unsecured financial creditor. To proceed further it would be important to examine relevant clauses of the agreement dated 29.10.2015 as under: 

• “2.1 It is agreed by and between the Parties that the tenure of the Loan shall be twenty nine (29) months (Loan Period) to be commenced from the date of receipt of the first tranche of Loan amount (Loan Period). The Developer shall within fifteen (15) days from the expiry of the Loan Period i.e. on or before November 15, 2017, repay the entire Loan to the Firm in the manner provided in this Agreement. 

• “3.1 It is agreed by and between the Parties that the Developer would be liable to pay to the firm, interest on a lump sum basis of Rs.____(Interest Amount) on the Loan from the date of receipt of the Loan tranches as provided above in Clause 2, till expiry of the Loan Period as and by way of interest during the entire loan period. 

• 3.2 However, in lieu of the Interest Amount Payable by the Developer to the Firm on the Loan advanced in terms of this Agreement, the Developer has proposed to allot, transfer and assign to the Firm, in consideration of the Interest Amount four apartments being apartment No.s 1501, 1502, 1504 and 1601, admeasuring in aggregate about 4508 sq ft carpet area and 9304 sq ft saleable area, on the 15th and 16th floor of the Building to be constructed on the Property by the Developer together with four car parking spaces in the (basement/podium/automatic) in the Building (the Car Parking Spaces) (the aforesaid apartment No.1501, 1502, 1504 and No.1601 and the Car Parking Spaces are hereinafter collectively referred to as the “Allotted Apartments”) and more particularly described in schedule II hereunder written, to which the Firm has agreed. The floor plans of the Allotted apartments are annexed as Annexure III to this Agreement. 

• 3.3 The Developer has, simultaneously on the execution of this Agreement, executed four (4) separate Agreements for Sale, as required under the provisions of the Maharashtra Ownership of Flats Act, 1961 (MOFA), in respect of each of the Allotted apartments thereby, inter alia, selling, transferring and conveying the Allotted Apartments absolutely in favour of the Firm in consideration of the Interest Amount and on the terms and conditions more particularly set out therein. It is clarified that the Firm shall not be liable to pay to the Developer, any amount under any name whatsoever, in respect of the Allotted apartments save and except the amounts shown specifically payable in the Agreements for Sale and the Interest amount shall be deemed to be an adequate and full purchase consideration in respect of the transfer/conveyance of the Allotted Apartments in favour of the Firm. 

• 4.1 In order to secure the due and punctual repayment of the Loan (in proportion to the amount lent by the Firm in terms of Clause Error ! Reference source not found) , the developer has allotted to the Firm, as and by way of security, four apartments being apartment No.1901, 1902, 1904 and 2001 admeasuring about 4508 sq ft carpet area and 9304 sq ft saleable area in aggregate, on the 19th and 20th floor of the building to be constructed on the Property by the Developer together with four car parking spaces in the (basement/podum/automatic) in the Building (the “Car Parking”) (the aforesaid apartment No. No.1901, No.1902, No.1904 and No.2001 and the Car Parking are hereinafter collectively referred to as the “Secured Apartments”) and more particularly described in Schedule III hereunder written, with the following undertaking: 

• 4.1.1 The Developer shall, simultaneously on the execution of this Agreement, sign and execute the Agreement for Sale (AFS of Secured Apartments) in respect of the Secured Apartments in favour of the Firm. 

• 4.1.2 The Developer shall also, simultaneously on the execution of this Agreement sign and execute a Power of Attorney (POA) in favour of the Firm thereby inter alia, authorising (1) the Firm or its partners/representatives to register the AFS of Secured Apartments in terms of this Agreement and (2) such other matters incidental to the main matters including but not limited to procuring the NOC from ECL Finance. 

• 4.1.3 The signed and executed AFS of Secured Apartments shall, however, neither be stamped nor registered but shall be kept in escrow with Rajani, Singhania and Partners, Solicitors (Escrow Agent) 

• 4.1.6.3 have the AFS of Secured Apartments duly stamped and registered and have the Secured Apartments conveyed, transferred and assured unto the Firm absolutely in lieu of the repayment of the Loan. 

