1. Corporate Insolvency Resolution Process — Approval of resolution plan — Dispute regarding whether the plan must match the liquidation value of the corporate debtor. (Para 1 , 6 , 7 , 8 , 9 , 11 )
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2020 Supreme(SC) 62
SUPREME COURT OF INDIA
Rohinton Fali Nariman, Aniruddha Bose, V. Ramasubramanian, JJ.
MAHARASTHRA SEAMLESS LIMITED – APPELLANT
VERSUS
PADMANABHAN VENKATESH & ORS. – RESPONDENTS
CIVIL APPEAL NO. 4242 OF 2019 WITH CIVIL APPEAL NOS. 4967-4968 OF 2019
Decided On : 22-01-2020
Advocates Appeared:
For the Appellant(s) :Avni Sharma, Raghav Sabharwal, Divyam Agarwal, M/s. Khaitan & Co., Advocates
For the Respondent(s):Aditya Verma, G. Ramakrishna Prasad, Suyodhan Byrapaneni, Filza Moonis, Mohd. Wasay Khan, Bharat J. Joshi, John Mathew, Soumik Ghosal, Sinha Shrey Nikhilesh, Swastik Verma, Arjun Singh Bhati, Advocates
For the Appellant(s) :Avni Sharma, Raghav Sabharwal, Divyam Agarwal, M/s. Khaitan & Co., Advocates
For the Respondent(s):Aditya Verma, G. Ramakrishna Prasad, Suyodhan Byrapaneni, Filza Moonis, Mohd. Wasay Khan, Bharat J. Joshi, John Mathew, Soumik Ghosal, Sinha Shrey Nikhilesh, Swastik Verma, Arjun Singh Bhati, Advocates
IMPORTANT POINTS
Financial creditors and operational creditors cannot be given equitable treatment.
There is no requirement of matching the bid the Resolution Applicant and liquidation value under Clause 35.
Exit route under Section 12-A is not applicable to a Resolution Applicant. It is applicable only to applicants invoking Sections 7, 9 and 10.
Headnote:
(a) Insolvency and Bankruptcy Code, 2016 - Section 30(2)(b) - Financial creditors and operational creditors - Cannot be given equitable treatment - However, Successful Resolution Applicant having agreed to clear dues of operational creditors in percentage at par with the financial creditors, the question becomes academic. (Para 21, 22)
(b) Insolvency and Bankruptcy Code, 2016 - Section 31 r/w Clause 35, Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 - Bid of Resolution Applicant and liquidation value under Clause 35 - No requirement of matching the two - Resolution plan approved by CoC - Adjudicating Authority has to approve it under section 31 if it complies with sub-sections (2) and (4) - Instantly Appellate Authority proceeded on equitable perception rather than commercial wisdom of CoC - Not sustainable. (Para 27, 28)
(c) Insolvency and Bankruptcy Code, 2016 - Section 12-A - Exit route not applicable to a Resolution Applicant - Only applies to applicants invoking Sections 7, 9 and 10. (Para 29)
Facts of the case:
These proceedings arise out of Corporate Insolvency Resolution Process (CIRP) involving United Seamless Tubulaar Private Limited, the corporate debtor. The successful Resolution Applicant, Maharashtra Seamless Ltd. (MSL) is the appellant in C.A. No. 4242 of 2019. The total debt of the corporate debtor was Rs. 1897 crores, out of which Rs.1652 crores comprised of term loans from two entities of Deutsche Bank. These are DB International (Asia) Limited and Deutsche Bank AG, Singapore Branch. There was also debt on account of working capital borrowing of Rs. 245 crores from another bank, being Indian Bank. Said Indian Bank is the initiator of the CIRP, who filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (the Code). DB International (Asia Ltd.) is the appellant in C.A. No.4967-68 of 2019. A concern by the name of UMW had provided corporate guarantee to Deutsche Bank, Singapore as collateral to the said term loan. The Adjudicating Authority, the National Company Law Tribunal, Hyderabad Bench (NCLT) by an order passed on 21st January, 2019 approved the resolution plan submitted by MSL in an application filed by the Resolution Professional. This resolution plan included an upfront payment of Rs. 477 crores. Ancillary directions were issued by the Adjudicating Authority while giving approval to the said resolution plan with the finding that the said plan met all the requirements of Section 30(2) of the Code. This order was carried up in appeal before the National Company Law Appellate Tribunal (NCLAT). They were one of the promoters of the corporate debtor, Padmanabhan Venkatesh and the Indian Bank. These two appeals were heard with another appeal filed by the successful Resolution Applicant (MSL) against an order of the Adjudicating Authority passed on 28th February 2019.
