A Two-Judge Bench of the #SupremeCourt comprising of J. Vineet Saran and J. Dinesh Maheshwari has in a recent case of India Resurgence Arc Private Limited Vs M/S. Amit Metaliks Limited & Anr passed a Judgment dated 13-05-2021 and decided upon the challenge made by the Appellant, a #FinancialCreditor against the decision of committee of creditors (#COC) and the resolution professional pertaining to its share proposed in the #resolutionplan.
In this case, one, VSP Udyog Private Limited, the Corporate Debtor herein, was undergoing Corporate Insolvency Resolution Process (CIRP) before the National Company Law Tribunal, Kolkata Bench (NCLT). During the CIRP process, one, Religare Finvest Limited, a secured financial creditor of the Corporate Debtor, having 3.94% of voting share in the Committee of Creditors (CoC), had assigned its rights, title and interest in this respect to India Resurgence Arc Private Limited, the Appellant herein.
During the CIRP, a Resolution Plan was filed by a Resolution Applicant, Amit Metaliks Limited, the Respondent No. 1 herein. However, the Appellant made certain objections to the said Resolution Plan on the ground that the Appellant is getting a lower share, whereas, the value of the security interest held by it is far more and thus, chose to remain a dissentient/dissenting Financial Creditor. The Appellant further challenged the fair market value and liquidation value proposed for the Corporate Debtor.
The Resolution Professional (RP) did not consider these challenges/objections of the Appellant by stating that the valuation has been done by registered valuers of Insolvency and Bankruptcy Board of India (IBBI) and that there is no inconsistency in the said valuation. Further, a substantial majority of financial creditors having 95.35% of voting share of the financial creditors had voted in favor of the aforesaid Resolution Plan. The said approved Resolution Plan was then submitted by the RP to the NCLT for its approval, as per Section 30 (6) of the Insolvency and Bankruptcy Code, 2016 as amended thereof (IBC).
The NCLT examined the salient features of the aforesaid Resolution Plan and found it to be feasible, viable and compliant of all the mandatory requirements on the following grounds and thereby, approved the Resolution Plan, vide Order dated 20-10-2020:
It makes provision for the payment of the Insolvency Resolution Process, payment of the debts of Operational Creditors, Management of the affairs of the Corporate Debtor, and also provision for implementation and supervision of the Resolution Plan. It also provides terms of the Plan and its implementation schedule.
Aggrieved, the Appellant preferred an Appeal under Section 61 (1) and (3) of IBC before the National Company Law Appellate Tribunal, New Delhi (NCLAT) on the ground that that the approved Resolution Plan failed the test of being ‘feasible and viable’ under Section 30 (4) of IBC, as the interest of the Appellant was not taken into consideration. Section 30 (4) of IBC has been reproduced below:
Section 30- Submission of resolution plan
(4) The committee of creditors may approve a resolution plan by a vote of not less than sixty-six per cent. of voting share of the financial creditors, after considering its feasibility and viability, the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor and such other requirements as may be specified by the Board.
The NCLAT rejected the challenge made by the Appellant against the NCLT Order dated 20-10-2020 and thereby approved the Resolution Plan.
Aggrieved, the Appellant filed an Appeal under Section 62 of IBC before the Supreme Court, thereby, challenging the NCLAT Order dated 02-03-2021.
The Apex Court made the following observations in this case:
1) That the CoC has exercised commercial wisdom in taking an informed and fair decision with regard to distribution of assets/sale proceeds amongst similarly situated creditors and the viability and feasibility of the Resolution Plan, on the following grounds:
i) the proposal for payment to all the secured financial creditors is equitable;
ii) the percentage of payment proposed for the Appellant is at par with the percentage of payment proposed for other secured financial creditors;
iii) 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 subclasses of creditors in accordance with the provisions of the Code and the Regulations made thereunder.
2) That the Court will not interfere with the business decisions of CoC which have been taken after exercising commercial wisdom, unless creditors belonging to a class being similarly situated are denied fair and equitable treatment.
Thus, the Supreme Court held that as it is the commercial wisdom of the CoC to decide what amounts have to be paid to different classes of creditors, hence, 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 held by it. As a result, the Appeal was rejected.
Senior Legal Associate
The Indian Lawyer