• 4.1.7 In the event the Firm opts to have the Secured Apartments conveyed, transferred and assured in favour of the Firm, the Escrow Agent shall, upon receipt of joint intimation from the Parties that the Developer has failed to repay the entire Loan within the Loan Period set out herein, immediately release the signed and executed AFS of Secured Apartments and the POA to the Firm. 

• 5.3 In the event the Developer repays the entire amount of Loan within fifteen (15) days from the expiry of the Loan Period as 5 provided hereinabove, the Escrow Agent shall, upon receipt of intimation from the Firm that the Developer has repaid the entire Loan within the period set out herein, immediately release the AFS of Secured Apartments and the executed POA to the Developer and the Developer shall thereafter, be entitled to deal with the Secured Apartments in such manner as it may deem fit without any recourse to the firm. 

# 5. The learned senior counsel for the appellant argued the appellant has a first charge on four flats secured for repayment of its principal amount of Rs.11 crore. He relied upon Sections 3(4), 3(31) and 3(33) of the IBC Code. The sections are as below: 

• “3(4) “charge” means an interest or lien created on the property or assets of any person or any of its undertakings or both, as the case may be, as security and includes a mortgage; 

• “3(30) "secured creditor" means a creditor in favour of whom security interest is created; 

• 3(31) “security interest” means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person: Provided that security interest shall not include a performance guarantee; 

• 3(33) “transaction” includes a agreement or arrangement in writing for the transfer of assets, or funds, goods or services, from or to the corporate debtor; 

# 6. Thus it was argued per above facts and law, the appellant needs to be treated as a secured creditor and its name ought to have been included in the list of secured creditors.

# 7. Thus the issue is whether the appellant is a secured creditor?. The appellant did file an application before the Ld. NCLT to claim its status as a secured creditor for the principal amount of loan granted. 

# 8. The impugned order, however, rejected the claim of the appellant only on the ground the charge was not registered under Section 77 of the Companies Act, 2013. The impugned order records: 

• “14.xxxxxThe security of 4 flats, given under the loan agreement is not registered with the registrar of companies in terms of Section 77 of the Companies act, 2013. It is noticed that Section 77(3) the Companies Act, 2013 provides that no charge created by a company shall be taken into account by the liquidator appointed under this act or I&B code or any other creditor unless it is duly registered u/s 77(1) and a certificate of registration is given by the Registrar. Accordingly, this bench is of the view that the resolution professional has not committed any error in classifying the applicant as unsecured financial creditor.” 

# 9. The respondent relies upon the reasoning given in the impugned order. 

# 10. Heard. 

# 11. Section 77 (3) of Companies Act 2013 read as follows:- 

• “Notwithstanding anything contained in any other law for the time being in force, no charge created by a company shall be taken into account by the ‘liquidator’ or any other creditor unless it is duly registered under subsection (1) and a certificate of registration of such charge is given by the Registrar under sub-section (2). 

• (4) Nothing in sub-section (3) shall prejudice any contract or obligation for the repayment of the money secured by a charge.” 

# 12. A bare reading of Section 77 (3) of Companies Act, 2013 casts an obligation upon ‘Liquidator’. However, the present case is confined to the duty and role of ‘Resolution Professional’ and admittedly company is not under liquidation. 

# 13. The intent of legislature was never to apply Section 77 of Companies Act upon the ‘Corporate Insolvency Resolution Process’. This is for the reason the treatment of “secured creditor” and “security interest” in liquidation  process is entirely different from that of during the ‘Corporate Insolvency Resolution Process’. A ‘secured creditor’ under ‘liquidation process’ has an indefeasible right to realise its security interest by excluding its assets from the Liquidation Estate per Section 52. In case of ‘liquidation’ a ‘Secured Creditor’ who intends to realise its ‘security’ outside the ‘waterfall mechanism’ as per section 53, has to prove that he has a “Charge” over a property. In that case the Liquidator has to ‘recognise a charge’ which is “registered as per section 77 of Companies Act”. Further, the definition of “Liquidation Estate” under 36(3) (g) includes ‘secured assets’ only and only if the ‘secured creditor’ has relinquished its interest. Distinctively, Section 18 (1) (f) and 25 (2) (a) mandates the Resolution Professional to take control of ‘all assets’ of the Corporate Debtor irrespective of any encumbrance. Further, no secured creditor has right to ‘realise’ its ‘security interest’ during ‘CIRP’. 

