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TaxTMI 
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TaxTMI 
2024 (1) TMI 186
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.... had extended financial debt of around USD 50,000,000 (fifty million dollars only) or Rs. 243,00,00,000 (rupees two hundred forty three crore only) to M/s. Ruchi Soya Industries Limited For short, "Corporate Debtor", the corporate debtor. 3. The financial debt was secured by: (i) a sole and exclusive first charge over certain immovable and fixed assets of the Corporate Debtor in Kandla, Gujarat; and (ii) sole and exclusive first charge over assets of the Corporate Debtor in Baran, Rajasthan; Guna, Madhya Pradesh; Dalauda, Madhya Pradesh; Gadarwara, Madhya Pradesh; and a commercial office space at Nariman Point, Mumbai. 4. On 15.12.2017, Corporate Insolvency Resolution Process For short, "CIRP" was initiated against the Corporate Debtor under the provisions of the Code. The company petition seeking to initiate CIRP was admitted and a Resolution Professional For short, "RP" was appointed. 5. The appellant had submitted its claim, which was admitted by the RP at Rs. 242,96,00,000 (rupees two hundred forty two crore ninety six lakh only). 6. On 20.03.2019, Patanjali Ayurvedic Limited submitted a resolution plan for Rs. 4134,00,00,000 (rupees four thousand one hundred thirty....
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.... liquidation of the Corporate Debtor under Section 53(1) of the Code. Explanation 2 added thereby makes the amended Section 30(2)(b) applicable to pending proceedings. Section 30(4) was also amended to state the CoC shall take into account "the order of priority" amongst creditors as laid down in Section 53(1) of the Code. 14. On 30.08.2019, at the 26th CoC meeting, the appellant requested the CoC to reconsider the distribution of the resolution proceeds in light of the amendments to the Code. The appellant had submitted that if the amendments were considered, it would be entitled to receive Rs. 217,86,00,000 (rupees two hundred seventeen crore eighty six lakh only) which is the liquidation value of the security interest. The CoC, however, did not accept the prayer, observing inter alia that the appellant had already filed an appeal before the NCLAT, which was pending. The CoC was of the view that there was a fair amount of ambiguity in the amendments, and no view should be expressed by them. 15. The NCLT vide order dated 04.09.2019 finally approved the resolution plan, which was already provisionally approved vide order dated 24.07.2019. 16. On 11.10.2019, the appellant c....
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....ment) Act, 2019, which for clarity have been highlighted in italics and bold. Relevant portions of the two sections read: "30. Submission of resolution plan.- xx xx xx (2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan- (a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the payment of other debts of the corporate debtor; (b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than- (i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under Section 53; or (ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of Section 53, 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 ....
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....hese appeals is 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. The Amendment Act was notified and came into effect on 16.08.2019. The appellant had preferred the first appeal before the NCLAT on 31.07.2019, which appeal was directed against the provisional approval order passed by the NCLT on 24.07.2019. In our opinion, 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....
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....y have distinct sets of securities. There are a number of decisions of this Court, viz. Committee of Creditors of Essar Steel India Limited (supra), Swiss Ribbons Private Limited and Another v. Union of India and Others (2019) 4 SCC 17, and Vallal RCK v. Siva Industries and Holdings Limited and Others (2022) 9 SCC 803, which have held that the commercial wisdom of the CoC must be respected. Therefore, 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. 26. The Code had been enacted to balance the interests of various stakeholders, inter alia, by facilitating the resolution of insolvency, promoting investment, maximising the value of assets, and increasing the availability of credit. Secured credit is important for commerce as it reduces credit risk and carries lower interest due t....
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.... plan was disapproved by the Adjudicating Authority; and this part of the order of the Adjudicating Authority was upheld by this Court with the finding that the proposal in the resolution plan was not in accord with the requirement of 'payment' as envisaged by clause (b) of Section 30(2) of the Code. In that context, this Court held that such action of 'payment' could only be by handing over the quantum of money or allowing the recovery of such money by enforcement of security interest, as per the entitlement of a dissenting financial creditor. This Court further made it clear that in case a valid security interest is held by a dissenting financial creditor, the entitlement of such dissenting financial creditor to receive the amount could be satisfied by allowing him to enforce the security interest, to the extent of the value receivable by him and in the order of priority available to him. This Court clarified that by enforcing such a security interest, a dissenting financial creditor would receive payment to the extent of his entitlement and that would satisfy the requirement of Section 30(2)(b) of the Code. This Court, inter alia, observed and held as under: "121.1. The....
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....e 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. 21. 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." 30. Our attention is also drawn to paragraph 17 and 22 of India Resurgence ARC Private Limited (supra), wherein after elucidating on the ratio in Jaypee Kensington (supra), t....
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....the creditors vote in class, to consider whether the plan can be made binding upon dissenting classes of creditors and other affected parties. To the extent that the plan can be approved and enforced upon the dissenting parties, there is a need to ensure that the plan provides appropriate protection for the dissenting parties and, in particular, the rights may not be unfairly affected. Thereupon, the UNCITRAL Legislative Guide states: "...The law might provide, for example, that dissenting creditors cannot be bound unless assured of certain treatment. As a general principle, that treatment might be that the creditors will receive at least as much under the plan as they would have received in liquidation proceedings. If the creditors are secured, the treatment required may be that the creditor receives payment of the value of its security interest, while in the case of unsecured creditors it may be that any junior interests, including equity holders, receive nothing..." 33. In our opinion, 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 proc....
