Dissenting Financial Creditor Only Entitled To Liquidation Value Of Secured Interest U/S 30(2)(b) Of IBC, Commercial Wisdom Of CoC Sacrosanct: NCLAT

Brief Facts:

The Appellant (a secured financial creditor) dissented with the resolution plan filed by the Resolution Professional (RP) of Shubhkamna Buildtech Pvt. Ltd. (Corporate Debtor). The resolution plan was approved with an 87.6% majority vote from the CoC. An application under section 9 of the Code was admitted against the Corporate Debtor on 26.11.2018.

In the application filed by RP for approval of the resolution plan, the Appellant filed the objection as dissenting financial creditor. Two objections were raised, namely, (i) that the liquidation value of Rs. 82.66 Cr. of the Corporate Debtor as reported by the RP is erroneous and should be rejected; and (ii) the amount of Rs. 79 lakh offered to appellant was wrong. The liquidation value to which appellant is entitled is more than Rs. 1.38 Cr.

The Adjudicating Authority in the impugned order held that the valuation was conducted in compliance with the provisions of the Code and Regulation 35A of CIRP Regulations. It held that “as per Section 30(2)(b) of the Code, the liquidation value required to be paid to the financial creditor is only qua the secured interest of the financial creditor and not qua the total liquidation value of the Corporate Debtor”.

The grievance of the Appellant in the appeal was the wrongful allocation of Rs. 79 lakhs as the liquidation value on the basis of the security interest held by the Appellant and not in proportion to Appellant's admitted claim, and that the liquidation value of the Corporate Debtor wrongfully diminished by the registered valuers from Rs. 166.54 Cr. to a meagre Rs. 82.66 Cr. on the instructions of the RP.

Contentions:

Counsel for the Appellant submitted that:

• Its claim for secured financial debt of Rs. 10.21 Cr. was admitted fully.
• The Adjudicating Authority erred in holding that as per Section 30(2)(b) of the Code, the liquidation value required to be paid to a financial creditor is only qua the secured interest of the financial creditor and not qua the total liquidation value of the Corporate Debtor.

Counsel for the Respondent submitted that:

• The secured financial creditor cannot insist on payment of the entire dues of the security as per its security interest in the event of approval of resolution plan. Reliance was placed upon Paridhi Finvest Pvt. Ltd. vs. Value Infratech Buyers Association & Anr., which held that the security holder cannot insist upon payment of amount as per security interest when the Corporate Debtor is resolved through a resolution plan.
• Reliance was also placed upon India Resurgence ARC Pvt. Ltd. vs. M/s Amit Metaliks Limited & Anr., wherein it was held that “what the dissenting financial creditor is entitled to is specified in the later part of sub-section (2)(b) of Section 30 of the Code”. 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 CoC; and a dissenting secured creditor cannot suggest a higher amount to be paid to it w.r.t. the value of the security interest. Reliance was further placed upon ICICI Bank Limited vs. BKM Industries Limited, which held that there is no scope for distribution of assets among financial creditors as per security interest. The same was reiterated in Union Bank of India vs. Resolution Professional of Kudos Chemie Ltd. & ors.
• As per Section 30(2)(b) of the Code, the financial creditor who does not vote in favour of the resolution plan is entitled to payment of debt, which shall not be less than the amount to be paid to such creditor in terms of Section 53(1) of the Code.
• The Adjudicating Authority is not empowered to look into the question of valuation of the assets of the Corporate Debtor. Reliance was placed upon Ramkrishna Forgins Limited vs. Ravindra Loonkar, RP of Acil Limited & Anr., where it has been observed that there is no scope for interference with the commercial aspects of the decision of the CoC, and therefore, there is no scope for substituting any commercial term of the resolution plan approved by the CoC.
• The commercial wisdom of the CoC is paramount and sacrosanct.

Observations:

The Tribunal, in addressing the grievance of the Appellant, referred to the decision of the Supreme Court in Amit Metaliks, where a dissenting secured creditor with a minority voting share had challenged the resolution plan on similar grounds. The dissenting creditor had submitted that in respect of Section 30(4) of the Code, the CoC could not have approved the resolution plan which failed to consider the priority and value of security interest of the creditors while deciding the manner of distribution to each creditor. The Supreme Court dismissed the appeal and emphasized that the commercial wisdom of the CoC should not be interfered with unless creditors within a class were denied equitable treatment.

The Tribunal referred to Paridhi Finvest Pvt. Ltd., in which the case of the Appellant was that he was not paid the amount as per the liquidation value despite the fact that the Appellant, as a dissenting financial creditor, was entitled to such payment. In that case, the Court had dismissed the appeal.

The Tribunal noted that the question whether section 30(2)(b)(ii) entitles the dissenting financial creditor to be paid the minimum value of its security interest, has been referred to a larger bench of the Supreme Court in DBS Bank Ltd. Vs. Ruchi Soya Industries Ltd. & Anr., (2024) 242 Comp Cas 441.

The Tribunal dismissed the appeal.

Case Title: Merina Commotrade Pvt. Ltd. vs. Anand Sonbhadra Resolution Professional for Shubhkamna Buildtech Pvt. Ltd. & Ors.

Case Number: Comp. App. (AT) (Ins) No. 1347 of 2022 & I.A. No. 4180 of 2022

For Appellant: Mr. Shashank Agarwal, Mr. Abhishek Taneja, Advocates.

For Respondents: Mr. Abhishek Anand, Mr. Nipun Gautam, Advocate for RP.

Date of Judgment: 25.10.2024

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