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2019 Supreme(SC) 1251
SUPREME COURT OF INDIA
ARUN MISHRA, S. RAVINDRA BHAT, JJ.
Rahul Jain – Appellant
Versus
Rave Scans Pvt. Ltd. & Ors – Respondents
Civil Appeal No. 7940 of 2019
Decided On : 08-11-2019
For the Appellant(s) :Saurabh Mishra, Advocate
For the Respondent(s):M/s. Udit Kishan And Associates, Advocate
IMPORTANT POINT
Corporate Insolvency Resolution Process (CIRP) – Initiation of – Undue modification of resolution plan by NCLAT cannot be sustained.
Headnote:
Insolvency and Bankruptcy Code, 2016 – Sections 10 and 30 – Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 – Regulation 38 – Corporate Insolvency Resolution Process (CIRP) – Initiation of – Modification of resolution plan by NCLAT – NCLAT in its impugned order set aside NCLT’s directions and required appellant to increase liquidation value of offer to Financial Creditor – Order approving resolution plan which was impugned before NCLAT was passed by adjudicating authority and except objections of dissenting creditor, plan has attained finality – Principle of fairness engrafted in the provision is that plan should make provision for repayment of debts of operational creditors having regard to value which shall not be less than what is prescribed by Insolvency Board, repayable in event of liquidation – NCLAT’s order and directions were not justified and hereby set aside – Order of NCLT restored. (Paras 3, 4, 11 and 13)
Facts of the case:
Resolution applicant (Appellant) is aggrieved by decision of National Company Law Appellate Board (NCLAT) in regard to its directions modifying a resolution plan accepted by adjudicating authority. Question urged by appellant is whether finding that financial creditor was discriminated against, leading NCLAT to modify adjudicating authority’s directions, and consequently imposing greater financial burdens on the resolution applicant, is justified in the circumstances.
Findings of Court:
It is noticeable that no doubt, Hero was provided with 32.34% of its admitted claim as it has dissented with the plan. On the other hand, Tata Capital Financial Services Ltd. was provided with 75.63% of its admitted claim; other financial creditors (Indian Overseas Bank, Bank of Baroda and Punjab National Bank) were provided with 45% of their admitted claims. Given that resolution process began well before the amended regulation came into force (in fact, January, 2017) and the resolution plan was prepared and approved before that event, the wide observations of the NCLAT, requiring the appellant to match payout (offered to other financial creditors) to Hero, was not justified.
Result : Appeal allowed.
JUDGMENT :
S. RAVINDRA BHAT, J.
1. The resolution applicant (hereafter “the appellant”) is aggrieved by the decision of the National Company Law Appellate Board (hereafter “NCLAT”) in regard to its directions modifying a resolution plan accepted by the adjudicating authority (i.e. National Company Law Tribunal, hereafter “NCLT” or “the adjudicating authority”). The Corporate Insolvency Resolution Process (CIRP) was initiated against M/s. Rave Scans Private Limited (hereafter the “Corporate Debtor”) under Section 10 of the Insolvency and Bankruptcy Code, 2016 ("IBC" or “the Code” for short). The revised resolution plan submitted by the appellant was approved by the NCLT on 17th October, 2018. The second respondent, M/s Hero Fincorp Ltd. (hereafter the “Financial Creditor” or “Hero”) appealed against the NCLT’s order on grounds of discrimination between financial creditors, which resulted in the NCLAT modifying the NCLT’s final order. The question urged by the appellant is whether the finding that the financial creditor was discriminated against, leading the NCLAT to modify the adjudicating authority’s directions, and consequently imposing greater financial burdens on the resolution applicant, is justified in the circumstances.
2. The facts of the case are as follows. The CIRP was initiated on 25th January, 2017 against the Corporate Debtor under Section 10 of the IBC. The appellant was the resolution applicant of the Corporate Debtor, whose liquidation value was ascertained as Rs.36 crores. Against the said amount, the appellant offered Rs.54 crores to revive the Corporate Debtor in terms of the resolution plan. The resolution plan was then revised and the revised resolution plan submitted by the appellant was approved by the adjudicating authority, i.e., the Principal Bench of the NCLT. This resolution plan was challenged before the NCLAT by the second respondent in the present appeal, Hero Fincorp Ltd. as being discriminatory. Discrimination was alleged on the ground that the secured financial creditors were provided with a higher percentage of their claim amounts; however, Hero had been allowed a lesser percentage of its admitted claim. Hero, who had dissented with the resolution plan, had been provided with 32.34% of its admitted claim, whereas other financial creditors had been provided with 45% of their admitted claims. The remarks column in the resolution plan showed that the plan was based on ‘Maintained liquidation value (LV) under Regulation 38 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The reference herein was to the unamended Regulation 38, pertaining to the mandatory contents of a resolution plan.
3. The NCLAT in its impugned order which set aside the NCLT’s directions and required the appellant to increase the liquidation value of the offer to Hero, relied on Central Bank of India v. Resolution Professional of the Sirpur Paper Mills Ltd. & Ors., Company Appeal (AT) (Insolvency) No. 526 of 2018 and Binani Industries Ltd. v. Bank of Baroda & Anr., Company Appeal (AT) (Insolvency) No. 82 of 2018, and noticed that Regulation 38 had been held to be discriminatory in these cases. Accordingly, an amendment was made on 5th October, 2018, and the provision in Regulation 38(1)(c) on liquidation value payable to financial creditors was deleted. The amended regulation was also considered by the Supreme Court in Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India, 2019 SCC Online SC 73, which noticed that the amendment strengthens the rights of operational creditors by statutorily incorporating the principle of fair and equitable dealing of operational creditors’ rights, together with priority in payment over financial creditors. Swiss Ribbons (supra) also observed that the NCLAT, while looking into the viability and feasibility of resolution plans approved by the committee of creditors, has always gone into the question of whether operational creditors are
