SC clarifies amended Section 30(2) applies to pending NCLAT appeals ensuring dissenting creditors receive liquidation value

The SC held that amendments to Section 30(2) under Explanation 2 apply to pending appeals before NCLAT when not time-barred. The court clarified that amended provisions apply to proceedings at adjudicating authority, appellate authority, or courts unless resolution plans have attained finality. Under Section 30(2)(b)(ii), dissenting financial creditors and operational creditors must receive minimum payment not less than liquidation value under Section 53(1). The CoC can determine distribution among creditors but must ensure dissenting creditors receive liquidation-equivalent amounts. No conflict exists between Section 30(4) and amended Section 30(2)(b) as they address different aspects. The matter was referred to a larger bench for further consideration.

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Issues Involved:
1. Applicability of the amendments to Section 30(2) of the Insolvency and Bankruptcy Code (IBC) to pending proceedings.
2. Interpretation of Section 30(2)(b)(ii) of the IBC regarding the payment to dissenting financial creditors.
3. Validity and implications of NCLAT's decisions in light of the amendments.

Summary:

Issue 1: Applicability of Amendments to Pending Proceedings
The Supreme Court examined whether the amendments to Section 30(2) of the IBC, effective from August 16, 2019, apply to pending proceedings. The Court concluded that Explanation 2(ii) of the amended Section 30(2) clearly states that it applies to appeals pending under Sections 61 or 62, provided they are not time-barred. The amendments are intended to apply broadly to proceedings at various stages, including those before adjudicating or appellate authorities or courts. The Court referenced the Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors. (2020) 8 SCC 531, affirming that Explanation 2 applies to ongoing proceedings and does not impair vested rights.

Issue 2: Interpretation of Section 30(2)(b)(ii)
The Court held that the dissenting financial creditor is entitled to a payment not less than the amount payable under Section 53(1) in the event of liquidation. The provision ensures that dissenting creditors receive at least the liquidation value of their security interest. The Court emphasized that the commercial wisdom of the Committee of Creditors (CoC) must be respected, but Section 30(2)(b) safeguards dissenting financial creditors and operational creditors by ensuring a minimum payment. The Court referenced several judgments, including Jaypee Kensington Boulevard Apartments Welfare Association & Ors. v. NBCC (India) Limited & Ors. (2022) 1 SCC 401, which clarified that dissenting financial creditors are entitled to the value of their security interest in monetary terms.

Issue 3: Validity and Implications of NCLAT's Decisions
The Court found that the NCLAT's decision, which stated that Section 30(4) is prospective and not mandatory, was incorrect. The Court clarified that Section 30(2)(b)(ii) protects dissenting financial creditors from receiving less than the liquidation value. The Court disagreed with the reasoning in India Resurgence ARC Private Limited v. Amit Metaliks Limited & Another. 2021 SCC Online SC 409, which suggested that dissenting financial creditors are not entitled to enforce the entire security interest. The Court emphasized that dissenting financial creditors must receive payment equal to the value of their security interest, as stipulated by Section 30(2)(b)(ii).

Conclusion:
The Court concluded that the amendments to Section 30(2) apply to pending proceedings and that dissenting financial creditors are entitled to receive at least the liquidation value of their security interest. The Court referred the interpretation of Section 30(2)(b)(ii) to a larger Bench due to conflicting views in previous judgments. The matter was placed before the Chief Justice for appropriate orders.

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