# 14. For the same reason while Regulation 21 of Insolvency and Bankruptcy Board of India (‘Liquidation’ Process) Regulations, 2016 prescribes evidences for proving “security interest”, consciously no such corresponding provision has been included in Insolvency and Bankruptcy Board of India (Corporate Insolvency Resolution Process) Regulations, 2016. Only under liquidation process a question of charge under section 77 comes into play and the same has nothing to do with “CIRP”. 

# 15. Legislature never intended that “registration of charge” under section 77 is sine qua non to qualify as “secured creditor”. The Resolution Professional has to follow the provisions of IBC. Section 3 (4) of IBC defines ‘charge’ as interest or lien created on a property as ‘security’ and includes mortgage. As per Section 3(30) ‘Secured Creditor’ means a Creditor in favour 8 of whom ‘security interest’ is created. Further Section 3(31) states “Security interest” means right, title or interest or a claim to a property created in favor of or provided for a ‘Secured Creditor’ by a ‘transaction’ which ‘secures payment’ or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or ‘arrangement’ securing payment or performance of any obligation of any person. Section 3(33) states that “transaction” includes an ‘agreement’ or ‘arrangement in writing’ for transfer of assets, or funds, goods or service from or to the Corporate Debtor and section 3(34) of IBC states that transfer includes mortgage, pledge, gift, loan or any other form of transfer of right, title or lien. ‘Registered Charge under section 77’ is not mentioned in the definition of ‘secured creditor’ and infact a creditor is secured by way of any ‘arrangement’ like the ‘loan agreement’ in present case which secures 4 flats as secured property of Appellants against repayment of its Loan. 

# 16. This Tribunal in “Canara Bank vs. Mr. S. Rajendran, Liquidator of M/s Cape Engineers Pvt. Ltd. [Company Appeal (AT) (Ins) No. 277 of 2023]” held: 

• “53. In addition, the `non-registration of the Mortgage', as per Section 77 of the Companies Act, 2013, is not a sufficient / enough ground, to come to an `opinion', that the `Appellant', is not a `Secured Creditor'. In reality, the 'rights' of a `Mortgagee', under the `Transfer of Property Act', 1882 and the 'SARFAESI Act', are not to be diluted, in terms of Regulation 21 of IBBI (Liquidation process) Regulations, 2016.” 

# 17. Thus, it is a settled law right of a mortgagee under the Transfer of Property Act, 1882 cannot be taken away only because of non-registration of the charge u/s 77 of the Companies Act, 2013. 

# 18. This is in consonance with Section 77 of the Companies Act 2013. Section 78(3) of the Companies Act, 2013 states no charge shall be created by the Company shall be taken in account by the “Liquidator” unless it is registered under subsection 1 and 2. Section 77 (4) of the Companies Act, 2013 clarifies nothing in subsection (c) shall prejudice any contract or obligation for repayment of money secured by charge. The obligation is only on the Liquidator. In fact, Section 3(4) of IBC defines charge and Section 3(31) of IBC states secured interest means and includes “Charge”. Thus, combine reading of all the section clarifies only a Liquidator will not consider a claim without registration, however, the RP is bound to consider a “Charge” and a Creditor having charge is a Secured Creditor. 

# 19. In the case of Pashchimanchal Vidyut (Civil Appeal No.7976 of 2019) the Hon’ble Supreme Court has clarified Section 3(31) of IBC is wider than Section 77 and 78 of Companies Act and defines security interest, however, the issue of non registration of charge was kept open. 

# 20. In fact, in Canara Bank (Supra) it was held Section 77 of the Companies Act, 2013 is not a sine qua non for a Creditor being a Secured Creditor and held it is not a sufficient ground to reject such claim of Creditor. The said Order was passed after considering Volkswagen case as well. 