In that application, MSL sought directions upon the corporate debtor as also the police and administrative authorities for effective implementation of the resolution plan. Grievance of MSL in that proceeding was that they were not being given access to the assets of the corporate debtor.
One of these plans was by MSL. The other Resolution Applicant whose offer was considered was M/s. Area Projects Consultants Private Limited. MSL had offered upfront payment of Rs.477 crores. The resolution plan of MSL was approved by the financial creditors having 87.10% of the voting shares. This voting block consisted of the two aforesaid Deutsche Bank entities. The Deutsche Bank International (Asia) Limited had 73.40% vote share and the Indian Bank had 12.90% voting share in CoC.
The Committee took into consideration the revised valuation and on majority voting approved again the resolution plan of MSL.
The order of the Adjudicating Authority passed on 28th September 2018 was appealed against by MSL before NCLAT. NCLAT asked the MSL to enhance its upfront payment from Rs.477 Crores to Rs.597.54 Crores failing which the resolution plan would be treated as set aside.
Finding of the Court:
The Resolution Professional directed to take physical possession of the assets of the corporate debtor and hand it over to the MSL.
Result: Appeal of MSL allowed.
Legal Category Hierarchy
Table of Contents
2. Whether resolution plans must match liquidation value — Whether a successful resolution applicant can withdraw the plan and seek refunds under Section 12-A of the Code. (Para 12 , 13 , 14 , 15 )
3. The Adjudicating Authority's role is limited judicial review to ensure compliance with Section 30(2), without interfering in the commercial wisdom of the Committee of Creditors. (Para 17 , 18 , 19 , 20 , 21 , 23 , 25 , 26 , 27 , 28 )
4. Resolution plans are not legally required to match liquidation value; the commercial wisdom of the Committee of Creditors prevails if Section 30(2) requirements are satisfied. (Para 26 , 27 , 28 )
5. Appeal allowed — NCLAT order set aside — NCLT order affirmed — Resolution Professional directed to hand over assets to the successful resolution applicant. (Para 31 , 32 )
6. Must a resolution plan match the liquidation value of the corporate debtor to be approved?
No. There is no provision in the Code or Regulations requiring a resolution plan to match the liquidation value. Liquidation value is intended to assist the Committee of Creditors in its decision-making process, but the Adjudicating Authority cannot reject a plan solely because it is below the liquidation value. (Para 26 , 27 , 28 )
7. What is the scope of judicial review available to the Adjudicating Authority regarding a resolution plan?
The Adjudicating Authority's review is limited to verifying that the resolution plan meets the requirements of Section 30(2) and has provisions for effective implementation. It cannot interfere with the merits of the commercial decision taken by the Committee of Creditors. (Para 27 , 28 )
8. Can a successful resolution applicant use Section 12-A of the Code to withdraw from the process?
No. Section 12-A provides a mechanism for the withdrawal of applications admitted under Sections 7, 9, or 10. This route is applicable only to the applicants who initiated the insolvency process, not to a successful resolution applicant. (Para 15 , 29 )
9. Are financial and operational creditors entitled to the same percentage of recovery in a resolution plan?
No. While the Code seeks to balance the interests of all stakeholders, there is no requirement that financial and operational creditors be paid the same proportionate amounts. Operational creditors must receive a minimum payment not less than their liquidation value. (Para 19 , 20 , 21 )
JUDGMENT
ANIRUDDHA BOSE, J.
