Subrata Kumar Dash, Member (Technical)
IA No.581/2021
1. The present application is filed under Section 60(5) of the IBC, 2016 read with Rule 11 of the NCLT Rules, 2016 for directions to respondent No.1
to distribute the proceeds of the resolution plan to the applicant for an amount of Rs.5,64,97,893/- in priority as per Section 30(2)(b), Section 30(4) and
Section 53(1) of IBC, 2016 as applicable to dissenting financial creditor.
2. In the present matter, in view of the application of Form G on 21.02.2021, the Resolution Professional had received three resolution plans from
respective resolution applicants which were put to voting before the CoC in its 16th meeting held from 30.07.2021 to 05.08.2021. In the same meeting,
the resolution plan submitted by M/s Lotus Textiles and Mijayant Mittal was approved by the majority of CoC by more than 66% as per the provisions
of the IBC, 2016 and as such making them the Successful Resolution Applicant.
3. The applicant submitted that all the three resolution plans shared by respondent No.1 did not contain any clarity on the amount payable to the
dissenting member. In this regard, a series of e-mails were exchanged with respondent No.1, whereby the concerns of the applicant were not
addressed.
4. It is submitted by the applicant that the liquidation value of securities exclusively charged to SIDBI is Rs.5.64/- Crores which is equivalent to 6.93%
of the liquidation value of the asset of the corporate debtor as against a voting share of 2.03%. Further, the applicant being a dissenting creditor is
proposed to be paid Rs.1,65,47,078/- as per voting share being 2.03% instead of Rs.5,64,97,893/- as per security interest of 6.93%, thus causing a loss
of Rs.3,99,50,815/- to the applicant and undue gain to respondent-Punjab National Bank.
5. It is averred by the applicant that dissenting financial creditor should have been paid at least liquidation value of assets charged to the specific
financial creditor in terms of Section 30(2) and Section 53 of IBC, 2016 along with a priority of payment over assenting members in terms of
Regulation 38 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
6. The applicant has relied upon a decision dated 05.01.2022 of the Hon’ble NCLAT in the matter of Bank of Maharashtra & Ors., whereby it is
submitted that NCLAT has remitted the matter to CoC for consideration in view of the resolution plan being non-compliant as it provided for less than
the liquidation value to the dissenting members and was in contravention of Section 30 of the IBC, 2016.
7. The Respondent No.1/Resolution Professional in its reply filed vide Diary No.01276/01 dated 29.11.2021 states that CoC in its commercial wisdom
approve the plan submitted by the Successful Resolution Applicant in its 16th CoC meeting. Once a resolution plan has been approved by the CoC, the
dissenting financial creditor cannot challenge the same on the basis of the mere distribution of the proceeds of the resolution plan not being as per the
security interest holding/share of the Financial Creditor. It is submitted that the applicant cannot suggest a higher amount to be paid to it with reference
to the value of the security interest. The same has been held by the Hon’ble Supreme Court of India in the matter of India Resurgence Arc Pvt.
Ltd. Vs. M/s Amit Metaliks Ltd. and Another in Civil Appeal No.1700 of 2021 decided on 13.05.2021.
8. Whereas the applicant is in its rejoinder filed vide Diary No.01276/2 dated 03.02.2022 denied the averments made by Respondent No.1/Resolution
Professional.
9. We have carefully perused the records available and the submissions made by the learned counsel for the applicant and respondents.
10. In the present case, the issue of whether the distribution of the assets in the resolution plan which is not as per the security interest holding/share
of the financial creditor will be valid under the IBC is closely linked with the status of the decision of the CoC under the Code. The law in this regard
has been clearly laid down by the Hon’ble Supreme Court in the cases mentioned below along with relevant extracts for the sake of clarity.