# 21. Thus non registration of charge per Section 77 of Companies Act, 2013 will not make a difference in the claim of the Applicant being treated as a Secured Creditor.

# 22. Hence, there exists a debt and the Corporate Debtor had secured it by creation of security interest/charge., therefore, the Appellant is a secured financial creditor. Necessary correction be thus made in the record. 

23. The next issue was qua a direction in the impugned order to initiate proceedings against the appellant under section 66 of the Code. It is alleged there was never any application moved by the Resolution Professional seeking initiation of proceedings under Section 66 of the Code and this part of impugned order appears to be violative of principle of natural justice as no show cause/or notice was ever issued to the Appellant giving them opportunity to contend as to why such directions could not have been passed and that such direction has rather been passed in an application filed by the Appellant himself seeking categorisation of it as a secured creditor. 

24. Admittedly the aforesaid proceedings are presently initiated and there is no final finding by the Ld. NCLT as to if appellant is a related party or not, hence it would be premature at this stage to give any finding on this issue. Thus while keeping this issue open, the appeal is allowed and the impugned order is hereby set aside. Pending applications, if any, are disposed of. 

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

HDFC Bank Ltd. Vs Pratim Bayal, RP of Birla Tyres Ltd. & Ors. - The decision of the CoC approving the Resolution Plan as per security interest was in accordance with Section 30(4) and has rightly been not interfered with by the Adjudicating Authority in the impugned order.

 NCLAT (2025.01.30) in HDFC Bank Ltd. Vs Pratim Bayal, RP of Birla Tyres Ltd. & Ors. [Company Appeal (AT) (Insolvency) No. 1472 of 2023] held that;.

• When we look into the observations made in paragraph 131, it is clear that the amending act gives the flexibility to the CoC to approve or not to approve the Resolution Plan and which may take into account different classes of creditors, different priorities and values of security interest of a secured creditor.

• Thus, what amount is to be paid to different classes or sub-classes 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.

• The decision of the Committee of Creditors and the Adjudicating Authority deciding to distribute the proceeds of the plan value as per voting share of the secured creditor in no manner contravenes the provisions of Section 30(2)(b) of the Code

• We, thus, do not find any substance in the submission of the learned Counsel that payment to the Secured Financial Creditors under Section 53(1)(b) has to be made as per their value of the security interest and the Resolution Plan did not take into consideration their debt, which is the debt of the Financial Creditors while allocating the amount.

• The use of expression "may" in Section 30(4) clearly indicate the discretion vested in the CoC to take into account of the matter of security interest of the secured creditors in approving the Resolution Plan.

• The decision of the CoC approving the Resolution Plan as per security interest was in accordance with Section 30(4) and has rightly been not interfered with by the Adjudicating Authority in the impugned order.

Excerpts of the Order;

This Appeal by a Dissenting Financial Creditor has been filed challenging the order dated 19.10.2023 passed by the Adjudicating Authority (National 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 the CoC. In the 16th meeting of the CoC held on 31.07.2023, the CoC approved the distribution mechanism as per security interest of the respective Financial Creditors. The Resolution was passed with 75.67% vote shares, the Resolution Plan submitted by the Resolution Applicants was also approved by the CoC with requisite vote share. On 02.08.2023, Appellant sent an e-mail to the Resolution Professional objecting to the distribution methodology proposed by the Axis Bank on the basis of security interest. Resolution Professional replied to the e-mail and asked the Financial Creditor to vote on distribution mechanism. Aggrieved by the distribution mechanism approved by the CoC, Appellant filed IA No.1648 of 2023 where following reliefs was prayed for:-

• "a) to pass an order directing the Resolution Professional to take into account the voting shares of the financial creditors while determining the calculation methodology of the Creditors' proportional share in the liquidation value of the Corporate Debtor for the purposes of distribution under the Section 53 (1) of the Code.

• b) to pass an order directing the Resolution Professional to withdraw the voting results of the distribution mechanism of the Resolution Plan amount and to take into account the voting shares while determining the calculation methodology of the Creditors' proportional share in the Resolution Plan amount, or in the alternative, pass an order directing the Committee of Creditors to deliberate upon a fair and equitable distribution pattern for the resolution plan amount.