These proceedings arise out of Corporate Insolvency Resolution Process (CIRP) involving United Seamless Tubulaar Private Limited, the corporate debtor. The successful Resolution Applicant, Maharashtra Seamless Ltd. (MSL) is the appellant in C.A. No. 4242 of 2019. The total debt of the corporate debtor was Rs. 1897 crores, out of which Rs.1652 crores comprised of term loans from two entities of Deutsche Bank. These are DB International (Asia) Limited and Deutsche Bank AG, Singapore Branch. There was also debt on account of working capital borrowing of Rs. 245 crores from another bank, being Indian Bank. Said Indian Bank is the initiator of the CIRP, who filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (the Code). DB International (Asia Ltd.) is the appellant in C.A. No.4967-68 of 2019. A concern by the name of UMW had provided corporate guarantee to Deutsche Bank, Singapore as collateral to the said term loan. The Adjudicating Authority, the National Company Law Tribunal, Hyderabad Bench (NCLT) by an order passed on 21st January, 2019 approved the resolution plan submitted by MSL in an application filed by the Resolution Professional. This resolution plan included an upfront payment of Rs. 477 crores. Ancillary directions were issued by the Adjudicating Authority while giving approval to the said resolution plan with the finding that the said plan met all the requirements of Section 30(2) of the Code. This order was carried up in appeal before the National Company Law Appellate Tribunal (NCLAT), being the Appellate Authority under the Code by two persons who were parties before the NCLT. They were one of the promoters of the corporate debtor, Padmanabhan Venkatesh and the Indian Bank. These appeals were registered as Company Appeal (AT) (Insol.) Nos. 128 & 247 of 2019. The appellant in Company Law (AT) (Insol.) No. 128/2019 was said Padmanabhan Venkatesh. The appellant in Company Law (AT) (Insol.) No. 247 of 2019 was the Indian Bank. These two appeals were heard with another appeal filed by the successful Resolution Applicant (MSL) against an order of the Adjudicating Authority passed on 28th February 2019. The MSL’s appeal was registered as Company Appeal (AT) (Insol.) No. 220 of 2019.
2. This appeal by MSL was in connection with I.A. No. 125 of 2019 filed by them in CP(IB) No. 49/7/HDB/2017. In that application, MSL sought directions upon the corporate debtor as also the police and administrative authorities for effective implementation of the resolution plan. Grievance of MSL in that proceeding was that they were not being given access to the assets of the corporate debtor. The Adjudicating Authority, while disposing of the application, directed, inter-alia:-
“20. Even though appeal is preferred by Respondent No.5 to the Hon’ble NCLAT, there is no stay and the appeal is coming up for hearing on 07.03.2019. The implementation of this Plan is subject to the outcome of the Appeal. Therefore, a direction can be given to the concerned to extend cooperation to the Applicant herein in implanting the Resolution Plan of the Corporate Debtor Company and it is only subject to the outcome of the Appeal which is pending before Hon’ble NCLAT.
21. A direction cannot be given to the Superintendent of Police and Collector because by the date of Application, the Applicant has not deposited the bid amount. Therefore, at the first instance direction can be given to all concerned of the Corporate Debtor Company to extend all cooperation to the Applicant. It is always open to the Applicant to approach the Tribunal for suitable direction, if so required.
22. In the result, Application is disposed of directing the concerned of the Corporate Debtor Company to extend all cooperation to the Applicant herein in implementing the Resolution Plan and it is open to Resolution Applicant to approach the Tribunal for necessary direction subsequent to this order, if so required.” (quoted verbatim)
3. In t