1. Committee of Creditors of Essar Steel India Ltd. Vs. Satish Kumar Gupta and Ors. (2020) 8 SCC 531:
“7. It is abundantly clear that the considerations including priority in scheme of distribution and the value of security are matters falling within the realm of
Committee of Creditors. Such considerations, being relevant only for purposed for arriving at a business decision in exercise of commercial wisdom of the
Committee of Creditors, cannot be the subject of judicial review in appeal within the parameters of Section 61(3) of I&B Code. xx xx xx xx
xx xx xx xx xx xx xx xx
However, such business decision taken in exercise of commercial wisdom of Committee of Creditors would not warrant judicial intervention unless creditors
belonging to a class being similarly situated are not given a fair and equitable treatment.â€
2. India Resurgence ARC Pvt. Ltd. Vs. M/s Amit Metaliks Ltd. & Anr, Civil Appeal No.1700 of 2021 judgment dated 13.05.2021:
“12.The provisions of amended Sub-Section (4) of Section 30 of the Code, on which excessive reliance is placed on behalf of the appellant, in our view, do not
make out any case for interference with the resolution plan at the instance of the appellant. The purport and effect of the amendment to sub-section (4) of Section
30 of the Code, by way of sub-clause (b) of Section 6 of the Amending Act of 2019, was also explained by this Court in Essar Steel (supra), as duly taken note of by
the Appellate Authority (vide the extraction hereinbefore). The NCLAT was, therefore, right in observing that such amendment to sub-section (4) of Section 30
only amplified the considerations for the Committee of Creditors while exercising its commercial wisdom so as to take an informed decision in regard to the
viability and feasibility of resolution plan, with fairness of distribution amongst similarly situated creditors; and the business decision taken in exercise of the
commercial wisdom of CoC does not call for interference unless creditors belonging to a class being similarly situated are denied fair and equitable treatment.
12.1.In regard to the question of fair and equitable treatment, though the Adjudicating Authority as also the Appellate Authority have returned concurrent
findings in favour of the resolution plan yet, to satisfy ourselves, we have gone through the financial proposal in the resolution plan. What we find is that the
proposal for payment to all the secured financial creditors (all of them ought to be carrying security interest with them) is equitable and the proposal for payment
to the appellant is at par with the percentage of payment proposed for other secured financial creditors. No case of denial of fair and equitable treatment or
disregard of priority is made out.
13.1.Thus, what amount is to be paid to different classes or sub-classes of creditors in accordance with provisions of the Code and the related Regulations, is
essentially the commercial wisdom of the Committee of Creditors; and 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.
15.The limitation on the extent of the amount receivable by a dissenting financial creditor is innate in Section 30(2)(b) of the Code and has been further
exposited in the decisions aforesaid. It has not been the intent of the legislature that a security interest available to a dissenting financial creditor over the assets
of the corporate debtor gives him some right over and above other financial creditors so as to enforce the entire of the security interest and thereby bring about
an inequitable scenario, by receiving excess amount, beyond the receivable liquidation value proposed for the same class of creditors.â€
(emphasis supplied)
11. Furthermore, the Hon’ble Supreme Court has also clarified in clear terms that the commercial wisdom of the Committee of Creditors is
paramount in a large number of decisions some of which are mentioned below along with the relevant extracts for the sake of clarity.
1. K.Sashidhar vs. India Overseas Bank & Ors., Civil Appeal No.10673 of 2018:-
“33. xx xx xx The legislature has not endowed the adjudicating authority (NCLT) with the jurisdiction or authority to analyze or evaluate the commercial
decision of the CoCmuchless to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors.â€
2. Committee of Creditor of Essar Steel India Limited Vs. Satish Kumar Gupta & Ors., Civil Appeal No.8766-67/2019:-
“31. Since it is the commercial wisdom of the Committee of Creditors that is to decide on whether or not to rehabilitate the corporate debtor by means of
acceptance of a particular resolution plan, the provisions of the Code and the Regulations outline in detail the importance of setting up of such Committee, and
leaving decisions to be made by the requisite majority of the members of the aforesaid Committee in its discretion……
42. …Thus, it is clear that the limited judicial review available, which can in no circumstance trespass upon a business decision of the majority of the Committee
of Creditors, has to be within the four corners of Section 30(2) of the Code, insofar as the Adjudicating Authority is concerned, and Section 32 read with Section
61(3) of the Code, insofar as the Appellate Tribunal is concerned, the parameters of such review having been clearly laid down in K. Sahidhar (supra).â€
12. We have also come across the decision of the Hon’ble NCLAT, Principal Bench, New Delhi vide judgment dated 05.01.2022 in the matter of
Bank of Maharashtra Versus Videocon Industries Limited and Others cited as Company Appeal (AT) (Ins.) No.503 of 2021. In this case, one of the
issues considered was whether a resolution plan which provides the dissenting Bank less than the liquidation value which the bank would have
received otherwise is violative of the provisions of the Code specifically Section 30 of the same.