• c) to pass an order declaring the Resolution Plan submitted by the Respondent No. 2 along with their strategic partner Respondent No 3 illegal, inequitable, null and void.

• d) to pass an order quashing setting aside the Resolution Plan submitted by the Respondent No 2 along with their strategic partner Respondent No. 3 

• e) to stay of all further proceedings in the instant corporate insolvency resolution process, pending disposal of the instant application.

• f) Ad-interim orders in terms of prayer (e) hereinabove.

• g) Any further order or orders and or direction or directions as may deem fit and proper."

2.2. The Application filed by the Appellant was opposed by the Resolution Professional. The Adjudicating Authority by the impugned order upheld the distribution mechanism. It was held that the CoC in its commercial 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.  

# 12. The question thus to be considered is as to whether the CoC was bound to accept the distribution mechanism as per voting share of the financial creditors or it had jurisdiction to approve the distribution mechanism as per security interest. The Hon'ble Supreme Court in "Essar Steel India Ltd. Committee of Creditors vs. Satish Kumar Gupta -(2020) 8 SCC 531" had occasion to consider Act 19 of 2019 by which Section 30(2) was amended. Paragraphs 128 and 131 of the judgment are relevant for the present case which is as follows:-

• "128. When it comes to the validity of the substitution of Section 30(2)(b) by Section 6 of the Amending Act of 2019, it is clear that the substituted Section 30(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-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 sub-classes of creditors in accordance with the provisions of the Code and the Regulations made thereunder.

• 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 a resolution plan. For all these reasons, therefore, it is difficult to hold that any of these provisions is constitutionally infirm."

# 13. When we look into the observations made in paragraph 131, it is clear that the amending act gives the flexibility to the CoC to approve or not to approve the Resolution Plan and which may take into account different classes of creditors, different priorities and values of security interest of a secured creditor.

# 14. Judgment of the Hon'ble Supreme Court in "India Resurgence ARC (P) Ltd." (supra) 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 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 authority. In Jaypee, this Court, after taking note of the previous decisions in Essar Steel as also in K. Sashidhar v. Indian Overseas Bank and Maharashtra Seamless Ltd. v. Padmanabhan Venkatesh, summarised the principles as follows : (Jaypee Kensington case, SCC pp. 562-63, para 107) "107. 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.

• 107.1. Such limitations on judicial review have been duly underscored by this Court in the decisions abovereferred, 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 the 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.

• 107.2. 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.

• 107.3. The material propositions laid down in 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 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. [ For the purpose of illustration, reference may be made to the decision in Jaypee Kensington, (2022) 1 SCC 401 wherein, as regards the grounds sought to be urged by minority shareholders against the resolution plan, this Court held that their grievances could not be recognised as legal grievances (vide para 154). Similarly, when this Court noticed that the homebuyers as a class assented to the plan, it was held that any individual homebuyer or association was not entitled to maintain a challenge to the resolution plan and could not be treated as carrying any legal grievance (vide para

• 170).]

# 15. The Hon'ble Supreme Court also in paragraph 15 after noticing amendment in Section 30(4) amplifies the consideration of the CoC. The submission of the Appellant that distribution should be as per security interest was not accepted and in paragraphs 16 and 17, following was laid down rejecting the submission of the Appellant:-

• "16. The repeated submissions on behalf of the appellant with reference to the value of its security interest neither carry any meaning nor any substance. What the dissenting financial creditor is entitled to is specified in the later part of sub-section (2)(b) of Section 30 of the Code and the same has been explained by this Court in Essar Steel [Essar Steel (India) Ltd. (CoC) v. Satish Kumar Gupta, (2020) 8 SCC 531 : (2021) 2 SCC (Civ) 443] as under : (SCC pp. 628-29, para 128) 

• "128. When it comes to the validity of the substitution of Section 30(2)(b) by Section 6 of the amending Act of 2019, it is clear that the substituted Section 30(2)(b) gives the 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 the 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 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 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."

