1. Secured financial creditor — Dissent from resolution plan — Dispute over entitlement to liquidation value of security interest under Section 30(2)(b)(ii), Insolvency and Bankruptcy Code. (Para 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 , 14 , 15 , 16 , 17 , 18 , 20 )
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2024 Supreme(SC) 7
SUPREME COURT OF INDIA
Sanjiv Khanna, S.V.N. Bhatti, JJ.
DBS Bank Limited Singapore - Appellant
VERSUS
Ruchi Soya Industries Limited And Another – Respondents
Civil Appeal No. 9133 of 2019 With Civil Appeal No. 787 of 2020
Decided On : 03-01-2024
Advocates:
Advocate Appeared:
For the Appellant(s) : Ms. Anindita Roy Chowdhury, Adv. Ms. Vatsala Rai, aDv. Mr. Raghav Chadda, Adv. Mr. Bharat Makkar, Adv. Mr. Sushrut Garg, Adv. Ms. Anannya Ghosh, AOR
For the Respondent(s): Mr. Krishnan Venugopal, Sr. Adv. Mr. Nakul Sachdeva, Adv. Mr. Aakarshan Sahay, Adv. Mr. Sagar Arora, Adv. Mr. Abhinandan Sharma, Adv. Mr. Krishnan Agarwal, Adv. Mr. Faisal Sherwani, AOR M/S. Cyril Amarchand Mangaldas Aor, AOR Mr. Gaurav Varma, AOR
Advocate Appeared:
For the Appellant(s) : Ms. Anindita Roy Chowdhury, Adv. Ms. Vatsala Rai, aDv. Mr. Raghav Chadda, Adv. Mr. Bharat Makkar, Adv. Mr. Sushrut Garg, Adv. Ms. Anannya Ghosh, AOR
For the Respondent(s): Mr. Krishnan Venugopal, Sr. Adv. Mr. Nakul Sachdeva, Adv. Mr. Aakarshan Sahay, Adv. Mr. Sagar Arora, Adv. Mr. Abhinandan Sharma, Adv. Mr. Krishnan Agarwal, Adv. Mr. Faisal Sherwani, AOR M/S. Cyril Amarchand Mangaldas Aor, AOR Mr. Gaurav Varma, AOR
IMPORTANT POINT
A secured creditor cannot claim preference over another secured creditor at stage of distribution on the ground of a dissent or assent, otherwise distribution would be arbitrary and discriminative.
Headnote:
Insolvency and Bankruptcy Code, 2016 – Sections 30(2)(b)(ii) and 53 – Whether Section 30(2)(b)(ii) of Insolvency and Bankruptcy Code, 2016, as amended in 2019, entitles dissenting financial creditor to be paid minimum value of its security interest – A financial creditor can dissent if resolution plan is discriminatory or against a provision of law – However, a dissenting financial creditor cannot take advantage of Section 30(2)(b)(ii) – A secured creditor cannot claim preference over another secured creditor at stage of distribution on the ground of a dissent or assent, otherwise distribution would be arbitrary and discriminative – A dissenting financial creditor is only entitled to monetary value of assets – Dissenting financial creditor cannot enforce security interest – A dissenting financial creditor has to statutorily forgo and relinquish his security interest on resolution plan being accepted and his position is same and no different from that of a secured creditor who has voluntarily relinquished security and is to be paid under Section 53(1)(b)(ii) of Code. (Paras 27 and 42)
Result : Matter referred to a larger Bench.
Legal Category Hierarchy
Table of Contents
2. Entitlement of dissenting secured financial creditor to receive minimum liquidation value of security interest versus the principle of pari passu distribution among secured creditors. (Para 7 , 14 , 20 , 40 , 41 , 44 , 45 , 47 , 48 )
3. Analysis of Section 30(2)(b)(ii) and Section 53(1) — Protection of minority autonomy — Conversion of security interest into monetary value for dissenting creditors. (Para 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39 , 40 , 42 , 43 , 44 , 45 , 46 , 47 , 48 )
4. Dissenting financial creditors are entitled to a minimum monetary payment equivalent to the liquidation value of their security interest under Section 30(2)(b)(ii) and Section 53(1). (Para 33 , 38 , 40 , 42 )
5. Question regarding entitlement of dissenting financial creditors to minimum security interest value referred to a larger Bench. (Para 49 )