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....64.2. We would hasten to observe that in case a dissenting financial creditor is a secured creditor and a valid security interest is created in his favour and is existing, the entitlement of such a dissenting financial creditor to receive the "amount payable" could also be satisfied by allowing him to enforce the security interest, to the extent of the value receivable by him and in the order of priority available to him. Obviously, by enforcing such a security interest, a dissenting financial creditor would receive "payment" to the extent of his entitlement and that would satisfy the requirement of Section 30(2)(b) of the Code." 36. We have reservation on portions of the view expressed in paragraphs 17, 21 and 22 in the judgment of India Resurgence ARC Private Limited (supra). Paragraph 17 is respectfully correct in its observations when it refers to the provisions of Section 30(4) and that the voting is essentially a matter which relates to commercial wisdom of the CoC. The observation that a dissenting secured creditor cannot suggest that a higher amount be paid to it is also correct. However, this does not affect the right of a dissenting secured creditor to get payment equa....
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.... enforce the security and sell the same. This would be counterproductive and may nullify the resolution plan. What the dissenting financial creditor is entitled to is the payment, which should not be less than the amount/value of the security interest held by them. The security interest gets converted from the asset to the value of the asset, which is to be paid in the form of money. This is clear from the relevant portions of paragraphs 164.1, 164.2, 166.4, and 167 in Jaypee Kensington (supra), which read as under: "164.1. Therefore, when, for the purpose of discharge of obligation mentioned in the second part of clause (b) of Section 30(2) of the Code, the dissenting financial creditors are to be "paid" an "amount" quantified in terms of the "proceeds" of assets receivable under Section 53 of the Code; and the "amount payable" is to be "paid" in priority over their assenting counterparts, the statute is referring only to the sum of money and not anything else. In the frame and purport of the provision and also the scheme of the Code, the expression "payment" is clearly descriptive of the action of discharge of obligation and at the same time, is also prescriptive of the ....
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....e Code. Of course, in the scheme of CIRP under the Code, the dissenting financial creditors get, whatever is available to them, in priority over their assenting counterparts. In the given scheme of the statutory provisions, there is no scope for comparing the treatment to be assigned to these two divergent sects of financial creditors. The submissions made on behalf of assenting financial creditors cannot be accepted. xx xx xx 167. To sum up, in our view, for a proper and meaningful implementation of the approved resolution plan, the payment as envisaged by the second part of clause (b) of sub-section (2) of Section 30 could only be payment in terms of money and the financial creditor who chooses to quit the corporate debtor by not putting his voting share in favour of the approval of the proposed plan of resolution (i.e. by dissenting), cannot be forced to yet remain attached to the corporate debtor by way of provisions in the nature of equities or securities. In the true operation of the provision contained in the second part of sub-clause (ii) of clause (b) of sub-section (2) of Section 30 (read with Section 53), in our view, the expression "payment" only refer....
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....dged shares under Section 52 of the Code read with Rule 21-A of the Liquidation Process Regulations. The second recourse available, would be almost equivalent in monetary terms for Appellant 1-Vistra, who is treated as a secured creditor and is held entitled to all rights and obligations as applicable to a secured creditor under Sections 52 and 53 of the Code. This to our mind would be a fair and just solution to the legal conundrum and issue highlighted before us. 42. We wish to clarify that the directions given by us would not be a ground for the successful resolution applicant - DVI to withdraw the resolution plan which has already been approved by Nclat and by us. The reason is simple. Any resolution plan must meet with the requirements/provisions of the Code and any provisions of law for the time being in force. What we have directed and the option given by us ensures that the resolution plan meets the mandate of the Code and does not violate the rights given to the secured creditor, who cannot be treated as worse off/inferior in its claim and rights viz an operational creditor or a dissenting financial creditor." 40. One of the contentions raised by the respondent....
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....f a secured creditor who has voluntarily relinquished security and is to be paid under Section 53(1)(b)(ii) of the Code. 43. The reasoning also takes care of the argument that the Explanation to Section 53 incorporates the principle of pari passu distribution into Section 53(1) with each class of creditors mentioned therein. We wish to clarify that Section 53(1) is referred to in Section 30(2)(b)(ii) with the purpose and objective that the dissenting financial creditor is not denied the amount which is payable to it being equal to the amount of value of the security interest. The entire Section 53 is not made applicable. 44. We would, for the above reasons, reject the submission on behalf of the respondents that Section 30(2)(b)(ii) is unworkable because it involves deeming fiction relating to liquidation, which is inapplicable during the CIRP period. This would be contrary to the legislative intent and is unacceptable. 45. Respondent no. 2 - CoC has submitted that the appellant has dissented because it did not approve the manner of distribution of the proceeds under the resolution plan. The appellant did not dispute the resolution plan itself. Accordingly, Section 30(2)(b....