• (emphasis supplied)

• 17. Thus, what amount is to be paid to different classes or sub-classes 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."

# 16. The above judgments clearly laid down that the decision taken by the CoC in commercial wisdom has to be respected and the scope of judicial review is too limited.

# 17. However, the dissenting financial creditor as per Section 30(2)(b)(ii) is entitled for an amount which is not less than the amount to be paid to such creditors in accordance with Section 53(1). Present is not a case where amount offered to the Appellant is less than the liquidation value which has also been noticed by the Adjudicating Authority in paragraph 13.1. Paragraph 13.1 of the impugned order is as follows:-

• "13.1. We find that it is not the case of the applicant that the amount of distribution has not been arrived based on liquidation value as provided in Section 30(2)(b) read with Section 53 of the IBC. The Applicant's grievance before us is that the distribution method adopted by the CoC should be based on the voting share and not based on value of security held by respective financial creditors."

# 18. As per liquidation value of the Appellant, he was to receive Rs. 0.97 Crores and as per the plan approved by the CoC he has been offered Rs.1.05 Crores, thus, provision of Section 30(2)(b) are fully satisfied.

# 19. The judgment of this Tribunal in "Small Industries Development Bank of India (SIDBI)" (supra) was a case where dissenting financial creditors prayed that the dissenting financial creditors' distribution should be made as per the security interest whereas the CoC have approved the distribution of proceed as per the voting share. This Tribunal relying on the judgment of the Hon'ble Supreme Court in "India Resurgence ARC (P) Ltd." (supra) took the view that the entitlement of dissenting financial creditor is to receive the 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 support the submission of Learned Counsel for the Appellant. It was held that dissenting financial creditor is entitled for distribution as per Section 53(1). The claim of the dissenting Financial Creditor that he is entitled to receive the entire amount received from property which was secured with the Financial Creditor was rejected relying on the Judgment of the Hon'ble Supreme Court in "India Resurgence" (supra).

• 25. In view of the foregoing discussion, we do not find any error in the Order dated 17.03.2022 of the Adjudicating Authority rejecting I.A. No. 581 of 2021 filed by the Appellant. The decision of the Committee of Creditors and the Adjudicating Authority deciding to distribute the proceeds of the plan value as per voting share of the secured creditor in no manner contravenes the provisions of Section 30(2)(b) of the Code. None of the submissions raised by the Learned Counsel for the Appellant has any substance. In result, the Appeal is dismissed."

# 20. The judgment of this Tribunal in "Jet Aircrafts Maintenance Engineers Welfare Association" (supra) relied by the Appellant was also a case where Hon'ble Supreme Court has held that the distribution under Section 53(1) is contemplated as per debt of the financial creditor. It is useful to extract the conclusion recorded in paragraph 107 where submission that financial creditor has to be paid as per their value of security interest was rejected. Paragraph 107 of the judgment is as follows:-

• "107. We, thus, do not find any substance in the submission of the learned Counsel that payment to the Secured Financial Creditors under Section 53(1)(b) has to be made as per their value of the security interest and the Resolution Plan did not take into consideration their debt, which is the debt of the Financial Creditors while allocating the amount."

# 21. From the above, it is clear that after amendments made in Section 30(4), the CoC have been given jurisdiction to take a decision as to distribute the amount as per vote share of the financial creditor or as per the security interest which is in their commercial wisdom and decision taken by requisite vote share by the CoC is final and binding on all including the dissenting financial creditors and dissenting financial creditors at best is entitled for minimum of liquidation value. The use of expression "may" in Section 30(4) clearly indicate the discretion vested in the CoC to take into account of the matter of security interest of the secured creditors in approving the Resolution Plan. We, thus, are of the view that no error has been committed by the Adjudicating Authority rejecting the application filed by the Appellant seeking direction to distribute the amount as per security interest. The decision of the CoC approving the Resolution Plan as per security interest was in accordance with Section 30(4) and has rightly been not interfered with by the Adjudicating Authority in the impugned order.

# 22. We do not find any error in the impugned order warranting interference by this Tribunal. There is no merit in the Appeal. The Appeal is dismissed.

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