2024 (1) TMI 186 - SC - Insolvency and Bankruptcy

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

DBS BANK LIMITED SINGAPORE Versus RUCHI SOYA INDUSTRIES LIMITED AND ANOTHER

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 ... 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 - HELD THAT:- Explanation 2(ii) clearly states that an appeal preferred under Section 61 or 62, when it is not barred by time under any provision of law, shall be heard and decided after considering the amended Section 30(2)(b) under the Amendment Act. In fact, Explanation 2(i) states that the amended clause shall “also” apply to the CIRP of the corporate debtor where a resolution plan has not been approved or rejected by the adjudicating authority. Explanation 2(iii) states that the amended Section 30(2)(b) shall “also” apply where legal proceedings have been initiated in any court against the decision of the adjudicating authority. Clauses (i), (ii) and (iii) of Explanation 2 reflect the wide expanse and width of the legislative intent viz. the 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 corporate debtor. The provision recognises that all financial creditors need not be similarly situated. Secured financial creditors may have distinct sets of securities - the resolution plan accepted by the requisite creditors/members of the CoC upon voting, is enforceable and binding on all creditors. The CoC can decide the manner of distribution of resolution proceeds amongst creditors and others, but Section 30(2)(b) protects the dissenting financial creditor and operational creditors by ensuring that they are paid a minimum amount that is not lesser than their entitlement upon the liquidation of the corporate debtor. The provisions of Section 30(2)(b)(ii) by law provides assurance to the dissenting creditors that they will receive as money the amount they would have received in the liquidation proceedings. This rule also applies to the operational creditors. This ensures that dissenting creditors receive the payment of the value of their security interest. 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 - The conflict with sub-clause (ii) to clause (b) to sub-section (2) to Section 30 does not arise as it relates to the minimum payment which is to be made to an operational creditor or a dissenting financial creditor. A dissenting financial creditor does not vote in favour of the scheme. Operational creditors do not have the right to vote. It is felt appropriate and proper if the question framed at the beginning of this judgment is referred to a larger Bench. The matter be, accordingly placed before the Hon’ble the Chief Justice for appropriate orders. 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 ProceedingsThe 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 DecisionsThe 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.