6. Does the 2019 Amendment to Section 30(2)(b) of the IBC apply to pending CIRP proceedings or appeals?
Yes, Explanation 2 to Section 30(2)(b) ensures the amendment applies to proceedings where a resolution plan is not yet finally approved or rejected, including pending appeals before the NCLAT or other courts. (Para 13 , 22 , 23 , 24 )
7. What is the minimum payment a dissenting financial creditor is entitled to under a resolution plan?
A dissenting financial creditor must be paid an amount not less than what they would have received in the event of liquidation of the corporate debtor under Section 53(1) of the Code. (Para 13 , 25 , 26 , 33 , 40 )
8. Can a dissenting secured financial creditor enforce their security interest upon approval of a resolution plan?
No, the dissenting financial creditor must relinquish the security interest, which is converted into its monetary value to be paid as a sum of money, preventing the resolution plan from becoming unworkable. (Para 38 , 42 )
9. Does the commercial wisdom of the CoC under Section 30(4) override the minimum payment guarantee for dissenting creditors?
No, while the CoC has commercial wisdom regarding the distribution of proceeds, Section 30(2)(b)(ii) acts as a statutory protection ensuring dissenting creditors receive at least their liquidation value. (Para 25 , 48 )
JUDGMENT :
SANJIV KHANNA, J.
The issue that arises for consideration in the present appeals is:
Whether Section 30(2)(b)(ii) of the Insolvency and Bankruptcy Code, 20161[For short, “IBC” or “the Code”, as the case may be], as amended in 2019, entitles the dissenting financial creditor to be paid the minimum value of its security interest?
2. Appellant - DBS Bank Limited Singapore 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 Limited2[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 Process3[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 Professional4[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 four crore only) against the aggregate claims of around Rs. 8398,00,00,000 (rupees eight thousand three hundred ninety eight crore only), representing approximately 49.22% of the total admitted claims of the financial creditors.
7. On 12.04.2019, by a communication, the appellant informed the Committee of Creditors5[For short, “CoC”] that the sole and exclusive nature of security held by the appellant by way of mortgage/hypothecation over immovable and fixed assets of the Corporate Debtor was of greater value compared to collaterals held by other creditors. Emphasising the specific treatment of the exclusive and superior security, the appellant requested the CoC to take into account the liquidation value of such security while considering the distribution of proceeds and to make such distribution in a “fair and equitable” manner.
8. In the 21st and 22nd CoC meetings held on 15.04.2019 and 23.04.2019 respectively, the appellant’s concern regarding treatment/proposed pay-out was noted. However, in the meeting held on 23.04.2019, the CoC approved pari passu distribution of the resolution plan proceeds.
9. On 30.04.2019, the resolution plan was approved by 96.95% of the CoC. The appellant had voted against the resolution plan, thereby becoming a dissenting financial creditor.
10. The resolution plan was filed for approval before the National Company Law Tribunal6[For short, “NCLT”], Mumbai. Separately, the appellant challenged the distribution mechanism of the resolution plan proceeds by way of an application before the NCLT, Mumbai.
11. On 24.07.2019, the NCLT granted provisional/conditional approval to the resolution plan. By the same order dated 24.07.2019, the NCLT dismissed the appellant’s application challenging the distribution mechanism of the resolution plan proceeds.
12. On 31.07.2019, the appellant challenged the dismissal of its application before the National Company Law Appellate Tribunal7[For short, “NCLAT”].
13. During pendency of the appeal, Section 6 of the Insolvency and Bankruptcy Code (Amendment) Act, 20198[For short, “Amendment Act”], was notified by way of a gazette notification dated 16.08.2019. It amended Section 30(2)(b) of the Code. Amended Section 30(2)(b)(ii) of the Code provides that operational and dissenting financial creditors shall not be paid an amount lesser than the amount to be paid to creditors in the event of liquidation of the Corporate Debtor under Section 5