13. After going through voluminous pleadings by both the sides the Hon’ble NCLAT held as under:-
“Concerns raised by the lenders regarding the distribution mechanism provided to the Dissenting Financial Creditors in the resolution plan and the
contentious issue of distribution amount. All these are not complied with in accordance with Section 31(1) which is a requirement for satisfaction of the
Adjudicating Authority. Section 30(2) of the Code has also not been complied with.â€
14. The Hon’ble NCLAT, Principal Bench, New Delhi has also considered the same issue in the case ofC anara Bank Vs. Ms. Mamta Binani,
Resolution Professional & Ors. in Company Appeal(AT)(Insolvency) No. 1117 of 2019 dated 03.01.2022. The important paras of the …
In its decision, the Hon’ble NCLAT noted the fact that the Resolution plan was approved by an overwhelming majority of the members of the
CoC, and the ‘ the resolution fund ‘ was equally distributed. The relevant extracts from the said order are as under:
“44. Although, the Appellant/Canara Bank gave a dissenting Vote for the approval of the Plan, based on the reason that ‘Distribution of Resolution
Fund’ was discriminatory as against them and despite its plea that it was entitled to the equal and share in regard to the distribution of the Resolution Fund
on the footing that the Bank held more than 80% of the assents of the ‘Corporate Debtor’ as security, the fact of the matter is that the ‘Committee of
Creditors’ had approved the Resolution Plan of Jagannth Financial Advisory Pvt. Ltd by 75.70% of votes.
It cannot be gainsaid that the ‘Resolution Fund’ was equally distributed among all the ‘Financial Creditors’ showing them equal share i.e., 23.43%
and that the 1st Respondent/Resolution Professional had certified the plan and the compliance certificate was furnished. There is no illegality in the Resolution
Plan as opined by this Tribunal, it comes to be known that the Successful Resolution Applicant/Respondent No. 4 had implemented the Resolution Plan in part
and made payments quite in tune with the ‘Approved Resolution Plan’.â€
(emphasis supplied)
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15. The Hon’ble NCLAT placed reliance on the decision in the case of Amit Metaliks:
“This ‘Tribunal’ aptly points out the decision of Hon’ble Supreme Court in India Resurgence ARC Pvt. Ltd. V. Amit Metaliks & Anr.
2021 SCC online SC 409 wherein paragraph 21, it is mentioned as under:
“21. The limitation on the extent of the amount receivable by a dissenting financial creditor is innate in Section 30(2)(b) of the Code and has been further
exposited in the decisions aforesaid. It has not been the intent of the legislature that a security interest available to a dissenting financial creditor over the assets
of the corporate debtor gives him some right over and above other financial creditors so as to enforce the entire of the security interest and thereby bringing
about an inequitable scenario, by receiving excess amount, beyond the receivable liquidation value proposed for the same class of creditors.â€
16. In the final paragraphs, the Hon'ble NCLAT summarised its findings as below:
“47. To be noted, in the present case, the distribution of the amount was made by the ‘Committee of Creditors’ resting on the total dues of individual
Creditors and the same is not either whimsical or arbitrary in any manner. To put it differently, the ‘distribution of the amount’ between the Creditors
provides equal treatment to all of them. Also that the Appellant was provided with a fair value as per the decision of the ‘Committee of Creditors’ and the
value proportionate to the dues was allotted the same as that of other Financial Creditors.â€
(emphasis supplied)
17. Considering the fact that the decision in the case of Ms. Mamta Binani, case (supra) dated 03.01.2022 of the Hon’ble NCLAT deals at length
on the issue of distribution of assets among financial creditors (including those holding security interest) and is decided by a three Member Bench, as
against the decision of a two Member Bench in Videocon Industries Limited and Others (supra) dated 05.01.2022 of the Hon’ble NCLAT, this
Bench follows the decision in the former case on the basis of the Doctrine of Precedents.
18. In the present case, the CoC is constituted by respondent/RP in which Punjab National Bank is having 97.97% voting share and applicant SIDBI
has 2.03% voting share. We find that the proposal for payment to all the secured financial creditors (including the applicant carrying security interest)
is equitable and the proposal for payment to the applicant is at par with the percentage of payment proposed for the other secured financial creditor.
No case of denial of fair and equitable treatment or disregard of priority is made out.
19. We also hold that a dissenting secured creditor like the applicant cannot suggest a higher amount to be paid to it with reference to the value of the
security interest as what amount is to be paid to different classes or subclasses of creditors in accordance with provisions of the Code and the related
Regulations, is essentially the commercial wisdom of the CoC;
20. In the light of the discussion foregoing and reasons recorded, we do not find any merits in the application in hand. Accordingly, IA No.581/2021
stands dismissed.
