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Synopsis

The Supreme Court has recently referred to larger bench to decide a question whether Section 30(2)(b)(ii) of the Insolvency and Bankruptcy Code, 2016, as amended in 2019, entitles the dissenting financial creditor to be paid the minimum value of its security interest.

A bench of Justices Sanjiv Khanna and S V N Bhatti took a different view and ratio from 'India Resurgence ARC Private Limited Vs Amit Metaliks Limited & Another' (2021) on interpretation of Section 30(2)(b)(ii) of the IBC.

"We feel that it would be appropriate and proper if the question framed at the beginning of this judgment is referred to a larger bench. The matter be, accordingly placed before the the Chief Justice for appropriate orders," the bench ordered.

The matter before the court arose out of an appeal filed by DBS Bank Ltd Singapore, which had given financial debt of Rs 243 Cr to Ruchi Soya Industries Ltd, the corporate debtor. As Corporate Insolvency Resolution Process was initiated against the corporate debtor under the provisions of the Code, the lender laid a claim for Rs 242.96 Cr on the basis of the sole and exclusive nature of security by way of mortgage/hypothecation over immovable and fixed assets of the corporate debtor, which was of greater value compared to collaterals held by other creditors. The CoC approved pari passu distribution of the resolution plan proceeds and the appellant became a dissenting financial creditor. NCLT, Mumbai approved the resolution plan. The NCLAT dismissed plea by the appellant.

Reading Section 30(2)(b)(ii) of the Amendment Act, 2019, the bench said that the dissenting financial creditor is entitled to payment, which should not be less than the amount payable under Section 53(1), in the event of the liquidation of the corporate debtor. 

The provision recognises that all financial creditors need not be similarly situated, secured financial creditors may have distinct sets of securities, the court said.

"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," the bench said.

The court said that a financial creditor can dissent if the 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 the stage of distribution on the ground of a dissent or assent, otherwise the distribution would be arbitrary and discriminative. The purpose of the amendment was only to ensure that a dissenting financial creditor does not get anything less than the liquidation value, but not for getting the maximum of the secured assets," the bench said.

The bench, however, found that there was a contradiction in the reasoning given in the judgment of the top court in India Resurgence ARC Private Limited, which was in discord with the ratio decidendi of the decisions of the three-judge bench in 'Committee of Creditors of Essar Steel India Limited (2020) and Jaypee Kensington (2023).

"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 proceedings. This rule also applies to the operational creditors. This ensures that dissenting creditors receive the payment of the value of their security interest," the bench said.

The bench further explained that dissenting financial creditor does not have any say when the resolution plan is approved by a two-third majority of the CoC and the resolution plan will be accepted when approved by the specified majority in the CoC. 

The dissenting financial creditor cannot object to the resolution plan, but can object to the distribution of the proceeds under the resolution plan, when the proceeds are less than what the dissenting financial creditor would be entitled to in terms of Section 53(1) if the corporate debtor had gone into liquidation. This is the statutory option or choice given by law to the dissenting financial creditor, the option/choice should be respected, the bench said.

Case Title: DBS Bank Limited Singapore Vs Ruchi Soya Industries Limited And Another